AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
REGISTRATION NO. 333-10557
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 8011 75-2529809
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------
H. WAYNE POSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------
COPIES TO:
MICHAEL JOSEPH, ESQ. JEFFREY A. CHAPMAN, ESQ.
DYER ELLIS & JOSEPH, P.C. VINSON & ELKINS L.L.P.
600 NEW HAMPSHIRE AVE., N.W. 3700 TRAMMELL CROW CENTER
SUITE 1000 2001 ROSS AVENUE
WASHINGTON, D.C. 20037 DALLAS, TEXAS 75201
(202) 944-3000 (214) 220-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective. If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.|_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |X|
------------------
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Subject to Completion, Dated November 8, 1996
PROSPECTUS
Dated , 1996
SHARES
[ProMedCo logo]
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
COMMON STOCK
All of the shares of Common Stock offered hereby are being issued and sold by
Professional Medical Management Company ("ProMedCo" or the "Company").
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock on the Nasdaq
National Market under the proposed symbol "PMCO."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share..................... $ $ $
- ------------------------------ ----------------------------- ----------------------------- -----------------------------
Total (3)..................... $ $ $
- ------------------------------ ----------------------------- ----------------------------- -----------------------------
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and the Selling Stockholder (as defined herein) have granted
the Underwriters a 30-day option to purchase up to an additional shares
of Common Stock from the Company and shares of Common Stock from the
Selling Stockholder solely to cover over-allotments, if any, at the Price
to Public less the Underwriting Discount. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company, and Proceeds to Selling Stockholder will be $ , $ , $ , and $ ,
respectively. See "Underwriting."
</FN>
</TABLE>
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that
certificates for such shares will be available for delivery at the offices of
Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1996.
PIPER JAFFRAY INC.
ROBERTSON, STEPHENS & COMPANY
COWEN & COMPANY
<PAGE>
[Map of United States showing location of affiliated physician groups]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used herein, the terms "ProMedCo" and "the
Company" refer to Professional Medical Management Company and its consolidated
subsidiaries. Except as otherwise indicated, all information in this Prospectus
assumes (i) the conversion of all outstanding shares of Redeemable Convertible
Preferred Stock and Class B Common Stock of the Company into Common Stock and
the termination of the Company's contingent obligation to repurchase Redeemable
Common Stock, (ii) the reincorporation of the Company as a Delaware corporation
and increase of its authorized Common Stock to 50,000,000 shares, and (iii) no
exercise of the Underwriters' over-allotment option.
THE COMPANY
ProMedCo is a physician practice management company that consolidates
its affiliated physician groups into primary-care-driven multi-specialty
networks. The Company focuses on pre-managed-care secondary markets located
principally outside of or adjacent to large metropolitan areas. The Company
believes that primary care physicians increasingly will be the principal point
of access to the healthcare delivery system and will control, directly or
indirectly, a growing percentage of healthcare expenditures, and it therefore
affiliates with physician groups having a primary care orientation. ProMedCo
assists in expanding and integrating the affiliated groups into comprehensive
multi-specialty networks to increase their market presence. The groups expand
through affiliations with additional primary care physicians and specialists and
selective additions of ancillary services. The groups are thus well positioned
to become the physician component of locally developing managed care delivery
systems. In addition to providing operating and expansion capital, the Company
provides its affiliated groups with a broad range of strategic and management
expertise and services.
ProMedCo commenced operations in December 1994 and has since affiliated
with seven physician groups aggregating 152 physicians and 43 physician
extenders (primarily physician assistants and nurse practitioners) at 23 sites
in Texas, Alabama, Kentucky, and Nevada. Currently, approximately 70% of the
Company's affiliated physicians are primary care providers. Following the
Offering, approximately
% of ProMedCo's outstanding Common Stock will be owned by the Company's
management and affiliated physicians.
When affiliating with a physician group, the Company typically
purchases the group's non-real estate operating assets and enters into a
long-term service agreement with the group in exchange for a combination of
Common Stock, cash, other securities of the Company, and/or assumption of
liabilities. Under the service agreement, the physician group receives a fixed
percentage of its operating income plus a percentage of any surpluses in the
group's revenues under risk-sharing arrangements pursuant to capitated managed
care contracts. Although the group's physicians retain full control over the
practice of medicine, ProMedCo manages all day-to-day operations other than the
provision of medical services. Through a policy council, the physicians set
broad management and operational policy jointly with Company representatives.
The key elements of the Company's strategy are to (i) affiliate with
primary-care-oriented multi-specialty groups; (ii) continue to penetrate
pre-managed-care markets; (iii) expand its affiliated groups' market presence
through addition of physicians and selected ancillary services; (iv) preserve
the local autonomy of the Company's affiliated physician groups and to maintain
decentralized management; and (v) align the Company's economic interests with
those of its physician partners.
3
<PAGE>
The Company was incorporated in Texas in 1993 and will be
reincorporated in Delaware prior to the Offering. Its executive offices are
located at 801 Cherry Street, Suite 1450, Fort Worth, Texas 76102, and its
telephone number is (817) 335-5035.
THE OFFERING
Common Stock offered by the Company.................. shares
Common Stock to be outstanding after the Offering.... shares(1)
Use of proceeds..................................... Acquisitions and
working capital
Proposed Nasdaq National Market symbol............... PMCO
(1) Based upon the number of shares outstanding as of September 30, 1996. Does
not include (i) 1,883,768 shares to be issued in February 1997 in
connection with the acquisition of the assets of Abilene Diagnostic Clinic,
P.L.L.C. ("Abilene"), (ii) 4,027,020 shares reserved for issuance upon
exercise of outstanding options and warrants with a weighted average
exercise price of $2.89 per share, and (iii) 200,030 shares reserved for
conversion of outstanding convertible subordinated notes issued in
connection with acquisitions. See "Business--Affiliation Structure" and
"Management--Director Stock Option Plan," "--Employee Stock Incentive
Plan," "--Employee Stock Purchase Plan," and "--Physician Stock Option
Plan."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
JULY 1, 1994 YEAR ENDED NINE MONTHS ENDED
(INCEPTION)TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, PRO FORMA(1) PRO FORMA(1)
1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician group revenue, net... $ - $ 1,918,029 $59,078,860 $ 690,110 $20,779,713 $47,426,069
Less: cost of affiliated
physician services........... - 759,513 24,023,340 247,103 9,249,421 19,031,014
----------- ----------- ----------- ----------- ----------- -----------
Net revenue.................... - 1,158,516 35,055,520 443,007 11,530,292 28,395,055
Net income (loss).............. (169,890) (697,342) 534,769 (502,802) (308,185) 544,713
Net income (loss) per share.... $ (0.03) $ (0.09) $ 0.05 $ (0.07) $ (0.04) $ 0.05
Weighted average number of
common shares outstanding.... 6,014,197 7,510,269 10,350,350 7,487,146 7,578,094 10,390,974
OTHER DATA (AT END OF PERIOD):
Affiliated physicians.......... 32 8 118 152
Affiliated physician groups.... 2 1 6 7
Number of service sites........ 4 1 19 23
States. . . . ................. 1 1 3 4
</TABLE>
SEPTEMBER 30, 1996
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(3)
BALANCE SHEET DATA:
Cash and cash equivalents................$ 941,038 $ 1,126,394
Working capital.......................... 1,887,672 2,076,628
Total assets............................. 25,921,274 39,661,157
Long-term debt, less current maturities.. 5,133,045 5,512,522
Redeemable equity securities............. 3,945,134 -
Total stockholders' equity............... 10,916,389 25,991,436
(1) Gives effect to the following transactions as if they had been completed on
January 1, 1995: (i) the affiliations with North Texas Medical Surgical,
P.A., Cullman Primary Care, P.C., Morgan-Haugh, P.S.C., HealthFirst Medical
Group, P.A., King's Daughters Clinic, P.A., and Abilene during 1995 and
1996 (collectively, the "Acquisitions") and (ii) the merger with Western
Medical Management Corp., Inc. (the "Reno merger"). The acquisition of the
assets of Abilene by the Company will be completed in February 1997.
(2) Gives effect to the Abilene acquisition and the Reno merger as if they had
been completed on September 30, 1996, the conversion into Common Stock of
all outstanding shares of Redeemable Convertible Preferred Stock, and the
termination of the Company's contingent obligation to repurchase Redeemable
Common Stock.
(3) Adjusted to give effect to the same of shares of Common Stock offered by
the Company hereby at an assumed public offering price of $ per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
4
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following should be considered carefully in evaluating an investment in the
Common Stock offered hereby.
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company's strategy involves growth through affiliation with
physician groups and the expansion of their practices. The Company is subject to
various risks associated with this strategy, including the risks that the
Company will be unable to identify and recruit suitable affiliation candidates,
successfully expand and manage the practices of the groups with which it
affiliates, or successfully integrate such groups into its existing operations.
The Company's growth is dependent on its ability to affiliate with physicians,
to manage and control costs, and to realize economies of scale. There can be no
assurance that the Company will be able to achieve and manage its planned growth
or that suitable physician groups will continue to be available for affiliation
upon terms satisfactory to the Company, if at all. In addition, there can be no
assurance that the Company will be able to continue to attract and retain a
sufficient number of qualified physicians and other healthcare professionals to
continue to expand its operations or otherwise to maintain an adequate
infrastructure to support continued growth. See "Business."
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
Implementation of the Company's growth strategy requires substantial
capital resources. Such resources will be needed to acquire the assets of
additional physician groups and for the effective integration, operation, and
expansion of affiliated groups. The Company expects that its capital
requirements over the next several years will substantially exceed capital
generated from operations, the net proceeds of the Offering, and borrowings
available under its current credit facility. To finance its capital
requirements, the Company intends from time to time to issue additional equity
securities and incur additional debt. A greater amount of debt or additional
equity financing could be required to the extent that the Company's Common Stock
fails to maintain a market value sufficient to warrant its use in future
affiliations or to the extent that physician groups are unwilling to accept
Common Stock in exchange for their operating assets. There can be no assurance
that the Company will be able to obtain additional required capital on
satisfactory terms. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LIMITED OPERATING HISTORY; LOSSES
The Company has operated only since December 1994. It has grown
principally through acquisitions and is pursuing a strategy of growth. For the
year ended December 31, 1995, the Company incurred a net loss of $697,342, and
for the nine months ended September 30, 1996, it incurred a net loss of
$308,185. There can be no assurance that the Company will become profitable. In
addition, the Company may experience significant quarter-to-quarter variations
in operating results. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
5
<PAGE>
CONCENTRATION OF REVENUE
The Company's net revenue is currently derived from seven physician groups,
of which King's Daughters Clinic, P.A. in Temple, Texas ("Temple") accounted for
approximately 34.2% and 34.2%, Western Medical Management Corp., Inc. in Reno,
Nevada ("Reno") accounted for approximately 21.9% and 20.6%, and Abilene
accounted for approximately 18.1% and 19.6% of the Company's net revenue on a
pro forma basis for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively. While the Company's service agreements are for
terms of 40 years and may be terminated only for cause, any termination or
significant deterioration of the Company's relationship with any of its
affiliated physician groups could have a material adverse effect upon the
Company. In addition, each of the Company's affiliated physician groups operates
within a limited geographic area, and a deterioration of economic or other
conditions within such area could have a material adverse impact upon the group.
Such a result, as well as any other deterioration in the financial condition of
any of the affiliated physician groups, could also have a material adverse
effect on the Company. See "Business."
GOVERNMENT REGULATION
Federal and state laws regulate the healthcare industry and the
relationships among physicians and other providers of healthcare services.
Medicare and Medicaid Fraud and Abuse. The fraud and abuse provisions
of the Medicare and Medicaid statutes prohibit the payment or receipt of any
remuneration for the referral of Medicare or Medicaid patients or for
recommendations, leasing, arranging, ordering, or purchasing of Medicare- or
Medicaid-covered services and impose significant penalties for false or improper
billings for physician services. In addition, these laws impose restrictions on
physicians' referrals for certain designated health services to entities with
which they have financial relationships. Violations of these laws may result in
substantial civil or criminal penalties for individuals or entities, including
exclusion from participation in the Medicare and Medicaid programs. Such
exclusion or penalties, if applied to the Company's affiliated physicians, could
have a material adverse effect upon the Company. See "Business Government
Regulation."
State Regulation. The laws of many states, including Texas, from which
a significant portion of the Company's revenue is derived, prohibit
non-physician entities from practicing medicine and limit the ability of
non-physicians to receive physician practice revenues. These laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although the Company believes its
operations as currently conducted are in material compliance with existing
applicable laws, there can be no assurance that the Company's contractual
arrangements with affiliated physicians will not be successfully challenged as
constituting fee splitting or the unlicensed practice of medicine or that the
enforceability of such arrangements will not be limited. There can be no
assurance that review of the business of the Company and its affiliates by
courts or regulatory authorities will not result in a determination that could
adversely affect their operations or that the healthcare regulatory environment
will not change so as to restrict the Company's existing operations or
expansion. In the event that any legislature, regulatory authority, or court
limits or prohibits the Company from carrying on its business or from expanding
the operations of the Company to certain jurisdictions, structural and
organizational modifications of the Company's organization and arrangements may
be required, which could have a material adverse effect on the Company. See
"Business Government Regulation."
6
<PAGE>
Reform Initiatives. There have been numerous initiatives at the federal
and state levels for comprehensive reforms affecting the availability of and
payment for healthcare. The Company believes that such initiatives will continue
during the foreseeable future. Certain reforms previously proposed could, if
adopted, have a material adverse effect on the Company. See "Business --
Government Regulation."
RELIANCE ON MEDICAL SERVICE PROVIDERS
Each of the Company's affiliated physician groups enters into
employment agreements with its physicians. Such agreements generally are for an
initial term of five years. Although the Company, in conjunction with the
affiliated physician groups, will endeavor to extend such contracts, in the
event a significant number of physicians terminate their relationships with the
Company's affiliated physician groups at the expiration of their employment
agreements or otherwise, the Company could be adversely affected. See "Business
- -- Affiliation Structure."
CHANGES IN BASIS OF PAYMENT FOR HEALTHCARE SERVICES
The Company derives all of its revenue from its affiliated physician
groups. Substantially all of the revenue of the affiliated groups is derived
from third-party payors. The Company estimates that approximately 30% of the net
physician group revenue is currently derived from government-sponsored
healthcare programs (principally, the Medicare and Medicaid programs). The
healthcare industry is experiencing a trend toward cost containment, as
government and other third-party payors seek to impose lower reimbursement and
utilization rates upon providers and negotiate reduced payment schedules with
them. The Company believes that this trend will continue to result in a
reduction in per-patient revenue from historical levels. Further reductions in
payments to physicians or other changes in reimbursement for healthcare services
could have a material adverse effect on the Company. See "Business -- Government
Regulation."
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS
A significant part of the Company's growth strategy involves assisting its
affiliated physician groups in obtaining capitated managed care contracts and
managing the medical risk associated with such contracts. Such captitated
managed care contracts typically are with health maintenance organizations
("HMOs"). Under such contracts, the physician group accepts a pre-determined
amount per patient per month, referred to as a "capitation" payment, in exchange
for providing all necessary covered services to the patients covered by the
contract, thus shifting much of the risk of providing care from the payor to the
physician group. Such an arrangement results in a greater predictability of
revenues, but exposes the physician group to the risk of fluctuations in the
costs of providing the services. To the extent that patients covered by such
contracts require more frequent or extensive care than is anticipated, operating
margins may be reduced and the revenues derived from such contracts may be
insufficient to cover the costs of the services provided. Any such reduction of
margins or losses from these arrangements could have a material adverse effect
on the Company. Although its management has substantial experience in managed
care contracting, the Company itself has had limited experience with such
contracts. There can be no assurance that the Company will be able to negotiate
satisfactory risk-sharing or capitated arrangements on behalf of its affiliated
physician groups. In addition, some jurisdictions are taking the position that
capitated risk-sharing arrangements should be regulated by state insurance laws.
As a result, in some states the Company's affiliated physician groups may be
limited in their ability to enter into such arrangements. See "Business."
7
<PAGE>
POSSIBLE EXPOSURE TO PROFESSIONAL LIABILITY
In recent years, physicians, hospitals, and other participants in the
healthcare industry have become subject to an increasing number of lawsuits
alleging medical malpractice and related legal theories. Many of these lawsuits
involve large claims and substantial defense costs. In addition, through its
employment of non-physician healthcare personnel, the Company could be named in
actions involving care provided by the affiliated physician groups assisted by
such personnel. The Company maintains professional malpractice and general
liability insurance. In addition, the Company's service agreements require
affiliated physicians to maintain professional liability insurance coverage of
the practice and of each employee and agent of the practice. The Company
generally is a named insured under such policies and is indemnified under each
of the service agreements by the physician groups for liabilities resulting from
the performance of medical services. Certain types of risks and liabilities are
not covered by insurance, however, and there can be no assurance that coverage
will continue to be available upon terms satisfactory to the Company or that the
coverage will be adequate to cover losses. Malpractice insurance, moreover, can
be expensive and varies from state to state. Successful malpractice claims
asserted against the physician groups or the Company could have a material
adverse effect on the Company. See "Business -- Insurance."
RISKS RELATED TO INTANGIBLE ASSETS
As a result of the Company's various acquisition transactions, intangible
assets of approximately $14.5 million have been recorded on the Company's
balance sheet at September 30, 1996. Using an amortization period of 40 years
for the service agreements (the life of the service agreements), amortization
expense will be approximately $364,000 per year. Acquisitions that result in the
recognition of additional intangible assets will cause amortization expense
further to increase. A substantial portion of the amortization generated by
these intangible assets is not deductible for tax purposes.
Although as of September 30, 1996 the net unamortized balance of
intangible assets acquired and anticipated to be acquired was not considered to
be impaired, any future determination that a significant impairment has occurred
would require the write-off of the impaired portion of unamortized intangible
assets, which could have a material adverse effect on the Company's results of
operations. See Note 2 of Notes to Consolidated Financial Statements.
COMPETITION
The physician practice management industry is highly competitive. The
Company is subject to significant competition both in affiliating with physician
groups and in seeking managed care contracts on behalf of its affiliated groups.
Its competitors include hospitals, managed care organizations, and other
physician practice management companies. In comparison with the Company, many of
its competitors are larger and have substantially greater resources, provide a
wider variety of services, and have longer established relationships with
purchasers of such services. There can be no assurance that the Company will be
able to compete effectively, that additional competitors will not enter the
market, or that such competition will not make it more difficult to enter into
affiliations with physician groups on terms beneficial to the Company.
The Company also experiences competition in the recruitment and
retention of qualified physicians and other healthcare professionals on behalf
of its affiliated physician groups. There can be
8
<PAGE>
no assurance that the Company will be able to recruit or retain a sufficient
number of qualified physicians and other healthcare professionals to continue to
expand its operations.
BROAD DISCRETION OF MANAGEMENT IN APPLYING PROCEEDS OF OFFERING
The Company intends to utilize the net proceeds of the Offering to
finance the purchase of operating assets in connection with future affiliations
with physician groups and expansions of such groups, for working capital, and
for other general corporate purposes. Accordingly, the Company's management will
have broad discretion in applying the net proceeds of the Offering. See "Use of
Proceeds."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE
Prior to the Offering there has been no public market for the Common
Stock. Accordingly, there can be no assurance that an active trading market will
develop or be sustained upon completion of the Offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price of the Common Stock will be determined by
negotiations between the Company and the Representatives of the Underwriters and
may not be indicative of the prices that will prevail in the public market. The
trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements by the Company, governmental
regulatory action, general conditions in the healthcare industry, or other
events or factors, many of which are beyond the Company's control. In addition,
the stock market has experienced extreme price and volume fluctuations, which
have particularly affected the market prices of many healthcare services
companies and which have often been unrelated to the operating performance of
such companies. The Company's operating results in future quarters may be below
the expectations of securities analysts and investors. In such event, the price
of the Common Stock would likely decline, perhaps substantially. See
"Underwriting."
CONTROL BY MANAGEMENT
Upon completion of the Offering, the executive officers and Directors
of the Company will collectively own approximately % of the outstanding shares
of Common Stock. Accordingly, these persons may have the ability to control the
Company's Board of Directors and, therefore, the business, policies, and affairs
of the Company. Such control could preclude unsolicited acquisitions of the
Company and, consequently, adversely affect the market price of the Common
Stock. See "Principal Stockholders" and "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
certain provisions of the Delaware General Corporation Law may make it difficult
to change control of the Company and replace incumbent management. For example,
the Certificate of Incorporation provides for a staggered Board of Directors and
permits the Board of Directors, without stockholder approval, to issue
additional shares of Common Stock or establish one or more classes or series of
Preferred Stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as the Board of Directors may determine. In addition, the Company's
Board of Directors has adopted a stockholder rights plan that could further
discourage attempts to acquire control of the Company. See "Description of
Capital Stock" and "Management."
9
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock and could impair
the future ability of the Company to raise capital through the sale of its
equity securities. The Company is unable to predict the effect, if any, that
future sales of Common Stock or the availability of Common Stock for sale may
have on the market price of the Common Stock prevailing from time to time.
Certain existing stockholders have the right to require the Company to register
their Common Stock from time to time. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution in pro forma net tangible book value from the initial
public offering price. See "Dilution."
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not currently intend to pay cash dividends. It is not likely that any cash
dividends will be paid in the foreseeable future. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering, after deducting expenses payable by
the Company and assuming an initial offering price of $ per share, will be
approximately $ million ($ million if the Underwriters' over-allotment option is
exercised). The Company intends to use such proceeds to finance affiliations
with physician groups, for working capital, including reduction of $ million
outstanding under its revolving credit agreement (the "Credit Facility"), and
for other general corporate purposes. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds in short-term,
interest-bearing securities. For information concerning the terms of the Credit
Facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
While the Company is continually seeking additional physician groups
with which to affiliate, it currently has no agreement or understanding with
respect to any future affiliation, and there can be no assurance that any such
affiliation will occur.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings to finance the growth and
development of its business and does not anticipate paying cash dividends in the
foreseeable future. Any payment of cash dividends in the future will depend upon
the financial condition, capital requirements, and earnings of the Company, as
well as other factors the Board of Directors may deem relevant. In addition, the
Company is currently restricted under the terms of its Credit Facility from
paying any dividends to stockholders without the prior written consent of the
lenders. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
11
<PAGE>
DILUTION
The Company's pro forma net tangible book value at September 30, 1996
was $831,000 or approximately $0.18 per share. Pro forma net tangible book value
per share represents total assets, less intangible assets and total liabilities,
divided by the number of shares outstanding as of September 30, 1996 (assuming
the conversion into Common Stock of all outstanding Redeemable Convertible
Preferred Stock and the exchange of all outstanding Redeemable Common Stock and
Class B Common Stock for Common Stock). After giving effect to the sale of the
shares of Common Stock offered hereby at an assumed initial offering price of $
per share and the application by the Company of the estimated net proceeds
therefrom as described in "Use of Proceeds," the pro forma net tangible book
value of the Company as of September 30, 1996 would have been $ , or $ per share
of Common Stock. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share of Common Stock to purchasers of Common Stock
in the Offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share........................ $
Pro forma net tangible book value per share before the Offering......$ 0.18
Increase in net tangible book value attributable to new investors....
Pro forma net tangible book value per share after the Offering..........
Dilution per share to new investors.....................................$
The following table summarizes, on a pro forma basis as of September
30, 1996, the total shares purchased and the total consideration and average
price per share paid by existing stockholders, and paid by the new investors
purchasing the shares offered hereby, assuming an initial public offering price
of $ per share.
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
Existing stockholders..... % $ % $
New investors............
Total ............ % $ %
The above calculations do not give effect to the exercise of (i)
outstanding options and warrants to purchase 4,027,020 shares of Common Stock at
a weighted average exercise price of $2.89 per share outstanding at September
30, 1996, (ii) options available for issuance under the Company's 1994 stock
option plan for an additional 408,200 shares of Common Stock , and (iii) 200,030
shares of Common Stock issuable upon conversion of outstanding convertible
subordinated notes issued in connection with affiliations.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 (i) on a pro forma basis to give effect to the conversion of
all outstanding shares of Redeemable Convertible Preferred Stock and Class B
Common Stock of the Company into Common Stock, the termination of the Company's
contingent obligation to repurchase Redeemable Common Stock, and the issuance of
shares of Common Stock in connection with the Reno merger and the February 1997
Abilene acquisition, and (ii) as adjusted to reflect the sale by the Company of
the Common Stock offered hereby, assuming an initial public offering price of $
per share and after deducting the applicable underwriting discount and estimated
expenses payable by the Company, and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." See "Pro Forma
Consolidated Financial Information."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
<S> <C> <C> <C>
Current maturities of long-term debt (1).......... $ 1,198,641 $ 1,647,760 $
============== =============== ==============
Long-term debt, net of current
maturities (1)............................... $ 5,133,045 $ 5,512,522 $
Redeemable Convertible Preferred Stock, no
par value; 700,000 shares authorized,
500,000 shares issued and outstanding;
no shares issued and outstanding pro
forma and pro forma as adjusted.............. 2,953,358 -
Redeemable Common Stock, no par value;
165,296 shares issued and outstanding;
no shares issued and outstanding pro
forma and pro forma as adjusted.............. 991,776 -
Stockholders' equity:
Class B Common Stock, no par value;
2,600,000 shares authorized;
1,226,150 shares issued and
outstanding; no shares issued
and outstanding pro forma and pro
forma as adjusted........................ 601,893 -
Common Stock, no par value; 50,000,000
shares authorized; 2,700,136 shares
issued and outstanding; 6,195,934 shares
issued and outstanding pro forma and
shares issued and outstanding
pro forma as adjusted (2)................ 9,226,653 23,274,722
Common Stock to be issued, 194,361,
759,491 and 759,491 shares,
respectively............................. 2,385,760 5,776,542
Stockholder notes receivable................. (122,500) (122,500)
Accumulated deficit.......................... (1,175,417) (2,937,328)
-------------- ---------------
Total stockholders' equity............... 10,916,389 25,991,436
Total capitalization..................... $ 19,994,568 $ 31,503,958 $
============== =============== ==============
<FN>
(1) See Note 6 to Consolidated Financial Statements for information concerning long-term debt.
(2) Excludes 4,027,020 shares reserved for issuance upon exercise of outstanding options and warrants, at a
weighted average exercise price of $2.89 per share, and 200,030 shares
reserved for issuance upon conversion of outstanding convertible
subordinated notes issued in connection with affiliations. See "Description
of Capital Stock."
</FN>
</TABLE>
13
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated statements of operations for the
nine months ended September 30, 1996 and the year ended December 31, 1995, give
effect to the Reno merger and the Acquisitions as if they had been completed on
January 1, 1995. The pro forma consolidated balance sheet gives effect to the
Reno merger and the Abilene acquisition as if they had been completed on
September 30, 1996 and also reflects the conversion of all outstanding
Redeemable Convertible Preferred Stock and Class B Common Stock of the Company
into Common Stock and the termination of the Company's contingent obligation to
repurchase all outstanding Redeemable Common Stock, all of which will occur
simultaneously with the closing of the Offering, as if such transactions had
occurred on September 30, 1996. The Reno merger will be accounted for as a
pooling of interests, and accordingly the historical operations and balance
sheets of the Company and Western Medical Management Corp., Inc. have been
combined in these pro forma financial statements. The pro forma consolidated
financial information is based on the combined financial statements of the
Company and the affiliated physician groups, giving effect to the Acquisitions
under the purchase method of accounting, and the assumptions and adjustments in
the accompanying notes to pro forma consolidated financial information.
The pro forma consolidated financial information has been prepared by
management based on the audited and unaudited financial statements of the
affiliated physician groups, adjusted where necessary, to reflect the
acquisitions and related operations as if the service agreements between the
Company and such groups had been in effect during the entire periods presented.
This pro forma consolidated financial information is presented for illustrative
purposes only and is not indicative of the results that would have occurred if
the Reno merger and the Acquisitions had been completed on the dates indicated
or that may be obtained in the future. The pro forma consolidated financial
information should be read in conjunction with the audited consolidated
financial statements and notes thereto of the Company and the audited financial
statements and notes thereto of North Texas Medical Surgical, P.A., Cullman
Family Practice, P.C., Family Medical Clinic, P.C., Morgan-Haugh, P.S.C.,
HealthFirst Services, Inc. and Tarrant Family Practice, P.A., Abilene Diagnostic
Clinic Practices, King's Daughters Clinic, P.A., and Western Medical Management
Corp., Inc. included elsewhere in this Prospectus.
14
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ABILENE ABILENE RENO EQUITY
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL (F) CONVERSIONS (G) PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. $ 941,038 $ 185,356 (a) $ -- $ -- $ -- $ 1,126,394
Accounts receivable, net.. 4,809,591 1,457,843 (a) -- 1,785,473 -- 8,052,907
Inventories............... 194,385 -- -- 7,678 -- 202,063
Management fees receivable 418,244 -- (418,244) (b) -- -- --
Due from affiliated
physician groups....... 1,203,503 -- (664,506) (b) -- -- 538,997
Prepaid expenses and other
current assets......... 247,617 30,727 (30,727) (c) 65,849 -- 313,466
----------- ----------- ----------- ----------- ----------- -------------
Total current assets. 7,814,378 1,673,926 (1,113,477) 1,859,000 -- 10,233,827
Property and equipment, net.. 2,986,762 40,643 (a) -- 557,491 -- 3,584,896
Intangible assets, net....... 14,459,340 -- 10,701,514 (a) -- -- 25,160,854
Other assets, net............ 660,794 56,851 (56,851) (c) 20,786 -- 681,580
----------- ----------- ----------- ----------- ----------- -------------
Total assets......... $25,921,274 $ 1,771,420 $ 9,531,186 $ 2,437,277 $ -- $ 39,661,157
=========== =========== =========== =========== =========== =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable.......... $ 1,052,924 $ 89,845 $ (89,845) (c)$ 939,355 $ -- $ 1,992,279
Management fees payable... -- 418,244 (a) (418,244) (b) -- -- --
Payable to affiliated
physician groups....... 1,211,197 -- -- 513,811 -- 1,725,008
Accrued salaries, wages and
benefits............... 1,097,484 -- -- -- -- 1,097,484
Accrued expenses and other
current liabilities.... 1,366,460 766,133 (a) (101,627) (c) 328,208 -- 1,694,668
(664,506) (b)
Current maturities of notes
payable................ 759,872 68,929 (68,929) (c) 449,119 -- 1,208,991
Current maturities of capital
lease obligations...... 269,361 -- -- -- -- 269,361
Deferred purchase
price.................. 169,408 -- -- -- -- 169,408
--------- ---- ----- ----- ---- ----------
Total current
liabilities.......... 5,926,706 1,343,151 (1,343,151) 2,230,493 -- 8,157,199
Notes payable, net........... 1,191,025 93,006 (93,006) (c) 379,477 -- 1,570,502
Capital leases............... 1,030,171 -- -- -- -- 1,030,171
Deferred purchase price...... 718,000 -- -- -- -- 718,000
Convertible subordinated notes
payable................... 1,800,274 -- -- -- -- 1,800,274
Other long term liabilities.. 393,575 -- -- -- -- 393,575
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities...... 11,059,751 1,436,157 (1,436,157) 2,609,970 -- 13,669,721
Redeemable convertible
preferred stock........... 2,953,358 -- -- -- (2,953,358) --
Redeemable common stock...... 991,776 -- -- -- (991,776) --
Stockholders' equity:
Class B common stock...... 601,893 -- -- -- (601,893) --
Common stock.............. 9,226,653 335,263 (335,263) (d) 1,589,218 4,547,027 23,274,722
7,911,824 (e) --
Common stock to be issued. 2,385,760 -- 3,390,782 (e) -- -- 5,776,542
Stockholder notes receivable (122,500) -- -- -- -- (122,500)
Retained earnings......... (1,175,417) -- -- (1,761,911) -- (2,937,328)
----------- ----------- ----------- ----------- ----------- -------------
Total stockholders' equity 10,916,389 335,263 10,967,343 (172,693) 3,945,134 25,991,436
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities and
stockholders' equity... $25,921,274 $ 1,771,420 $ 9,531,186 $ 2,437,277 $ -- $ 39,661,157
=========== =========== =========== =========== =========== =============
</TABLE>
See accompanying notes to pro forma consolidated financial information.
15
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996 TRANS-
HISTORICAL ACTIONS (H) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Physician group revenue, net....................... $ 20,779,713 $ 26,646,356 $ - $ 47,426,069
Less: cost of affiliated physician services........ 9,249,421 10,847,248 (10,847,248) (i) 19,031,014
9,781,593 (j)
Net revenue........................................ 11,530,292 15,799,108 1,065,655 28,395,055
Operating expenses:
Clinic salaries and benefits.................... 4,483,942 7,659,268 (603,070) (k) 11,540,140
Clinic rent and lease expense................... 1,222,006 1,804,992 17,630 (l) 3,044,628
Clinic supplies................................. 1,411,472 1,579,733 - 2,991,205
Other clinic costs.............................. 2,644,614 4,669,761 (402,809) (m) 6,911,566
General corporate expenses...................... 1,824,521 - - 1,824,521
Depreciation and amortization................... 201,567 356,822 (29,365) (n) 988,406
459,382 (o)
Interest expense................................ 50,355 131,903 (25,442) (p) 216,020
59,204 (q)
------------- ------------- --------------
11,838,477 16,202,479 (524,470) 27,516,486
------------- ------------- -------------- --------------
Income (loss) before provision for
income taxes.................................... (308,185) (403,371) 1,590,125 878,569
Provision for income taxes......................... - 9,445 324,411 (r) 333,856
------------- ------------- -------------- --------------
Net income (loss).................................. $ (308,185) $ (412,816) $ 1,265,714 $ 544,713
============= ============= ============== ==============
Net income (loss) per share
outstanding..................................... $ (0.04) 0.05
============= ==============
Weighted average number of common shares
outstanding..................................... 7,578,094 10,390,974
============= ==============
</TABLE>
See accompanying notes to pro forma consolidated financial information.
16
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
1995 FOR 1995 1996
TRANS- TRANS- TRANS-
HISTORICAL ACTIONS (H) ADJUSTMENTS ACTIONS (S) ACTIONS (H) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Physician group
revenue, net.... $ 1,918,029 $7,907,397 $ - $9,825,426 $ 49,369,434 $ (116,000) $59,078,860
Less: cost of
affiliated
physician
services..... 759,513 4,116,214 (4,116,214) (i) 4,691,885 19,293,238 (19,293,238) (i) 24,023,340
3,932,372 (j) 19,331,455 (j)
----------- ---------- ----------- ---------- ------------ -----------
Net revenue..... 1,158,516 3,791,183 183,842 5,133,541 30,076,196 (154,217) 35,055,520
Operating expenses:
Clinic salaries
and benefits.. 554,384 984,071 (56,589) (k) 1,481,866 13,278,985 (1,365,246) (k) 13,395,605
Clinic rent and
lease
expense....... 115,028 467,305 - 582,333 3,025,426 49,487 (l) 3,657,246
Clinic supplies 111,703 347,178 - 458,881 2,958,726 - 3,417,607
Other clinic costs 242,491 1,737,455 (205,624) (m) 1,774,322 8,682,090 (792,746)(m) 9,663,666
General corporate
expenses...... 802,980 - - 802,980 - 1,629,715 (t) 2,432,695
Depreciation and
amortization.. 34,302 14,870 (14,870) (n) 330,002 693,032 (257,319)(n) 1,321,165
295,700 (o) 555,450 (o)
Interest expense
(income)...... (5,030) 23,620 (23,620) (p) (5,030) 259,684 (132,619) (p) 305,006
- 182,971 (q)
----------- ---------- ----------- ---------- ------------ -----------
1,855,858 3,574,499 (5,003) 5,425,354 28,897,943 (130,307) 34,192,990
----------- ---------- ----------- ---------- ------------ ----------- -----------
Income (loss)
before
provision
for income
taxes........... (697,342) 216,684 188,845 (291,813) 1,178,253 (23,910) 862,530
Provision
(benefit)
for income
taxes........... - - (110,889) (r) (110,889) 181,326 257,324 (r) 327,761
----------- ---------- ----------- ---------- ------------ ----------- -----------
Net income
(loss).......... $ (697,342) $ 216,684 $ 299,734 $ (180,924) $ 996,927 $ (281,234) $ 534,769
=========== ========== ========== ========== ============ =========== ===========
Net income
(loss) per
share........... $ (0.09) $ 0.05
========== ===========
Weighted average
number of
common shares
outstanding..... 7,510,269 10,350,350
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
17
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
During the year ended December 31, 1995, the Company acquired, through
its wholly owned subsidiary, certain operating assets and assumed certain
operating liabilities of a physician group located in Texas. During the nine
months ended September 30, 1996, the Company, through its wholly owned
subsidiaries, acquired certain operating assets and assumed certain operating
liabilities of four additional physician groups located in Alabama, Kentucky,
and Texas. The Company has also entered into an agreement to acquire the
operating assets and assume certain operating liabilities of Abilene, which is
currently operated under an interim service agreement with the closing to occur
on February 16, 1997. In addition, the Reno merger will be consummated
simultaneously with the closing of the Offering.
Pro Forma Consolidated Balance Sheet
The adjustments reflected in the pro forma consolidated balance sheet
are as follows:
(a) To record the assets acquired and liabilities assumed by ProMedCo in
the Abilene acquisition. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based on
the estimated fair values as of September 30, 1996. Common stock issued
and to be issued in connection with the acquisition totaled 1,883,768
shares.
The following methods and assumptions were used to estimate fair value:
Cash and cash equivalents- The historical carrying amount approximates
fair value.
Accounts receivable, net- The Company reviewed receivable balances and
determined that fair value approximates their historical carrying
amount.
Property and equipment, net- The Company performed an asset by asset
review and determined that fair value approximates their historical
carrying amount.
Liabilities assumed- Given the short term nature of the liabilities
assumed, the historical carrying amount approximates their fair value.
Intangible assets- The intangible assets purchased are summarized as
follows:
Service agreement rights $ 10,701,514
Service agreement rights are being amortized using the straight-line
method over 40 years, the non-cancelable term of the service agreements
not including options for future extensions. The service agreements are
cancelable only for cause. In the event a physician group breaches the
service agreement, or if the Company terminates with cause, the
physician group is required to purchase all related assets, including
the unamortized portion of any intangible assets, at their then net
book value.
(b) To eliminate the Abilene portion of management fees receivable and due
from affiliated physician groups on ProMedCo's historical balance sheet
and the related payables on Abilene's historical
18
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- CONT.
balance sheet. The entire $1,082,750 relates to unpaid management fees
and cash advances owed to ProMedCo by Abilene under the terms of the
service agreement.
(c) To eliminate assets not acquired and liabilities not assumed by ProMedCo in
the Abilene acquisition as stated in the purchase agreement.
(d) To eliminate the owner's equity of Abilene in connection with the purchase
accounting for the acquisition.
(e) To record the Common Stock issued and issuable in exchange for the assets
acquired and liabilities assumed in connection with the Abilene
acquisition. The purchase agreement requires 70% of the purchase price to
be paid at closing, with the remaining 30% payable at future dates.
(f) To record the Reno merger. The Reno merger will be accounted for as a
pooling of interests, and accordingly the historical balance sheet of
Reno as of September 30, 1996 has been combined with the ProMedCo
balance sheet.
(g) To reflect the conversion of all Redeemable Convertible Preferred Stock
and Class B Common Stock into Common Stock and the termination of the
Company's contingent obligation to repurchase Redeemable Common Stock.
The Equity Conversions assume that all stock was converted using a
one-for-one conversion ratio, as provided in the Company's Certificate
of Incorporation.
Pro Forma Consolidated Statements of Operations
The adjustments reflected in the pro forma consolidated statements of
operations for the nine months ended September 30, 1996 and the year
ended December 31, 1995 are as follows:
(h) The Transactions column represents the historical revenues and expenses of
the physician groups for that portion of the year preceding the groups'
affiliation with the Company. The 1995 transactions include North Texas
Medical Surgical, P.A. and Abilene Diagnostic Clinic, P.L.L.C. The 1996
transactions include the Abilene Association of Anesthesiology, P.A. and
the additional doctors that joined the Abilene Diagnostic Clinic, P.L.L.C.
during 1996, Cullman Family Practice, P.C., Family Medical Clinic, P.C.,
Morgan-Haugh, P.S.C., HealthFirst Services, Inc. and Tarrant Family
Practice, P.A., King's Daughters Clinic, P.A., and Western Medical
Management Corp., Inc.
(i) To eliminate the historical cost of affiliated physician services for each
acquired physician group.
(j) To record the cost of affiliated physician services to the percentage
specified in the service agreement entered into with each affiliated
physician group. The adjustment is for the periods the physician groups
were not managed under the service agreements.
19
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- CONT.
(k) To eliminate the salaries of nurses and physician extenders at
historical levels for the periods not covered by the service
agreements. The service agreements provide that these costs are for the
account of the physician groups.
(l) To record additional rental expense related to the rental of clinic
space from affiliated physician groups.
(m) To eliminate physician benefits and other physician-related costs, such
as club dues and subscriptions, that will not be paid by the
Company.
(n) To eliminate the depreciation and amortization expense recorded by the
physician groups at historical values.
(o) To adjust depreciation expense by $85,637 and $253,809 and amortization
expense by $373,745 and $597,341 for the nine months ended September
30, 1996 and the year ended December 31, 1995, respectively. The
adjustments assume the acquired assets were held for the entire period
presented.
(p) To eliminate interest expense related to liabilities not assumed in
connection with acquisitions.
(q) To record interest expense on debt issued in connection with
acquisitions.
(r) To record and adjust estimated federal and state income taxes at a
combined rate of 38%.
(s) The Pro Forma For 1995 Transactions column represents the pro forma
results of operations for the year as if all 1995 transactions were
entered into on January 1, 1995.
(t) To record additional general corporate expenses necessary to manage all
acquired physician groups for the entire year. Additional general
corporate expenses were calculated based on historical 1996
expenditures and include the rental of corporate office space,
management salaries, and corporate overhead.
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction
with the consolidated financial statements and the notes thereto of the Company,
the financial statements and the notes thereto of North Texas Medical Surgical,
P.A., Cullman Family Practice, P.C., Family Medical Clinic, P.C., Morgan-Haugh,
P.S.C., HealthFirst Services, Inc. and Tarrant Family Practice, P.A., Abilene
Diagnostic Clinic Practices, King's Daughters Clinic, P.A., and Western Medical
Management Corp., Inc., "Pro Forma Consolidated Financial Information," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The selected unaudited pro
forma consolidated statement of operations data for the year ended December 31,
1995 and the nine months ended September 30, 1996 give effect to the
Acquisitions and the Reno merger as if they had been completed on January 1,
1995. The selected unaudited pro forma consolidated balance sheet data as of
September 30, 1996 give effect to the Abilene acquisition and the Reno merger as
if they had been completed on September 30, 1996. Such pro forma data are
presented for illustrative purposes only and do not purport to represent what
the Company's results would have been if such events had occurred at the dates
indicated, nor do such data purport to project the financial position or results
of operations for any future period or as of any future date. The results for
the nine months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
<TABLE>
<CAPTION>
JULY 1, 1994 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
----------- --------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician group revenue, net... $ - $1,918,029 $59,078,860 $ 690,110 $20,779,713 $47,426,069
Less: cost of affiliated
physician services........... - 759,513 24,023,340 247,103 9,249,421 19,031,014
----------- --------- ----------- ----------- ----------- -----------
Net revenue.................... - 1,158,516 35,055,520 443,007 11,530,292 28,395,055
Operating expenses:
Clinic salaries and benefits. - 554,384 13,395,605 232,010 4,483,942 11,540,140
Clinic rent and lease expense - 115,028 3,657,246 37,958 1,222,006 3,044,628
Clinic supplies. . .......... - 111,703 3,417,607 42,133 1,411,472 2,991,205
Other clinic costs........... - 242,491 9,663,666 87,372 2,644,614 6,911,566
General corporate expenses... 172,462 802,980 2,432,695 538,033 1,824,521 1,824,521
Depreciation and amortization 1,182 34,302 1,321,165 21,240 201,567 988,406
Interest expense (income).... (3,754) (5,030) 305,006 (12,937) 50,355 216,020
----------- --------- ----------- ----------- ----------- -----------
169,890 1,855,858 34,192,990 945,809 11,838,477 27,516,486
----------- --------- ----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes............. (169,890) (697,342) 862,530 (502,802) (308,185) 878,569
Income tax..................... - - 327,761 - - 333,856
----------- --------- ----------- ----------- ----------- ---------
Net income (loss).......... $ (169,890) $(697,342) $ 534,769 $ (502,802) $ (308,185) $ 544,713
=========== ========= =========== =========== =========== ===========
Net income (loss) per share.... $ (0.03) $ (0.09) $ 0.05 $ (0.07) $ (0.04) $ 0.05
=========== ========= =========== =========== =========== ===========
Weighted average number of
common shares outstanding.... 6,014,197 7,510,269 10,350,350 7,487,146 7,578,094 10,390,974
=========== ========= =========== =========== =========== ===========
</TABLE>
SEPTEMBER 30, 1996
PRO
ACTUAL FORMA
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 941,038 $ 1,126,394
Working capital....................................... 1,887,672 2,076,628
Total assets.......................................... 25,921,274 39,661,157
Long-term debt, less current maturities............... 5,133,045 5,512,522
Redeemable equity securities.......................... 3,945,134 -
Total stockholders' equity............................ 10,916,389 25,991,436
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ProMedCo is a physician practice management company that consolidates
its affiliated physician groups into primary-care-driven multi-specialty
networks. The Company was incorporated in Texas in 1993 and will be
reincorporated in Delaware prior to the completion of the Offering. ProMedCo
commenced operations in December 1994 and affiliated with its initial physician
group in June 1995. The Company's rapid growth in 1995 and 1996 has resulted
primarily from its affiliation with additional physician groups. Through
September 30, 1996, the Company affiliated with six physician groups in three
states representing 118 physicians and 21 physician extenders practicing at 19
service sites. When affiliating with a physician group, the Company typically
acquires at fair market value the group's non-real estate operating assets and
enters into a 40-year service agreement with the group in exchange for a
combination of Common Stock, cash, other securities of the Company, and/or the
assumption of certain liabilities.
Net physician group revenue is the revenue derived by the Company's
affiliated physician groups from medical services, including revenue from
ancillary services. Net physician group revenue consists of the estimated
realizable amounts from patients, third-party payors, and others for services
rendered. For providing medical services, the physician group receives a fixed
percentage of the group's operating income, which is defined as net clinic
revenue less certain contractually agreed-upon expenses not including physician
salaries and other physician-related expenses. This cost of affiliated physician
services is deducted from net physician group revenue to arrive at the Company's
net revenue.
Operating expenses consist of the expenses incurred by the Company in
fulfilling its obligations under the service agreements. These expenses are the
same as the operating costs and expenses that would have been incurred by the
affiliated groups, including non-physician salaries, employee benefits, medical
supplies, building rent, equipment leases, malpractice insurance premiums,
management information systems and other expenses related to clinic operations.
The distribution to the group for providing medical services is increased or
decreased by a percentage of the group's surplus or deficit, respectively, in
net revenue under risk-sharing arrangements pursuant to capitated managed care
contracts.
In addition to the clinic expenses discussed above, the Company also
incurs personnel and administrative expenses in connection with maintaining a
corporate office function that provides management, administrative, marketing
and acquisition services to the affiliated groups. The Company's profitability
depends on, among other things, increasing market share, expanding healthcare
services, enhancing operating efficiencies, and developing favorable contractual
relationships with payors.
Management believes that industry trends toward cost containment and
lower reimbursement rates will continue to result in a reduction from historical
levels in per patient revenue. Further reductions in reimbursement rates could
have an adverse effect on the Company's operations unless the Company is
otherwise able to offset such payment reductions.
For the nine months ended September 30, 1996, three of the Company's
affiliated physician groups each contributed 10% or more of the Company's pro
forma net revenue. Temple, Reno, and Abilene represented approximately 34.2%,
20.6%, and 19.6% of the pro forma net revenue, respectively.
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<PAGE>
RESULTS OF OPERATIONS
As a result of the Company's rapid growth and limited period of
affiliation with its affiliated physician groups, the Company does not believe
that the period-to-period comparisons and percentage relationships within
periods set forth below are meaningful. The Company commenced operations in
December 1994 and affiliated with its first physician group in June 1995 and its
second group in December 1995. The Company entered into affiliations with four
additional groups during the nine months ended September 30, 1996. Changes in
results of operations for the nine months ended September 30, 1996 as compared
to the nine months ended September 30, 1995 and for the year ended December 31,
1995 were caused primarily by affiliations with these five physician groups.
The following table sets forth the percentages of net physician group
revenue represented by certain items reflected in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, PRO FORMA
1995 1995 1996 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Physician group revenue, net.......... 100.0% 100.0% 100.0% 100.0%
Less: cost of affiliated
physician services................. 39.6 35.8 44.5 40.1
------------- ------------- -------------- -------------
Net revenue........................... 60.4 64.2 55.5 59.9
Operating expenses:
Clinic salaries and benefits....... 28.9 33.6 21.6 24.3
Clinic rent and lease expenses..... 6.0 5.5 5.9 6.4
Clinic supplies.................... 5.8 6.1 6.8 6.3
Other clinic costs................. 12.6 12.7 12.7 14.6
General corporate expenses......... 41.9 78.0 8.8 3.8
Depreciation and amortization...... 1.8 3.1 1.0 2.1
Interest expense (income).......... (0.3) (1.9) 0.2 0.5
------------- ------------- -------------- -------------
Net income (loss)............... (36.4)% (72.9)% (1.5)% 1.9%
============= ============= ============== =============
</TABLE>
For the nine months ended September 30, 1996, net physician group
revenue was $20,779,713, compared with $690,110 for the nine months ended
September 30, 1995, an increase of $20,089,603. For the nine months ended
September 30, 1996, pro forma net physician group revenue was $47,426,069. For
the nine months ended September 30, 1996, cost of affiliated physician services
was $9,249,421, compared with $247,103 for the nine months ended September 30,
1995. For the nine months ended September 30, 1996, net revenue was $11,530,292,
compared with $443,007 for the nine months ended September 30, 1995, an increase
of $11,087,285. For the nine months ended September 30, 1996, pro forma net
revenue was $28,395,055. For the year ended December 31, 1995, net revenue was
$1,158,516, compared with zero for the period from July 1, 1994 (inception) to
December 31, 1994. The increase in net physician group revenue, cost of
affiliated physician services, and net revenue resulted from the affiliation
with five physician groups since December 1995.
For the period from July 1, 1994 (inception) to December 31, 1994 and
through the nine months ended September 30, 1995, general corporate expenses
exceeded net revenue due to the start-up nature of the Company. While declining
as a percentage of net revenue, the level of these expenses continued to
increase during 1995 and through the nine months ended September 30, 1996, as
the Company continued to add to its management infrastructure. While the Company
expects that these expenses will
23
<PAGE>
continue to increase as the Company increases the number of affiliated physician
groups, it believes that these expenses will continue to decline as a percentage
of net revenue. Pro forma net income for the nine months ended September 30,
1996 was $544,713.
The mix of physician specialities and ancillary services affects clinic
salaries and benefits, clinic supplies, and deprecation and amortization.
Generally, primary care and office-based physician practices are less capital
intensive, but require a higher number of support staff, than specialty care or
hospital-based practices. The percentage of primary care physicians to total
physicians affiliated with the Company was 84% and 58% (70% on a pro forma
basis) at December 31, 1995 and September 30, 1996, respectively.
Clinic rent and lease expense as a percentage of net revenue will vary
based on the size of each of the affiliated group offices and the current market
rental rate for medical office space in the particular geographic markets. Other
clinic costs will vary as a percentage of net revenue based on regional cost
differences and the Company's ability to implement operational efficiencies and
negotiate more favorable purchasing arrangements.
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<PAGE>
SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)
The following table presents unaudited quarterly operating results for
the preceding five quarters. The Company believes that all necessary
adjustments, consisting only of normal, recurring adjustments, have been
included in the amounts stated below to present fairly the quarterly results
when read in conjunction with the Company's consolidated financial statements
and notes thereto included elsewhere in this Prospectus. Future quarterly
results may fluctuate depending on, among other things, the timing and number of
affiliations with physician groups. Results of operations for any particular
quarter are not necessarily indicative of results of operations for a full year
or for future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1996 1996 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Physician group
revenue, net........... $ 517,366 $ 1,227,919 $ 4,139,217 $ 6,981,105 $ 9,659,391
Less: cost of affiliated
physician services..... 192,390 512,410 2,010,147 3,286,250 3,953,024
----------- -------------- ------------- ------------- --------------
Net revenue............... 324,976 715,509 2,129,070 3,694,855 5,706,367
Operating expenses:
Clinic salaries and
benefits............. 175,139 322,374 778,356 1,434,784 2,270,802
Clinic rent and lease
expense.............. 29,002 77,070 262,838 395,255 563,913
Clinic supplies........ 33,705 69,570 241,329 417,935 752,208
Other clinic costs..... 54,362 155,119 492,078 855,920 1,296,616
General corporate
expenses............. 177,452 264,947 581,596 676,098 566,827
Depreciation and
amortization......... 12,961 13,062 31,591 43,378 126,598
Interest expense
(income)............. (3,858) 7,907 (28,768) 27,618 51,505
---------- -------------- ------------ ------------ ------------
Net income (loss).... $ (153,787) $ (194,540) $ (229,950) $ (156,133) $ 77,898
========== = ============== ============ ============ ============
OTHER DATA (AT END OF PERIOD):
Affiliated physicians..... 8 32 51 72 118
Affiliated physician
groups................... 1 2 3 5 6
Number of service sites... 1 4 6 15 19
States.................... 1 1 2 3 3
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $1.9 million in working capital,
a decrease of $1.1 million from December 31, 1995. The decrease was primarily
related to cash paid and short-term obligations incurred relative to the 1996
Acquisitions. The Company's principal sources of liquidity as of September 30,
1996 consisted of cash and cash equivalents of $941,000 and net accounts
receivable of $4.8 million. In addition, effective July 15, 1996 the Company
entered into the Credit Facility, providing a $25.0 million revolving working
capital loan.
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<PAGE>
The Company has financed its acquisitions, capital expenditures, and
working capital needs since inception through a combination of (i) private
placements of capital stock and (ii) issuances of Common Stock, debt, and
convertible subordinated notes and assumption of equipment financing and other
debt in the Acquisitions. Through September 30, 1996, the Company paid or
committed to pay consideration in an aggregate amount of approximately $17.3
million in connection with the Acquisitions, consisting of $11.9 million of
issuances or committed issuances of Common Stock, $3.6 million of debt assumed,
and $1.8 million of cash paid.
For the year ended December 31, 1995 and the nine months ended
September 30, 1996, cash used by operations was approximately $600,000 and
$200,000, respectively. During 1995 and the nine months ended September 30, 1996
the Company incurred losses of approximately $700,000 and $300,000,
respectively, and increases in non-cash current assets were offset by increases
in current liabilities.
Cash used in investing activities was $2.1 million in 1995 and $39,000
for the nine months ended September 30, 1996. In 1995, the Company purchased
government-sponsored agency debt securities with maturities of less than six
months. During the 1996 period, cash used in investing activities was primarily
for the acquisition of physician groups.
Cash provided by financing activities (primarily related to the
issuance of the Company's Redeemable Convertible Preferred Stock) for the year
ended December 31, 1995 totaled $3.3 million.
Under the terms of the Credit Facility, the Company paid a commitment
fee in July 1996 of $500,000, which was capitalized and is being amortized as an
adjustment to interest expense using the effective interest method. The interest
rate under the Credit Facility is, at the Company's option (i) the 30-day
commercial paper rate of issuers whose corporate bonds are rated "AA" plus
3.25%, (ii) reserve adjusted LIBOR plus 3.25%, or (iii) prime rate plus 0.5%.
The Credit Facility, which expires July 15, 1999, includes certain restrictive
covenants including prohibitions on the payment of dividends, limitations on
capital expenditures, and the maintenance of minimum net worth and certain
financial ratios (including minimum interest-expense and debt-service coverage,
maximum debt-to-capitalization, and maximum senior debt-to-EBITDA, as defined).
At September 30, 1996 borrowings under the Credit Facility were $647,000 and the
interest rate in effect was 8.75%.
Although each of the Company's service agreements with its affiliated
physician groups requires the Company to provide capital for equipment,
expansion, additional physicians, and other major expenditures, no specific
amount has been committed in advance. Capital expenditures are made based
partially upon the availability of funds, the sources of funds, alternative
projects, and an acceptable repayment period.
The Company's acquisition and expansion programs will require
substantial capital resources. In addition, the operation and expansion of
physician groups will require ongoing capital expenditures. The financing of
future acquisitions and business expansion is anticipated to be provided by a
combination of the proceeds of this Offering, the Credit Facility, and cash
flows from operations. The Company believes that the combination of these
sources will be sufficient to meet the Company's currently anticipated
acquisition, expansion, and working capital needs through 1997. In addition, in
order to meet its long-term liquidity needs, ProMedCo expects to incur, from
time to time, additional short- and long-term bank indebtedness and to issue
additional equity and debt securities, the availability and terms of which will
depend upon market and other conditions. There can be no assurance that such
additional
26
<PAGE>
financing will be available on terms acceptable to the Company. The failure to
raise the funds necessary to finance its future cash requirements could
adversely affect the Company's ability to pursue its strategy and could
adversely affect its results of operations for future periods.
27
<PAGE>
BUSINESS
GENERAL
ProMedCo is a physician practice management company that consolidates
its affiliated physician groups into primary-care-driven multi-specialty
networks. The Company focuses on pre-managed-care secondary markets located
principally outside of or adjacent to large metropolitan areas. The Company
believes that primary care physicians increasingly will be the principal point
of access to the healthcare delivery system and will control, directly or
indirectly, a growing percentage of healthcare expenditures, and it therefore
affiliates with physician groups having a primary care orientation. ProMedCo
assists in expanding and integrating the affiliated groups into comprehensive
multi-specialty networks to increase their market presence. The groups expand
through affiliations with additional primary care physicians and specialists and
selective additions of ancillary services. The groups are thus well positioned
to become the physician component of locally developing managed care delivery
systems. In addition to providing operating and expansion capital, the Company
provides its affiliated groups with a broad range of strategic and management
expertise and services.
ProMedCo commenced operations in December 1994 and has since affiliated
with seven physician groups aggregating 152 physicians and 43 physician
extenders (primarily physician assistants and nurse practitioners) at 23 sites
in Texas, Alabama, Kentucky, and Nevada. Currently, approximately 70% of the
Company's affiliated physicians are primary care providers. Following the
Offering, approximately
% of ProMedCo's outstanding Common Stock will be owned by the Company's
management and affiliated physicians.
INDUSTRY OVERVIEW
The healthcare delivery system in the United States has been undergoing
substantial change, largely in response to concerns over the quality and
escalating cost of healthcare. National expenditures for healthcare grew from
$250 billion in 1980 to an estimated $1 trillion in 1995. Of the total estimated
1995 expenditures, physicians received approximately $200 billion for their own
services and controlled an additional $600 billion through the referral of
patients for additional care and services provided by others.
The substantial increase in healthcare expenditures has led to the
widespread establishment and growth of managed care organizations ("MCOs"),
consisting primarily of HMOs and preferred provider organizations ("PPOs"). As
MCO enrollment has grown, so has MCO influence over physicians and other
healthcare providers. MCOs have increased their efforts to reduce costs and
bring about greater accountability with respect to the quality and
appropriateness of care.
As a result of increased enrollment in managed care health plans,
physicians and other healthcare providers, in order to retain broad access to
patients, are seeking to become components of vertically integrated healthcare
delivery systems that provide a full range of services for the MCOs that operate
those plans. Typically, the physician and hospital components of these
integrated systems contract with MCOs to provide medical and hospital services
to MCO enrollees pursuant to risk-sharing and other arrangements. Such
risk-sharing arrangements commonly consist of "capitated" risk contracts, under
which providers undertake to provide a specified range of services for a
predetermined fixed fee per enrollee. Such an arrangement results in a greater
predictability of revenues, but exposes the provider to the risk of fluctuations
in the costs of providing the services. To the extent that patients or enrollees
covered by such contracts require more frequent or extensive care than is
anticipated, operating margins
28
<PAGE>
may be reduced and the revenues derived from such contracts may be insufficient
to cover the costs of the services provided. Many physician groups are
concluding that, in order to compete effectively in the managed care
environment, they need to have greater control over the delivery of a wider
range of healthcare services and expenditures. Accordingly, an increasing number
of physician groups are entering into capitation arrangements under which they
assume contractual risk and responsibility for healthcare provided by others.
The private practice of medicine remains a largely fragmented market.
The American Medical Association reports that, of the approximately 613,000
physicians actively involved in patient care in the United States, only 34% are
currently practicing in groups. Many of these are small to mid-sized physician
groups, which are at a competitive disadvantage in the managed care environment.
They generally do not have the market presence, expertise, or sophisticated cost
accounting and quality management systems required for capitated risk-sharing
arrangements. In addition, they often lack the capital required to purchase new
medical equipment and information systems to enhance the efficiency and quality
of their practices.
Physician groups are increasingly turning to physician-driven
organizations such as ProMedCo to provide the professional management expertise
and capital required to compete in the managed care environment and otherwise to
assist them with the increasingly complex management of physician practices.
ProMedCo believes that this has resulted in a need for management organizations
committed to preserving the professional autonomy of physician groups and whose
economic incentives are fully aligned with those of physicians. Because of the
unique position of primary care physicians in managing the delivery of
healthcare by both providing primary care and controlling patient referrals,
ProMedCo further believes that multi-specialty groups with a substantial primary
care orientation are likely to be best positioned to succeed in the emerging
managed care environment.
STRATEGY
The Company's strategy is to affiliate with leading physician groups in
pre-managed-care markets and expand and integrate them into comprehensive
multi-specialty networks to increase their market presence and position them to
become the physician component of managed care delivery systems as they develop
in their local markets. The key elements of the Company's strategy are as
follows:
Affiliate with Primary-Care-Oriented Multi-Speciality Groups. ProMedCo
believes that the primary care physician increasingly will manage the delivery
of healthcare services to patients by providing primary care and controlling
patient referrals for specialist, hospital, and other healthcare services.
Because of this central role, the Company believes that multi-specialty
physician groups with a primary care orientation can more effectively manage
capitated risk than other participants in the healthcare delivery system. The
Company also believes that primary care physicians and specialists organized
within a single multi-specialty network provide a comprehensive range of
services that is attractive to MCOs.
Continue to Penetrate Pre-Managed-Care Markets. Notwithstanding the
increasing presence of MCOs, managed care is just beginning to reach many
communities, principally outside of or adjacent to large metropolitan areas.
ProMedCo seeks to affiliate in such markets with high quality physician groups
that recognize the need for outside managerial, financial, and business
expertise, that are committed to expanding their practices, and that are, or
have the potential to be, the leading multi-specialty groups within their
markets.
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<PAGE>
Expand Existing Groups. ProMedCo seeks to increase the market presence
of each of its affiliated groups within the group's local market. The Company
facilitates expansion of the groups through affiliations with and recruitment of
other primary care physicians and selected specialists, recruitment of physician
extenders, and expansion of selected ancillary services.
Preserve Local Autonomy. While the Company provides management
expertise to a newly affiliated group, it believes that each physician group
presents unique management issues and therefore is best served by decentralized
management. The Company generally retains the group's existing administrative
staff, adding additional management personnel as the group expands. Each group's
physicians continue to maintain full professional control of the practice of
medicine. The Company establishes for each group a policy council, comprised
equally of physicians and ProMedCo representatives, to determine the broad
strategic and operational policies of the group.
Align Economic Interests. ProMedCo believes that affiliations with
practice management organizations whose incentives are fully aligned with the
interests of physicians are more attractive to physicians than affiliations with
hospitals or MCOs. Accordingly, ProMedCo employs an affiliation structure under
which the income of both the Company and the physicians within each group depend
upon the operating income of the group, providing a common incentive to expand
the group and increase its efficiency. In conjunction with the group's
affiliation with the Company, the affiliated physicians generally receive
ProMedCo Common Stock, which further aligns their interests with those of the
Company.
DEVELOPMENT AND OPERATIONS
Market Development
ProMedCo's development objective is to affiliate with leading primary
care groups or primary- care-oriented multi-specialty groups within
pre-managed-care secondary markets. The Company performs research and market
analyses to identify priority markets, which generally are communities that have
populations of at least 30,000, have less than 20% HMO penetration, and meet
other market criteria. Such criteria relate to, among other things, the number
of primary care physicians relative to demand, Medicare payment rates, physician
group competition, the number of hospitals, demographics, population growth, and
the likelihood of significant future HMO growth. The Company estimates that
there are approximately 490 markets in 33 states, with an average population of
69,000, that currently satisfy its priority market criteria. The Company ranks
these markets based upon the degree to which they satisfy its criteria, enabling
the Company further to prioritize its development efforts. While the Company
identifies its priority markets in this manner, it expects to pursue development
opportunities in other markets as well.
Within its priority markets, ProMedCo seeks to affiliate either with
primary care groups or with multi-specialty groups that are committed to the
importance of primary care physicians. The Company seeks to affiliate with
groups that have a reputation for providing high quality care and have a
substantial share of their local markets or the potential to acquire such share.
These groups are frequently the largest groups in their markets.
Once ProMedCo has identified a group meeting its criteria, the Company
conducts preliminary discussions to ascertain the group's interest in an
affiliation. If such interest is established, the Company conducts site visits,
analyzes financial and other data, and conducts an extensive due diligence
investigation into the group's operations, leadership, and commitment to
long-term growth. Assuming
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<PAGE>
a favorable outcome of the investigation, the Company proposes to purchase the
group's operating assets and enter into a long-term service agreement with the
group. See "--Affiliation Structure."
Upon affiliation with a group, the Company immediately begins to
facilitate expansion of the group within its local market. Group expansion may
be accomplished through affiliations with additional primary-care and specialty
physicians in the community, recruitment of physicians from outside the
community, and addition of physician extenders to the group. One of the
Company's affiliated groups, for example, consisted of 24 physicians when it
entered into an agreement in principle with the Company and, during the ensuing
ten months, has been expanded to 36 physicians, including four new specialities.
Current Operations
Since commencing operations in December 1994, ProMedCo has affiliated
with seven groups currently aggregating 152 physicians and 43 physician
extenders at 23 sites in Texas, Alabama, Kentucky, and Nevada. Approximately 70%
of ProMedCo's affiliated physicians are primary care providers. The primary care
physicians generally consist of family practitioners, general internists,
pediatricians, obstetrician/gynecologists, and urgent-care physicians.
Increasingly, these physicians are augmented by physician extenders, primarily
consisting of physician assistants and nurse practitioners, whom the Company
believes significantly increase the efficiency of delivery of a group's primary
care services. Each of the physician groups also provides, to varying degrees,
medical specialty services and ancillary services. Medical specialities
currently include anesthesiology, endocrinology, gastroenterology, general
surgery, infectious diseases, nephrology, neurology, occupational medicine,
orthopedic surgery, otolaryngology, pulmonology, rheumatology, and urology. Each
of the physician groups is continually seeking to expand its practice through
the addition of primary care physicians and specialists.
The physician groups offer, to varying degrees, a range of ancillary
services such as audiology, clinical laboratories, diagnostic imaging (which may
include CAT scanning, gastrointestinal laboratories, mammography, nuclear
medicine, ultrasound, and x-ray), stress testing, and outpatient surgical
facilities. The Company and each of its affiliated groups continually evaluate
the addition of ancillary services to enhance the growth and profitability of
such group.
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<PAGE>
The following table sets forth information concerning the Company's
affiliated physician groups.
<TABLE>
<CAPTION>
BEGINNING OF
MEDICAL PROMEDCO PHYSICIAN MEDICAL SITES OF
GROUP LOCATION AFFILIATION PHYSICIANS EXTENDERS SPECIALITIES SERVICE
<S> <C> <C> <C> <C> <C> <C>
North Texas
Medical Surgical, P.A. Denton, TX June 1995 8 1 1 1
Abilene Diagnostic
Clinic, P.L.L.C. Abilene, TX December 1995 36 5 9 3
Cullman Primary
Care, P.C. Cullman, AL March 1996 10 1 1 3
Morgan-Haugh,
P.S.C. Mayfield, KY April 1996 12 1 5 2
HealthFirst Medical
Group, P.A. Lake Worth, TX June 1996 13 6 2 6
King's Daughter's
Clinic, P.A. Temple, TX September 1996 42 10 20 4
The Medical Group of
Northern Nevada Reno, NV October 1996 31 19 7 4
TOTAL 152 43 23
</TABLE>
The Abilene and Reno groups are currently operated under interim service
agreements. The Reno merger will be consummated simultaneously with the closing
of the Offering. The acquisition of the Abilene group's operating assets will be
consummated in February 1997 and is subject only to the delivery of customary
closing documents. Following the merger and the asset acquisition, each group
will be operated under a long-term service agreement.
Management Services
Upon affiliating with a physician group, ProMedCo immediately assumes
the management of all aspects of the group's operations other than the provision
of medical services. The operating assets acquired by the Company are provided
for the exclusive use of the group, and substantially all non-physician
personnel utilized in the group's practice become employees of the Company.
ProMedCo provides the full range of administrative services required for the
group's operations, including facilities management and the purchase of medical
malpractice insurance, supplies, and equipment, and a broad spectrum of
financial and accounting services, including budgeting, billing and third-party
reimbursement services. The Company also provides each group with operating
capital and expansion capital for affiliations with other physicians, additions
of ancillary services, and improvements of existing facilities and equipment. As
MCOs expand their presence into the local market, the Company provides expertise
in the negotiation of managed care contracts and the management of risk-sharing
arrangements. Currently, only one of the Company's affiliated groups derives a
significant portion of its revenues from managed care contracts.
While the Company provides a centralized source of expertise in all
aspects of management, it believes that each physician group presents different
operational issues and challenges and therefore employs a system of
decentralized local management of each group. The Company generally retains the
group's existing administrative staff as ProMedCo employees, adding additional
management personnel as the group expands. The physicians in the group continue
to maintain full professional control of the
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<PAGE>
practice of medicine, including the hiring and termination of physicians and the
setting of practice guidelines and standards. The Company establishes for each
group a policy council comprised equally of physicians and ProMedCo
representatives to determine the broad strategic and operational policies of the
group. See "--Affiliation Structure."
The Company believes that sophisticated information systems are
essential to reducing the cost and improving the quality of healthcare. Basic
practice management systems have long been necessary for efficient patient
scheduling and registration, billing, and collections. In the future, the
integration of financial, practice management, managed care, and clinical
systems is expected to be imperative for physician groups to remain competitive.
Clinical systems will provide information in the physician's workplace--such as
case management, practice guidelines, and clinical pathways--that will
facilitate the improvement of patient care. Electronic medical records will
automate the clinical workflow and allow access to patient records from multiple
sites, thus providing more effective clinical decision support and increasing
the quality of care. Systems that effectively measure clinical outcomes and
patient satisfaction are likely to become increasingly important as quality
becomes a more significant factor in maintaining and growing market share.
Rather than attempting to develop its own proprietary information
systems, ProMedCo believes it is more cost-effective, in light of the rapidly
changing healthcare and information technology environments, to utilize systems
developed and proven by independent companies. Although there are many systems
currently under development, none are yet available that, in the Company's
opinion, effectively address all of the evolving needs of physicians. The
Company initially works with its affiliated physician groups to maximize the
performance of the groups' existing systems. As MCOs increase their penetration
of each group's market, new or enhanced information systems will be implemented
as required. Ultimately, the Company expects to interface all of its affiliated
clinics with a central data repository for consolidation and evaluation of
operating, clinical, and financial data.
AFFILIATION STRUCTURE
ProMedCo utilizes an affiliation structure that fully aligns the
interests of the Company with those of its physician partners. Moreover, each
physician group retains professional autonomy and control over its medical
practices through continued ownership and governance of its professional
corporation or similar organization.
When a physician group has agreed to affiliate with ProMedCo, the
Company purchases the group's operating assets, excluding real estate, and the
group enters into a long-term service agreement with the Company in exchange for
a combination of Common Stock, cash, other securities of the Company, and/or
assumption of certain liabilities. The Company has utilized, and intends to
continue to utilize, Common Stock in payment of a significant portion of its
consideration for affiliated physician groups. The Company also grants stock
options to certain affiliated physicians and physician extenders, including
those subsequently recruited by the group. See "Management--Physician Stock
Option Plan."
The service agreement between the Company and the physician group
typically becomes effective at the beginning of the month of the acquisition of
the group's operating assets. Under the service agreement, the Company provides
the physician group with the facilities and equipment used in the group's
medical practice, assumes responsibility for the management of the operations of
the practice, and employs substantially all of the non-physician personnel
utilized by the group.
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<PAGE>
The income of both the Company and the physicians within each group is
dependent upon the operating income of the group. Under its service agreement,
the physician group receives a fixed percentage of group operating income, which
is defined as the group's net revenue less certain contractually agreed-upon
clinic expenses before physician salaries and other physician-related expenses.
In addition, the distribution to the group is increased or decreased by a
percentage of the group's surplus or deficit, respectively, in revenues under
risk-sharing arrangements pursuant to capitated managed care contracts. Thus,
both the Company and the physicians have incentives to improve the group's
operating income and revenue surplus under risk-sharing arrangements, and both
share the risk that the group may have limited or no operating income or a
deficit under its risk-sharing arrangements. Although the risk-sharing
provisions currently do not have a material effect upon any affiliated group's
operating income, the Company expects such provisions to become significant as
managed care emerges in its groups' local markets and its groups enter into
managed care contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's service agreements are for a term of 40 years and
generally cannot be terminated by either party without cause, consisting
primarily of bankruptcy or material default. Upon expiration of the term of a
service agreement or in the event of termination, the physician group is
required to purchase the assets related to the practice, including intangible
assets, then owned by the Company at their current book value. Concurrently with
the execution of a service agreement, the physician group is required to enter
into an employment contract with each of its physicians, typically for an
initial term of five years. The employment contract provides for the repayment
to ProMedCo of all or a portion of the physician's share of the consideration
paid by ProMedCo for the group's operating assets and service agreement in the
event of the physician's breach of the contract. Each physician group also
enters into an agreement not to compete with the Company, and each physician
within the group enters into an agreement not to compete with the physician
group during the period of his employment and for a period of time thereafter,
typically two years.
The policy council established for each group is comprised equally of
physicians and ProMedCo representatives. The council meets periodically to
consider and determine broad policies regarding strategic and operational
planning, marketing, arrangements with MCOs, and other major issues involving in
the group's operations. This ensures that the physicians within each group
retain a significant voice in the expansion and operation of their group, while
benefitting from ProMedCo's management experience and expertise.
COMPETITION
The physician practice management industry is highly competitive. The
Company is subject to significant competition both in affiliating with physician
groups and in seeking managed care contracts on behalf of its affiliated groups.
Its competitors include hospitals, managed care organizations, other physician
groups, and other physician practice management companies. Many of the Company's
competitors are larger, have substantially greater resources, and have longer
established relationships with purchasers of healthcare services than the
Company. There can be no assurance that the Company will be able to compete
effectively, that additional competitors will not enter the market, or that such
competition will not make it more difficult to enter into affiliations with
physician groups on terms beneficial to the Company.
The Company also experiences competition in the recruitment and
retention of qualified physicians and other healthcare professionals on behalf
of its affiliated physician groups. There can be
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<PAGE>
no assurance that the Company will be able to recruit or retain a sufficient
number of qualified physicians and other healthcare professionals to continue to
expand its operations.
GOVERNMENT REGULATION
As a participant in the healthcare industry, the Company's operations
and relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal and state levels. The Company believes
its operations are in material compliance with applicable laws. Because the
structure of its relationship with physician groups is relatively new, however,
many aspects of the Company's business operations have not been the subject of
state or federal regulatory interpretation. There can therefore be no assurance
that a review of the Company's or the affiliated physicians' business by courts
or regulatory authorities will not result in a determination that could
adversely affect the operations of the Company or that the healthcare regulatory
environment will not change so as to restrict the Company's or its affiliated
physician groups' existing operations or expansion.
The Company estimates that approximately 30% of the net physician group
revenue of the Company is derived from payments made by government-sponsored
healthcare programs (principally Medicare and Medicaid). As a result, any change
in government reimbursement regulations, policies, practices, interpretations,
or statutes could adversely affect the operations of the Company. There are also
state and federal civil and criminal statutes imposing substantial penalties,
including civil and criminal fines and imprisonment, on healthcare providers
that fraudulently or wrongfully bill governmental or other third-party payers
for healthcare services. Although the Company believes it is in material
compliance with such laws, there can be no assurance that its activities will
not be challenged or scrutinized by governmental authorities.
The laws of many states prohibit business corporations such as the
Company from practicing medicine and employing physicians to practice medicine.
The Company performs only non-medical administrative services, does not hold
itself out as a provider of medical services, and does not exercise influence or
control over the practice of medicine by the physicians with whom it is
affiliated. Accordingly, the Company believes it is not in violation of
applicable state laws relating to the practice of medicine. In addition to
prohibiting the practice of medicine, numerous states limit the ability of
entities such as the Company to control physician revenues or to receive
portions of such revenues in excess of the value of services provided. The
Company believes that it is not in violation of applicable state laws relating
to the corporate practice of medicine or sharing of physician revenues.
Certain provisions of the Social Security Act, commonly referred to as
the fraud and abuse provisions, prohibit the payment or receipt of any form of
remuneration in return for the referral of Medicare or Medicaid patients or
patient care opportunities, or in return for the recommendation, arrangement,
purchase, lease, or order of items or services that are covered by Medicare or
Medicaid programs. Many states have adopted similar prohibitions against
payments that are intended to induce referrals of Medicaid and other third-party
payor patients. Although the Company believes that neither it nor any of its
affiliated physician groups is in violation of the any such prohibitions, its
operations do not fit within any of the existing or proposed federal safe
harbors and may therefore be subject to challenge.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his or her immediate family is prohibited
by this legislation from referring Medicare or Medicaid patients to an
35
<PAGE>
entity providing "designated health services" in which the physician has an
ownership or investment interest or with which the physician has entered into a
compensation arrangement. While the Company believes it and its affiliated
physician groups are in compliance with such legislation, future regulations
could require the Company to modify the form of its relationships with physician
groups. Some states have also enacted similar so-called "physician
self-referral" laws, and additional states may follow. The Company believes that
its practices fit within exemptions contained in such statutes. Nevertheless,
expansion of the operations of the Company to certain jurisdictions may require
structural and organizational modifications of the Company's relationships with
physician groups to comply with new or revised state statutes.
Because the Company's affiliated physician groups remain separate legal
entities, they may be deemed competitors subject to a range of antitrust laws
that prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal, and division of market. The Company intends to comply with
such state and federal laws in its development of integrated healthcare delivery
networks, but there can be no assurance that a review of the Company's business
by courts or regulatory authorities will not result in a determination that
could adversely affect the operation of the Company and its affiliated physician
groups.
As a result of the continued escalation of healthcare costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the U.S. Congress and state legislatures
relating to healthcare reform. There can be no assurance as to the ultimate
content, timing, or effect of any healthcare reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which
could be material, on the Company.
INSURANCE
The Company's affiliated physician groups maintain medical malpractice
liability insurance in the amount of $1 million per occurrence and $3 million in
the aggregate. The Company is named as the additional insured on the policies
maintained by each of its affiliated groups. The Company also maintains general
liability and umbrella coverage, including excess malpractice coverage of $5
million per occurrence and $5 million in the aggregate. The cost and
availability of such coverage has varied widely in recent years. While the
Company believes its insurance policies are adequate in amount and coverage for
its current operations, there can be no assurance that the coverage maintained
by the Company will be sufficient to cover all future claims or will continue to
be available in adequate amounts or at a reasonable cost.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 450
people, including those employed in its corporate office. The Company is not
party to any collective bargaining agreement with a labor union and considers
its relations with its employees to be good. The Company does not employ any of
the physicians practicing in its affiliated groups.
PROPERTIES
The Company currently leases approximately 5,000 square feet of space
at 801 Cherry Street in Fort Worth, Texas, where its headquarters are located,
under a lease terminable upon 60 days' notice by
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<PAGE>
either party. The Company believes these facilities are adequate for its current
uses and that additional space is available to accommodate its anticipated
growth.
The Company leases, subleases, or occupies pursuant to its service
agreements the clinic facilities at which its affiliated physician groups
conduct their practices. The leases have varying terms ranging from
month-to-month to ten years. The Company anticipates that as the affiliated
practices continue to grow and add new services, expanded facilities will be
required.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding. The
Company's affiliated physician groups are from time to time subject to medical
malpractice claims. Such claims, if successful, could result in substantial
damage awards that may exceed the limits of insurance coverage. The Company does
not engage in the practice of medicine or provide medical services, nor does it
control the practice of medicine by its affiliated physician groups or the
compliance with regulatory requirements directly applicable to such groups.
Nevertheless, there can be no assurance that the Company will not become subject
to such claims in the future.
37
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the
directors and executive officers of the Company:
NAME AGE POSITION
Richard E. Ragsdale (1)(2)(3).. 52 Chairman and Director
H. Wayne Posey(1)(2)........... 58 President, Chief Executive Officer,
and Director
Richard R. D'Antoni............ 48 Executive Vice President, Chief
Operating Officer, and Director
Deborah A. Johnson............. 44 Senior Vice President - Administration
Dale K. Edwards................ 34 Vice President - Development
R. Alan Gleghorn............... 35 Vice President - Operations
Rick E. Weymier................ 40 Vice President - Managed Care
David T. Bailey, M.D.(4)....... 51 Director
E. Thomas Chaney(1)(2)(3)...... 54 Director
James F. Herd, M.D............. 60 Director
Jack W. McCaslin(4)............ 57 Director
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Option Committee
(4) Member of Audit Committee
RICHARD E. RAGSDALE, a co-founder of the Company, has served as the
Chairman of its Board of Directors since its inception. He also has served as
the Chairman of the Board of Directors of Community Health Systems, Inc.
("CHS"), a non-urban hospital management company that he co-founded, since its
inception in 1985, and a director of The RehabCare Group, Inc., a publicly owned
rehabilitation services management company, since 1993. Prior to 1985, Mr.
Ragsdale was Senior Executive Vice President, Chief Financial Officer, and a
director of Republic Health Corporation, a hospital management company that he
co-founded in 1981. During 1980 and 1981, he was Vice President and Chief
Financial Officer of INA Healthcare Group, a wholly owned subsidiary of INA
Corporation, and from 1973 to 1980 he was a Vice President of Hospital
Affiliates International, Inc.
("HAI"), a publicly owned hospital management company.
H. WAYNE POSEY, a co-founder of the Company, has been the President,
Chief Executive Officer, and a Director of the Company since its inception. Mr.
Posey was a healthcare consultant from 1975 until 1994, most recently as the
principal in charge of the healthcare services division of McCaslin & Company,
P.C., a public accounting and consulting company in Fort Worth, Texas. Mr. Posey
was employed by HAI from 1970 until 1975, holding the positions of Controller,
Vice President and Controller, and Senior Vice President of Operations. He also
served on HAI's Board of Directors and Executive Committee.
RICHARD R. D'ANTONI has served as Executive Vice President, Chief
Operating Officer, and a Director of the Company since February 1996. From 1990
to 1995, Mr. D'Antoni served as President and Chief Executive Officer of
Cellcor, Inc., a publicly owned biotechnology company. Previously, he
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served as Executive Vice President of Medical Care International, Inc.,
predecessor of Medical Care America, Inc., a publicly owned operator of
outpatient surgical centers, and also was employed by Medical Networks, Inc., a
physician practice management company, where he was responsible for development
and operations.
DEBORAH A. JOHNSON has served as Senior Vice President-Administration of
the Company since October 1996. From February 1995 to October 1996 Ms. Johnson
was, successively, Senior Vice President - Operations and Senior Vice President
- - Administration of MedPartners/Inc., a physician practice management company.
From 1978 to 1994 Ms. Johnson served in various executive capacities with Humana
Inc., an integrated healthcare delivery company, Galen Health Care Inc., a
hospital management company, and Columbia/HCA Healthcare Corporation. Her
positions have included Legal Counsel, Director of Strategic Planning, Vice
President-Information Systems, and Vice President-Internal Audit.
DALE K. EDWARDS has served as a Vice President of the Company with
primary responsibility for developing affiliations with physician groups since
November 1994. From November 1993 to November 1994, Mr. Edwards was Vice
President of Physician Network Development with Columbia/HCA Healthcare
Corporation a publicly owned hospital management company, and with Medical Care
America, Inc., prior to its acquisition by Columbia/HCA. From 1991 to 1993, Mr.
Edwards was Vice President of Managed Care and Regional Vice President of Sales
of Medical Care America. Previously, he was employed by HealthPlus, a regional
HMO in the State of Washington, as an Account Executive.
R. ALAN GLEGHORN has served as a Vice President of the Company with
primary responsibility for operations since January 1995. From 1993 to January
1995, Mr. Gleghorn was Administrator and Chief Operating Officer of Family
Healthcare Associates, a 52-member physician medical group practice with nine
locations in the Dallas Fort Worth Metroplex. From September 1984 to August
1993, Mr. Gleghorn served as Associate Administrator of a 56-member physician
medical group in Wichita Falls, Texas. During 1995, he was the President of the
Texas Medical Group Management Association. He is certified as a Medical
Practice Executive by the American College of Medical Practice Executives.
RICK E. WEYMIER has served as Vice President of Managed Care of the
Company since March 1996. From April 1994 to March 1996, he was Chief Operating
Officer of Morgan Health Group, Inc., a 270-member primary care physician
network. From July 1993 until he joined Morgan, Mr. Weymier was Chief Operating
Officer of Southwest Orthopedic Institute, a 24-member physician orthopedic
group. From May 1991 to July 1993, he served as Vice President-Finance of MH
Healthcare, Inc., a hospital- owned 60,000-member prepaid health plan. Mr.
Weymier is certified as a Medical Practice Executive by the American College of
Medical Practice Executives.
DAVID T. BAILEY, M.D. has served as a Director of the Company since January
1996. Dr. Bailey also serves as President of Abilene Diagnostic Clinic,
P.L.L.C., a ProMedCo affiliated physician group. Dr. Bailey is Board Certified
with the American Board of Family Practice and has been a full-time practicing
family physician since 1973. He has served as Chairman of the Department of
Family Practice both at Hendrick Medical Center and Abilene Regional Hospital in
Abilene. He also served as Chairman of the Board of Trustees at Abilene
Christian Schools from 1983 to 1994.
E. THOMAS CHANEY has served as President, Chief Executive Officer, and a
director of CHS, which he co-founded in 1985, since its inception. From 1981 to
1985, Mr. Chaney was Vice President of Finance of ARA Living Centers, an
operator of nursing homes. From 1978 to 1981, he was national director of the
U.S. healthcare practice of the accounting and consulting firm of KMG Main
Hurdman,
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<PAGE>
and from 1971 to 1978, he held the positions of Controller and Chief Accounting
Officer with HAI. A co-founder of the Company, he has served as a Director of
the Company since its inception.
JAMES F. HERD, M.D. has been in private practice in obstetrics and
gynecology in Fort Worth, Texas since 1968. During 1994, he was the President of
the Tarrant County Medical Society. From 1986 to 1990, he served as Chief and
Vice Chief of Staff at Harris Methodist Hospital in Fort Worth.
He has been a Director of the Company since its inception.
JACK W. MCCASLIN has been the managing principal of McCaslin & Company,
P.C. and its predecessor, McCaslin, Wright & Greenwood, P.C. since 1983. From
1980 to 1982, he was Secretary and Treasurer of Burnett Oil Company, Inc. Prior
to joining Burnett Oil, he was a partner of the public accounting firm of
Deloitte Haskins & Sells in its Fort Worth office. Mr. McCaslin was the
President of the Fort Worth Chapter of Certified Public Accountants in 1993. He
has served as a Director of the Company since its inception.
The Company's Certificate of Incorporation and By-Laws provide that the
Board of Directors is divided into three classes of directors serving staggered
terms. The three classes of the Board of Directors are as follows: Class I,
comprised of Messrs. D'Antoni and Herd, who will serve until 1998; Class II,
comprised of Messrs. Bailey and McCaslin, who will serve until 1999; and Class
III, comprised of Messrs. Chaney, Posey, and Ragsdale, who will serve until
2000.
The Board of Directors has established an Executive Committee, a
Compensation Committee, an Option Committee, and an Audit Committee. The
Executive Committee exercises the powers of the Board of Directors in the
management of the business and affairs of the Company between Board meetings to
the extent permitted by applicable law. The Compensation Committee reviews on
behalf of, and makes recommendations to, the Board of Directors with respect to
the compensation of executive officers. The Option Committee administers the
Company's option plans and makes recommendations to the Board of Directors with
respect to the plans and the grant of options to persons eligible under the
plans. The Audit Committee's functions include recommending to the Board of
Directors the engagement of the Company's independent public accountants,
reviewing with such accountants the plans for and the results and scope of their
auditing engagement, and certain other matters relating to their services
provided to the Company, including the independence of such accountants.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned in the year
ended December 31, 1995 by the Chief Executive Officer and each of the most
highly compensated executive officers whose individual remuneration exceeded
$100,000 for the fiscal year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Other Securities
Name and Principal Annual Underlying All Other
Position Salary ($) Bonuses ($) Compensation ($) Options Compensation
------------------ ----------- ------------ ---------------- -------- ------------
<S> <C> <C> <C> <C> <C>
H. Wayne Posey.......................... $ 144,667 $ 12,600 $ - - $ -
President and CEO
Dale K. Edwards......................... 111,250 9,625 - 80,000 -
Vice President-Development
R. Alan Gleghorn........................ 104,199 4,167 - 104,000 -
Vice President-Operations
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rates of
Shares Granted to Stock Price
Underlying Employees Exercise Appreciation for
Options in Fiscal Year Price Expiration Option Term (2)
-------------------------
Name Granted(1) 1995 Per Share Date 5% 10%
---- ---------------------- ----------------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey - - - - -
Dale K. Edwards 80,000 14.6% $6.00 7/1/04 $ $
R. Alan Gleghorn 24,000 4.4% $0.50 7/1/04 $ $
80,000 14.6% $6.00 7/1/04 $ $
<FN>
- -----------------
(1) Represents options to purchase Common Stock granted pursuant to the 1994
Stock Option Plan. Options generally are exercisable in 20% increments,
commencing one year after the date of grant.
(2) Based upon the estimated initial public offering price and on annual
appreciation of such value, through the expiration date of such options, at
the stated rates. These amounts represent assumed rates of appreciation
only and may not necessarily be achieved. Actual gains, if any, depend on
the future performance of the Common Stock, as well as the continued
employment of the Named Executives for the full term of the options.
</FN>
</TABLE>
41
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995
AND OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Number of Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Warrants/Options at Warrants/Options at
on Valu December 31, 1995 December 31, 1995(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey - - 277,109(2) 40,000 $ $
Dale K. Edwards - - 8,000 112,000 $ $
R. Alan Gleghorn - - - 104,000 $ $
<FN>
(1) Represents an amount equal to the difference between the estimated initial
public offering price of the Company's Common Stock minus the option
exercise price, multiplied by the number of unexercised options at December
31, 1995.
(2) Represents an option to purchase 155,000 Units, each consisting of one
share of Common Stock and a warrant to purchase .7878 of a share of Common
Stock.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Posey,
D'Antoni, Edwards, Gleghorn, and Weymier and Ms. Johnson to serve in their
respective current positions. The agreement with Mr. Posey, which expires June
30, 2001, provides for an initial annual base salary of $325,000 plus an annual
bonus not to exceed 120% of base salary, depending upon the achievement of
certain operating goals. In the event Mr. Posey's employment is terminated
without cause or there is a "change in control" of the Company (as defined in
his employment agreement), Mr. Posey is entitled to receive severance benefits
equal to the present value of 36 months of his salary, bonus, and certain other
benefits.
Mr. D'Antoni's agreement, which expires February 9, 1998, currently
provides for a base salary of $260,000, subject to a minimum of 80% of the base
salary of the Chief Executive Officer of the Company. The agreement also
provides that Mr. D'Antoni may receive an annual bonus based upon the
achievement of certain operating goals. The Company has agreed to lend Mr.
D'Antoni up to $500,000 to finance the exercise of options held by him and, in
the event the Company's taxes are reduced because the options do not qualify as
incentive stock options, the amount of such reduction will be applied to the
repayment of any such loan and any excess will be paid to Mr. D'Antoni. In the
event Mr. D'Antoni's employment is terminated without cause or there is a change
in control of the Company, Mr. D'Antoni is entitled to receive his salary and
bonus through the later of February 9, 1998 or one year following such
termination or change in control.
Ms. Johnson's agreement, which expires October 18, 1998, provides for
an initial annual base salary of $150,000 and an annual bonus based upon the
achievement of certain operating goals. In the event Ms. Johnson's employment is
terminated without cause or there is a change in control of the Company, Ms.
Johnson is entitled to receive her salary and bonus through the later of October
18, 1998 or one year following such termination or change in control.
The employment agreements with Mr. Edwards and Mr. Gleghorn expire on
November 14, 1996 and provide for annual salaries of $160,000 and $130,000,
respectively. Messrs. Edwards' and Gleghorn's agreements provide for the payment
of the purchase price of shares of Common Stock (see "Certain Transactions")
over a two-year period under promissory notes that bear interest at annual rates
of 5.71% and 6.2%, respectively. The Company is entitled to repurchase all or a
portion of Mr.
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<PAGE>
Edwards' and Mr. Gleghorn's stock for its purchase price less any amounts paid
to the Company in the event their employment is terminated prior to certain
specified dates. Mr. Weymier's agreement expires March 4, 1997 and provides for
an annual salary of $100,000. In addition to the provisions described above, the
agreements with Messrs. Edwards, Gleghorn, and Weymier provide for an annual
bonus based upon the achievement of certain operating goals. In addition, such
agreements provide for an annual increase in salary at least equal to the
increase in the Consumer Price Index.
The Company has established the level of potential bonuses and related
operating goals for its officers for the six months ending December 31, 1996.
Depending upon whether the Company meets or the extent to which it exceeds
certain levels of net income, Messrs. Posey, D'Antoni, and Edwards and Ms.
Johnson will be entitled to receive bonuses of up to 60% of their base salaries
to be paid during the current year, and up to an additional 60% of their base
salaries to be paid in equal installments in January of each of the next three
years, and Messrs. Gleghorn and Weymier will be entitled to receive bonuses of
up to 45% of their base salaries to be paid during the current year, and up to
an additional 40% of their base salaries to be paid in equal installments in
January of each of the next three years.
DIRECTOR COMPENSATION
Members of the Board of Directors receive no cash compensation in their
capacities as Directors. Beginning January 1997, each Director not employed by
the Company will be granted options annually to purchase 2,000 shares of Common
Stock at an exercise price equal to the fair market value of such stock on the
date of grant, exercisable in annual increments of 20%. Each such Director who
is newly appointed or newly elected to the Board of Directors will in addition
be granted options to purchase 5,000 shares of Common Stock upon the same terms.
See "-- Director Stock Option Plan." All Directors are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof and for other expenses incurred in their capacity as
Directors.
The Company has entered into five-year consulting agreements with
Messrs. Ragsdale and Chaney, providing for annual compensation of $60,000 and
$36,000, respectively, under which Messrs. Ragsdale and Chaney provide strategic
and financial advisory services to the Company. Compensation under such
agreements is paid to Messrs. Ragsdale and Chaney in their capacities as
consultants to the Company and not as Directors. The Company believes that the
terms of the arrangements, which were determined through negotiation among the
Company's founders, are as favorable as might have been obtained from
non-affiliated persons.
CERTAIN TRANSACTIONS
In connection with its organization and initial funding, the Company
issued securities to certain of its officers and directors in private
transactions. In July 1994, the Company issued 80,000, 214,068, and 690,000
shares of Common Stock at a purchase price of $0.05 per share to Messrs. Herd,
McCaslin, and Ragsdale, respectively, and 690,000 shares of Common Stock at a
purchase price of $0.03 to Mr. Posey. In connection with such issuances, the
Company also granted such persons warrants to purchase 63,020, 168,634, 543,556,
and 543,556 shares of Common Stock, respectively, at an exercise price of $1.25
per share. In October 1994, the Company issued 500,000, 76,000, and 500,000
shares of Common Stock at a purchase price of $0.50 per share to Messrs. Chaney,
McCaslin, and Ragsdale, respectively. In connection with such issuances, the
Company also granted such persons warrants to purchase 393,882, 59,870, and
393,882 shares of Common Stock, respectively, at an exercise price of $1.25 per
share. In November 1994, the Company issued 40,000 shares of Common Stock at a
purchase
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<PAGE>
price of $0.50 per share to Mr. Edwards. In January 1995, the Company issued
20,000 shares of Common Stock at a purchase price of $0.50 per share to Mr.
Gleghorn. In June 1995 the Company granted warrants in connection with the
issuance of notes payable to purchase 60,000 shares of Common Stock at an
exercise price of $2.50 per share to each of Messrs. Chaney and Ragsdale.
In December 1995 the Company issued an aggregate of 500,000 shares of
Redeemable Convertible Preferred Stock at a purchase price of $6.00 per share to
Bessemer Venture Partners, a venture capital firm, and certain related persons
(collectively, "Bessemer"). In addition, the Company issued Bessemer warrants to
purchase 200,000 shares of Redeemable Convertible Preferred Stock at an exercise
price of $6.00 per share for no additional consideration. Upon consummation of
the Offering, all of such shares of Redeemable Convertible Preferred Stock will
be converted into shares of Common Stock on a share-for-share basis, and such
warrants will be converted into warrants to purchase 200,000 shares of Common
Stock.
Following the Company's affiliation with the Abilene group, David T.
Bailey, M.D., the president of the group, became a member of the Company's Board
of Directors. The Company and the group are parties to an asset purchase
agreement, an interim service agreement, and a service agreement. See "Business
- -- Development and Operations -- Current Operations" and "Business --
Affiliation Structure."
In June 1995, Messrs. Ragsdale and Chaney each advanced the Company
$150,000. The loans, which bore interest at an annual rate of 7.2%, were
forgiven in June 1996 in consideration of the exercise of warrants to purchase
60,000 shares of Common Stock at $2.50 per share. See Note 6 of Notes to
Consolidated Financial Statements.
In March 1996, the Company accepted a note in the amount of $120,000
from Mr. D'Antoni in consideration of his exercise of options to purchase 20,000
shares of Common Stock at an exercise price of $6.00 per share. The note bears
interest at an annual rate of 5.71% and matures on March 1, 2000.
DIRECTOR STOCK OPTION PLAN
The Company has reserved 100,000 shares of Common Stock for issuance to
Directors. Beginning in January 1997, each Director not employed by the Company
will annually be granted options to purchase 2,000 shares of the Company's
Common Stock at an exercise price equal to the fair market value of such stock
on the date of grant, exercisable in annual increments of 20%. Each such
Director who is newly appointed or newly elected to the Board of Directors will
in addition be granted options to purchase 5,000 shares of Common Stock upon the
same terms.
EMPLOYEE STOCK OPTION PLANS
The Company has reserved 1,500,000 shares of Common Stock for issuance
under its 1994 Stock Option Plan and 1,000,000 shares of Common Stock for
issuance under its 1996 Employee Stock Option Plan. Under the plans, which are
administered by the Option Committee of the Board of Directors, key employees,
including executive officers, may be granted incentive or non-qualified stock
options. Options granted under the plans may not be exercised until vested. The
Option Committee is empowered under the plans to determine all terms and
provisions under which options are granted, including (i) the number of shares
subject to each option, (ii) when the option becomes exercisable, (iii) the
exercise price, and (iv) the duration of the option, which cannot exceed ten
years. As of September 30, 1996, options to
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purchase 1,276,200 shares of Common Stock had been granted under the 1994 plan
and none had been granted under the 1996 plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved 500,000 shares of Common Stock for purchase
over the next five years under its 1996 Employee Stock Purchase Plan. This plan
permits employees to purchase shares of Common Stock at a discount to market
value and be eligible to receive favorable income tax treatment of the discount
under section 423 of the Internal Revenue Code of 1986, as amended. Under this
plan, all employees working more than 20 hours weekly are eligible to purchase
reserved shares at a discount equal to 15% of market price. The market cost of
shares purchased by an employee under this plan may not exceed $25,000 annually.
As of September 30, 1996, no shares had been purchased under the Employee Stock
Purchase Plan.
PHYSICIAN STOCK OPTION PLAN
The Company has reserved 1,000,000 shares of Common Stock for issuance
under its 1996 Physician Stock Option Plan. Under the plan, physicians and
physician extenders employed by the Company's affiliated physician groups may be
granted non-qualified options to purchase shares of Common Stock. Options
granted under the plan may not be exercised until vested. The Option Committee
is empowered under the plan to determine all terms and provisions under which
options are granted, including (i) the number of shares subject to each option,
(ii) when the option becomes exercisable, (iii) the exercise price, and (iv) the
duration of the option. As of September 30, 1996, no options had been granted
under the Physician Stock Option Plan.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 30, 1996, and as adjusted to
reflect the sale of the shares offered hereby, by (i) each person who is known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each Director, (iii) each Named Executive Officer, and (iv)
all Directors and executive officers as a group. The Company believes that the
individuals listed below each have sole voting and investment power with respect
to such shares, except as otherwise indicated in the footnotes to the table.
Unless otherwise indicated below, the business address of each person listed is:
c/o ProMedCo, Inc. 801 Cherry Street, Suite 1450, Fort Worth, Texas 76102.
Shares Beneficially Owned Shares Beneficially
Name and Address Prior to Offering(1) Owned After Offering(1)
of Beneficial Owne Number Percent Number Percent
Richard E. Ragsdale 2,026,540 27.2 2,026,540
H. Wayne Posey (2) 1,510,665 20.3 1,510,665
E. Thomas Chaney 1,114,780 15.0 1,114,780
Jack W. McCaslin 518,572 7.0 518,572
Richard R. D'Antoni 120,000 1.6 120,000
David T. Bailey, M.D. - - - -
James F. Herd, M.D. 143,020 1.9 143,020
Bessemer Venture Partners
III L.P.(3) 652,308 8.8 652,308
All Directors and executive
officers as a group
(12 persons) 5,578,377 75.0 5,578,377
(1) Includes shares issuable upon the exercise of options that are exercisable
within 60 days of the date of this Prospectus. The shares underlying such
options are deemed to be outstanding for the purpose of computing the
percentage of outstanding stock owned by such persons individually and by
each group of which they are a member, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
(2) The Company and Mr. Posey (the "Selling Stockholder") have granted to the
Underwriters an over-allotment option to purchase up to an additional
shares of Common Stock. To the extent that the Underwriters exercise this
option, the first 150,000 shares of Common Stock will be sold by the
Selling Stockholder and the balance will be sold by the Company.
See "Underwriting."
(3) This number includes (1) 18,837 shares held by a limited partnership of
which Deer III & Co., the general partner of Bessemer, is the general
partner and (2) 17,381 shares held by six individuals and two subchapter
S corporations employed by or related to Bessemer Securities Corporation,
whose wholly-owned subsidiary is the limited partner of Bessemer. Each of
these individuals and S corporations is obligated to vote his or her
shares as directed by Bessemer. This number does not include 50,162
shares owned or controlled by partners of Deer III & Co., nor does it
include 3,500 shares owned by associates of Deer III & Co. Included in
the foregoing numbers are shares issuable upon conversion of Redeemable
Convertible Preferred Stock which are issuable upon the exercise of
warrants that are presently exercisable at $6.00 per share in the
following amounts: Bessemer - 173,654, the limited partnership - 5,382,
the eight individuals - 4,966, the partners of Deer III & Co., - 14,332
and associates of Deer III & Co. - 1,000. The Redeemable Convertible
Preferred Stock when issued, is convertible into equal numbers of common
shares. The voting partners of the general partner of Bessemer, who may
be deemed the beneficial owners of the securities held by Bessemer, are
William T. Burgin, Robert H. Buescher, David J. Cowan, G. Felda Hardymon,
and Christopher F. O. Gabrieli. This number also includes options
exercisable within 60 days at $6.00 per share, expiring July 1, 2004, to
purchase the following shares: Bessemer, 7,834; the limited partnership
of which Deer III & Co. is the general partner, 243; and the six
individuals and two subchapter S corporations employed by or related to
Bessemer Securities Corporation, 224. This number does not include 586 of
such option shares issuable to partners of Deer III & Co. or to entities
controlled by such partners or 45 of such option shares issuable to
associates of Deer III & Co. These individuals disclaim beneficial
ownership of such securities except to the extent of their partnership
interest. The address of Bessemer Venture Partners is 1025 Old Country
Road, Suite 205, Westbury, New York 11590.
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DESCRIPTION OF CAPITAL STOCK
The following summary description is qualified by reference to the
Company's Certificate of Incorporation, which is filed as an exhibit to the
registration statement of which this Prospectus is a part (the "Registration
Statement"). Upon consummation of the Offering, the authorized capital stock of
the Company will consist of 50,000,000 shares of Common Stock, no par value per
share, of which shares will be issued and outstanding, and 20,000,000 shares of
Preferred Stock, no par value per share, none of which will be issued and
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. There is no cumulative
voting with respect to the election of Directors, with the result that the
holders of a majority of the shares of Common Stock voting for the election of
Directors can elect all of the Directors then up for election. The holders of
Common Stock are entitled to receive dividends when, as, and if declared by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no conversion, preemptive, or
other subscription rights, and there are no redemption provisions applicable to
the Common Stock. All of the outstanding shares of Common Stock are fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further approval or
action by the stockholders, to issue shares of Preferred Stock in one or more
series and to determine the rights, preferences, privileges, and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms, and number of shares
constituting any series of Preferred Stock or the designation of such series.
The rights of the holders of Common Stock will generally be subject to
the prior rights of the holders of any outstanding shares of Preferred Stock
with respect to dividends, liquidation preferences, and other matters. Among
other things, the Preferred Stock could be issued by the Company to raise
capital or finance acquisitions. The Preferred Stock could have certain
anti-takeover effects under certain circumstances. The issuance of shares of
Preferred Stock could enable the Board of Directors to render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, or other business combination transaction directed at the Company
by, among other things, placing shares of Preferred Stock with investors who
might align themselves with the Board of Directors, issuing new shares to dilute
stock ownership of a person or entity seeking control of the Company, or
creating a class or series of Preferred Stock with class voting rights.
The Company has no current plans to issue any shares of its Preferred
Stock.
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DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in certain business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by directors who are
also officers, and excluding certain employee stock option plans); and (iii) on
or after the date the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by the
holders of at least two-thirds of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Except as otherwise specified in Section 203, an "interested
stockholder" is defined as (a) any person that is the owner of 15% or more of
the outstanding voting stock of the corporation, (b) any person that is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder, or (c) the
affiliates and associates of any such person. By restricting the ability of the
Company to engage in business combinations with an interested person, the
application of Section 203 to the Company may provide a barrier to hostile or
unwanted takeovers. Under Delaware law, the Company could have opted out of
Section 203 but elected to be subject to its provisions.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Classified Board of Directors. The Company's Certificate of
Incorporation and By-Laws provide that the Board is to be divided into three
classes of directors serving staggered terms. One class of directors will be
elected at each annual meeting of stockholders for a three-year term. See
"Management-- Directors and Executive Officers." Thus, at least two annual
meetings of stockholders, instead of one, generally will be required to change
the majority of the Board of Directors. Directors can be removed from office
only for cause and only by the affirmative vote of at least two-thirds of the
then outstanding shares of capital stock entitled to vote generally in the
election of Directors, voting as a single class. Vacancies on the Board of
Directors may be filled only by the remaining Directors and not the
stockholders. The foregoing provisions may have the effect of making it more
difficult to acquire control of the Company by means of a hostile tender offer,
open market purchases, a proxy contest, or otherwise.
See "Management."
Requirements for Advance Notification of Stockholder Nominations and
Proposals. The Company's By-Laws require 60 to 90 days' notice to the Company
with regard to stockholder proposals and the nomination, other than by or at the
direction of the Board of Directors or a committee thereof, of candidates for
election as directors. Such notice must provide specified information, including
information regarding the ownership of Common Stock by the person giving the
notice, information regarding the proposal or the nominees, and information
regarding the interest of the proponent in the proposal or the nominations.
Special Meetings of Stockholders; Actions by Written Consent. The Company's
Certificate of Incorporation and By-Laws provide that special meetings of
stockholders of the Company may only be
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called by the Chairman of the Board, the President, or a majority of the then
authorized number of Directors. This provision precludes stockholders from
calling a special meeting and taking actions opposed by the Board of Directors.
The Certificate of Incorporation also provides that stockholder action cannot be
taken by written consent in lieu of a meeting.
Limitation of Director Liability. The Company's Certificate of
Incorporation limits the liability of Directors to the Company and its
stockholders to the fullest extent permitted by Delaware law. Specifically,
under current Delaware law, a director will not be personally liable for
monetary damages for breach of the director's fiduciary duty as a director,
except liability (i) for a breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for liability arising under Section 174 of the Delaware General
Corporation Law (relating to the declaration of dividends and purchase or
redemption of shares in violation of the Delaware General Corporation Law) or
(iv) for any transaction from which the director derived an improper personal
benefit. The inclusion of this provision in the Company's Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care. This limitation on monetary liability does not alter the duties of
Directors, affect the availability of equitable relief, or affect the
availability of monetary relief predicated on claims based upon federal law,
including the federal securities laws.
Supermajority Provisions. The Company's Certificate of Incorporation
provides that the vote of the Board of Directors or the affirmative vote of at
least two-thirds of the then outstanding shares of capital stock entitled to
vote generally in the election of Directors, voting as a single class, is
required to amend, repeal, or alter any of the Company's By-Laws or the
foregoing provisions contained in the Company's Certificate of Incorporation.
RIGHTS PLAN
Prior to the consummation of the Offering, there will be a dividend
distribution of one right (a "Right") for each outstanding share of Common Stock
of the Company to stockholders of record at the close of business on the date
the shares of Common Stock are first offered to the public (the "Record Date").
The Board of Directors will further authorize the issuance of one right for each
share of Common Stock that shall become outstanding between the Record Date and
the earlier of the Final Expiration Date (as defined herein) and the date the
Rights are redeemed. Except as described below, each Right, when exercisable,
entitles the registered holder thereof to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Junior Preferred Shares"), at a price of $ per one
one-hundredth of a share (the "Purchase Price"), subject to adjustment. The
purchase price will be the estimated fair market value of the Junior Preferred
Shares at the dividend distribution date. Therefore, the dividend will have no
initial value and no impact on the financial statements of the Company. The
description and terms of the Rights are set forth in the Rights Agreement (the
"Rights Agreement") between the Company and , as Rights Agent. A copy of the
Rights Agreement has been filed with the Commission as an exhibit to the
registration statement of which this Prospectus is a part. This summary of
certain provisions of the Rights Agreement and the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement.
Initially, the Rights will be evidenced by Common Stock certificates
representing shares then outstanding, and no separate certificates evidencing
the Rights will be distributed. Until the earlier to
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occur of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons, with certain limited exceptions (an "Acquiring
Person"), has acquired, or obtained the right to acquire, beneficial ownership
of capital stock of the Company representing 15% or more of the voting power of
the Company (the "Shares Acquisition Date") or (ii) 15 business days (or such
later date as may be determined by action of the Board of Directors prior to the
time that any person becomes an Acquiring Person) following the commencement of
(or a public announcement of an intention to make) a tender or exchange offer
if, upon consummation thereof, such person or group would be the beneficial
owner of capital stock of the Company representing 15% or more of the voting
power of the Company (such date being called the "Distribution Date"), the
Rights will be evidenced by the Common Stock certificates and not by separate
certificates.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with, and only with, the Common Stock. Until the
Distribution Date (or earlier redemption, expiration, or termination of the
Rights), the transfer of any Common Stock certificates will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and, thereafter, such separate Right Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date, and will
expire upon the earliest of (i) the close of business on the tenth anniversary
of the date of the Rights Agreement (the "Final Expiration Date"), (ii) the
redemption of the Rights by the Company as described below or (iii) the exchange
of all Rights for Junior Preferred Shares as described below.
A person will not become an Acquiring Person under the Rights Agreement
if such person is the Company or an affiliate of the Company or obtained 15% or
more of the voting power of the Company through (i) an issuance of Common Stock
by the Company directly to such person (for example, in a private placement or
an acquisition by the Company in which Common Stock is used as consideration) or
(ii) a repurchase by the Company of Common Stock.
In the event that any person or group becomes an Acquiring Person, each
holder of a Right will thereafter have the right to receive, upon exercise at
the then current exercise price of the Right, Junior Preferred Shares (or, in
certain circumstances, cash, property, or other securities of the Company)
having a value equal to two times the exercise price of the Right.
In the event that, at any time following a Shares Acquisition Date, the
Company is acquired by the Acquiring Person in a merger or other business
combination transaction or 50% or more of the Company's assets or earning power
are sold to the Acquiring Person, proper provision will be made so that each
holder of a Right will thereafter have the right to receive, upon exercise at
the then current exercise price of the Right, common stock of the acquiring or
surviving company having a value equal to two times the exercise price of the
Right.
Notwithstanding the foregoing, following the occurrence of any of the
events set forth in the preceding two paragraphs (the "Triggering Events"), any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will immediately
become null and void.
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The Purchase Price payable, the number of Junior Preferred Shares,
shares of Common Stock or other securities or property issuable upon exercise of
the Rights, and the number of Rights outstanding, are subject to adjustment from
time to time to prevent dilution, among other circumstances, in the event of a
stock dividend on, or a subdivision, split, reverse split, combination,
consolidation, or reclassification of, the Junior Preferred Shares or the Common
Stock.
With certain exceptions, no adjustment to the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% to
the Purchase Price. Upon the exercise of a Right, the Company will not be
required to issue fractional Junior Preferred Shares or fractional shares of
Common Stock (other than fractions in multiples of one one-hundredth of a Junior
Preferred Share) and, in lieu thereof, an adjustment in cash may be made based
on the market price of the Junior Preferred Shares or Common Stock on the last
trading date prior to the date of exercise.
At any time after a person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of capital stock of the Company
representing 50% or more of the voting power of the Company, the Board of
Directors may exchange the Rights (other than Rights owned by such person or
group, which will become void), in whole or in part, at an exchange ratio of one
share of Common Stock per Right (subject to adjustment).
At any time after the date of the Rights Agreement until the earlier of
the time that a person becomes an Acquiring Person or the Final Expiration Date,
the Board of Directors may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"), which may (at the option of
the Company) be paid in cash, shares of Common Stock or other consideration
deemed appropriate by the Board of Directors. Upon the effectiveness of any
action of the Board of Directors ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The provisions of the Rights Agreement may be amended by the Company,
except that any amendment adopted after the time that a person becomes an
Acquiring Person may not adversely affect the interests of holders of Rights.
Upon consummation of the Offering, there will be shares of Common Stock
outstanding and shares of Common Stock reserved for issuance under employee
benefit plans. Each outstanding share of Common Stock will receive one Right.
Junior Preferred Shares will be reserved for issuance in the event of the
exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired by the Acquiring Person. Under certain
circumstances the Rights beneficially owned by such a person or group may become
void. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors because, if the Rights would
become exercisable as a result of such merger or business combination, the Board
of Directors may, at its option, at any time prior to the time that any person
or entity becomes an Acquiring Person, redeem all (but not less than all) of the
then outstanding Rights at the Redemption Price.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of shares of Common Stock in the public
market could adversely affect market prices of the shares and make it more
difficult for the Company to sell equity securities in the future at a time and
price that it deems appropriate.
The shares sold in this Offering ( shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" of the
Company, which will be subject to the resale limitations of Rule 144 under the
Securities Act. As defined in Rule 144, an affiliate of an issuer is a person
who, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such issuer, and generally
includes members of the Board of Directors and senior management. The remaining
shares of Common Stock that will be outstanding immediately following this
Offering include shares issued in private transactions (the "Restricted
Shares").
The Restricted Shares, together with 4,027,020 shares of Common Stock
that may be acquired upon exercise of presently outstanding options and warrants
and 200,030 shares of Common Stock that may be issued upon conversion of
presently outstanding convertible subordinated notes, may not be sold except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption from registration, such as the exemption provided by Rule 144.
The Restricted Shares held by current stockholders will become eligible for
sale, subject to the restrictions of Rule 144, commencing in
. In general, Rule 144 allows a stockholder who has beneficially owned
Restricted Shares for at least two years (including person who may be deemed
"affiliates" of the Company under Rule 144) to sell a number of shares within
any three-month period that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately shares after giving effect to
this Offering) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding such sale. Sales under Rule
144 are also subject to certain requirements as to the manner and notice of sale
and the availability of public information concerning the Company. A stockholder
who is not an "affiliate" of the Company at any time during the 90 days
immediately preceding a sale, and who has beneficially owned his or her shares
for at least three years (as computed under Rule 144), is entitled to sell such
shares under Rule 144 without regard to the volume and manner of sale
limitations described above.
The Company and its Directors, officers, and certain stockholders have
agreed not to offer, sell, or otherwise dispose of any of their Common Stock for
a period of 180 days after the date of this Prospectus without prior written
consent of Piper Jaffray, Inc. See "Underwriting."
Certain holders have demand and "piggyback" registration rights with
respect to 1,238,394 shares of Common Stock held by them or issuable to them,
which rights allow them to require the Company, subject to certain conditions,
to file a registration statement covering the sale of such shares after the
expiration of the 180-day lock up period. In addition, the Company intends to
file a registration statement covering approximately 3,600,000 shares of Common
Stock reserved for issuance under the Company's stock option plans.
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UNDERWRITING
The Company has entered into a Purchase Agreement (the "Purchase
Agreement") with the underwriters listed in the table below (the
"Underwriters"), for whom Piper Jaffray Inc., Robertson, Stephens & Company LLC,
and Cowen & Company are acting as representatives (the "Representatives").
Subject to the terms and conditions set forth in the Purchase Agreement, the
Company has agreed to sell to the Underwriters, and each of the Underwriters has
severally agreed to purchase, the number of shares of Common Stock set forth
opposite each Underwriter's name in the table below:
NUMBER OF
NAME SHARES
Piper Jaffray Inc........................................
Robertson, Stephens & Company LLC........................
Cowen & Company..........................................
Total...........................................
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that in certain circumstances
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Representatives have advised the Company that the Underwriters
propose to offer Common Stock directly to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not more than $ per share.
Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the initial public offering price and other selling terms may be
changed by the Underwriters.
The Company and the Selling Stockholder have granted to the
Underwriters an option, exercisable by the Representatives within 30 days after
the date of the Purchase Agreement, to purchase up to an additional shares of
Common Stock at the same price per share to be paid by the Underwriters for the
other shares offered hereby. If the Underwriters purchase any of such additional
shares pursuant to this option, each Underwriter will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the Common
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Stock offered hereby. To the extent that the Underwriters exercise this option,
the first 150,000 shares of Common Stock will be sold by the Selling Stockholder
and the balance will be sold by the Company.
The Representatives have informed the Company that neither they, nor
any other member of the National Association of Securities Dealers, Inc. (the
"NASD") participating in the Offering, will make sales of shares of Common Stock
offered hereby to accounts over which they exercise discretionary authority
without the prior specific written approval of the customer.
The Offering of the shares of Common Stock is made for delivery when,
as, and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation, or modification of the Offering without notice. The
Underwriters reserve the right to reject an order for the purchase of shares in
whole or in part.
The officers and Directors of the Company and certain other
stockholders designated by the Representatives, who will beneficially own in the
aggregate shares of Common Stock upon completion of the Offering, have agreed
that they will not sell, offer to sell, distribute, or otherwise dispose of any
shares of Common Stock owned by them for a period of 180 days after the date of
this Prospectus, without the prior written consent of Piper Jaffray Inc. See
"Shares Eligible For Future Sale." The Company has agreed that it will not,
without the prior written consent of Piper Jaffray Inc., offer, sell, issue, or
otherwise dispose of any shares of Common Stock, options, or warrants to acquire
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock during the 180-day period following the date of this Prospectus,
except that the Company may issue shares upon the exercise of options and
warrants granted prior to the date hereof, may grant additional options under
, and may issue Common Stock in connection with
affiliation with new physician groups.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiation among the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management, and the consideration of
the above factors in relation to the market valuation of companies in related
businesses. See "Risk Factors--No Prior Public Market; Possible Volatility of
Price."
The Company has agreed to indemnify the Underwriters and their
controlling persons against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
54
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offering are being passed
upon by Dyer Ellis & Joseph PC, Washington, D.C., special counsel to the
Company, and for the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1994 and 1995, June 30, 1996, and for the period from inception
(July 1, 1994) to December 31, 1994, and the year ended December 31, 1995,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of North Texas Medical Surgical, P.A., Cullman
Family Practice, P.C., Family Medical Clinic, P.C., Morgan-Haugh, P.S.C., King's
Daughters Clinic P.A., Western Medical Management, Inc., and the combined
financial statements of HealthFirst Services, Inc. and Tarrant Family Practice,
P.A. and Abilene Diagnostic Clinic Practices included in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 including amendments thereto
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified by such reference. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, exhibits, and schedules. A copy of the
Registration Statement may be inspected without charge at the Securities and
Exchange Commission's principal office located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, the New York Regional Office located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and the Chicago Regional
Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and copies of all or any part thereof may be obtained from
the Public Reference Section of the Securities and Exchange Commission upon the
payment of certain fees prescribed by the Securities and Exchange Commission.
The Registration Statement may also be obtained from the Web site that the
Commission maintains at http:\www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for each of the first three quarters of
each fiscal year containing unaudited financial information.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
Report of Independent Public Accountants............................ F-4
Consolidated Balance Sheets as of December 31, 1994 and
1995, and June 30, 1996 and September 30, 1996 (unaudited)...... F-5
Consolidated Statements of Operations for the period
from inception (July 1, 1994) to December 31, 1994,
the year ended December 31, 1995, and the nine months
ended September 30, 1995 and 1996 (unaudited)................... F-7
Consolidated Statements of Stockholders' Equity for
the period from inception (July 1, 1994) to December 31,
1994, the year ended December 31, 1995,
and the six months ended June 30, 1996 and the three months ended
September 30, 1996 (unaudited).................................. F-8
Consolidated Statements of Cash Flows for the period
from inception (July 1, 1994) to December 31, 1994,
the year ended December 31, 1995, and the nine months
ended September 30, 1995 and 1996 (unaudited)................... F-9
Notes to Consolidated Financial Statements.......................... F-10
NORTH TEXAS MEDICAL SURGICAL, P.A.
Report of Independent Public Accountants............................ F-26
Balance Sheets as of December 31, 1994, and June 30, 1995........... F-27
Statements of Operations for the years ended
December 31, 1993 and 1994, and
the six months ended June 30, 1995.............................. F-28
Statements of Stockholders' Equity for the years
ended December 31, 1993
and 1994, and the six months ended June 30, 1995................ F-29
Statements of Cash Flows for the years ended
December 31, 1993 and 1994,
and the six months ended June 30, 1995.......................... F-30
Notes to Financial Statements....................................... F-31
CULLMAN FAMILY PRACTICE, P.C.
Report of Independent Public Accountants............................ F-34
Balance Sheets as of December 31, 1994 and 1995..................... F-35
Statements of Operations for the years ended
December 31, 1994 and 1995, the
period from January 1, 1995 to
February 28, 1995 (unaudited), and the period
from January 1, 1996 to March 6, 1996 (unaudited)............... F-36
Statements of Stockholders' Equity for the years
ended December 31, 1994 and 1995................................ F-37
Statements of Cash Flows for the years ended
December 31, 1994 and 1995...................................... F-38
Notes to Financial Statements....................................... F-39
F-1
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
Report of Independent Public Accountants............................ F-42
Balance Sheets as of December 31, 1994 and 1995..................... F-43
Statements of Operations for the years ended
December 31, 1994 and 1995, the
period from January 1, 1995, to February 28,
1995 (unaudited), and the period
from January 1, 1996 to March 6, 1996 (unaudited)............... F-44
Statements of Stockholders' Equity for the years
ended December 31, 1994 and 1995................................ F-45
Statements of Cash Flows for the years ended
December 31, 1994 and 1995...................................... F-46
Notes to Financial Statements....................................... F-47
MORGAN-HAUGH, P.S.C.
Report of Independent Public Accountants............................ F-51
Balance Sheets as of December 31, 1994 and 1995..................... F-52
Statement of Operations for the years ended
December 31, 1993, 1994, and 1995, the
period from January 1, 1995 to March 31, 1995
(unaudited), and the period from
January 1, 1996 to March 31, 1996 (unaudited)................... F-53
Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994, and 1995 .............................. F-54
Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995............................... F-55
Notes to Financial Statements....................................... F-56
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
Report of Independent Public Accountants............................ F-62
Combined Balance Sheets as of December 31, 1994 and 1995............ F-63
Combined Statements of Operations for the years
ended December 31, 1993,
1994, and 1995, the period from
January 1, 1995 to May 31, 1995
(unaudited), and the period from January 1, 1996 to
May 31, 1996 (unaudited)........................................ F-64
Combined Statements of Owners' Equity for the years ended
December 31, 1993, 1994, and 1995............................... F-65
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995............................... F-66
Notes to Combined Financial Statements.............................. F-67
F-2
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES
Report of Independent Public Accountants............................ F-71
Combined Balance Sheets as of December 31,
1994 and 1995 and September 30,
1996 (unaudited)................................................ F-72
Combined Statements of Operations for the years ended
December 31, 1993, 1994, and 1995, and the
nine months ended September 30,
1995 and 1996 (unaudited)....................................... F-73
Combined Statements of Owners' Equity for the years ended
December 31, 1993, 1994, and 1995............................... F-74
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995, and the nine months ended
September 30, 1995 and 1996 (unaudited)......................... F-75
Notes to Combined Financial Statements.............................. F-76
KING'S DAUGHTERS CLINIC, P.A.
Report of Independent Public Accountants............................ F-80
Balance Sheets as of December 31, 1994 and 1995, and
August 31, 1996 (unaudited)..................................... F-81
Statements of Operations for the years ended
December 31, 1993, 1994, and 1995,
and the eight months ended August 31,
1995 and 1996 (unaudited)....................................... F-82
Statements of Stockholders' Equity for the
years ended December 31, 1993,
1994, and 1995, and the eight months
ended August 31, 1996 (unaudited).............................. F-83
Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995,
and the eight months ended August 31, 1995 and
1996 (unaudited)............................................... F-84
Notes to Financial Statements....................................... F-85
WESTERN MEDICAL MANAGEMENT CORP., INC.
Report of Independent Public Accountants............................ F-91
Balance Sheets as of December 31, 1994 and
1995, and September 30,
1996 (unaudited)................................................ F-92
Statements of Operations for the years ended
December 31, 1993, 1994, and 1995,
and the nine months ended September 30, 1995 and
1996 (unaudited)................................................ F-93
Statements of Stockholders' Equity for the years
ended December 31, 1993,
1994, and 1995, and the nine months ended
September 30, 1996 (unaudited).................................. F-94
Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995,
and the nine months ended September 30, 1995 and
1996 (unaudited)................................................ F-95
Notes to Financial Statements....................................... F-96
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Professional Medical Management Company:
We have audited the accompanying consolidated balance sheets of Professional
Medical Management Company (a Delaware corporation - see Note 7 to Consolidated
Financial Statements) and subsidiaries as of December 31, 1994 and 1995, and
June 30, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from inception (July 1,
1994) to December 31, 1994, and the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional Medical Management
Company and subsidiaries as of December 31, 1994 and 1995, and June 30, 1996,
and the results of their operations and their cash flows for the period from
inception (July 1, 1994) to December 31, 1994, and the year ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
August 20, 1996
F-4
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
September 30, 1996
(Note 2)
Pro Forma
Merger Including
Pro Forma and Merger
December 31, June 30, September 30,For Equity Acquisition and
ASSETS 1994 1995 1996 1996 Conversions Adjustments Acquisition
--------- --------- ----------- ---------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........ $490,391 $1,076,836 $ 1,148,243 $ 941,038 $ 941,038 $ 185,356 $ 1,126,394
Short-term investments........... - 1,970,530 - - - - -
Accounts receivable, net of
allowances of $0, $135,334,
$1,289,008, and $4,559,730,
respectively................... 200 168,177 1,415,350 4,809,591 4,809,591 3,243,316 8,052,907
Inventory........................ - 13,035 78,641 194,385 194,385 7,678 202,063
Management fees receivable....... - 116,968 806,378 418,244 418,244 (418,244) -
Due from affiliated physician groups - - 371,448 1,203,503 1,203,503 (664,506) 538,997
Prepaid expenses and other
current assets................. 62 17,559 120,829 247,617 247,617 65,849 313,466
-------- --------- ----------- ---------- ---------- ----------- -----------
Total current assets......... 490,653 3,363,105 3,940,889 7,814,378 7,814,378 2,419,449 10,233,827
PROPERTY AND EQUIPMENT, net
of accumulated depreciation and
amortization of $1,049, $22,907,
$48,124, and $108,970,
respectively..................... 31,555 96,035 887,902 2,986,762 2,986,762 598,134 3,584,896
INTANGIBLE ASSETS, net of
accumulated amortization of $0,
$11,515, $60,613, and $102,199,
respectively..................... - 976,025 6,841,027 14,459,340 14,459,340 10,701,514 25,160,854
OTHER ASSETS, net of accumulated
amortization of $133, $1,062, $1,716
and $25,882, respectively........ 2,233 16,182 84,062 660,794 660,794 20,786 681,580
-------- --------- ----------- ---------- ---------- ----------- -----------
Total assets................. $524,441 $4,451,347 $11,753,880 $25,921,274 $25,921,274 $13,739,883 $39,661,157
======== ========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- CONT.
<TABLE>
<CAPTION>
Pro Forma
September 30, 1996
(Note 2)
Pro Forma
Merger Including
Pro Forma and Merger
December 31, June 30, September 30,For Equity Acquisition and
1994 1995 1996 1996 Conversions Adjustments Acquisition
--------- ----------- ----------- ---------- -------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 19,794 $ 94,174 $ 291,624 $ 1,052,924 $ 1,052,924 $ 939,355 $ 1,992,279
Payable to affiliated physician groups - - 276,747 1,211,197 1,211,197 513,811 1,725,008
Accrued salaries, wages and benefits. - 24,079 269,299 1,097,484 1,097,484 - 1,097,484
Accrued expenses and other current
liabilities........................ 359 185,346 840,928 1,366,460 1,366,460 328,208 1,694,668
Current maturities of notes payable.. 1,025 66,898 420,132 759,872 759,872 449,119 1,208,991
Current maturities of obligations under
capital lease...................... - - - 269,361 269,361 - 269,361
Deferred purchase price.............. - - 264,408 169,408 169,408 - 169,408
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities...... 21,178 370,497 2,363,138 5,926,706 5,926,706 2,230,493 8,157,199
NOTES PAYABLE, net of current
maturities........................... 2,050 1,429 455,169 1,191,025 1,191,025 379,477 1,570,502
NOTES PAYABLE TO
STOCKHOLDERS......................... - 261,604 - - - - -
OBLIGATIONS UNDER CAPITAL
LEASE ............................... - - - 1,030,171 1,030,171 - 1,030,171
DEFERRED PURCHASE PRICE................. - - 718,000 718,000 718,000 - 718,000
CONVERTIBLE SUBORDINATED
NOTES PAYABLE........................ - - 1,800,274 1,800,274 1,800,274 - 1,800,274
OTHER LONG TERM LIABILITIES............. - - - 393,575 393,575 - 393,575
--------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities.............. 23,228 633,530 5,336,581 11,059,751 11,059,751 2,609,970 13,669,721
--------- ----------- ----------- ----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CONVERTIBLE
PREFERRED STOCK, 700,000 shares
authorized; 500,000 shares issued and
outstanding (liquidation preference of
$6,000,000) ......................... - 2,953,358 2,953,358 2,953,358 - - -
REDEEMABLE COMMON STOCK,
165,296 shares issued
and outstanding...................... - 991,776 991,776 991,776 - - -
STOCKHOLDERS' EQUITY:
Class B Common Stock, no par value;
2,600,000 shares authorized; 1,226,150
shares issued and outstanding (liquidation
preference of $1,226,150).......... 601,893 601,893 601,893 601,893 - - -
Common stock, no par value; 50,000,000
shares authorized; 1,878,000, 1,899,000,
2,122,827, and 2,700,136 shares
issued and outstanding at December 31,
1994 and 1995, June 30, 1996, and
September 30, 1996, respectively... 102,710 165,856 1,238,077 9,226,653 13,773,680 9,501,042 23,274,722
Common stock to be issued, 0, 667,
167,647 and 194,361 shares, at
December 31, 1994 and 1995, June 30,
1996, and September 30, 1996,
respectively....................... - 4,000 2,011,760 2,385,760 2,385,760 3,390,782 5,776,542
Stockholder notes receivable......... (33,500) (31,834) (126,250) (122,500) (122,500) (122,500)
Accumulated deficit.................. (169,890) (867,232) (1,253,315) (1,175,417) (1,175,417) (1,761,911) (2,937,328)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity..... 501,213 (127,317) 2,472,165 10,916,389 14,861,523 11,129,913 25,991,436
--------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity......... $ 524,441 $ 4,451,347 $11,753,880 $25,921,274 $25,921,274 $13,739,883 $39,661,157
========= =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
(July 1, 1994)
to Year Ended Nine Months
December 31, December 31, Ended September 30,
1994 1995 1995 1996
--------------- --------------- ---------------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
PHYSICIAN GROUP
REVENUE, NET....................... $ - $ 1,918,029 $ 690,110 $ 20,779,713
LESS: COST OF AFFILIATED
PHYSICIAN SERVICES.................. - 759,513 247,103 9,249,421
--------------- --------------- ---------------- ---------------
NET REVENUE........................... - 1,158,516 443,007 11,530,292
OPERATING EXPENSES:
Clinic salaries and benefits....... - 554,384 232,010 4,483,942
Clinic rent and lease expense...... - 115,028 37,958 1,222,006
Clinic supplies.................... - 111,703 42,133 1,411,472
Other clinic costs................. - 242,491 87,372 2,644,614
General corporate expenses......... 172,462 802,980 538,033 1,824,521
Depreciation and amortization...... 1,182 34,302 21,240 201,567
Interest expense (income).......... (3,754) (5,030) (12,937) 50,355
--------------- --------------- ---------------- ---------------
169,890 1,855,858 945,809 11,838,477
--------------- --------------- ---------------- ---------------
LOSS BEFORE PROVISION FOR
INCOME TAXES....................... (169,890) (697,342) (502,802) (308,185)
PROVISION FOR INCOME TAXES............ - - - -
--------------- --------------- ---------------- ---------------
NET LOSS.............................. $ (169,890) $ (697,342) $ (502,802) $ (308,185)
=============== =============== ================ ===============
NET LOSS PER SHARE.................... $ (0.03) $ (0.09) $ (0.07) $ (0.04)
=============== =============== ================ ===============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING........................ 6,014,197 7,510,269 7,487,146 7,578,094
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class B Common Stockholder
Common Stock Common Stock Stock Notes Accumulated
Shares Amount Shares Amount To Be Issued Receivable Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1,
1994, (inception).. - $ - - $ - $ - $ - $ - $ -
Issuance of common
stock............ - - 1,878,000 102,710 - (34,750) - 67,960
Issuance of Class B
common stock..... 1,226,150 601,893 - - - - - 601,893
Payments on stockholder
notes............ - - - - - 1,250 - 1,250
Net loss........... - - - - - - (169,890) (169,890)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31,
1994............... 1,226,150 601,893 1,878,000 102,710 - (33,500) (169,890) 501,213
Common stock
subscribed....... - - - - 4,000 (4,000) - -
Issuance of common stock
and warrants..... - - 21,000 63,146 - (10,000) - 53,146
Payments on stockholder
notes............ - - - - - 15,666 - 15,666
Net loss........... - - - - - - (697,342) (697,342)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31,
1995.................. 1,226,150 601,893 1,899,000 165,856 4,000 (31,834) (867,232) (127,317)
Issuance of common
stock............ - - 223,827 1,072,221 - - - 1,072,221
Stock subscription
canceled......... - - - - (4,000) 4,000 - -
Common stock
to be issued in
connection with
acquisitions..... - - - - 2,011,760 - - 2,011,760
Issuance of stockholder
note............. - - - - - (120,000) - (120,000)
Payments on stockholder
notes............ - - - - - 21,584 - 21,584
Net loss........... - - - - - - (386,083) (386,083)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
BALANCE, June 30,
1996.................. 1,226,150 601,893 2,122,827 1,238,077 2,011,760 (126,250) (1,253,315) 2,472,165
Issuance of common
stock (unaudited).. - - 577,309 7,988,576 - - - 7,988,576
Common stock to be issued
in connection
with acquisitions
(unaudited)........ - - - - 374,000 - - 374,000
Payments on stockholder
notes (unaudited).. - - - - - 3,750 - 3,750
Net income (unaudited) - - - - - - 77,898 77,898
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30,
1996 (unaudited)...... 1,226,150 $ 601,893 2,700,136 $ 9,226,653 $ 2,385,760 $ (122,500) $(1,175,417) $10,916,389
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
(July 1, 1994)
to Year Ended Nine Months
December 31, December 31, Ended September 30,
1994 1995 1995 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (169,890) $ (697,342) $ (502,802) $ (308,185)
Adjustments to reconcile net loss to net
cash used in operating activities (net of effects of
purchase transactions):
Depreciation and amortization.............................. 1,182 34,302 21,240 201,567
Noncash compensation....................................... - - - 14,750
Changes in assets and liabilities:
Accounts receivable...................................... (200) (45,791) (42,234) (703,301)
Inventory................................................ - (13,035) (13,948) (115,991)
Management fees receivable............................... - (116,968) - (301,276)
Due from affiliated physician groups..................... - - (14,629) (849,924)
Prepaid expenses and other current assets................ (62) 11,914 7,372 (71,614)
Other assets............................................. (2,366) (13,949) (5,026) (126,469)
Accounts payable......................................... 19,794 55,048 46,450 332,695
Accrued expenses and other current liabilities........... 359 143,625 29,802 1,684,569
------------ ------------ ------------- ------------
Net cash used in operating activities.................. (151,183) (642,196) (473,775) (243,179)
------------ ------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (32,604) (30,395) (15,113) (510,611)
Purchases of clinic assets, net of cash........................ - (90,424) (90,424) (1,499,097)
Purchases of short-term investments............................ - (1,970,530) - -
Proceeds from short-term investments........................... - - - 1,970,530
------------ ------------ ------------- ------------
Net cash used in investing activities.................. (32,604) (2,091,349) (105,537) (39,178)
------------ ------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable................................. 3,075 297,820 360,706 674,319
Payment of deferred financing costs............................ - - - (570,000)
Proceeds from issuance of redeemable
convertible preferred stock.................................. - 2,953,358 - -
Proceeds from issuance of common stock......................... 704,603 63,146 15,000 126,656
Payment of deferred purchase price............................. - - - (95,000)
Payments of stockholder notes receivable, net.................. (33,500) 5,666 2,466 10,584
------------ ------------ ------------- ------------
Net cash provided by financing activities.............. 674,178 3,319,990 378,172 146,559
------------ ------------ ------------- ------------
INCREASE (DECREASE) IN CASH....................................... 490,391 586,445 (201,140) (135,798)
CASH AND CASH EQUIVALENTS, beginning of period.................... - 490,391 490,391 1,076,836
------------ ------------ ------------- ------------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 490,391 $ 1,076,836 $ 289,251 $ 941,038
============ ============ ============= ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION (See also Notes 3 and 6):
Cash paid during the year-
Interest expense............................................. $ - $ 14,391 $ - $ 50,355
Income taxes................................................. $ - $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995, JUNE 30, 1996, AND
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
1. DESCRIPTION OF BUSINESS:
Professional Medical Management Company and subsidiaries ("ProMedCo" or the
"Company"), a Delaware corporation, formerly ProMedCo, Inc. and subsidiaries, a
Texas corporation (see Note 7), is engaged in operating and managing physician
groups. The Company, through its wholly owned subsidiaries, acquires certain net
assets of and operates physician groups under long-term service agreements with
affiliated physician groups. The Company was incorporated in Texas in December
1993, commenced operations in December 1994, and completed its first acquisition
in June 1995. Therefore, the Company has a limited operating history.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation/Basis of Consolidation
The consolidated financial statements have been prepared on the accrual basis of
accounting and include the accounts of the Company and its wholly owned
subsidiaries that have acquired the operating assets and assumed certain
liabilities of its affiliated physician groups. The Company's subsidiaries
account for the Company's operating activities with its affiliated physician
groups under the Company's long-term service agreements. All intercompany
accounts and transactions have been eliminated in the consolidation.
The Company's financial statements have been prepared in anticipation of an
initial public offering (the "Offering").
F-10
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Net Revenue
Revenue for the physician groups is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered and reduced
by the cost of affiliated physician services. The cost of affiliated physician
services represents amounts paid to the physicians under the management service
agreements. Net revenue represents the Company's proportionate share of revenue
under these agreements.
Under these service agreements, the Company typically provides the physician
group with the facilities and equipment used in the group's medical practice,
assumes responsibility for the management of the operations of the practice, and
employs substantially all of the non-physician personnel utilized by the group.
The income of both the Company and the physicians within each group is dependent
upon the operating income of the group. Under the service agreements, the
physician groups receive a fixed percentage of group operating income, which is
defined as the group's net revenue less certain contractually agreed-upon clinic
expenses before physician salaries and other physician-related expenses.
Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provisions for estimated third-party payor settlements
and adjustments are estimated in the period the related services are rendered
and adjusted in future periods as final settlements are determined. There are no
material claims, disputes, or other unsettled matters that exist to management's
knowledge concerning third-party reimbursements. In addition, management
believes there are no retroactive adjustments that would be material to the
Company's financial statements. During 1995 and 1996, the Company estimates that
approximately 60% and 30%, respectively, of net physician group revenue was
received under government-sponsored healthcare programs (principally, the
Medicare and Medicaid programs). The Company has numerous agreements with
managed care organizations to provide physician services based on negotiated fee
schedules. No individual managed care organization is material to the Company.
F-11
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Net Loss Per Share
In September 1995, the Company's Board of Directors declared a two-for-one split
of the Company's Common Stock including the Class B Common Stock. All share and
per share amounts have been restated to reflect the stock split. Net loss per
share is computed by dividing net loss by the number of common and common
equivalent shares outstanding during the periods in accordance with the
applicable rules of the Securities and Exchange Commission ("SEC"). All Common
Stock and Common Stock options and warrants issued or contingently issuable in
the year prior to the Offering have been considered as outstanding Common Stock
equivalents for all periods presented under the treasury stock method, based on
an estimate of the initial public offering price. Shares of Common Stock
issuable upon conversion of the Redeemable Convertible Preferred Stock are
assumed to be Common Stock equivalent shares for all periods presented. Fully
diluted net loss per share is not materially different than primary net loss per
share and is therefore not presented.
Unaudited Pro Forma Information at September 30, 1996
Upon completion of the Offering, all outstanding Redeemable Convertible
Preferred Stock and Class B Common Stock will be exchanged for Common Stock and
the Company's contingent obligation to repurchase certain shares of Common Stock
will terminate (see Note 7). The unaudited pro forma balance sheet information
is presented as if such conversions and termination had occurred as of September
30, 1996.
The Company has also presented unaudited pro forma balance sheet information at
September 30, 1996 to reflect the effects of pending acquisitions as described
in Notes 3 and 11.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Short-Term Investments
The Company has government-sponsored agency debt securities which are classified
as "held-to- maturity." These securities matured in February and May 1996.
Accounts Receivable
Accounts receivable principally represent receivables from patients for medical
services provided by physician groups. Such amounts are recorded net of
contractual allowances and estimated bad debts.
F-12
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets which range from three to ten years. Leasehold improvements
are amortized on a straight-line basis over the shorter of the lease term or
estimated useful life of the assets. Routine maintenance and repairs are charged
to expense as incurred, while major renewals or improvements are capitalized.
Intangible Assets
The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated physician
groups. As part of the purchase allocation, the Company allocates the purchase
price to the tangible assets acquired and liabilities assumed, based on
estimated fair market values. In connection with each acquisition, the Company
enters into long-term service agreements with the affiliated physician groups.
The service agreements are for a term of 40 years and cannot be terminated by
either party without cause, consisting primarily of bankruptcy or material
default.
The cost of obtaining these service agreements and the excess of cost over net
assets acquired is attributed to and allocated to the rights the Company obtains
in connection with the service agreements. These service agreement rights are
being amortized using the straight-line method over 40 years, the non-cancelable
term of the service agreements not including options for future extensions.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Under SFAS No. 121, intangibles
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If this review
indicates that the carrying amount of the asset may not be recoverable, as
determined based on the undiscounted cash flows of the operations acquired over
the remaining amortization period, the carrying value of the asset is reduced to
fair value.
Payable to Affiliated Physician Groups
Amounts payable to affiliated physician groups primarily represent monthly
compensation to physicians which, based on the service agreements, are generally
payable to physicians by the 15th day following the end of each month.
F-13
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Deferred Purchase Price
Deferred purchase price represents cash consideration due to affiliated
physician groups payable in July 1996 through January 1997. Deferred purchase
price totaling $718,000 has been classified as long-term as the amount will be
refinanced with borrowings under the Company's revolving credit agreement.
Income Taxes
The Company and its subsidiaries file a consolidated tax return. The Company's
year-end for tax reporting purposes is June 30. The Company accounts for income
taxes under the liability method which states that deferred taxes are to be
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of enacted tax laws. Deferred income tax provisions and benefits are based on
the changes to the asset or liability from period to period.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires entities to
measure compensation costs related to awards of stock-based compensation using
either the fair value method or the intrinsic value method. Under the fair value
method, compensation expense is measured at the grant date based on the fair
value of the award. Under the intrinsic value method, compensation expense is
equal to the excess, if any, of the quoted market price of the stock at the
grant date over the amount the employee must pay to acquire the stock. Entities
electing to measure compensation costs using the intrinsic value method must
make pro forma disclosures for fiscal years beginning after January 1, 1996, of
net income and earnings per share as if the fair value method had been applied.
The Company has elected to account for stock-based compensation programs using
the intrinsic value method consistent with existing accounting policies and,
therefore, the standard will have no effect on the consolidated financial
statements.
F-14
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Basis of Presentation--Interim Financial Statements
The interim financial statements and footnote disclosures as of and for the nine
months ended September 30, 1995 and 1996 have been prepared by the Company,
without audit, pursuant to Accounting Principles Board ("APB") Opinion No. 28,
"Interim Financial Reporting." Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to APB Opinion No. 28; nevertheless, management of the Company believes that the
disclosures herein are adequate to prevent the information presented from being
misleading. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the results of their
operations for the nine month periods ended September 30, 1995 and 1996, have
been included herein.
3. ACQUISITIONS:
During the year ended December 31, 1995, the Company, through its wholly owned
subsidiary, acquired in an asset purchase transaction, certain operating assets
and assumed certain operating liabilities of a physician group located in Texas.
During the nine months ended September 30, 1996, the Company, through its wholly
owned subsidiaries, acquired certain operating assets and assumed certain
operating liabilities of five additional physician groups, two located in
Alabama, one in Kentucky, and two in Texas. The two acquisitions located in
Alabama were both acquired in stock purchase transactions and the other three
acquisitions were asset purchase transactions. In addition, the Company has
entered into an asset purchase agreement to acquire the operating assets and
liabilities of a group that is currently operated under an interim service
agreement. The closing of this acquisition will occur on February 16, 1997.
The acquisitions of the operating assets and liabilities have been accounted for
by the purchase method of accounting and, accordingly, the purchase price has
been allocated to the tangible assets acquired and liabilities assumed based on
the estimated fair values at the dates of acquisition. The accounts receivable
was valued at net collectible values based upon analyses by the Company. The
estimated fair values of assets acquired and liabilities assumed during 1995 and
1996 are summarized as follows:
F-15
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
<TABLE>
<CAPTION>
Six Months Nine Months
Year Ended Ended Ended
December 31, June 30, September 30,
1995 1996 1996
-------------- ------------- ---------
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 2,360 $ 172,677 $ 172,677
Accounts receivable, net..................................... 90,222 1,073,477 3,777,320
Prepaid expenses and other current assets.................... 15,649 320,102 556,144
Property and equipment....................................... 66,529 673,425 2,462,181
Liabilities assumed.......................................... (74,097) (384,516) (4,358,220)
Intangible assets............................................ 987,540 5,914,100 13,574,356
-------------- ------------- -------------
1,088,203 7,769,265 16,184,458
Less- fair value of common stock issued and to be issued..... 991,776 2,631,284
10,868,860...................................................
Less- notes and convertible subordinated notes issued........ - 2,613,882 2,613,882
Less- deferred purchase price (payable in cash).............. - 982,408 982,439
-------------- ------------- -------------
Cash purchase price.......................................... $ 96,427 $ 1,541,691 $ 1,719,277
============== ============= =============
</TABLE>
The fair value of common stock issued and to be issued for each acquisition is
determined by the Company based upon an analysis of the value of the operating
assets and liabilities being acquired using projected discounted cash flows and
the negotiation process between the Company and the sellers. For certain
acquisitions occurring close to or at the end of the period, the estimated fair
values are preliminary, and therefore are subject to change. Under the purchase
agreements, the purchase price is adjustable by the Company for a period between
60 to 120 days after the closing of the transaction in order to finalize the
fair values of the assets acquired and liabilities assumed.
In connection with the acquisition of a physician group, the Company is
contingently obligated to pay additional consideration, depending on the
achievement of certain financial results, as defined by the purchase agreement.
The Company is contingently obligated until the earlier of the Offering or June
1997. Such liability, if any, will be recorded in the period in which the
outcome of the contingency becomes known. Any payment made will be accounted for
as additional consideration and will not be immediately charged to expense.
Based on the operations of the physician group to date, the Company does not
believe any obligation arising from the arrangement will have a material effect
on the Company's financial position or results of operations.
In connection with the acquisition of a physician group, the Company has issued
Common Stock to the sellers as consideration for the purchase. The purchase
agreement requires the Company to issue additional shares based on the Offering
price, net of certain adjustments as defined by the purchase
F-16
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
agreement. Based upon the estimated Offering price, an additional 237,000 shares
would be issued in connection with this acquisition.
In addition, the Company has entered into an agreement to acquire the operating
assets and liabilities of a physician group which is currently operated under an
interim service agreement. The closing of this acquisition will occur on
February 16, 1997. The Company will issue approximately 1,884,000 common shares
as consideration related to the acquisition, adjustable as defined by the
purchase agreement.
The following unaudited pro forma information reflects the effect of
acquisitions on the consolidated results of operations of the Company had the
acquisitions occurred at January 1, 1995. Future results may differ
substantially from pro forma results and cannot be considered indicative of
future results.
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
(Unaudited) (Unaudited)
Physician group revenue, net............... $ 47,808,484 $ 38,400,348
Less: cost of affiliated physician services 20,424,715 15,841,016
---------------- ---------------
Net revenue................................ $ 27,383,769 $ 22,559,332
================ ===============
Net income.................................. $ 157,149 $ 209,861
================ ===============
Net income per share........................ $ 0.02 $ 0.02
================ ===============
4. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30, September 30,
1994 1995 1996 1996
(unaudited)
<S> <C> <C> <C> <C>
Furniture, fixtures, and equipment............ $ 32,604 $ 108,942 $ 723,696 $ 2,820,632
Leasehold improvements........................ - 10,000 212,330 275,100
Less- accumulated depreciation
and amortization............................ (1,049) (22,907) (48,124) (108,970)
------------- -------------- ------------- -------------
Property and equipment, net................... $ 31,555 $ 96,035 $ 887,902 $ 2,986,762
============= ============== ============= =============
</TABLE>
F-17
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
5. INTANGIBLE ASSETS:
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30, September 30,
1995 1996 1996
(unaudited)
<S> <C> <C> <C>
Service agreement rights............................... $ 987,540 $ 6,901,640 $ 14,561,539
Less- accumulated amortization......................... (11,515) (60,613) (102,199)
--------------- ---------------- ---------------
Intangible assets, net................................. $ 976,025 $ 6,841,027 $ 14,459,340
=============== ================ ===============
</TABLE>
6. NOTES PAYABLE, OTHER LONG-TERM DEBT AND OBLIGATIONS UNDER
CAPITAL LEASES:
Notes Payable are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30, September 30,
1994 1995 1996 1996
(Unaudited)
<S> <C> <C> <C> <C>
Notes payable issued to stockholders.......... $ - $ 261,604 $ - $ -
============= ========== =========== ==========
Note payable issued to physician groups....... $ - $ - $ 823,093 $ 837,321
Borrowings under Credit Facility.............. - - - 647,000
Other notes payable........................... 3,075 68,327 52,208 466,576
------------- ---------- ----------- ----------
3,075 68,327 875,301 1,950,897
Less- current portion......................... (1,025) (66,898) (420,132) (759,872)
------------- ---------- ----------- ----------
Notes payable, net............................ $ 2,050 $ 1,429 $ 455,169 $1,191,025
============= ========== =========== ==========
</TABLE>
The maturities of notes payable at September 30, 1996, are as follows:
Remaining in 1996............................. $ 337,358
1997.......................................... 422,514
1998.......................................... 581,119
1999.......................................... 139,770
2000.......................................... 140,660
2001.......................................... 329,476
Thereafter.................................... -
-------------
$ 1,950,897
In connection with the issuance of notes payable to stockholders and one other
party in 1995, the Company issued 150,000 warrants to purchase common stock at
$2.50 per share. On June 30, 1996, the warrants were exercised in exchange for
forgiveness of the notes payable.
F-18
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
The interest rates on the notes payable ranges from 7.0% to 8.25% and mature
from 1998 to 2001.
Convertible Subordinated Notes Payable
On March 29, 1996, in connection with the affiliation of two physician groups,
the Company issued $1,800,274 in convertible subordinated notes. The notes bear
interest at 7.0% and mature in March 2003. The notes may, at the election of the
noteholders, be converted into shares of Common Stock at a conversion price of
$9.00 per share, subject to certain limitations as defined in the note
agreement. In addition, upon the effective date of the Offering, 20% of the
notes will, at the option of the holder, convert into shares of Common Stock.
Revolving Credit Agreement
Effective July 15, 1996, the Company entered into a revolving credit agreement
(the "Credit Facility"). The Credit Facility provides for a three-year
commitment to fund revolving credit borrowings of up to $25.0 million for
acquisitions and general working capital purposes. Under the terms of the Credit
Facility, the Company paid a commitment fee of approximately $500,000 which has
been capitalized in other assets in the accompanying September 30, 1996
consolidated balance sheet and amortized as an adjustment to interest expense
using the effective interest method. In July, the Company granted options to the
lender exercisable for 62,500 shares of Common Stock. In August, options to
purchase 15,625 shares were exercised at $8.00 per share. The remaining options
to purchase 46,875 shares at an exercise price of $10.00 per share were
outstanding as of September 30, 1996. The interest rate under the Credit
Facility will be set at the Company's option as follows: (i) 30-day commercial
paper rate of an issuer whose corporate bonds are rated "AA," plus 3.25%; (ii)
reserve adjusted LIBOR, as defined, plus 3.25%; or (iii) prime rate plus .5%.
The Credit Facility includes certain restrictive covenants including limitations
on the payment of dividends as well as the maintenance of certain financial
ratios. The Credit Facility is secured by substantially all the assets of the
Company. At September 30, 1996, the Company had $3.4 million available under the
working capital portion of the Credit Facility and $19.4 million was available
for acquisition purposes, subject to certain conditions as defined by the
agreement.
F-19
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
Obligations Under Capital Leases
In connection with an acquisition, the Company assumed the obligation of various
equipment under capital leases. At September 30, 1996, future minimum lease
payments under capital leases are as follows:
Remaining 1996........................................ $ 131,390
1997.................................................. 455,256
1998.................................................. 408,457
1999.................................................. 264,662
2000.................................................. 205,236
2001.................................................. 106,749
Thereafter............................................ -
--------------
1,571,750
Less portion attributable
to interest......................................... (272,218)
--------------
Net obligations....................................... $ 1,299,532
==============
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK,
COMMON STOCK, AND STOCKHOLDERS' EQUITY:
The Company has authorized the issuance of 23,300,000 shares of no par value
stock, of which 700,000 shares are designated Redeemable Convertible Preferred
Stock ("Preferred Stock"), 2,600,000 shares are designated Class B Common Stock,
and 20,000,000 shares are designated Common Stock. The Preferred Stock, Class B
Common Stock, and Common Stock have voting rights equal to one vote per share.
In August 1996, the Board of Directors authorized the reincorporation of the
Company in the State of Delaware, including an increase in the authorized shares
of Common Stock to 50,000,000 shares, and the change of the Company's name from
ProMedCo, Inc. to Professional Medical Management Company, to be effected prior
to the Offering. All presentations have been adjusted to reflect these changes.
In addition, the Board of Directors authorized the Company to reserve an
aggregate 2,600,000 shares of Common Stock under the Company's Director Stock
Option Plan, 1996 Employee Stock Option Plan, 1996 Employee Stock Purchase Plan
and 1996 Physician Stock Option Plan.
Redeemable Convertible Preferred Stock
The Company has issued and outstanding 500,000 shares, and warrants to purchase
an additional 200,000 shares, of Preferred Stock as of September 30, 1996. The
warrants are exercisable at an amount per share equal to the lesser of $6.00 or
one-half the price per share issued in the Offering. The warrants expire on
December 6, 2000. Shares of Preferred Stock may, at the option of the holder, be
converted at any time into Common Stock, on a one-for-one basis as adjusted for
certain events. All outstanding
F-20
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
shares of Preferred Stock will be automatically converted into Common Stock upon
an Offering of Common Stock equal to or exceeding $12 per share. In absence of
an Offering, the Preferred Stock is subject to mandatory redemption by the
Company at $6.00 per share in equal amounts on December 6, 2000, and December 6,
2001.
The Company is required for all shares or share equivalents of Common Stock
issued subsequent to December 6, 1995, excluding shares and share equivalents
issued in connection with an acquisition or shares issued in connection with a
redemption or conversion when the share equivalent was issued prior to December
6, 1995, to grant options to purchase shares of Common Stock to Preferred
Stockholders in an amount equal to their percentage ownership of the Company
prior to the issuance. During 1996, options to purchase 39,522 shares of Common
Stock were granted, of which 3,809 and 5,539 were exercisable at prices ranging
from $6.00 to $12.00 per share as of June 30, 1996 and September 30, 1996,
respectively.
Redeemable Common Stock
In connection with an acquisition in 1995, the Company issued 165,296 shares of
Common Stock for $991,776. The stockholders have the right to require the
Company to repurchase the shares for cash, if the Company does not complete a
public offering by June 30, 2000.
Class B Common Stock
During 1994, the Company issued 613,075 Class B units, each consisting of two
shares of Class B Common Stock and a warrant to purchase 1.5756 shares of Class
B Common Stock at an exercise price of $1.25 per share. The warrants are
exercisable on or before June 30, 2004. The Company also granted an option to
purchase 77,500 Class B units at an exercise price of $0.50 per unit. The
options are fully vested and may be exercised until September 30, 2004. As of
September 30, 1996, no warrants or options have been exercised. The Class B
Common Stock has a liquidation preference, subordinate to the Preferred Stock,
at an amount equal to $1.00 per share. Each share of Class B Common Stock may,
at the option of the holder, be converted at any time into Common Stock on a
one-for-one basis and will automatically convert to Common Stock at the
Offering.
Common Stock
During 1994, the Company issued 907,000 Common Stock units, each consisting of
two shares of Common Stock and a warrant to purchase 1.5756 shares of Common
Stock at an exercise price of $1.25 per share. The warrants are exercisable on
or before June 30, 2003. As of September 30, 1996, no warrants have been
exercised.
Common Stock To Be Issued
In connection with an acquisition in May 1996, common shares valued at
$1,970,960 will be issued in early 1997.
F-21
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
1994 Stock Option Plan
On July 1, 1994, the Company's Board of Directors approved a Stock Option Plan
(the "Plan") under which options to purchase 1,500,000 shares of the Company's
Common Stock may be granted to key employees and other non-employees, as defined
by the Plan. Options granted under the Plan may be either incentive stock
options ("ISO") or non-qualified stock options ("NQSO"). The option price per
share shall not be less than the fair market value of the Company's Common Stock
at the date of grant. Generally, options vest over a five-year period. As of
September 30, 1996, options to purchase 408,200 shares remain available for
grant under the Plan.
The following table summarizes the activity in the plan:
Outstanding Price Per Share
July 1, 1994 (inception)................ - -
Granted............................... 80,000 $0.50 - $2.50
Exercised............................. - -
Canceled.............................. - -
-------------
December 31, 1994....................... 80,000 $0.50 - $2.50
Granted............................... 546,200 $0.50 - $6.00
Exercised............................. - -
Canceled.............................. (121,000) $3.00 - $6.00
-------------
December 31, 1995....................... 505,200 $0.50 - $6.00
Granted............................... 650,000 $6.00 - $14.00
Exercised............................. (23,200) $0.50 - $6.00
Canceled.............................. (33,400) $0.50 - $6.00
-------------
June 30, 1996........................... 1,098,600 $0.50 - $14.00
Granted............................... - -
Exercised............................. - -
Canceled.............................. (30,000) $6.00 - $9.00
-------------
September 30, 1996 (unaudited).......... 1,068,600 $0.50 - $14.00
=============
Stock options available for exercise under the Plan as of December 31, 1994 and
1995, June 30, 1996, and September 30, 1996, totaled 0, 8,000, 43,867, and
122,612, respectively. Upon completion of the Offering, the vesting period
accelerates for options to purchase approximately 45,000 shares.
F-22
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
8. INCOME TAXES:
At September 30, 1996, the Company had a cumulative net operating loss
carryforward for income tax purposes of approximately $1.0 million available to
reduce future amounts of taxable income. If not utilized to offset future
taxable income, the net operating loss carryforwards will begin to expire in
2010.
The net deferred tax assets generated during 1994, 1995, and 1996, respectively,
have been offset by provisions of equal amounts to establish a valuation
allowance. The valuation allowance will be maintained until it is more likely
than not that some portion or all of the deferred tax assets will be realized.
Deferred income taxes reflect the net operating loss carry forward of the
Company and the net tax effects of temporary differences between the amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's net deferred tax
assets are as follows:
December 31, June 30,
1994 1995 1996
Deferred tax assets:
Net operating losses....... $ 61,160 $ 295,472 $ 414,875
Other..................... - 1,429 -
------------- ------------- -------------
Net deferred tax assets..... 61,160 296,901 414,875
Valuation allowance......... (61,160) (296,901) (414,875)
------------- ------------- -------------
$ - $ - $ -
============= ============= =============
The differences between the provision (benefit) for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss before income
taxes were as follows:
Period Ended Year Ended
December 31, December 31,
1994 1995
------------- ---------
Federal tax at statutory rate................. $ (57,763) $ (237,096)
State income tax, net of federal tax
effect................................... (3,397) (13,947)
Increase in valuation allowance............... 61,160 235,741
Other ............................................ - 15,302
---- --------
$ - $ -
============= =============
F-23
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
9. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments for which it is
practicable to estimate fair value. The carrying amounts of financial
instruments included in current assets and current liabilities approximate fair
values because of the short maturity of those instruments. The fair values of
the Company's notes payable and convertible subordinated notes payable are based
on similar issues or on the current rates available to the Company for debt with
similar terms. The carrying values and estimated fair values of the Company's
outstanding debt were estimated to be the same as of December 31, 1995.
10. COMMITMENTS AND CONTINGENCIES:
Leases
Operating leases generally consist of short-term leases for the office space
where the physician groups are located. Lease expense of $1,588 and $122,594 for
the period and year ended December 31, 1994 and 1995, respectively, reflect
lease commitments for medical practice office space, medical practice equipment,
corporate office space, and corporate equipment.
The following is a schedule of future minimum lease payments under noncancelable
operating leases as of December 31, 1995.
1996 ................................. $ 514,173
1997 ................................. 615,292
1998 ................................. 559,205
1999 ................................. 511,971
2000 ................................. 497,231
Thereafter............................. 754,090
-------------
$ 3,451,962
Litigation
The Company is subject to various claims and legal actions which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
Insurance
The Company and its affiliated physician groups are insured with respect to
medical malpractice risks on a claims made basis. Management is not aware of any
claims against it or its affiliated physician groups which might have a material
impact on the Company's financial position or results of operations.
F-24
<PAGE>
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONT.
11. SUBSEQUENT EVENT:
The Company has entered into a letter of intent with Western Medical Management
Corp., Inc. ("Reno"), a physician management company. Under the terms of the
agreement, Reno will exchange its common stock for common stock of the Company.
The business combination is expected to be consummated at the closing of the
Offering, subject to the terms of a final definitive agreement. The transaction
is anticipated to be accounted for as a pooling of interests, as defined by APB
No. 16, "Business Combinations."
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
North Texas Medical Surgical, P.A.:
We have audited the accompanying balance sheets of North Texas Medical Surgical,
P.A. (a Texas professional association) as of December 31, 1994, and June 30,
1995, and the related statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1993 and 1994, and for the six months
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Texas Medical Surgical,
P.A. as of December 31, 1994, and June 30, 1995, and the results of its
operations and its cash flows for the years ended December 31, 1993 and 1994,
and for the six months ended June 30, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 22, 1996
F-26
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
BALANCE SHEETS
ASSETS December 31, June 30,
1994 1995
CURRENT ASSETS:
Cash ........................................ $ 17,096 $ 2,563
Accounts receivable, net of allowances
of $55,000 in
1994 and 1995............................... 192,664 185,891
Prepaid expenses and other current assets..... - 6,000
------------- -------------
Total current assets.................... 209,760 194,454
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $118,043 and
$125,211, respectively........................ 79,826 72,658
------------- -------------
Total assets............................ $ 289,586 $ 267,112
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 23,693 $ 6,218
Accrued salaries and benefits................. 22,400 22,400
Note payable.................................. 54,652 29,782
------------- -------------
Total current liabilities............... 100,745 58,400
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par value; 500 shares
authorized, 8 shares
issued and outstanding...................... 800 800
Retained income............................... 188,041 207,912
------------- -------------
Total stockholders' equity.............. 188,841 208,712
------------- -------------
Total liabilities and stockholders'
equity................................. $ 289,586 $ 267,112
============= =============
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
STATEMENTS OF OPERATIONS
Years Ended Six Months Ended
December 31, June 30,
1993 1994 1995
------------- ------------- ---------
NET REVENUE...................... $ 2,417,428 $ 2,275,585 $ 1,091,147
COSTS AND EXPENSES:
Cost of affiliated
physician services......... 1,042,575 1,062,748 434,244
Clinic salaries and benefits.. 592,336 612,736 315,211
Clinic rent and lease expenses 109,921 109,637 56,587
Clinic pharmaceuticals
and supplies................ 108,003 83,269 38,921
Other clinic costs............ 557,406 422,184 219,145
Depreciation and amortization. 21,441 33,868 7,168
Interest expense.............. 1,961 64 -
-------------- ------------- -------------
Total costs and expenses.. 2,433,643 2,324,506 1,071,276
-------------- ------------- -------------
NET INCOME (LOSS)................ $ (16,215) $ (48,921) $ 19,871
============== ============= =============
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 8 $ 800 $ 253,177 $ 253,977
Net loss...................................... - - (16,215) (16,215)
------------- -------------- ------------- -------------
BALANCE, December 31, 1993....................... 8 800 236,962 237,762
Net loss...................................... - - (48,921) (48,921)
------------- -------------- ------------- -------------
BALANCE, December 31, 1994....................... 8 800 188,041 188,841
Net income.................................... - - 19,871 19,871
------------- -------------- ------------- -------------
BALANCE, June 30, 1995........................... 8 $ 800 $ 207,912 $ 208,712
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
1993 1994 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ (16,215) $ (48,921) $ 19,871
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization................................... 21,441 33,868 7,168
Changes in assets and liabilities-
Accounts receivable........................................... 24,439 92,545 6,773
Other current assets.......................................... 4,938 - (6,000)
Accounts payable.............................................. 6,069 (4,515) (17,475)
----------- ----------- -----------
Net cash provided by operating activities................... 40,672 72,977 10,337
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................. - (21,174) -
Proceeds from sale of property and equipment........................ 1,522 - -
----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................................. 1,522 (21,174) -
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable.......................................... 21,969 - -
Payments on note payable............................................ (59,564) (64,118) (24,870)
----------- ----------- -----------
Net cash used in financing activities....................... (37,595) (64,118) (24,870)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................................ 4,599 (12,315) (14,533)
CASH, beginning of the year............................................ 24,812 29,411 17,096
----------- ----------- -----------
CASH, end of the year.................................................. $ 29,411 $ 17,096 $ 2,563
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year-
Interest.......................................................... $ 1,961 $ 64 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1995
1. DESCRIPTION OF BUSINESS:
North Texas Medical Surgical, P.A. (the "Company") is a Texas professional
association owned by eight physicians which practice in the Denton, Texas area.
The Company was purchased by ProMedCo of Denton, Inc. effective June 30, 1995
(see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of
accounting.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payors and others for services rendered.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment is depreciated using the straight-line
method over the following useful lives:
Years
Furniture and fixtures........................... 7
Equipment........................................ 5
Leasehold improvements........................... Estimated life of lease
Income Taxes
The Company has historically not incurred significant tax liabilities for
federal or state income taxes. Compensation to physician owners has
traditionally reduced taxable income to nominal levels. This relationship would
be expected to continue in the future. Because of this practice, provisions for
income taxes and deferred tax assets and liabilities are not material and have
not been reflected in the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the
F-31
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31, June 30,
1994 1995
Furniture, fixtures, and equipment.............. $ 134,310 $ 134,310
Leasehold improvements.......................... 63,559 63,559
Less- Accumulated depreciation and amortization (118,043) (125,211)
----------- -----------
Property and equipment, net..................... $ 79,826 $ 72,658
=========== ===========
4. NOTE PAYABLE:
At December 31, 1994 and June 30, 1995, the Company had a note payable for
$54,652 and $29,782, respectively. This note is payable in monthly installments
of $4,964 and was paid in its entirety in December 1995.
5. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for administrative equipment and facilities
expiring at various dates through April 1997. Rent expense totaled $109,921, and
$109,637 for the years ended December 31, 1993 and 1994, respectively, and
$56,587 for the six months ended June 30, 1995.
Future lease commitments under the operating leases are as follows:
1996....................................................... $ 29,855
1997....................................................... 1,509
6. RELATED-PARTY TRANSACTIONS:
The Company currently leases its facilities from First Texas Medical, Inc., an
affiliated company which shares certain common ownership with the Company.
7. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of June 30, 1995.
F-32
<PAGE>
NORTH TEXAS MEDICAL SURGICAL, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
8. SUBSEQUENT EVENT:
Effective June 30, 1995, the Company was acquired by ProMedCo of Denton, Inc., a
wholly owned subsidiary of Professional Medical Management Company, in an asset
purchase transaction whereby ProMedCo of Denton, Inc. agreed to acquire
substantially all the operations and certain assets and certain liabilities of
the Company.
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Cullman Family Practice, P.C.:
We have audited the accompanying balance sheets of Cullman Family Practice, P.C.
(an Alabama professional corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cullman Family Practice, P.C.
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 20, 1996
F-34
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
BALANCE SHEETS
December 31,
ASSETS 1994 1995
------ ----------- --------
CURRENT ASSETS:
Cash ........................................... $ 3,832 $ 5,585
Accounts receivable, net of allowances
of $113,970 and $72,521,
respectively..................................... 157,392 100,165
Prepaid expenses and other current assets......... 16,790 30,464
----------- -----------
Total current assets........................ 178,014 136,214
PROPERTY AND EQUIPMENT, net of
accumulated depreciation
and amortization of $58,243
and $66,197, respectively........................ 6,053 4,145
----------- -----------
Total assets................................ $ 184,067 $ 140,359
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 8,003 $ 11,951
Accrued expenses and other current liabilities.... 20,274 20,497
----------- -----------
Total current liabilities................... 28,277 32,448
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000
shares authorized, 2,500 shares
issued and outstanding.......................... 2,500 2,500
Additional paid-in capital........................ 5,692 5,692
Retained income................................... 147,598 99,719
----------- -----------
Total stockholders' equity.................. 155,790 107,911
----------- -----------
Total liabilities and stockholders' equity.. $ 184,067 $ 140,359
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
January 1, January 1,
1995 1996
Years Ended to to
December 31, February 28, March 6,
1994 1995 1995 1996
------------- -------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUE...................................... $ 1,872,444 $ 2,199,025 $ 372,019 $ 364,266
COSTS AND EXPENSES:
Cost of affiliated physician services......... 709,496 966,557 110,210 117,860
Clinic salaries and benefits.................. 565,416 642,975 79,586 83,698
Clinic rent and lease expenses................ 195,912 249,385 43,344 32,407
Clinic pharmaceuticals and supplies........... 132,102 132,812 15,079 19,093
Other clinic costs............................ 277,697 251,575 46,308 53,652
Depreciation and amortization................. 4,200 3,600 600 643
Interest expense.............................. 259 - - -
------------- -------------- ------------- -------------
Total costs and expenses.................. 1,885,082 2,246,904 295,127 307,353
------------- -------------- ------------- -------------
NET INCOME (LOSS)................................ $ (12,638) $ (47,879) $ 76,892 $ 56,913
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.................. 2,500 $ 2,500 $ 5,692 $ 160,236 $ 168,428
Net loss................................. - - - (12,638) (12,638)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994.................. 2,500 2,500 5,692 147,598 155,790
Net loss................................. - - - (47,879) (47,879)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995.................. 2,500 $ 2,500 $ 5,692 $ 99,719 $ 107,911
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF CASH FLOWS
Years Ended
December 31,
1994 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (12,638) $ (47,879)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization............. 4,200 3,600
Changes in assets and liabilities-
Accounts receivable..................... 32,977 57,227
Other current assets.................... (543) (13,674)
Accounts payable........................ 8,003 3,948
Accrued expenses and other
current liabilities................... 5,690 223
------------- -------------
Net cash provided by
operating activities................. 37,689 3,445
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (383) (1,692)
------------- -------------
Net cash used in investing activities. (383) (1,692)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................... (40,000) -
------------- -------------
Net cash used in financing activities.. (40,000) -
------------- -------------
NET INCREASE (DECREASE) IN CASH................... (2,694) 1,753
CASH, beginning of year........................... 6,526 3,832
------------- -------------
CASH, end of year................................. $ 3,832 $ 5,585
============= =============
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
Cullman Family Practice, P.C. (the "Company") is an Alabama professional
corporation owned by five physicians which practice in the Cullman, Alabama
area. The Company was purchased by ProMedCo of Cullman, Inc. effective March 12,
1996 (see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Audited Financial Statements
The accompanying financial statements have been prepared on the accrual basis of
accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to Accounting Principles Board ("APB") Opinion No. 28, "Interim
Financial Reporting." Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to APB
Opinion No. 28; nevertheless, management of the Company believes that the
disclosures herein are adequate to prevent the information presented from being
misleading. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company with respect to the results of its operations for the interim
periods from January 1, 1995 to February 28, 1995, and from January 1, 1996 to
March 6, 1996, have been included herein. The results of operations for the
interim periods are not necessarily indicative of the results for the full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payors and others for services rendered.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment is depreciated using the straight-line
method over the following useful lives:
Years
Furniture and fixtures.................... 7
Equipment................................. 5
Leasehold improvements.................... Estimated life of lease
F-39
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Income Taxes
The Company has historically not incurred significant tax liabilities for
federal or state income taxes. Compensation to physician owners has
traditionally reduced taxable income to nominal levels. This relationship would
be expected to continue in the future. Because of this practice, provisions for
income taxes and deferred tax assets and liabilities are not material and have
not been reflected in the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
1994 1995
Furniture and fixtures..................... $ 26,961 $ 28,652
Equipment.................................. 30,695 35,050
Leasehold improvements..................... 6,640 6,640
Less accumulated depreciation
and amortization....................... (58,243) (66,197)
------------- -------------
Property and equipment, net................ $ 6,053 $ 4,145
============= =============
4. COMMITMENTS AND CONTINGENCIES:
The Company leases a building and equipment under operating leases which expire
in 1999. Rent expense totaled $195,912 and $249,385 for the years ended December
31, 1994 and 1995, respectively.
Future minimum lease commitments under operating leases are as follows:
1996............................. $ 140,400
1997............................. 140,400
1998............................. 140,400
1999............................. 105,300
F-40
<PAGE>
CULLMAN FAMILY PRACTICE, P.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
5. RELATED-PARTY TRANSACTIONS:
The Company currently leases its building and equipment from MMB Partnership, an
entity owned by the Company's stockholders. The building lease expires in 1999
and the equipment lease is cancelable on the yearly anniversary of the lease by
either party given 60 days notice. Amounts paid under the building lease were
approximately $103,000 and $138,000 in 1994 and 1995, respectively. Amounts paid
under the equipment lease were approximately $91,000 and $111,000 in 1994 and
1995, respectively.
6. BENEFIT PLAN:
The Company maintains a defined contribution plan for those employees who meet
the minimum length of service and age requirements. The Company contributed
$17,563 and $22,368 in 1994 and 1995, respectively.
7. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
8. SUBSEQUENT EVENT:
Effective March 12, 1996, the Company was acquired by ProMedCo of Cullman, Inc.,
a wholly owned subsidiary of Professional Medical Management Company, in a stock
purchase transaction whereby ProMedCo of Cullman, Inc. agreed to acquire
substantially all the operations and certain assets and certain liabilities of
the Company, excluding, among other things, requirements under the Company's
benefit plan.
F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Family Medical Clinic, P.C.:
We have audited the accompanying balance sheets of Family Medical Clinic, P.C.
(an Alabama professional corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Family Medical Clinic, P.C. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 20, 1996
F-42
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
BALANCE SHEETS
December 31,
ASSETS 1994 1995
------ ------------- ---------
CURRENT ASSETS:
Cash ......................................... $ 37,220 $ 72,873
Accounts receivable, net of allowances
of $127,409 and $150,904,
respectively................................. 130,302 145,397
------------- -------------
Total current assets....................... 167,522 218,270
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $87,731 and $114,582,
respectively................................... 63,538 94,576
------------- -------------
Total assets............................... $ 231,060 $ 312,846
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................$ 2,630 $ 2,942
Current maturities of notes payable............. 40,751 39,886
Accrued expenses and other current liabilities.. 41,646 44,793
------------- -------------
Total current liabilities................... 85,027 87,621
NOTES PAYABLE, net of current maturities........... 29,017 99,974
------------- -------------
Total liabilities........................... 114,044 187,595
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 200 shares
authorized, 150 shares
issued and outstanding....................... 1,500 1,500
Additional paid-in capital..................... 5,300 5,300
Retained income................................ 110,216 118,451
------------- -------------
Total stockholders' equity................. 117,016 125,251
------------- -------------
Total liabilities and stockholders' equity. $ 231,060 $ 312,846
============= =============
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
January 1, January 1,
1995 1996
Years Ended to to
December 31, February 28, March 6,
1994 1995 1995 1996
------------- -------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUE...................................... $ 1,951,683 $ 2,113,442 $ 330,603 $ 394,259
------------- -------------- ------------- -------------
COSTS AND EXPENSES:
Cost of affiliated physician services......... 1,211,088 1,218,585 137,414 169,808
Clinic salaries and benefits.................. 315,974 369,304 51,797 64,657
Clinic rent and lease expenses................ 18,704 87,356 2,372 8,403
Clinic pharmaceuticals and supplies........... 101,930 108,380 15,014 15,772
Other clinic costs............................ 283,050 264,646 46,886 65,845
Depreciation.................................. 18,306 41,295 4,614 4,734
Interest expense.............................. 1,544 14,891 - 385
------------- -------------- ------------- -------------
Total costs and expenses.................... 1,950,596 2,104,457 258,097 329,604
------------- -------------- ------------- -------------
NET INCOME....................................... $ 1,087 $ 8,985 $ 72,506 $ 64,655
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994
AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 150 $ 1,500 $ 5,300 $ 109,879 $ 116,679
Net income - - - 1,087 1,087
Dividends - - - (750) (750)
------- --------- ------------ ------------ ------------
BALANCE, December 31, 1994 150 1,500 5,300 110,216 117,016
Net income - - - 8,985 8,985
Dividends - - - (750) (750)
------- --------- ------------ ------------ ------------
BALANCE, December 31, 1995 150 $ 1,500 $ 5,300 $ 118,451 $ 125,251
======= ========= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
STATEMENTS OF CASH FLOWS
Years Ended
December 31,
1994 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 1,087 $ 8,985
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation................................ 18,306 41,295
Changes in assets and liabilities-
Accounts receivable......................... (9,740) (15,095)
Other current assets........................ 1,333 -
Accounts payable............................ (1,966) 312
Accrued expenses and other
current liabilities.................... 4,870 3,147
------------- ------------
Net cash provided by
operating activities................. 13,890 38,644
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (7,690) (72,333)
------------- ------------
Net cash used in investing activities.. (7,690) (72,333)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................... 34,511 107,324
Payments on notes payable...................... (40,769) (37,232)
Payment of dividends........................... (750) (750)
------------- -------------
Net cash provided by (used in)
financing activities..................... (7,008) 69,342
------------- -------------
NET INCREASE (DECREASE) IN CASH................... (808) 35,653
CASH, beginning of year........................... 38,028 37,220
------------- -------------
CASH, end of year................................. $ 37,220 $ 72,873
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year-
Interest ........................................$ 1,544 $ 14,891
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
Family Medical Clinic, P.C. (the "Company") is an Alabama professional
corporation owned by three physicians which practice in Cullman, Alabama. The
Company was purchased by ProMedCo of Cullman, Inc. effective March 12, 1996 (see
Note 9).
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Audited Financial Statements
The accompanying financial statements have been prepared on the accrual basis of
accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1995 to February 28, 1995, and from
January 1, 1996 to March 6, 1996, have been included herein. The results of
operations for the interim periods are not necessarily indicative of the results
for the full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payors and others for services rendered.
F-47
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment is depreciated using the straight-line method over the
following useful lives:
Years
Furniture and fixtures.......................................... 7
Equipment....................................................... 5
Income Taxes
The Company has historically not incurred significant tax liabilities for
federal or state income taxes. Compensation to physician owners has
traditionally reduced taxable income to nominal levels. This relationship would
be expected to continue in the future. Because of this practice, provisions for
income taxes and deferred tax assets and liabilities are not material and have
not been reflected in the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
1994 1995
Furniture and fixtures.................. $ 92,816 $ 147,483
Equipment............................... 58,453 61,675
Less- Accumulated depreciation.......... (87,731) (114,582)
------------- -------------
Property and equipment, net............. $ 63,538 $ 94,576
============= =============
F-48
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
4. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
1994 1995
<S> <C> <C>
Line of credit with a bank, due August 2000, principal and interest payable
monthly, annual interest rate equal to the Bank's commercial base rate ranging
between 7.75%-9.75% and 5.9% for the years 1994 and 1995, respectively, secured
by all assets of the Company and guaranteed by its
stockholders.................................................................... $ 42,279 $ 113,609
Other notes payable due April 1997, principal and interest payable monthly,
annual interest rates of 7.75%
and 9.5%, secured by automobiles................................................ 27,489 26,251
------------- -------------
Total .................................................................. 69,768 139,860
Less current maturities.................................................. (40,751) (39,886)
------------- -------------
Notes payable, net....................................................... $ 29,017 $ 99,974
============= =============
</TABLE>
The maturities of notes payable at December 31, 1995, are as follows:
1996 ....................................... $ 39,886
1997 ....................................... 28,974
1998 ....................................... 24,347
1999 ....................................... 26,631
2000 ....................................... 20,022
-------------
$ 139,860
5. COMMITMENTS AND CONTINGENCIES:
The Company has entered into an operating lease for a building which expires in
2005. The future minimum lease commitments under the operating leases are as
follows:
1996.......................... $ 90,248
1997.......................... 92,954
1998.......................... 95,743
1999.......................... 98,616
2000.......................... 101,573
Thereafter.................... 565,297
F-49
<PAGE>
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Rent expense totaled $18,704 and $87,536 for the years ended December 31, 1994
and 1995, respectively.
6. RELATED-PARTY TRANSACTIONS:
During 1994, the Company paid approximately $4,500 to Family Medical Clinic
Association, an entity owned by two of the Company's stockholders, for building
rental. In addition, the Company paid this same entity approximately $14,000 and
$4,000 for equipment in 1994 and 1995, respectively.
7. BENEFIT PLAN:
The Company maintains a defined contribution plan for employees who meet the
minimum length of service and age requirements. Under the plan, the Company
makes contributions of 11% of all plan participants' compensation, plus 5.7% of
each of the participant's excess compensation, as defined. The Company is
responsible for the administration of the plan as the plan administrator and
trustee. The Company's contributions totaled $113,648 and $113,700 in 1994 and
1995, respectively, including $90,000 contributed for a stockholder in 1994 and
1995.
8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
9. SUBSEQUENT EVENT:
Effective March 12, 1996, the Company was acquired by ProMedCo of Cullman, Inc.,
a wholly owned subsidiary of Professional Medical Management Company, in a stock
purchase transaction whereby ProMedCo of Cullman, Inc. agreed to acquire
substantially all the operations and certain assets and certain liabilities of
the Company, excluding, among other things, requirements under the Company's
benefit plan.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Morgan-Haugh, P.S.C.:
We have audited the accompanying balance sheets of Morgan-Haugh, P.S.C. (a
Kentucky professional services corporation) as of December 31, 1994 and 1995,
and the related statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Morgan-Haugh, P.S.C. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 16, 1996
F-51
<PAGE>
MORGAN-HAUGH, P.S.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1994 1995
------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 113,132 $ 188,346
Accounts receivable, net of allowances of $407,000 and
$432,000, respectively.............................................. 582,597 584,636
Stockholder notes receivable............................................. 23,935 -
Prepaid expenses and other current assets................................ 29,002 8,423
------------- -------------
Total current assets................................................ 748,666 781,405
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $836,689 and $929,949, respectively................................... 1,158,393 1,072,726
OTHER ASSETS ........................................................... 50,261 42,529
--------- ----------
Total assets........................................................ $1,957,320 $1,896,660
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................................... $ 70,041 $ 55,988
Notes payable............................................................ 203,032 130,049
Accrued expenses and other current liabilities........................... 290,018 345,555
Deferred income taxes.................................................... 83,891 116,909
------------- -------------
Total current liabilities........................................... 646,982 648,501
NOTES PAYABLE, net of current maturities..................................... 983,017 864,811
------------- -------------
Total liabilities................................................... 1,629,999 1,513,312
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 4,000 shares authorized;
3,000 shares issued and 2,200 shares outstanding.................... 505,069 446,566
Treasury stock........................................................... (340,097) (271,186)
Stockholders notes receivable............................................ (174,472) (191,277)
Retained income.......................................................... 336,821 399,245
------------- -------------
Total stockholders' equity.......................................... 327,321 383,348
------------- -------------
Total liabilities and stockholders' equity.......................... $ 1,957,320 $1,896,660
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
MORGAN-HAUGH, P.S.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
January 1, January 1,
1995 1996
Years to to
Ended December 31, March 31, March 31,
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUE:
Patient service revenue..... $ 4,879,771 $ 4,519,251 $ 4,403,055 $ 1,301,949 $ 1,091,091
Other revenue............... 167,541 146,713 48,373 36,822 36,049
------------- ------------- ------------- ------------- -------------
Total net revenue....... 5,047,312 4,665,964 4,451,428 1,338,771 1,127,140
------------- ------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of affiliated physician
services.................. 1,749,511 1,767,328 1,636,120 495,297 404,988
Clinic salaries and benefits 1,827,385 1,547,205 1,412,101 222,664 197,644
Rent expense................ 25,633 24,575 33,547 7,685 7,911
Clinic pharmaceuticals and
supplies.................. 385,466 376,986 304,183 47,298 45,777
Other clinic costs.......... 1,021,745 894,142 761,402 355,236 322,369
Depreciation................ 123,406 115,350 111,266 27,189 23,556
Interest expense............ 100,471 88,775 87,465 23,673 19,887
------------- ------------- ------------- ------------- -------------
Total costs and expenses 5,233,617 4,814,361 4,346,084 1,179,042 1,022,132
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES................ (186,305) (148,397) 105,344 159,729 105,008
PROVISION (CREDIT) FOR
INCOME TAXES................ (73,317) (59,617) 42,920 60,696 39,903
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS).............. $ (112,988) $ (88,780) $ 62,424 $ 99,033 $ 65,105
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
MORGAN-HAUGH, P.S.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stockholder
Common Stock Treasury Notes Retained
Shares Amount Stock Receivable Earnings Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1992 ...................... 2,200 $ 570,465 $ (286,635) $ (277,017) $ 538,589 $ 545,402
Stock purchased............. (200) - (96,713) - - (96,713)
Payments on stockholders
notes, net................ - - - 144,025 - 144,025
Net loss.................... - - - - (112,988) (112,988)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31,
1993 ...................... 2,000 570,465 (383,348) (132,992) 425,601 479,726
Stock purchased............. (200) - (87,558) - - (87,558)
Stock issued................ 400 (65,396) 130,809 - - 65,413
Payments on stockholders
notes, net................ - - - (41,480) - (41,480)
Net loss.................... - - - - (88,780) (88,780)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31,
1994 ...................... 2,200 505,069 (340,097) (174,472) 336,821 327,321
Stock purchased............. (200) - (18,889) - - (18,889)
Stock issued................ 200 (58,503) 87,800 - - 29,297
Payments on stockholders
notes, net................ - - - (16,805) - (16,805)
Net income.................. - - - - 62,424 62,424
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31,
1995 ...................... 2,200 $ 446,566 $ (271,186) $ (191,277) $ 399,245 $ 383,348
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
MORGAN-HAUGH, P.S.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1994 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $ (112,988) $ (88,780) $ 62,424
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation............................................. 123,406 115,350 111,266
(Gain) loss on sale of property.......................... (585) (2,904) 183
Changes in assets and liabilities-
Accounts receivable.................................... (17,637) (24,392) (2,039)
Prepaid expenses and other current assets.............. 77,658 5,218 20,579
Accounts payable....................................... 22,361 (2,691) (14,053)
Accrued expenses and other current liabilities......... (18,499) 35,323 55,537
Deferred income taxes.................................. (62,492) (59,617) 33,018
-------------- ------------- -------------
Net cash provided by (used in)
operating activities............................... 11,224 (22,493) 266,915
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (60,542) (53,841) (25,787)
Proceeds from sales of property and equipment................ 5,710 19,622 5
Other assets................................................. (2,510) (2,855) 7,732
-------------- ------------- -------------
Net cash used in investing activities................ (57,342) (37,074) (18,050)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on stockholders notes receivable.................... 99,120 44,043 23,935
Proceeds from notes payable.................................. - 283,289 76,889
Payments on notes payable.................................... (122,928) (214,840) (255,586)
Purchase of treasury stock................................... (96,713) (87,558) (18,889)
-------------- ------------- -------------
Net cash provided by (used in)
financing activities................................ (120,521) 24,934 (173,651)
-------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH................................. (166,639) (34,633) 75,214
CASH AND CASH EQUIVALENTS, beginning
of year...................................................... 314,404 147,765 113,132
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year.......................... $ 147,765 $ 113,132 $ 188,346
============== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year-
Interest................................................... $ 100,471 $ 88,775 $ 87,465
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
Morgan-Haugh, P.S.C. (the "Company") is a Kentucky professional corporation that
provides medical services. The principal stockholders of the Company are the
physicians who provide healthcare services. The Company was purchased by
ProMedCo of Mayfield, Inc. effective April 25, 1996 (see Note 10).
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Audited Financial Statements
The accompanying financial statements have been prepared on the accrual basis of
accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1995 to March 31, 1995, and from January
1, 1996 to March 31, 1996, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payers and others for services rendered.
Cash and Cash Equivalents
The Company includes all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments, with original
maturities of three months or less, as cash and cash equivalents.
F-56
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed on a straight-line method over the following useful
lives:
Years
Furniture, fixtures, and equipment......................... 5-10
Building and improvements.................................. 15-30
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
1994 1995
Land..................................... $ 161,852 $ 161,852
Furniture, fixtures, and equipment....... 679,851 684,844
Building and improvements................ 1,153,379 1,155,979
Less- Accumulated depreciation........... (836,689) (929,949)
------------- -------------
Property and equipment, net.............. $ 1,158,393 $ 1,072,726
============= =============
4. NOTES PAYABLE:
Notes payable consists of the following:
December 31,
1994 1995
7.5% note payable to a bank, due in monthly
installments of $1,439, including interest, through
April 2005, secured by property and equipment....... $ 123,677 $ 115,432
7.5% note payable to a bank, due in monthly
installments of $7,279, including interest, through
May 2003, secured by property and equipment.......... 540,002 491,565
F-57
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
9.0% note payable to a bank, due in monthly
installments of $2,283, including interest, through
January 2011, secured by property and equipment....... 233,109 225,058
6.56% note payable to a related party, due in monthly
installments of $215, including interest, through
July 2005, unsecured.................................. - 18,324
8.75% note payable to a bank, due in monthly
installments of $407, including interest, through
May 2003, unsecured................................... - 26,558
5.9% note payable to a related party, due in monthly
installments of $249, including interest, through
December 2003, unsecured.............................. 20,943 19,145
9.0% note payable to a bank, due in monthly
installments of $747, including interest, through
September 1999, unsecured............................. - 28,362
9.0% note payable to a bank, due in monthly
installments of $4,428, including interest, through
May 1997, secured by equipment........................ 115,279 70,416
8.26% note payable to a related party, due in monthly
installments of $863, including interest, through
January 1999, unsecured............................. 35,808 -
5.9% note payable to a related party, due in monthly
installments of $442, including interest, through
December 2003, unsecured............................ 37,231 -
8.5% note payable to a bank, due August
1995, unsecured................................... 80,000 -
------------- -------------
Total....................................... 1,186,049 994,860
Less current maturities..................... (203,032) (130,049)
------------- -------------
Notes payable, net.......................... $ 983,017 $ 864,811
============= =============
F-58
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
The maturities of notes payable as of December 31, 1995, are as follows:
1996............................... $ 130,049
1997............................... 109,436
1998............................... 94,853
1999............................... 100,130
2000............................... 101,166
Thereafter......................... 459,226
-------------
$ 994,860
5. STOCKHOLDER NOTES RECEIVABLE:
At December 31, 1994 and 1995, the Company had the following non-interest
bearing notes due from stockholders. Each of the notes was received in exchange
for shares of the Company's common stock. As these notes are
noninterest-bearing, interest has been imputed and is recognized as interest
income in the statements of operations. As these notes relate to equity
contributions, the outstanding receivables as of December 31, 1994, have been
shown as a reduction of stockholders' equity.
The maturities of stockholder notes receivable at December 31, 1995, are as
follows:
Note receivable, $601 per month, through March 1998..... $ 16,219
Note receivable, $677 per month, through May 1999....... 29,798
Note receivable, $403 per month, through May 2010....... 69,714
Note receivable, $411 per month, through August 2004.... 30,021
Note receivable, $411 per month, through July 2004...... 29,425
Note receivable, $215 per month, through April 2005..... 16,100
-------------
$ 191,277
6. COMMITMENTS AND CONTINGENCIES:
The Company leases various equipment on a month-to-month basis; total rent
expense charged to operations aggregated $25,633, $24,575, and $33,547 in 1993,
1994, and 1995, respectively.
The Company leases office space and examination rooms to several physicians
under one-year renewable lease agreements. The Company is responsible for
repairs, maintenance, and utilities; the lessee is responsible for insurance
coverage during the term of the lease. Rental income under these operating
leases aggregated $20,070, $29,760, and $37,550 in 1993, 1994, and 1995,
respectively, and is included in other revenues in the accompanying statements
of operations.
F-59
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
7. INCOME TAXES:
Deferred income taxes are attributable primarily to timing differences between
income tax reporting and financial reporting related to revenues and expenses.
The following table summarizes the composition of the deferred tax assets and
liabilities.
December 31,
1994 1995
------------- ---------
Deferred tax assets-
Accounts payable.............................. $ 29,093 $ 18,834
Accrued expenses and other current liabilities 104,048 100,912
Operating loss carryforwards.................. 23,601 -
------------- -------------
Total deferred tax assets................ 156,742 119,746
------------- -------------
Deferred tax liabilities-
Accounts receivable........................... 233,039 233,855
Other ................................................ 7,594 2,800
------- -------
Total deferred tax liabilities............ 240,633 236,655
------------- -------------
Net current deferred taxes....................... $ 83,891 $ 116,909
============= =============
The following table summarizes the significant components of income tax expense
(benefit):
1993 1994 1995
------------- ------------- -------------
Current tax provision (benefit).... $ (10,825) $ - $ 9,902
Deferred tax provision (benefit)... (62,492) (59,617) 33,018
------------- ------------- -------------
Provision (credit) for income taxes $ (73,317) $ (59,617) $ 42,920
============= ============= =============
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
1993 1994 1995
------------- ------------- ------------
Statutory federal income tax rate 34% 34% 34%
State income taxes, net of
federal income taxes.... 4 4 4
Other ........................ 1 2 3
--- ---- ---
39% 40% 41%
============ ============= =============
F-60
<PAGE>
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- CONT.
8. PROFIT SHARING PLAN:
The Company has a qualified profit sharing plan (the "Plan") that includes a
401(k) provision. The profit sharing component covers substantially all
full-time employees and provides for contributions in such amounts as the Board
of Directors may annually determine. The 401(k) component permits eligible
employees, at their discretion, to invest up to 15% of their salary in the Plan.
Under the Plan agreement, the Company must match the employees' discretionary
investment in the Plan up to 3% of employees' compensation. Total expenses for
the Plan for the years ended December 31, 1993, 1994, and 1995, aggregated
$258,596, $130,199, and $153,752, respectively.
9. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
10. SUBSEQUENT EVENT:
Effective April 25, 1996, the Company was acquired by ProMedCo of Mayfield,
Inc., a wholly owned subsidiary of Professional Medical Management Company, in
an asset purchase transaction whereby ProMedCo of Mayfield, Inc. agreed to
acquire substantially all the operations and certain assets and liabilities of
the Company, excluding, among other things, requirements under the Company's
profit sharing plan.
F-61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
HealthFirst Services, Inc. and
Tarrant Family Practice, P.A.:
We have audited the accompanying combined balance sheets of HealthFirst
Services, Inc. and Tarrant Family Practice, P.A. (a Texas corporation and a
Texas association, respectively - see Note 1) as of December 31, 1994 and 1995,
and the related combined statements of operations, owners' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HealthFirst Services, Inc. and
Tarrant Family Practice, P.A. as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 18, 1996
F-62
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1994 1995
------ ------------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................ $ 164,675 $ 121,538
Accounts receivable - net of allowances of $200,000 and
$360,000, respectively......................................... 493,000 836,270
------------- -------------
Total current assets.............................. 657,675 957,808
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $200,895 and $260,479,
respectively........................................................ 423,384 544,646
OTHER ASSETS............................................................. 41,954 31,543
------------- -------------
Total assets....................................... $ 1,123,013 $ 1,533,997
============= =============
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 109,412 $ 180,120
Notes payable....................................................... 83,757 144,303
Accrued expenses and other current liabilities...................... 308,905 131,530
------------- -------------
Total current liabilities......................... 502,074 455,953
NOTES PAYABLE, net of current maturities................................. 221,909 117,867
OTHER LIABILITIES........................................................ - 101,180
------------- -------------
Total liabilities................................. 723,983 675,000
COMMITMENTS AND CONTINGENCIES (Note 6)
OWNERS' EQUITY .................................................. 399,030 858,997
--------- ------------
Total liabilities and owners' equity.............. $ 1,123,013 $ 1,533,997
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
January 1, January 1,
1995 1996
to to
Years Ended December 31, May 31, May 31,
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUE................................... $2,155,948 $ 3,024,119 $ 4,828,924 $ 1,658,933 $2,590,608
---------- ----------- ----------- ----------- ----------
COSTS AND EXPENSES:
Cost of affiliated physician services.... 591,966 878,875 1,287,409 405,035 876,457
Clinic salaries and benefits............. 627,205 821,329 1,093,392 441,476 162,484
Clinic rent and lease expense............ 61,802 98,851 169,737 38,152 94,070
Clinic pharmaceuticals and supplies...... 172,851 200,978 304,644 115,659 101,764
Other clinic costs....................... 662,255 872,805 1,428,685 466,999 918,210
Depreciation and amortization............ 32,705 62,113 70,116 11,300 -
Interest expense......................... 36,922 25,257 22,532 4,103 5,170
---------- ----------- ----------- ----------- ----------
Total costs and expenses.......... 2,185,706 2,960,208 4,376,515 1,482,724 2,158,155
---------- ----------- ----------- ----------- ----------
NET INCOME (LOSS)............................. $ (29,758) $ 63,911 $ 452,409 $ 176,209 $ 432,453
========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED STATEMENTS OF OWNERS' EQUITY
BALANCE, December 31, 1992.................................. $ 342,473
Net loss............................................... (29,758)
-----------
BALANCE, December 31, 1993.................................. 312,715
Net income............................................. 63,911
Capital contributions.................................. 22,404
-----------
BALANCE, December 31, 1994.................................. 399,030
Net income............................................. 452,409
Capital contributions.................................. 7,558
-----------
BALANCE, December 31, 1995.................................. $ 858,997
===========
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
1993 1994 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $ (29,758) $ 63,911 $ 452,409
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization................................... 32,705 62,113 70,116
Changes in assets and liabilities-
Accounts receivable, net...................................... (40,300) (126,766) (343,270)
Other current assets.......................................... 40,315 - -
Other noncurrent assets....................................... (24,006) (8,159) -
Accounts payable.............................................. 25,163 79,592 70,708
Accrued expenses and other current liabilities................ 49,321 220,292 (177,375)
----------- ----------- -----------
Net cash provided by operating activities.................. 53,440 290,983 72,588
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................... (126,931) (72,041) (173,409)
----------- ----------- -----------
Net cash used in investing activities...................... (126,931) (72,041) (173,409)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.......................................... 167,197 14,785 46,121
Payments on notes payable............................................ (50,186) (125,072) (89,617)
Proceeds from managed care contract.................................. - - 101,180
Proceeds from capital contributions.................................. - 12,500 -
----------- ----------- ----------
Net cash provided by (used in)
financing activities................................... 117,011 (97,787) 57,684
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH......................................... 43,520 121,155 (43,137)
CASH, beginning of year................................................. - 43,520 164,675
----------- ----------- ----------
CASH, end of year....................................................... $ 43,520 $ 164,675 $ 121,538
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for interest............................. $ 36,922 $ 25,257 $ 22,532
Noncash capital contributions...................................... $ - $ 9,904 $ 7,558
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
HealthFirst Services, Inc. and Tarrant Family Practice, P.A. (collectively, the
"Company") operate five medical clinics in Fort Worth, Texas and surrounding
areas. HealthFirst Services, Inc. and Tarrant Family Practice. P.A. were formed
under the applicable laws of Texas on June 23, 1994 and January 28, 1987,
respectively. The Companies are affiliated entities and have four common
shareholders that own 70% of HealthFirst Services Inc. and 100% of Tarrant
Family Practice, P.A. Accordingly, their financial position and results of
operation have been combined for financial reporting purposes.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Audited Financial Statements
The accompanying combined financial statements have been prepared on the accrual
basis of accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to Accounting Principles Board ("APB") Opinion No. 28, "Interim
Financial Reporting." Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to APB
Opinion No. 28; nevertheless, management of the Company believes that the
disclosures herein are adequate to prevent the information presented from being
misleading. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company with respect to the results of its operations for the interim
periods from January 1, 1995 to May 31, 1995, and from January 1, 1996 to May
31, 1996, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payers and others for services rendered.
F-67
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the following useful lives:
Years
Furniture and fixtures..................... 10
Equipment.................................. 5-10
Leasehold improvements..................... Remaining life of lease
Income Taxes
HealthFirst Services, Inc. and Tarrant Family Practice, P.A. are both S
Corporations. Accordingly, income tax liabilities are the responsibility of the
respective owners.
Owners' Equity
Owners' equity includes the respective capital stock, additional paid-in capital
and retained earnings of the legal entities described in Note 1.
The practices were purchased by ProMedCo of Lake Worth, Inc. subsequent to
year-end 1995 (see Note 9).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
1994 1995
Furniture, fixtures, and equipment...... $ 370,059 $ 527,317
Leasehold improvements.................. 254,220 277,808
Less- Accumulated depreciation
and amortization...................... (200,895) (260,479)
--------- ---------
Property and equipment, net............. $ 423,384 $ 544,646
============= =============
F-68
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
1994 1995
<S> <C> <C>
Note payable to bank, due in 1997, payable in monthly
installments, bearing interest at 8.75%, secured by
property and equipment......................................................... $ 120,399 $ 77,981
Note payable to a health maintenance organization, for which the Company
will provide clinic services to its members; due in 1998, payable in
monthly installments beginning in
1995, bearing interest at prime, secured by operating assets................... 142,000 131,679
Other notes payable, due from 1996 to 1998, bearing
interest at rates from 5.85% to 9.75%......................................... 43,267 52,510
----------- -----------
Total...................................................................... 305,666 262,170
Less current maturities.................................................... (83,757) (144,303)
----------- ------------
Notes payable, net......................................................... $ 221,909 $ 117,867
=========== ===========
</TABLE>
The maturities of notes payable at December 31, 1995 are as follows:
1996............................................ $ 144,303
1997............................................ 76,938
1998............................................ 40,929
-----------
Total........................................ $ 262,170
===========
5. OTHER LIABILITIES:
During 1995, the Company received cash from a health maintenance organization in
return for agreeing to provide clinic services to its members in a certain area,
for a three-year period. The amount will be earned over the three year term,
beginning in 1996. However, upon the Company's termination of clinic services in
the area, the unearned balance becomes due.
6. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for all of its facilities including the clinics
and the business office, extending through 2011. Rent expense totaled $60,778,
$97,714, and $169,411 for the years ended December 31, 1993, 1994, and 1995,
respectively (see Note 7).
F-69
<PAGE>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
Future lease commitments under the operating leases are as follows:
1996........................................ $ 264,342
1997........................................ 307,854
1998........................................ 271,285
1999........................................ 221,088
2000........................................ 198,848
Thereafter.................................. 1,260,000
Subsequent to December 31, 1995, the Company entered into a lease agreement with
an affiliated company for a new facility. The commitments related to this
agreement have been included in the above future lease commitments.
7. RELATED-PARTY TRANSACTIONS:
The Company leases several of its facilities from affiliated companies with
common owners. Total rent expense to related parties for the years ended
December 31, 1993, 1994, and 1995 was $45,779, $60,102, and $112,021,
respectively.
8. BENEFIT PLAN:
The Company maintains a defined contribution plan for employees who meet the
minimum length of service and age requirements. Under the plan, the Company
makes contributions of 5.7% of all plan participants' compensation. The
Company's contributions totaled $51,887, $65,984, and $90,261 in 1993, 1994, and
1995, respectively.
9. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
10. SUBSEQUENT EVENT:
Effective May 29, 1996, the Company was acquired by ProMedCo of Lake Worth,
Inc., a wholly owned subsidiary of Professional Medical Management Company, in
an asset purchase transaction whereby ProMedCo of Lake Worth, Inc. agreed to
acquire substantially all the operations and certain assets and certain
liabilities of the Company, excluding, among other things, requirements under
the Company's benefit plan.
F-70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Abilene Diagnostic Clinic, P.L.L.C.:
We have audited the accompanying combined balance sheets of the Abilene
Diagnostic Clinic Practices (see Note 1) as of December 31, 1994 and 1995, and
the related combined statements of operations, owners' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Abilene Diagnostic Clinic
Practices as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
July 25, 1996
F-71
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1994 1995 1996
------ -------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 688,816 $ 369,717 $ 185,356
Accounts receivable - net of
allowances of $835,887, $783,991, and
$2,451,480, respectively................................... 1,264,807 1,478,283 1,457,843
Prepaid expenses and other current assets....................... 115,201 146,050 30,727
-------------- ------------- -------------
Total current assets....................................... 2,068,824 1,994,050 1,673,926
PROPERTY AND EQUIPMENT,
net of accumulated depreciation
of $81,354, $110,543, and
$127,123, respectively....................................... 22,314 57,224 40,643
OTHER ASSETS.................................................... - 50,000 56,851
-------------- ------------- -------------
Total assets............................................... $ 2,091,138 $ 2,101,274 $ 1,771,420
============== ============= =============
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 176,106 $ 583,331 $ 89,845
Management fees payable...................................... -- 113,047 418,244
Notes payable................................................ 72,547 198,163 68,929
Accrued expenses and other current liabilities............... 809,145 65,693 766,133
-------------- ------------- -------------
Total current liabilities.................................. 1,057,798 960,234 1,343,151
NOTES PAYABLE, net of current maturities........................ 198,163 - 93,006
-------------- ------------- -------------
Total liabilities.......................................... 1,255,961 960,234 1,436,157
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY.................................................. 835,177 1,141,040 335,263
-------------- ------------- -------------
Total liabilities and owners' equity..................... $ 2,091,138 $ 2,101,274 $ 1,771,420
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Nine Months
Years Ended Ended Ended
December 31, September 30, September 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUE........................... $ 6,375,740 $ 7,114,567 $ 9,536,623 $ 6,728,818 $11,263,067
----------- ----------- ----------- ----------- -----------
Cost of affiliated physician services 3,858,599 3,730,554 4,939,683 2,674,960 5,193,798
Clinic salaries and benefits....... 1,299,810 1,336,463 1,424,891 1,312,668 1,739,109
Clinic rent and lease expense...... 271,941 322,711 477,923 237,252 718,961
Clinic pharmaceuticals and supplies 300,359 335,317 354,161 268,141 663,383
Other clinic costs................. 1,335,732 1,382,539 1,799,974 868,496 2,672,444
Management fees.................... -- -- 113,047 -- 870,895
Depreciation ...................... 72,617 31,795 29,190 8,102 16,581
Interest expense................... 27,806 25,963 23,620 20,209 13,942
Other (income) expense............. (205,375) 4,137 27,221 -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses......... 6,961,489 7,169,479 9,189,710 5,389,828 11,889,113
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)..................... $ (585,749) $ (54,912) $ 346,913 $ 1,338,990 $ (626,046)
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF OWNERS' EQUITY
BALANCE, December 31, 1992................................ $ 1,553,406
Net loss ........................................... (585,749)
Capital contributions................................. 167
Capital distributions................................. (38,710)
-------------
BALANCE, December 31, 1993................................ 929,114
Net loss ........................................... (54,912)
Capital distributions................................. (39,025)
-------------
BALANCE, December 31, 1994................................ 835,177
Net income............................................ 346,913
Capital distributions................................. (41,050)
-------------
BALANCE, December 31, 1995................................ $ 1,141,040
=============
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Nine Months
December 31, Ended September 30,
1993 1994 1995 1995 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ (585,749) $ (54,912) $ 346,913 $ 1,338,990 $ (626,046)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation........................... 72,617 31,795 29,190 8,102 16,581
(Gain) loss on sale of equipment....... (214,628) (424) -- -- --
Changes in assets and liabilities-
Accounts receivable, net............. 88,368 (116,684) (213,476) 342,916 20,440
Other current assets................. (19,989) 5,595 (30,849) (69,943) 115,323
Other assets......................... 7,337 -- (50,000) (6,735) (6,851)
Accounts payable..................... 34,205 (2,631) 407,225 (13,161) (493,486)
Management fees payable.............. -- -- 113,047 -- 305,197
Accrued expenses and other
current liabilities................ 298,023 452,145 (743,452) (363,344) 700,440
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities................. (319,816) 314,884 (141,402) 1,236,825 31,598
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (10,206) (27,490) (64,100) (32,201) --
Proceeds from sale of property and
equipment.............................. 541,147 140,246 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities .............. 530,941 112,756 (64,100) (32,201) --
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt......................... (15,535) (81,518) (72,547) (55,819) (36,228)
Proceeds from capital contributions...... 167 -- -- -- 111,269
Capital owner distributions.............. (38,710) (39,025) (41,050) (33,551) (291,000)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities (54,078) (120,543) (113,597) (89,370) (215,959)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................... 157,047 307,097 (319,099) 1,115,254 (184,361)
CASH AND CASH EQUIVALENTS,
beginning of year........................ 224,672 381,719 688,816 688,816 369,717
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year.............................. $ 381,719 $ 688,816 $ 369,717 $ 1,804,070 $ 185,356
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for interest... $ 27,806 $ 25,963 $ 23,620 $ 20,209 $ 13,942
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
Abilene Diagnostic Clinic, P.L.L.C. ("ADC"), a Texas professional limited
liability company, operates a group medical practice in Taylor County, Texas.
ADC has entered into an interim service agreement with ProMedCo of Abilene,
Inc., a wholly owned subsidiary of Professional Medical Management Company, to
manage all day-to-day operations other than the provision of medical services.
ADC has also entered into an asset purchase agreement with Professional Medical
Management Company for certain assets and certain liabilities (excluding, among
other things, requirements under benefit plans) of ADC in exchange for common
stock of Professional Medical Management Company effective the later of February
16, 1997 or the first day of the month following the date of the initial public
offering.
The combined financial statements of Abilene Diagnostic Clinic Practices include
ADC and the historical financial statements of Abilene Association of
Anesthesiology, P.A. This practice was purchased by ADC subsequent to December
31, 1995, and is included as part of the Professional Medical Management Company
purchase of ADC. The accompanying financial statements of the Abilene Diagnostic
Clinic Practices ("Combined Entities") have been prepared on a combined basis
due to common ownership. The Combined Entities have four common shareholders
that own 14% of ADC and 100% of Abilene Association of Anesthesiology, P.A. as
of February 1996.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Audited Financial Statements
The accompanying combined financial statements have been prepared on the accrual
basis of accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1995 to September 30, 1995, and from
January 1, 1996 to September 30, 1996, have been included herein. The results of
operations for the interim periods are not necessarily indicative of the results
for the full year.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third party
payers and others for services rendered.
F-76
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
Cash and Cash Equivalents
The Combined Entities include all cash accounts, and all highly liquid debt
instruments, with original maturities of three months or less, as cash and cash
equivalents.
Accounts Receivable
Accounts receivable primarily consists of receivables from patients, insurers,
government programs and other third-party payers for medical services provided
by physicians. Such amounts are reduced by an allowance for uncollectible
amounts in certain entities.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the following useful lives:
Years
Furniture and fixtures................ 10
Equipment............................. 5-10
Leasehold improvements................ Remaining life of lease
Income Taxes
The Combined Entities have historically not incurred significant tax liabilities
for federal or state income taxes. Compensation to physician owners has
traditionally reduced taxable income to nominal levels. This relationship would
be expected to continue in the future. Because of this practice, provisions for
income taxes and deferred tax assets and liabilities of the taxable entities
have not been reflected in the combined financial statements.
Owners' Equity
Owners' equity includes the combined respective capital stock, additional
paid-in capital, and retained earnings of the various legal entities reflected
herein as the Combined Entities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-77
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
1994 1995
Equipment................................. $ 103,668 $ 167,767
Less accumulated depreciation............. (81,354) (110,543)
------------- -------------
Property and equipment, net............... $ 22,314 $ 57,224
============= =============
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
1994 1995
<S> <C> <C>
Note payable to a bank, due in 1996, payable in monthly installments with
the balance due at maturity, bearing interest at the bank base rate
plus 0.5%, unsecured....................................................... $ 261,840 $ 198,163
Note payable to a bank, due in 1995, payable in
monthly installments, bearing interest at 8.5%,
unsecured................................................................. 8,870 -
------------- -------------
Total ................................................................ 270,710 198,163
Less current maturities.................................................. (72,547) (198,163)
--------------- -------------
Notes payable, net....................................................... $ 198,163 $ -
============= =============
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Combined Entities have operating leases for all of its facilities. Rent
expense totaled $271,941, $322,711, and $477,923 for the years ended December
31, 1993, 1994, and 1995, respectively.
Future lease commitments under the operating leases are as follows:
1996............................................ $ 355,742
1997............................................ 347,742
1998............................................ 315,795
1999............................................ 103,600
6. BENEFIT PLANS:
The Combined Entities have several defined contribution plans. Contributions
were $431,757, $418,529, and $61,466 for 1993, 1994, and 1995, respectively.
F-78
<PAGE>
ABILENE DIAGNOSTIC CLINIC PRACTICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONT.
7. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
8. SALE OF THE COMBINED ENTITIES:
In December, 1995, the Combined Entities entered into an interim management
services agreement with ProMedCo of Abilene, Inc., a wholly owned subsidiary of
Professional Medical Management Company. As part of this transaction, the
Combined Entities agreed to be acquired by ProMedCo of Abilene, Inc., on the
later of February 16, 1997 or the first day of the month following the date of
the initial public offering of Professional Medical Management Company's common
stock, excluding, among other things, requirements under the Combined Entities'
benefit plan.
F-79
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of King's Daughters Clinic, P.A.:
We have audited the accompanying balance sheets of King's Daughters Clinic, P.A.
(a Texas professional association) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of King's Daughters Clinic, P.A.
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Fort Worth, Texas,
August 30, 1996
F-80
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1994 1995 1996
-------------- ------------- -------------
ASSETS (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 41,583 $ 64,756 $ 301,706
Accounts receivable,
net of allowances of $850,000,
$2,312,000, and $2,397,000
at December 31, 1994 and 1995,
and August 31, 1996, respectively............. 1,080,764 2,651,078 2,762,001
Inventories....................................... 84,753 123,607 84,967
Prepaid expenses and other current assets......... 118,772 263,260 126,491
-------------- -------------- -------------
Total current asset........................... 1,325,872 3,102,701 3,275,165
PROPERTY AND EQUIPMENT, net............................ 920,931 1,219,271 1,597,639
-------------- -------------- -------------
Total asset................................... $ 2,246,803 $ 4,321,972 $ 4,872,804
============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................... $ - $ 275,000 $ 225,000
Accounts payable.................................. 384,716 1,010,801 745,709
Accrued expenses and
other current liabilities..................... 617,789 524,820 1,481,362
Current portion of notes payable.................. 83,996 69,996 69,996
Current portion of capital
lease obligations............................. 201,851 279,160 294,216
Deferred income taxes............................. - 302,913 182,939
-------------- -------------- -------------
Total current liabilities..................... 1,288,352 2,462,690 2,999,222
LONG-TERM LIABILITIES:
Notes payable..................................... 180,843 110,847 64,183
Capital lease obligations......................... 530,862 668,759 1,030,171
Deferred income taxes............................. 50,146 72,755 -
Other long-term liabilities....................... - 349,845 393,575
-------------- -------------- -------------
Total long-term liabilities................... 761,851 1,202,206 1,487,929
-------------- ---------------- ---------------
Total liabilities............................. 2,050,203 3,664,896 4,487,151
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 1,000,000 shares
authorized; 27, 29 and 30
shares outstanding at December 31,
1994 and 1995, and August 31, 1996,
respectively, after deducting 1, 0,
and 0 shares held in treasury at
December 31, 1994 and 1995,
and August 31, 1996........................... 2,700 2,900 3,000
Retained earnings................................. 193,900 654,176 382,653
-------------- -------------- -------------
Total stockholders' equity.................... 196,600 657,076 385,653
-------------- -------------- -------------
Total liabilities and
stockholders' equity........................ $ 2,246,803 $ 4,321,972 $ 4,872,804
================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
EIGHT MONTHS EIGHT MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, AUGUST 31, AUGUST 31,
----------------------------------------------
1993 1994 1995 1995 1996
------------- -------------- ------------- ------------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net patient service revenues.............. $ 13,612,086 $ 15,509,447 $ 18,757,164 $ 12,480,170 $ 12,448,700
Other revenues............................ 714,884 774,250 814,429 463,290 553,460
------------- -------------- ------------- ------------- -------------
Total net revenues.................... 14,326,970 16,283,697 19,571,593 12,943,460 13,002,160
------------- -------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of affiliated physician services..... 5,478,326 5,980,131 7,427,766 5,179,604 5,012,422
Clinic salaries and benefits.............. 4,559,211 5,653,364 5,010,994 3,335,680 4,015,320
Rent expense.............................. 1,405,316 1,679,774 1,724,425 1,229,919 1,175,969
Clinic pharmaceuticals and supplies....... 1,281,654 1,310,088 1,451,689 972,672 1,038,608
Other clinic costs........................ 1,301,134 1,652,023 2,863,294 1,837,771 1,828,518
Depreciation.............................. 84,796 166,781 294,960 189,044 259,119
Interest expense.......................... 19,029 31,293 101,077 71,724 83,603
------------- -------------- ------------- ------------- ------------
Total costs and expenses.............. 14,129,466 16,473,454 18,874,205 12,816,414 13,413,559
------------- -------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.............................. 197,504 (189,757) 697,388 127,046 (411,399)
PROVISION (BENEFIT) FOR INCOME
TAXES ................................. 67,151 (64,517) 237,112 43,196 (139,876)
------------- -------------- ------------- ------------- -------------
NET INCOME (LOSS).............................. $ 130,353 $ (125,240) $ 460,276 $ 83,850 $ (271,523)
============= ============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Retained
Shares Amount Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992................ 28 $ 2,800 $ 188,787 - $ - $ 191,587
Purchase of treasury stock........... - - - (4) (400) (400)
Net income........................... - - 130,353 - - 130,353
---------- --------- ------------ --------- ----------- -----------
BALANCE, December 31, 1993................ 28 2,800 319,140 (4) (400) 321,540
Purchase of treasury stock........... - - - (1) (100) (100)
Reissuance of treasury stock......... - - - 4 400 400
Net loss ............................ - - (125,240) - - (125,240)
---------- --------- ------------ --------- ---------- ----------
BALANCE, December 31, 1994................ 28 2,800 193,900 (1) (100) 196,600
Purchase of treasury stock........... - - - (1) (100) (100)
Reissuance of treasury stock......... - - - 2 200 200
Issuance of common stock............. 1 100 - - - 100
Net income........................... - - 460,276 - - 460,276
---------- --------- ------------ --------- ----------- -----------
BALANCE, December 31, 1995................ 29 2,900 654,176 - - 657,076
Issuance of common
stock (unaudited).................... 1 100 - - - 100
Net loss (unaudited)................. - - (271,523) - - (271,523)
---------- --------- ----------- - --------- ----------- -----------
BALANCE, August 31, 1996
(unaudited).......................... 30 $ 3,000 $ 382,653 - $ - $ 385,653
========== ========= ============ ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
EIGHT MONTHS EIGHT MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, AUGUST 31, AUGUST 31,
1993 1994 1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 130,353 $ (125,240) $ 460,276 $ (146,932) $ (467,143)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation....................................... 84,796 166,781 294,960 139,550 194,452
Changes in assets and liabilities-
Accounts receivable.............................. (545,775) (5,000) (1,570,314) (497,908) (64,179)
Inventories...................................... (4,000) (4,253) (38,854) (2,830) 28,476
Prepaid expenses and other current assets........ (96,711) 152,285 (144,288) (10,479) 74,775
Accounts payable................................. 8,643 176,073 626,085 352,539 (138,504)
Accrued expenses and other current liabilities... 114,055 37,143 256,876 854,944 932,870
Deferred income taxes............................ 127,462 (77,316) 325,522 (25,886) (254,448)
------------ ------------ ------------ ---------- -----------
Net cash provided by (used in)
operating activities......................... (181,177) 320,473 210,263 662,998 306,299
------------- ------------ ------------ ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (8,273) (152,550) (174,443) (70,065) (78,670)
------------ ----------- -- ---------- ---------- ------------
Net cash used in investing activities.......... (8,273) (152,550) (174,443) (70,065) (78,670)
------------ ----------- -- ---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayments) under line of credit............ - - 275,000 - (50,000)
Payments on capital leases............................. (101,310) (109,681) (203,651) (105,932) (130,246)
Proceeds from notes payable............................ 350,000 - - - -
Payments on notes payable.............................. (43,165) (83,996) (83,996) (34,998) (29,185)
------------ ---------- - ---------- ---------- -----------
Net cash provided by (used in)
financing activities......................... 205,525 (193,677) (12,647) (140,930) (209,431)
------------ ----------- -- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH........................... 16,075 (25,754) 23,173 452,003 18,198
CASH AND CASH EQUIVALENTS, beginning of year.............. 51,262 67,337 41,583 41,583 64,756
------------ ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year.................... $ 67,337 $ 41,583 $ 64,756 $ 493,586 $ 82,954
============ =========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period-
Interest............................................. $ 19,029 $ 31,293 $ 101,077 $ 56,757 $ 58,813
Income taxes......................................... $ - $ - $ - $ - $ -
NONCASH FINANCING ACTIVITIES:
Equipment acquired under capital lease................. $ 65,757 $ 617,038 $ 523,209 $ 187,582 $ 557,657
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
King's Daughters Clinic, P.A. (the "Clinic") is a Texas professional association
that provides medical services. The principal stockholders of the Clinic are the
physicians who provide healthcare services. The Clinic was purchased by ProMedCo
of Temple, Inc. effective September 1, 1996 (see Note 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - Interim Financial Statements
The financial statements for the eight months ended August 31, 1995 and 1996,
have been prepared by the Clinic, without audit, pursuant to Accounting
Principles Board (APB) Opinion No. 28, "Interim Financial Reporting." Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the APB Opinion No. 28; nevertheless,
management of the Clinic believes that the disclosures herein are adequate to
prevent the information presented from being misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Clinic with respect to
the results of its operations for the eight months ended August 31, 1995 and
1996, have been included herein. The results of operations for the eight-month
period is not necessarily indicative of the results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Clinic includes all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments, with original
maturities of three months or less, as cash and cash equivalents.
Inventories
Inventories are stated at the lower of cost or market and consist primarily of
radiology, laboratory and office supplies.
F-85
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed based on the straight-line method over the following
useful lives:
Years
Leasehold improvements............................. 5-31.5
Furniture, fixtures, and equipment................. 3-7
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third-party
payers and others for services rendered.
3. PROPERTY AND EQUIPMENT:
At December 31, 1994 and 1995, property and equipment consisted of the
following:
1994 1995
---------------- ----------
Leasehold improvements.............. $ 29,386 $ 79,479
Furniture, fixtures, and equipment.. 1,225,101 1,685,414
Less- Accumulated depreciation...... (333,556) (545,622)
---------------- --------------
Property and equipment, net... $ 920,931 $ 1,219,271
================ ===============
F-86
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
4. NOTES PAYABLE:
At December 31, 1994 and 1995, notes payable consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---------------- ---------------
<S> <C> <C>
Note payable from a bank bearing interest
at prime plus 1% (8.5%, 8.5% and
8.25%, respectively), due in monthly
installments of $5,833, plus interest,
through, July 15, 1998,
guaranteed by a related party...................................... $ 250,839 $ 180,843
Note payable from a bank bearing interest
at prime plus .5% (8.5% in 1994),
principle due in annual installments of
$14,000 through September 10, 1995,
interest due quarterly............................................. 14,000 -
Less- Current maturities........................................... (83,996) (69,996)
---------------- ---------------
Notes payable, net............................................. $ 180,843 $ 110,847
================ ===============
</TABLE>
The maturities of notes payable as of December 31, 1995, are as follows:
1996 ............................. $ 69,996
1997 ............................. 69,996
1998 ............................. 40,851
1999 ............................. -
2000 ............................. -
Thereafter............................ -
----------------
$ 180,843
The Clinic also has a revolving line of credit with a bank in the amount of
$300,000, which accrues interest at the prime rate (8.5% at December 31, 1995).
At December 31, 1995, the outstanding balance on this line of credit was
$275,000.
F-87
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
5. LEASE COMMITMENTS:
The Clinic leases various equipment and office buildings under operating leases.
Rent expense charged to operations totaled approximately $907,000, $990,000, and
$1,200,000 during the years ended December 31, 1993, 1994, and 1995,
respectively.
The Clinic also leases various equipment under capital leases. At December 31,
1995, future minimum lease payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating Total
<S> <C> <C> <C>
1996.......................................... $ 356,136 $ 88,776 $ 444,912
1997.......................................... 300,053 76,560 376,613
1998.......................................... 261,955 - 261,955
1999.......................................... 136,933 - 136,933
2000.......................................... 68,641 - 68,641
Thereafter.................................... - - -
--------------- ---------------- --------------
Less-Portion attributable to interest......... (175,799) - (175,799)
--------------- ---------------- ---------------
Net obligations............................... $ 947,919 $ 165,336 $ 1,113,255
=============== ================ ===============
</TABLE>
Rent paid to related parties totaled approximately $877,000, $919,000, and
$983,000 during the years ended December 31, 1993, 1994, and 1995, respectively.
6. INCOME TAXES:
Deferred income taxes reflect net operating loss carryforwards and the impact of
temporary differences between the amount of asset and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
These differences related primarily to provisions for doubtful accounts, book
versus tax depreciation differences, and accrued revenues and expenses recorded
for book purposes but not yet recorded for tax purposes.
F-88
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
At December 31, 1994 and 1995, the Clinic had the following deferred tax assets
and liabilities recorded:
1994 1995
------------ -------------
Deferred tax assets-
Allowances on accounts receivable..............$ 289,009 $ 786,153
Accounts payable................................ 130,803 343,672
Accrued expenses and other current
liabilities.................................. 210,048 297,386
Operating loss carryforwards.................... 23,106 24,549
------------ ------------
Total deferred tax assets................ 652,966 1,451,760
------------ ------------
Deferred tax liabilities-
Accounts receivable.......................... 656,468 1,687,520
Depreciation.................................. 23,105 97,304
Other......................................... 23,539 42,604
------------- ------------
Total deferred tax liabilities........... 703,112 1,827,428
------------- ------------
Net deferred tax liabilities...................... $ 50,146 $ 375,668
============= ============
The following table summarizes the significant components of the income tax
provision (benefit):
<TABLE>
<CAPTION>
1993 1994 1995
-------------- ------------ --------------
<S> <C> <C> <C>
Current tax provision (benefit)............................ $ (60,311) $ 12,799 $ (88,410)
Deferred tax provision (benefit)........................... 127,462 (77,316) 325,522
-------------- ------------ -------------
Total income tax provision (benefit)....................... $ 67,151 $ (64,517) $ 237,112
============== ============= =============
</TABLE>
The Clinic has no significant permanent tax differences and therefore its
effective tax rate equals its statutory tax rate.
7. PROFIT SHARING PLAN:
The Clinic has a qualified profit sharing plan (the "Plan") that includes a
401(k) provision. The profit sharing component covers substantially all
full-time employees and provides for contributions in such amounts as the Board
of Directors may annually determine. The 401(k) component permits eligible
employees, at their discretion, to contribute a percentage of their salary into
the Plan. The maximum contribution percentage was 10% until December 31, 1995,
at which time the Plan was amended to increase the contribution percentage to
15% of the employees' salary. Under the Plan agreement, the Company must match
the employees' discretionary investment in the Plan up to 1% of the employees'
compensation. The Clinic may also elect to contribute up to 5% of eligible
employees compensation to the profit sharing portion of the Plan. Total
contributions by the Clinic aggregated approximately $224,000, $300,000, and
$326,000 for the years ended December 31, 1993, 1994, and 1995, respectively.
F-89
<PAGE>
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- CONT.
8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1994 and
1995.
9. SUBSEQUENT EVENT:
The Clinic has entered into a transaction whereby ProMedCo of Temple, a wholly
owned subsidiary of Professional Medical Management Company, will acquire
substantially all the operations and certain assets and liabilities of the
Clinic on September 1, 1996.
10. CONTINGENCIES:
The Clinic is involved in various legal proceedings in the ordinary course of
business. The Clinic does not believe that the disposition of such legal
proceedings and disputes will have a material adverse effect on the financial
position and results of operations of the Clinic.
F-90
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Western Medical Management Corp., Inc.:
We have audited the accompanying balance sheets of Western Medical Management
Corp., Inc. (a Nevada corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Medical Management
Corp., Inc. as of December 31, 1994 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Fort Worth, Texas,
October 23, 1996
F-91
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995 1996
(Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ - $ - $ -
Accounts receivable, net of allowances of $443,241,
$833,942, and $834,648, respectively........................ 1,180,400 1,711,172 1,785,473
Inventory...................................................... 17,291 12,948 7,678
Prepaid expenses and other current assets...................... 100,383 40,389 65,849
------------- ------------- ------------
Total current assets........................................ 1,298,074 1,764,509 1,859,000
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $587,275, $561,847,
and $518,359, respectively..................................... 438,900 190,465 557,491
OTHER ASSETS...................................................... 56,536 28,110 20,786
------------- ------------- ------------
Total assets................................................ $ 1,793,510 $ 1,983,084 $ 2,437,277
============= ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 303,794 $ 708,188 $ 939,355
Due to affiliated physician group.............................. 6,495 6,093 513,811
Notes payable.................................................. 82,896 17,705 56,795
Notes payable to affiliates.................................... 76,127 52,871 142,324
Line of credit................................................. - 225,000 250,000
Accrued expenses and other current liabilities................. 290,559 358,451 328,208
Deferred income taxes.......................................... 56,136 - -
------------- ------------- ------------
Total current liabilities................................... 816,007 1,368,308 2,230,493
NOTES PAYABLE, net of current maturities.......................... 55,575 15,929 379,477
------------ ------------- -------------
Total liabilities........................................... 871,582 1,384,237 2,609,970
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 25,000 shares authorized, 8,500 shares issued
and outstanding (liquidation
preference of $5 per share)................................. $ 8,500 $ 8,500 $ 8,500
Common stock, $1 par value, 50,000 shares authorized,
9,906 shares issued and outstanding......................... 9,906 9,906 9,906
Paid in capital................................................ 1,570,812 1,570,812 1,570,812
Retained income................................................ (667,290) (990,371) (1,761,911)
------------ ------------- -------------
Total stockholders' equity.................................. 921,928 598,847 (172,693)
------------ ------------- -------------
Total liabilities and stockholders' equity.................. $ 1,793,510 $ 1,983,084 $ 2,437,277
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------------- -----------------------
1993 1994 1995 1995 1996
------------- -------------- ------------ ------------ --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
PHYSICIAN GROUP REVENUE, NET.................... $ 8,556,385 $ 9,542,857 $ 11,270,376 $ 8,154,106 $ 9,025,721
LESS: COST OF AFFILIATED
PHYSICIAN SERVICES......................... 3,079,226 3,576,330 4,349,325 3,146,489 4,223,257
------------- ------------- ------------ ------------ -------------
NET REVENUE..................................... 5,477,159 5,966,527 6,921,051 5,007,617 4,802,464
COSTS AND EXPENSES:
Clinic salaries and benefits................. 2,551,410 3,048,528 3,695,429 2,595,416 3,083,586
Rent expense................................. 430,317 484,508 592,992 425,158 485,182
Clinic pharmaceuticals and supplies.......... 504,317 482,400 512,667 379,537 358,719
Other clinic costs........................... 1,844,422 1,802,206 2,302,281 1,720,309 1,451,902
Depreciation and amortization................ 173,880 152,904 169,180 100,909 68,338
Interest expense............................. 21,702 15,999 25,988 18,553 22,858
------------- ------------- ------------ ------------ -------------
Total costs and expenses................... 5,526,048 5,986,545 7,298,537 5,239,882 5,470,585
------------- ------------- ------------ ------------ -------------
LOSS BEFORE PROVISION FOR INCOME
TAXES........................................ (48,889) (20,018) (377,486) (232,265) (668,121)
PROVISION (BENEFIT) FOR INCOME TAXES............ 26,156 12,566 (54,405) (28,983) 103,419
------------- ------------- ------------ ------------ -------------
NET LOSS........................................ $ (75,045) $ (32,584) $ (323,081) $ (203,282) $ (771,540)
============= ============= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.......... 8,500 $ 8,500 9,906 $9,906 $ 1,570,812 $ (559,661) $1,029,557
Net loss....................... - - - - - (75,045) (75,045)
------ --------- -------- ------ ----------- ---------- ---------
BALANCE, December 31, 1993........ 8,500 8,500 9,906 9,906 1,570,812 (634,706) 954,512
Net loss....................... - - - - - (32,584) (32,584)
------ --------- -------- ------ ----------- ---------- ---------
BALANCE, December 31, 1994......... 8,500 8,500 9,906 9,906 1,570,812 (667,290) 921,928
Net loss....................... - - - - - (323,081) (323,081)
------ --------- -------- ------ ----------- ---------- ---------
BALANCE, December 31, 1995........ 8,500 8,500 9,906 9,906 1,570,812 (990,371) 598,847
Net loss (unaudited)........... - - - - - (771,540) (771,540)
------ --------- -------- ------ ----------- ---------- ---------
BALANCE, September 30,
1996 (unaudited).............. 8,500 $ 8,500 9,906 $9,906 $ 1,570,812 $(1,761,911) $(172,693)
======== ========= ========= ====== =========== ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------- --------------------
1993 1994 1995 1995 1996
------------- -------------- ------------ ------------ --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................$ (75,045) $ (32,584) $ (323,081) $ (203,282) $ (771,540)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities-
Depreciation and amortization.......... 173,880 152,904 169,180 100,909 68,338
(Gain) loss on sale of equipment....... 12,451 263 (53,370) (53,370) (229,248)
Changes in assets and liabilities-
Accounts receivable.................. (286,098) (33,952) (530,772) (161,852) (74,301)
Inventory............................ (5,389) 2,119 4,343 9,885 5,270
Prepaid expenses and other current
assets............................. 55,835 81,945 59,994 (40,109) (25,460)
Accounts payable..................... 258,823 44,971 404,394 64,665 231,167
Due to affiliated physician group.... (110,023) (11,122) (402) (6,495) 507,718
Accrued expenses and other current
liabilities........................ 195,579 (31,057) 67,892 115,393 (30,243)
Deferred income taxes................ (102,688) (82,812) (56,136) (56,136) -
------------- -------------- ------------ ------------ -----------
Net cash provided by (used in)
operating activities............ 117,325 90,675 (257,958) (230,392) (318,299)
------------- -------------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (257,380) (61,730) (57,839) (56,793) (454,074)
Proceeds from sale of property and
equipment .................................. - 750 218,890 218,890 255,282
Increase in other assets.................... (14,467) - - - -
------------- -------------- ------------ ------------ -----------
Net cash (used in) provided by
investing activities............. (271,847) (60,980) 161,051 162,097 (198,792)
------------- -------------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit................ - - 250,000 250,000 180,000
Payments on line of credit.................. - - (25,000) (25,000) (155,000)
Proceeds from notes payable................. 30,526 23,000 - - 453,615
Payments on notes payable................... (83,491) (91,693) (82,895) (61,507) (38,553)
Proceeds from notes payable to affiliates... 75,000 113,998 75,920 - 163,505
Payments on notes payable to affiliates..... (11,053) (75,000) (121,118) (79,946) (86,476)
------------- -------------- ------------ ------------ -----------
Net cash provided by (used in)
financing activities............ 10,982 (29,695) 96,907 83,547 517,091
------------- -------------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH................ (143,540) - - 15,252 -
CASH AND CASH EQUIVALENTS beginning
of year..................................... 143,540 - - - -
------------- -------------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of year......... $ - $ - $ - $ 15,252 $ -
============= ============== ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year-
Interest.................................. $ 18,809 $ 10,850 $ 22,929 $ - $ 19,561
Taxes..................................... $ 110,000 $ 120,886 $ 67,420 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. DESCRIPTION OF BUSINESS:
Western Medical Management Corp., Inc. ("WMM" or the "Company") a Nevada
corporation is engaged in operating and managing a physician group. The Company
operates the physician group under a long-term service agreement. The principal
stockholders of the Company are physicians who also own stock and are employees
of the physician group (the "Affiliated Physician Group"). The Company has
entered into a merger agreement with Professional Medical Management Company
("ProMedCo") which is to be consummated at the initial public offering ("IPO")
of ProMedCo's common stock. The business combination is expected to be accounted
for as a pooling-of-interests (see Note 10).
The accompanying financial statements have been prepared on a going concern
basis. At September 30, 1996, the Company had negative working capital. In
addition, the Company incurred net losses of $771,540 for the nine months ended
September 30 1996. As discussed in Note 10, the Company is currently negotiating
with ProMedCo to borrow up to $1.0 million for working capital purposes.
The accompanying financial statements do not include any adjustments relating to
the carrying amounts of assets or liabilities should the Company be unable to
operate as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements have been prepared on the accrual basis of accounting.
Basis of Presentation - Interim Financial Statements
The interim financial statements and footnote disclosures have been prepared by
the Company, without audit, pursuant to the rules and regulations of Accounting
Principles Board ("APB") Opinion No. 28, "Interim Financial Reporting." Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to APB Opinion No. 28; nevertheless,
management of the Company believes that the disclosures herein are adequate to
prevent the information presented from being misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company with respect
to the results of its operations for the interim periods from January 1, 1995 to
September 30, 1995, and from January 1, 1996 to September 30, 1996, have been
included herein. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
F-96
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Net Revenue
Revenue for the physician group is reported at the estimated realizable amounts
from patients, third-party payors, and others for services rendered and reduced
by the cost of affiliated physician services. The cost of affiliated physician
services represents amounts paid to the physicians under a management service
agreement. Net revenue represents WMM's proportionate share of medical revenues
under the agreement. Revenue under certain third-party payor agreements is
subject to audit and retroactive adjustments. Provisions for estimated
third-party payor settlements and adjustments are estimated in the period the
related services are rendered and adjusted in future periods as final
settlements are determined. There are no material claims, disputes, or other
unsettled matters that exist to management's knowledge concerning third-party
reimbursements. In addition, management believes there are no retroactive
adjustments that would be material to the Company's financial statements. A
significant concentration of revenue exists as all revenue earned by the Company
is derived from the service agreement with the Affiliated Physician Group.
Cash and Cash Equivalents
The Company includes all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments, with original
maturities of three months or less, as cash and cash equivalents.
Inventory
Inventories are stated at lower of cost or market and consist primarily of
pharmaceuticals and office supplies.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed on a straight-line method over the following useful
lives:
Years
Leasehold improvements Estimated life of lease
Furniture, fixtures, and equipment 5-7
Due to Affiliated Physician Group
Amounts included in Due to Affiliated Physician Group represent amounts payable
to the Affiliated Physician Group based on the service agreement.
F-97
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires entities to
measure compensation costs related to awards of stock-based compensation using
either the fair value method or the intrinsic value method. Under the fair value
method, compensation expense is measured at the grant date based on the fair
value of the award. Under the intrinsic value method, compensation expenses is
equal to the excess, if any, of the quoted market price of the stock at the
grant date over the amount the employee must pay to acquire the stock. Entities
electing to measure compensation costs using the intrinsic value method must
make pro forma disclosures for fiscal years beginning after January 1, 1996, of
net income and earnings per share as if the fair value method had been applied.
The Company has elected to account for stock-based compensation programs using
the intrinsic value method, which is consistent with existing accounting
policies, and, therefore, the standard will have no effect on the consolidated
financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
1994 1995
------------- ---------
Leasehold improvements................. $ 107,147 $ 107,147
Furniture, fixtures, and equipment..... 919,028 645,165
Less-Accumulated depreciation.......... (587,275) (561,847)
------------- -------------
Property and equipment, net............ $ 438,900 $ 190,465
= ======= = =======
F-98
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
8% unsecured note payable, due in monthly
installments of $5,771, including interest,
through February 1996............................................... $ 76,895 $ 11,428
7% unsecured note payable, due in monthly installments of $780,
including interest, through February 1995; paid in full as of
December 31, 1995................................................... 8,017 --
8% unsecured note payable, due in monthly
installments of $1,177, including interest,
through February 1996............................................... 15,687 2,331
8% unsecured note payable to an affiliate, due in monthly installments
of $13,057, including interest, through May 1995; paid in full as
of December 31, 1995................................................ 63,999 --
Note payable to an affiliate, due in monthly
installments of $4,167 through December 1995,
renegotiated to pay remaining balance in 1996....................... 50,000 15,000
Note payable to an affiliate, due in monthly
installments of $498, through August 1999........................... -- 15,929
8% unsecured note payable to an affiliate, due
in monthly installments of $435, including
interest, through September 1996.................................... -- 41,817
------------- -------------
Total notes payable................................................. $ 214,598 $ 86,505
Less-current maturities............................................. (159,023) (70,576)
--------------- -------------
Notes payable, net.................................................. $ 55,575 $ 15,929
============= =============
</TABLE>
F-99
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
The maturities of notes payable as of December 31, 1995, are as follows:
1996................................ $ 70,576
1997................................ 8,006
1998................................ 6,123
1999................................ 1,800
-------------
$ 86,505
During 1995, the Company obtained a $225,000 revolving line of credit with a
bank. This line of credit accrues interest at the prime rate and expires on
February 27, 1996. During 1996, the line of credit was increased to $300,000 and
extended to December 31, 1996.
5. LEASE COMMITMENTS:
The Company leases various equipment and office buildings under operating
leases; rent expense charged to operations totaled approximately $430,000,
$485,000, and $593,000 in 1993, 1994, and 1995, respectively and approximately
$425,000 and $485,000 during the nine months ended September 30, 1995 and 1996,
respectively.
The Company also leases various equipment under capital leases. Future minimum
lease payments under capital and operating leases as of September 30, 1996 are
as follows:
Capital Operating Total
1996 (remainder)........ $ 27,823 $ 157,307 $ 185,130
1997.................... 109,940 629,229 739,169
1998.................... 108,590 175,217 283,807
1999.................... 108,590 63,679 172,269
2000.................... 108,590 37,047 145,637
Thereafter.............. 74,447 16,436 90,883
------------- ------------- -------------
537,980 1,078,915 1,616,895
Less portion attributable to
interest................ (118,212) -- (118,212)
------------- ------------- -------------
Net obligations........ $ 419,768 $ 1,078,915 $ 1,498,683
============= ============= =============
F-100
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
6. INCOME TAXES:
Deferred income taxes are attributable primarily to timing differences between
income tax reporting and financial reporting related to revenues and expenses.
The following table summarizes the composition of the deferred tax assets and
liabilities.
December 31,
1994 1995
Deferred tax assets-
Allowance for accounts receivable........ $ 150,702 $ 227,701
------------- -------------
Total deferred tax assets.............. 150,702 227,701
Deferred tax liabilities-
Section 481 adjustment................... (206,838) (103,419)
------------- -------------
Total deferred tax liabilities......... (206,838) (103,419)
------------- -------------
(56,136) 124,282
Valuation allowance.......................... - (124,282)
------------- -------------
Net deferred tax asset (liability)........... $ (56,136) $ -
============= =============
The following table summarizes the significant components of income tax expense
(benefit):
1993 1994 1995
--------- ---------- -------
Current tax provision (benefit) $ 128,845 $ 95,378 $ 1,731
Deferred tax provision (benefit (102,689) (82,812) (56,136)
----------- ----------- ------------
Provision (benefit) for income taxes $ 26,156 $ 12,566 $ (54,405)
=========== =========== ============
F-101
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
1993 1994 1995
--------- ---------- -------
Federal tax at statutory rate $ (16,622) $ (6,806) $ (128,345)
Increase in valuation allowance - - 124,282
Other 42,778 19,372 (50,342)
----------- ----------- ------------
$ 26,156 $ 12,566 $ (54,405)
=========== =========== ============
Effective January 1, 1993, the Company changed from a cash-basis taxpayer filing
status to an accrual- basis taxpayer. In accordance with Internal Revenue
Service guidelines, the additional taxable income is treated as a section 481
adjustment and is recognized ratably over four years. A deferred tax liability
has been recognized for the effect of this adjustment.
7. PROFIT SHARING PLAN:
The Company has a qualified profit sharing plan (the "Plan") that includes a
401(k) provision. The profit sharing component covers substantially all
full-time employees and provides for contributions in such amounts as the Board
of Directors may annually determine. The 401(k) component permits eligible
employees, at their discretion, to invest up to 10% of their salary in the Plan.
Under the Plan agreement, the Company's matching of the employees' contribution
is discretionary at a rate of $.25 for each $1 and employees may contribute up
to $500. Total expenses for the Plan for the years ended December 31, 1993,
1994, and 1995, aggregated approximately $234,299, $173,794, and $190,797,
respectively.
8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure about the fair value of financial instruments. Carrying amounts for
all financial instruments approximate fair value as of December 31, 1995.
9. STOCK OPTIONS:
In 1994, an employee was granted options to receive 5% of the stock of the
Company. The options will be fully vested upon consummation of the business
combination with ProMedCo (see Note 10) and were granted at net book value,
which approximated fair market value.
In 1995, an employee was granted options to purchase 1% of the stock of the
Company. The options will be fully vested upon consummation of the business
combination with ProMedCo (see Note 10), and were granted at net book value,
which approximated fair market value.
F-102
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
In 1995, the Company also entered into an agreement with a consultant for
financial advisory services in which the consultant was awarded warrants to
purchase up to 10% of the fully diluted equity of the
F-103
<PAGE>
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- CONT.
Company. The exercise price for the options will be determined based on the
average selling price of the first 10% of the equity shares sold by the company.
The exercise price will be equal to 70% of such average purchase price paid and
will expire in 2005.
10. SUBSEQUENT EVENT:
The Company has signed a letter of intent to merge with ProMedCo in a stock for
asset combination. The business combination is expected to be accounted for as a
pooling-of-interests. The combination is to be consummated upon the closing of
the IPO of ProMedCo's common stock.
In addition, the Company is currently negotiating with ProMedCo to borrow up to
$1.0 million for working capital purposes. As part of the agreement, the Company
would enter into a consulting agreement whereby ProMedCo would provide
management services to the Company. Concurrent with the funding of the loan, the
Company would also enter into a new service agreement with the Affiliated
Physician Group.
F-104
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
Page
Prospectus Summary...............................
Risk Factors.....................................
Use of Proceeds..................................
Dividend Policy..................................
Dilution.........................................
Capitalization...................................
Pro Forma Consolidated Financial Information.....
Selected Financial Data..........................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................
Business.........................................
Management.......................................
Principal and Selling Stockholders...............
Description of Capital Stock.....................
Shares Eligible for Future Sale..................
Underwriting.....................................
Legal Matters....................................
Experts..........................................
Additional Information...........................
Index to Financial
Statements....................................
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
[PROMEDCO LOGO]
PROFESSIONAL MEDICAL
MANAGEMENT COMPANY
COMMON STOCK
--------------------
P R O S P E C T U S
--------------------
PIPER JAFFRAY INC.
ROBERTSON, STEPHENS &
COMPANY
COWEN & COMPANY
, 1996
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable in connection with
the registration of the Common Stock that is the subject of this Registration
Statement, all of which shall be borne by the Company. All the amounts shown are
estimates except for the registration fee, the Nasdaq listing fee, and the NASD
filing fee.
To Be Paid By
Registrant
Securities and Exchange Commission registration fee.......... $ 17,241
Nasdaq listing fee........................................... *
National Association of Securities Dealers filing fee........ 5,500
Printing and engraving expenses.............................. *
Legal fees and expenses...................................... *
Accounting fees and expenses................................. *
Blue sky filing fees......................................... *
Miscellaneous................................................ *
-----------------
Total.................................................... $ *
=================
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and By-laws provide for
indemnification of directors, officers, agents, and employees of the Company to
the fullest extent permitted by law. Under Delaware law, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to an action (other than an action by or in the right of the corporation) by
reason of his service as a director or officer of the corporation, or his
service, at the corporation's request, as a director, officer, employee or agent
of another corporation or other enterprise, against expenses (including
attorneys' fees) that are actually and reasonably incurred by him ("Expenses"),
and judgments, fines and amounts paid in settlement that are actually and
reasonably incurred by him, in connection with the defense or settlement of such
action, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. Although Delaware law permits a corporation to
indemnify any person referred to above against Expenses in connection with the
defense or settlement of an action by or in the right of the corporation,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the corporation's best interests, if such person has
been judged liable to the corporation, indemnification is only permitted to the
extent that the Court of Chancery (or the court in which the action was brought)
determines that, despite the adjudication of liability, such person is entitled
to indemnity for such Expenses as the court deems proper. The determination as
to whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of a quorum of disinterested
members of the board of directors, or (2) by independent legal counsel in a
written opinion, if such a quorum does not exist or
II-1
<PAGE>
if the disinterested directors so direct, or (3) by the stockholders. The
General Corporation Law of the State of Delaware also provides for mandatory
indemnification of any director, officer, employee or agent against Expenses to
the extent such person has been successful in any proceeding covered by the
statute. In addition, the General Corporation Law of the State of Delaware
provides the general authorization of advancement of a director's or officer's
litigation expenses in lieu of requiring the authorization of such advancement
by the board of directors in specific cases, and that indemnification and
advancement of expenses provided by the statute shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, the Registrant has sold or issued the following
unregistered securities:
(1) In July and August 1994, the Registrant issued an aggregate of
1,148,000 shares of Common Stock at a purchase price of $0.045 per share and
warrants to purchase an aggregate of 885,442 shares of Common Stock at an
exercise price of $1.25 per share to certain of its officers, directors,
employees, its counsel, and certain private investors.
(2) In October and November 1994 the Registrant issued an aggregate of
1,226,150 shares of Class B Common Stock at a purchase price of $0.50 and
warrants to purchase an aggregate of 966,456 shares of Class B Common Stock at
an exercise price of $1.25 per share to certain directors of the Registrant, its
counsel, and a private investor.
(3) In October 1994 the Registrant issued 690,000 shares of Common
Stock at a purchase price of $0.045 per share and warrants to purchase 543,556
shares of Common Stock at an exercise price of $1.25 per share to an individual
who is an officer and director of the Registrant.
(4) In November 1994 the Registrant issued 40,000 shares of Common
Stock at a purchase price of $0.50 per share to an officer of the Registrant.
(5) In January 1995 the Registrant issued an aggregate of 20,000 shares
of Common Stock at a purchase price of $0.50 per share to an officer of the
Registrant.
(6) On June 15, 1995 the Registrant issued warrants to purchase an
aggregate of 150,000 shares of Common Stock at an exercise price of $2.50 per
share at a purchase price of $2.50 per warrant to two directors of the
Registrant and a private investor.
(7) On June 30, 1995 the Registrant issued, in connection with the
acquisition of a physician group, an aggregate of 138,672 shares of redeemable
Common Stock to the physicians in the group.
(8) In August 1995 the Registrant issued, in connection with the
acquisition of a physician group, an aggregate of 26,624 shares of redeemable
Common Stock to the physicians in the group.
(9) In December 1995 the Registrant issued an aggregate of 500,000
shares of Redeemable Convertible Preferred Stock and warrants to purchase
200,000 shares of Redeemable Convertible
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<PAGE>
Preferred Stock at an exercise price of $6.00 per share for aggregate net
consideration of $2,953,358 to private investors.
(10) In February 1996 the Registrant issued to a former employee 3,200
shares of Common Stock upon the exercise of options at an exercise price of
$0.50 per share.
(11) In February 1996 the Registrant issued 20,000 shares of Common
Stock upon the exercise of options at an exercise price of $6.00 per share by an
individual who is an officer and director of the Registrant.
(12) In March 1996 the Registrant issued, in connection with the
acquisition of two physician groups, $1,800,274 in convertible subordinated
notes to the physicians in the groups.
(13) In June 1996, in connection with the acquisition of two physician
groups, the Registrant issued 38,027 and 13,600 shares of Common Stock to the
physicians in the groups.
(14) On June 30, 1996, the Registrant issued to two directors of the
Registrant and a private investor 150,000 shares of Common Stock upon the
exercise of warrants at an exercise price of $2.50 per share.
(15) In August 1996, in connection with the acquisition of a physician
group, the Registrant issued 13,714 shares of Common Stock to the physicians in
the group.
(16) In September 1996, the Registrant issued 15,625 shares of Common
Stock upon the exercise of options at an exercise price of $6.00 per share by
the bank with which the Registrant has a line of credit.
(17) In September 1996, in connection with the acquisition of a physician
group, the Registrant issued 547,970 shares of Common Stock to the physicians in
the group.
The issuances of securities in the above transactions were deemed to be
exempt from registration under the Act in reliance on Section 4(2) thereof as
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits furnished:
1* Form of Purchase Agreement
2#+ Asset Purchase Agreement dated as of January 19, 1996 by and among
ProMedCo, Inc., ProMedCo Of Abilene, Inc. and Abilene Diagnostic Clinic,
P.L.L.C.
2(a)+First Amendment to Asset Purchase Agreement dated as of January 19, 1996
by and among ProMedCo, Inc., ProMedCo of Abilene, Inc., and Abilene
Diagnostic Clinic, P.L.L.C.
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2.1 Plan and Agreement for Reorganization dated as of September 13, 1996 by and
between ProMedCo, Inc., ProMedCo of Temple, Inc., and King's Daughters
Clinics, P.A.
3.1* Restated Certificate of Incorporation of Professional Medical Management
Company.
3.2* By-laws of Professional Medical Management Company.
4* Rights Agreement
5* Opinion of Counsel
10.1#+ Interim Service Agreement dated as of January 19, 1996 by and between
ProMedCo of Abilene, Inc. and Abilene Diagnostic Clinic, P.L.L.C.
10.1(a)+ First Amendment to Service Agreement and Interim Service Agreement
dated as of January 19, 1996 by and between ProMedCo of Abilene, Inc. and
Abilene Diagnostic Clinic, P.L.L.C.
10.2#+ Service Agreement dated as of January 19, 1996 by and between ProMedCo of
Abilene, Inc. and Abilene Diagnostic Clinic, P.L.L.C.
10.3#+ Service Agreement dated as of March 12, 1996 by and between ProMedCo,
Inc. of Cullman, Inc. and Cullman Primary Care, P.C.
10.4#+ Service Agreement dated as of April 1, 1996 by and between ProMedCo of
Mayfield, Inc. and Morgan-Haugh, P.S.C.
10.5#+ Amended and Restated Service Agreement dated as of June 24, 1996 by and
between ProMedCo of Lake Worth, Inc. and Tarrant Family Practice, P.A.
10.6#+ Service Agreement dated as of June 30, 1995 by and between ProMedCo of
Denton, Inc. and North Texas Medical Surgical Clinic, P.A.
10.7#+ Credit Agreement dated as of June 12, 1996 among ProMedCo, Inc., the
Lenders referred to therein, and Nationscredit Commercial Corporation, as
Agent
10.8* Director Stock Option Plan
10.9* Employee Stock Option Plan
10.10* Employee Stock Purchase Plan
10.11* Physician Stock Option Plan
10.12 Employment Agreement with H. Wayne Posey
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10.13 Employment Agreement with Richard R. D'Antoni
10.14 Employment Agreement with Dale K. Edwards
10.15 Employment Agreement with R. Alan Gleghorn
10.16 Employment Agreement with Rick E. Weymier
10.17 Employment Agreement with Deborah A. Johnson
10.18# Service Agreement dated as of September 1, 1996 by and between ProMedCo
of Temple, Inc. and Physicians of King's Daughters, P.A.
11 Computation of Net Income Per Share
22* List of Subsidiaries
23.1 Consent of Independent Accountants
23.2* Consent of Counsel (included as part of Exhibit 5)
24+ Powers of Attorney
27 Financial Data Schedule
* To be filed by amendment
+ Previously Filed
# Confidential Treatment Requested
(b) The following is a list of financial statement schedules furnished:
Schedule II Valuation and qualifying accounts for the period from inception
(July 1, 1994) to December 31, 1994, the year ended December 31,
1995, the six months ended June 30, 1996, and the nine months
ended September 30, 1996.
Schedules not listed above have been omitted because they are not
applicable or because required information is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Purchase Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
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<PAGE>
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth
and State of Texas on the 8th day of November, 1996.
PROFESSIONAL MEDICAL MANAGEMENT
COMPANY
By: *
H. Wayne Posey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
*
H. Wayne Posey President, Chief Executive November 8, 1996
Officer, and Director
(Principal Executive, Financial
and Accounting Officer)
*
Richard E. Ragsdale Chairman November 8, 1996
*
E. Thomas Chaney Director November 8, 1996
*
David T. Bailey, M.D. Director November 8, 1996
Richard R. D'Antoni Director November , 1996
*
James F. Herd, M.D. Director November 8, 1996
*
Jack W. McCaslin Director November 8, 1996
By: /s/ MICHAEL JOSEPH
Michael Joseph
Attorney-in-Fact
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Professional Medical Management Company:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Professional Medical Management Company, a
Delaware corporation, and subsidiaries included in this registration statement
and have issued our report thereon dated August 20, 1996. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. Schedule II, Valuation and Qualifying Accounts, is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
August 20, 1996
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SCHEDULE II
PROFESSIONAL MEDICAL MANAGEMENT COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1994) TO
DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
Beginning Income/ Other End of
of Period Expense Accounts Write-Offs Period
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Accounts receivable allowances.................... $ - $ - $ - $ - $ -
=========== =========== =========== =========== ===========
December 31, 1995:
Accounts receivable allowances.................... $ - $ 156,235 $ 48,756(a) $ (69,657) $ 135,334
=========== =========== =========== =========== ===========
<FN>
(a) Allowances against accounts receivable acquired in acquisitions and
established in purchase accounting.
</FN>
</TABLE>
S-2
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PLAN AND AGREEMENT FOR REORGANIZATION
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PROMEDCO, INC.
PROMEDCO OF TEMPLE, INC.
AND
KING'S DAUGHTERS CLINICS, P.A.
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SEPTEMBER 13, 1996
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DRAMATIS PERSONAE
Player Office Address Home Address
ProMedCo, Inc.
H. Wayne Posey ProMedCo, Inc.
President 801 Cherry St.
Suite 1450 (Edwards) 214-294-0119
Dale Edwards Fort Worth, TX 76102
Vice President 817-335-5035
E-mail: [email protected] Fax 817-335-8321
ProMedCo Counsel
John E. Gillmor Boult, Cummings, Conners & Berry 1700 Graybar Lane
615-252-2305 414 Union Street, Suite 1600 Nashville, TN 37215
Fax 615-252-6305 Nashville, TN 37219 615-297-3149
E-mail: [email protected] 615-244-2582 Car 615-419-4119
Fax 615-252-2380 Portable 615-330-3668
Andrea Barach
615-252-2329
E-mail:[email protected]
King's Daughters Clinics, P.A.
Karol Shephard King's Daughters Clinics, P.A.
Executive Vice President 1905 S.W. H. K. Dodgen Loop
Temple, Texas 76302
817-778-2123
Fax 817-778-2036
KDC Counsel
David Hilgers Hilgers & Watkins
E-mail:[email protected] San Jacinto Center
Suite 1300
Robert E. Reetz, Jr. 98 San Jacinto Blvd.
512-703-5726 Austin, TX 78701
512-476-4716
Fax 512-476-5139
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TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS........................................................1
Affiliate...........................................................1
Assets ...........................................................1
Assumed Balance Sheet Liabilities...................................2
Consideration.......................................................2
COBRA ...........................................................2
Clinic Facility.....................................................2
Closing ...........................................................2
Closing Date........................................................2
Code ...........................................................2
Contracts...........................................................2
Definitive Closing Statements.......................................3
Distribution Funds..................................................3
Excluded Assets.....................................................3
Excluded Liabilities................................................3
Exhibit Volume......................................................3
Final Closing Statement.............................................3
GAAP ...........................................................3
Initial Portion of Purchase Consideration...........................3
Inventory...........................................................3
IRS ...........................................................3
KDC ...........................................................3
KDC Financial Statements............................................3
KDCP ...........................................................3
Non-Shareholder Physician Employment Agreement......................3
Pension Plan........................................................3
Person ...........................................................3
ProMedCo Financial Statements.......................................4
ProMedCo, Inc.......................................................4
ProMedCo IPO Date...................................................4
ProMedCo IPO Price..................................................4
ProMedCo-Temple.....................................................4
ProMedCo-Temple Distribution........................................4
ProMedCo Stock......................................................4
Second Portion of the Purchase Consideration........................4
Service Agreement...................................................4
Shareholder Physician Employment Agreement..........................4
Temple ...........................................................4
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Undertaking.........................................................4
ARTICLE 2 SALE AND TRANSFER OF ASSETS: CONSIDERATION; CLOSING.................4
2.1 Sale and Transfer of Assets.....................................4
2.2 Assets Free and Clear; Undertaking..............................4
2.3 Excluded Assets.................................................5
2.4 Consideration for Sale and Transfer.............................5
2.5 Legend..........................................................6
2.6 Excluded Liabilities............................................6
2.7 Closing.........................................................6
2.8 Further Acts and Assurances.....................................7
2.9 Other Transactions at the Closing...............................7
2.10 Purchase Consideration Adjustments.............................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KDC .............................9
3.1 Organization, Corporate Power and Qualification.................9
3.2 Capitalization of KDC. .......................................10
3.3 Subsidiaries, Affiliates, Affiliated Companies
and Joint Venture..............................................10
3.4 Financial Statements...........................................10
3.5 Absence of Undisclosed Liabilities.............................10
3.6 Absence of Certain Recent Changes..............................11
3.7 Title to Assets................................................12
3.8 Contracts......................................................13
3.9 Burdensome Agreements..........................................14
3.10 Absence of Related Party Transactions.........................15
3.11 Defaults......................................................15
3.12 Inventory.....................................................15
3.13 Equipment.....................................................16
3.14 Receivables...................................................16
3.15 Permits and Licenses..........................................16
3.16 Litigation, etc...............................................16
3.17 Court Orders, Decrees and Laws................................17
3.18 Taxes.........................................................17
3.19 Immigration Act...............................................17
3.20 Program Compliance............................................18
3.21 Environmental Matters.........................................18
3.22 ERISA.........................................................18
3.23 Pension, etc. ................................................19
3.24 Employee Matters..............................................20
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3.25 Insurance and Bonds...........................................20
3.26 Labor Matters.................................................21
3.27 Healthcare Compliance.........................................21
3.28 Facility Compliance...........................................21
3.29 Improper Payments.............................................22
3.30 Books of Account; Reports.....................................22
3.31 No Finders or Brokers.........................................22
3.32 Distribution of ProMedCo Stock................................22
3.33 Review of Information.........................................22
3.34 Future Value..................................................22
3.35 Restricted Securities.........................................22
3.36 Legend........................................................23
3.37 Authority; Binding Effect.....................................23
3.38 Consents and Approvals of Governmental Authorities............23
3.39 Disclosure....................................................23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND PROMEDCO-
TEMPLE..............................................................23
4.1 Organization and Standing of ProMedCo and ProMedCo-Temple......23
4.2 Capitalization of ProMedCo.....................................23
4.3 ProMedCo Stock.................................................24
4.4 Authority; Binding Effect......................................24
4.5 No Finders or Brokers..........................................24
4.6 Consents and Approvals of Governmental Authorities.............24
4.7 Pending Litigation.............................................24
4.8 Program Compliance.............................................25
4.9 No Material Financial Changes..................................25
ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-TEMPLE ........................25
5.1 Best Efforts to Secure Consents................................25
5.2 Corporate Action...............................................25
5.3 Handling of Documents..........................................25
5.4 Non-Disclosure.................................................25
5.5 Board Visitation Rights........................................26
ARTICLE 6 COVENANTS OF KDC .................................................26
6.1 Access and Information.........................................26
6.2 Conduct of Business............................................27
6.3 Compliance with Agreement......................................27
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6.4 Best Efforts to Secure Consents................................27
6.5 Unusual Events.................................................27
6.6 Interim Financial Statements...................................27
6.7 Departmental Violations........................................28
6.8 Assessments....................................................28
6.9 Insurance Ratings..............................................28
6.10 Maintain Insurance Coverage...................................28
6.11 Exclusive Dealings............................................28
6.12 Liquidation and Dissolution...................................29
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF KDC ...................29
7.1 Representations and Warranties True............................29
7.2 Opinion of Counsel.............................................29
7.3 Authority......................................................29
7.4 No Obstructive Proceeding......................................29
7.5 Delivery of Certain Certified Documents........................30
7.6 Proceedings and Documents Satisfactory.........................30
7.7 No Agency Proceedings..........................................30
7.8 No Material Adverse Change.....................................30
7.9 Employees......................................................30
7.10 Closing Transactions..........................................30
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PROMEDCO AND
PROMEDCO-TEMPLE.....................................................31
8.1 Representations and Warranties True............................31
8.2 No Obstructive Proceeding......................................31
8.3 Opinion of KDC Counsel.........................................31
8.4 Pooling Letters................................................31
8.5 Stockholder Agreements.........................................32
8.6 Consents and Approvals.........................................32
8.7 Dissenting Shareholders........................................32
8.8 Proceedings and Documents Satisfactory.........................32
8.9 No Material Adverse Change.....................................32
8.10 Delivery of Certain Documents.................................32
8.11 Closing Transactions..........................................33
ARTICLE 9 TERMINATION......................................................33
9.1 Optional Termination...........................................33
9.2 Notice of Abandonment. ........................................33
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9.3 Mandatory Termination..........................................33
9.4 Termination....................................................33
ARTICLE 10 INDEMNIFICATION ..................................................34
10.1 Grant of Indemnity............................................34
10.2 Representation, Cooperation and Settlement....................35
10.3 Remedies Cumulative...........................................36
ARTICLE 11 MISCELLANEOUS.....................................................36
11.1 Expenses......................................................36
11.2 Employee Transition...........................................37
11.3 Occasional Sale...............................................38
11.4 Non-Assignable Property Interests.............................38
11.5 Cooperation by ProMedCo and ProMedCo-Temple...................39
11.6 Cooperation by KDC............................................39
11.7 Notices. .....................................................39
11.8 Entire Agreement..............................................40
11.9 Alternative Dispute Resolution................................40
11.10 Governing Law................................................40
11.11 Legal Fees and Costs..........................................41
11.12 Time.........................................................41
11.13 Section Headings.............................................41
11.14 Waiver.......................................................41
11.15 Nature and Survival of Representations.......................41
11.16 Exhibits.....................................................41
11.17 Assignment...................................................41
11.18 Binding on Successors and Assigns............................41
11.19 Parties in Interest..........................................42
11.20 Amendments...................................................42
11.21 Drafting Party...............................................42
11.22 Counterparts.................................................42
11.23 Reproduction of Documents....................................42
11.24 Press Releases...............................................43
APPENDIX 2.2 FORM OF UNDERTAKING
APPENDIX 2.3 EXCLUDED ASSETS
APPENDIX 2.9A FORM OF SERVICE AGREEMENT
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APPENDIX 2.9B FORM OF SHAREHOLDER PHYSICIAN EMPLOYMENT AGREEMENT
APPENDIX 2.9C FORM OF NON-SHAREHOLDER PHYSICIAN EMPLOYMENT AGREE
MENT
APPENDIX 2.9E PROPERTIES TO BE LEASED FROM TEMPLE
APPENDIX 7.2 OPINION OF COUNSEL TO PROMEDCO AND PROMEDCO-TEMPLE
APPENDIX 8.3 OPINION OF COUNSEL TO KDC
APPENDIX 8.4 FORM OF STOCKHOLDER AGREEMENT
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PLAN AND AGREEMENT FOR REORGANIZATION
PLAN AND AGREEMENT FOR REORGANIZATION dated as of September 13, 1996,
among King's Daughters Clinics, P.A., a Texas professional association ("KDC"),
ProMedCo, Inc., a Texas corporation ("ProMedCo") and ProMedCo of Temple, Inc., a
Delaware corporation ("ProMedCo- Temple"), a wholly owned subsidiary of
ProMedCo.
RECITAL:
KDC operates a multi-specialty medical practice in Temple, Texas with
satellite locations in Killeen and Belton, Texas and owns the Assets described
in ss. 2.1 below. ProMedCo, through its subsidiaries, including ProMedCo-Temple
is engaged in the business of providing medical practice facilities, nonmedical
personnel and medical practice management and administrative services.
KDC desires to transfer the Assets to ProMedCo-Temple in exchange for
voting shares of ProMedCo in a transaction intended to qualify as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code and as
pooling of interests under GAAP. The parties intend that this Agreement shall
serve as the "plan of reorganization" under Section 361(a) of the Code and the
regulations under Section 368 of the Code, with KDC, immediately after the
Closing hereunder, and as an integral part of the transactions contemplated
hereby, distributing the ProMedCo Shares and other consideration received
hereunder to its the shareholders of KDC as part of a plan of liquidation and
dissolution by KDC .
The parties hereby agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
"AFFILIATE" means with respect to any Party, any entity which controls, is
controlled by, or is under common control with such party all as more
fully set forth in the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
"ASSETS" means the following assets pertaining to KDC:
(a) All furnishings, fixtures and equipment owned by KDC wherever
situated;
(b) All of KDC's rights, benefits and interests under all
contracts and agreements related to the operation of the
business of KDC which are to be assumed by ProMedCo- Temple
(collectively, the "Contracts"), including without limitation
certain real estate leases described in Exhibit 3.8 hereof and
the Service Agreement.
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(c) All licenses and intangible rights related to the business of
KDC;
(d) All books, records, documents and other writings used in
connection with the oper ation of KDC's business of which KDC,
its successors, agents or shareholders shall have a continuing
right to make copies of all documents at the expense of the
person making such copies;
(e) All accounts receivable of KDC;
(f) All cash, inventories and prepaid expenses of KDC; and
(g) All other assets, personal or mixed, tangible or intangible,
used in connection with the operation of KDC's business other
than the Excluded Assets.
"ASSUMED BALANCE SHEET LIABILITIES" is defined in ss. 2.4(b).
"CONSIDERATION" means the shares of ProMedCo Stock to be delivered by
ProMedCo-Temple pursuant to clauses (a) and (c) of ss. 2.4.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, 26 U.S.C. ss. 162 et seq.
"CLINIC FACILITY" means the clinic facilities located at 1905 S.W. H. K. Dodgen
Loop, Temple, Texas 76302, and the clinic facilities located at (i)
Neurology & Headache Center of King's Daughters Clinics, 1717 S.W. H. K.
Dodgen Loop, Suite 100A, Temple, Texas 76302, (ii) Dermatology Center of
King's Daughters Clinics, 1717 S.W. H. K. Dodgen Loop, Suite 100B, Temple,
Texas 76302, (iii) Womens Center of King's Daughters Clinics, 1713 S.W. H.
K. Dodgen Loop, Suite 122, Temple, Texas 76302 (iv) Killeen Clinic, 401
West Jasper, Killeen, TX 76543 and (v) Belton Family Practice Clinic, 1300
E. Sixth St., Belton, TX 76513 and (vi) any future clinic facilities
established by ProMedCo-Temple or KDC pursuant to the Service Agreement.
"CLOSING" and "CLOSING DATE" are defined in ss. 2.7.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" is defined in the definition of "Assets" above.
"CPA FIRM" is defined in ss. 2.10(a).
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"DEFINITIVE CLOSING STATEMENTS" is defined in ss. 2.10.
"DISTRIBUTION FUNDS" shall have the meaning ascribed thereto in the Service
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCLUDED ASSETS" is defined in ss. 2.3.
"EXCLUDED LIABILITIES" is defined in ss. 2.6.
"EXHIBIT VOLUME" means the volume of Exhibits referred to in this Agreement
prepared and delivered by KDC.
"FINAL CLOSING STATEMENT" is defined in ss. 2.10.
"GAAP" means generally accepted accounting principles.
"INITIAL PORTION OF PURCHASE CONSIDERATION" is defined in ss. 2.4.
"INVENTORY" means the inventory of KDC.
"IRS" means the Internal Revenue Service.
"KDC" means King's Daughters Clinics, P.A., a Texas professional association.
"KDC FINANCIAL STATEMENTS" is defined in ss. 3.4.
"KDCP" means Physicians of King's Daughters, P.A., a Texas professional
association formed contemporaneously with the closing of the
transactions contemplated by this Agreement.
"NON-SHAREHOLDER PHYSICIAN EMPLOYMENT AGREEMENT" is defined in ss. 2.9(c).
"PENSION PLAN" and "PENSION PLANS" means any "employee pension benefit plan"
listed in Exhibit 3.22.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust or unincorporated organization.
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"PROMEDCOFINANCIAL STATEMENTS" means the consolidated balance sheet at June 30,
1996 and the related consolidated statement of operations,
shareholders' equity and cash flow for the year then ended, together
with the audit report thereon of Arthur Andersen & Co., LLP.
"PROMEDCO, INC." means ProMedCo, Inc., a Texas corporation which is the sole
shareholder of ProMedCo-Temple.
"PROMEDCOIPO DATE" means the date on which ProMedCo first sells stock to the
public pursuant to its initial public offering.
"PROMEDCOIPO PRICE" means the price per share at which ProMedCo offers ProMedCo
Stock to the public at its initial public offering.
"PROMEDCO-TEMPLE" means ProMedCo of Temple, Inc., a Delaware corporation, which
is a wholly owned subsidiary of ProMedCo.
"PROMEDCO-TEMPLE DISTRIBUTION" shall have the meaning ascribed thereto in the
Service Agreement.
"PROMEDCO STOCK" is defined in ss. 2.4.
"SECOND PORTION OF THE PURCHASE CONSIDERATION" is defined in ss. 2.4(c).
"SERVICE AGREEMENT" means the Service Agreement effective September 1, 1996
between ProMedCo-Temple and KDCP as referred to in ss. 2.9(a).
"SHAREHOLDER PHYSICIAN EMPLOYMENT AGREEMENT" is defined in ss. 2.9(b).
"TEMPLE" means Temple Medical Building and Leasing Company, LLC.
"UNDERTAKING" is defined in ss. 2.2.
ARTICLE 2 SALE AND TRANSFER OF ASSETS: CONSIDERATION; CLOSING
2.1 SALE AND TRANSFER OF ASSETS. At the Closing, ProMedCo-Temple agrees
to purchase from KDC and KDC agrees to sell to ProMedCo-Temple, the Assets, but
not the Excluded Assets.
2.2 ASSETS FREE AND CLEAR; UNDERTAKING. The Assets shall be sold free and
clear of all liabilities, liens and encumbrances except those liabilities of KDC
expressly assumed or agreed to be
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discharged by ProMedCo-Temple in the Undertaking in the form attached hereto as
Appendix 2.2. (the "Undertaking"). Except as provided in the Undertaking,
ProMedCo-Temple shall not assume any other liability or obligation of KDC fixed
or contingent, disclosed or undisclosed, and KDC agrees to satisfy, when due,
all of its liabilities, indebtedness and obligations not assumed by
ProMedCo-Temple pursuant to this Agreement and the Undertaking; provided,
however, that KDC shall be entitled to contest in good faith any of such
liabilities, indebtedness or obligations by appropriate legal proceedings.
ProMedCo-Temple will pay, perform and discharge in due course in accordance with
their terms all obligations, indebtedness and liabilities of KDC assumed by it
pursuant to the Undertaking; provided, however, that ProMedCo-Temple shall be
entitled to contest in good faith any of such obligations, indebtedness or
liabilities by appropriate legal proceedings.
2.3 EXCLUDED ASSETS. KDC is not selling and ProMedCo-Temple is not
purchasing or assuming obligations with respect to the following (collectively
the "Excluded Assets"):
(a) any real estate owned by KDC;
(b) KDC's corporate and fiscal records and other records that KDC
is required by law to retain in its possession;
(c) prepaid interest related to debt not assumed by ProMedCo-
Temple; and
(d) Any other assets described on Appendix 2.3.
2.4 CONSIDERATION FOR SALE AND TRANSFER. At the Closing, in consideration
for the sale of the Assets to ProMedCo-Temple, the following will occur:
(a) ProMedCo-Temple will deliver to KDC (i) 547,970 shares of the
no par Common Stock of ProMedCo ("ProMedCo Stock"; such
547,970 shares of ProMedCo Stock is referred to as the
"Initial Portion of Purchase Consideration"). The ProMedCo
Stock shall be registered in the name of KDC.
(b) ProMedCo-Temple will execute and deliver to KDC an executed
copy of the Under taking assuming the liabilities of KDC set
forth therein (such liabilities to include, without
limitation, the accounts payable, accrued expenses, accrued
payroll, and other current liabilities determined in
accordance with GAAP (collectively the "Assumed Balance Sheet
Liabilities") and shall specifically exclude any mortgage or
other liabilities related to real estate owned by KDC.
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(c) As soon as the Definitive Closing Statement is prepared in
accordance with ss. 2.10(a), ProMedCo-Temple shall deliver to
KDC an additional 136,993 shares of ProMedCo Stock (the
"Second Portion of the Purchase Consideration") adjusted
pursuant to ss. 2.10.
2.5 LEGEND. The certificates representing ProMedCo Stock issued to KDC
as the result of the transactions contemplated hereby shall bear the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("THE SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAW. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR RESALE
IN CONNECTION WITH THE DISTRIBUTION THEREOF. NO DISPOSITION OF
THESE SECURITIES MAY BE MADE IN THE ABSENCE OF (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; OR
(II) AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT
SUCH DISPOSITION WITHOUT REGISTRATION IS IN COMPLIANCE WITH
THE SECURI TIES ACT."
2.6 EXCLUDED LIABILITIES. Except as provided in the Undertaking, KDC
shall remain liable and responsible for the payment or performance as the case
may be, of all contracts, leases and other obligations of any nature. KDC shall
remain liable and responsible for all suits, claims, indemnities, judgments,
stipulation agreements, mortgages, taxes, contingent liabilities and other
obligations of KDC, including, without limitation, any and all investment tax
credit recapture, depreciation recapture; recapture or prior period adjustments
under its Blue Cross, PCA, Medicare and Medicaid contracts ; all impositions of
income tax and other taxes for all time periods prior to and including the
Closing; all employee wages, salaries and benefits including, without
limitation, retirement payments, COBRA obligations, accrued vacation not assumed
by ProMedCo-Temple, and other accrued employee benefits and rights of KDC's
retirees to participate in KDC's medical plans. The obligations described in
this Section 2.6 are referred to collectively as the "Excluded Liabilities."
2.7 CLOSING. The sale, purchase, and other activities provided for
herein (the "Closing") shall take place on September 18, 1996 (the "Closing
Date"), at the office of KDC in Temple, Texas. In case the Closing does not take
place on the Closing Date, the Closing Date shall be set by mutual agreement
between ProMedCo-Temple and KDC; provided, however, that in no event shall the
Closing take place later than September 30, 1996 unless extended by
ProMedCo-Temple.
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2.8 FURTHER ACTS AND ASSURANCES. KDC shall, at any time and from time
to time at and after the Closing, upon request of ProMedCo-Temple, take any and
all steps reasonably necessary to place ProMedCo-Temple in possession and
operating control of the Assets and the business to be transferred hereunder and
will do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required for the transferring and confirming to ProMedCo-Temple or to its
successors or assigns, or for reducing to possession, any or all of the Assets.
2.9 OTHER TRANSACTIONS AT THE CLOSING. In addition to the transaction
set forth above, the following additional transactions shall occur at the
Closing:
(a) KDCP and ProMedCo-Temple shall enter into a Service Agreement
in the form attached hereto as Appendix 2.9A.
(b) KDCP shall enter into employment agreements in the form
attached as Appendix 2.9B hereto (the "Shareholder Physician
Employment Agreements") with each of the shareholders of KDCP
(c) KDC shall enter into employment agreements in the form
attached as Appendix 2.9C hereto (the "Non-Shareholder
Physician Employment Agreement") with each of the
non-shareholder physicians practicing with KDC.
(d) ProMedCo-Temple shall consummate the purchase of certain
equipment from Temple and Temple shall assign its interests
under that certain Master Equipment Lease dated July 25, 199_
between Temple and Bank One Leasing Corporation in exchange
for a payment from ProMedCo-Temple to Temple of $129,516.72.
(e) ProMedCo-Temple shall have entered into lease agreements with
Temple or related entities respecting the properties described
on Appendix 2.9E on terms satisfactory to ProMedCo-Temple and
KDC.
2.10 PURCHASE CONSIDERATION ADJUSTMENTS.
(a) DEFINITIVE CLOSING STATEMENTS. Within 120 days after the Closing or by such
time as is reasonable under the circumstances, ProMedCo-Temple shall
prepare and deliver to KDC a final closing statement ("Final Closing
Statement") of KDC as of the Closing Date. ProMedCo-Temple covenants that
the Final Closing Statement shall be true, complete and accurate and will
present fairly the assets and liabilities items set
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forthin ss.ss. 2.1 and 2.2 hereof as at the Closing, calculated in a manner
consistent with the KDC Financial Statements (as defined in ss. 3.4), and
the requirements of this Agreement. KDC and its representatives shall be
provided access to the books and records of ProMedCo-Temple as necessary to
verify the accuracy of such calcula tions. If within 30 business days of
receipt of the Final Closing Statement, KDC fails to deliver to
ProMedCo-Temple written notice specifying any unacceptable entries on the
Final Closing Statements and the reasons therefor, then such Final Closing
Statement shall constitute the Definitive Closing Statements. If KDC timely
and duly delivers such notice within 30 business days of receipt thereof,
the parties shall attempt in good faith to resolve the differences, and if
they are unable to do so, within 20 days thereafter either party may
deliver the Final Closing Statement to a "big six" accounting firm other
than Arthur Andersen & Co., LLC chosen by ProMedCo- Temple (the "CPA
Firm"), who shall have 20 business days to review the Final Closing
Statement and make such adjustments thereto as it deems necessary to ensure
that the Final Closing Statement has been prepared in a manner consistent
with the KDC Financial Statements calculated on a consistent basis and the
requirements of this Agreement and conform to consistently applied
generally accepted accounting principles. The Final Closing Statement as so
adjusted shall constitute the Definitive Closing Statement and shall be
binding on the parties hereto. If the total amount payable by
ProMedCo-Temple pursuant to clause (c) below increases from that shown on
the Final Closing Statement, ProMedCo-Temple shall pay the fees and
expenses of the CPA Firm, otherwise such fees and expenses shall be borne
by KDC. To the extent possible, all elective accounting principles or
policies shall be consistent with KDC's current principles and policies.
(b) LIABILITIES ADJUSTMENT. To the extent that the aggregate amount of current
and long-term liabilities of KDC assumed by ProMedCo-Temple under this
Agreement is different from $2,000,000, the Consideration hereunder shall
be increased or reduced on a dollar for dollar basis at the rate of one
share of ProMedCo Stock for each $14.00, rounded up or down, to the nearest
number of whole shares equal to the difference.
(c) DISTRIBUTION FUNDS ADJUSTMENT. If Distribution Funds for the annualized six
months ended June 30, 1996 (based on the assumption that the Service
Agreement had been in place during such period) are more than $8,670,313 or
less than $8,270,313 the Consideration shall be increased on a dollar for
dollar basis at the rate of one share of ProMedCo Stock for each $14.00,
rounded up or down, to the nearest number of whole shares equal to the
amount by which such Distribution Funds exceed $8,670,313 or decreased on a
dollar for dollar basis at the rate of one share of
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ProMedCo Stock for each $14.00, rounded up or down, to the nearest number of
whole shares equal to the amount by which such Distribution Funds are less
than $8,270,313 .
(d) PHYSICIAN DEFICIENCY ADJUSTMENT. To the extent that fewer than 100% of the
physicians associated with KDC on the date hereof fail to execute
Shareholder Physician Employment Agreements and/or Non-Shareholder
Physician Employment Agreements as contemplated byss.ss.2.9(b) and (c)
hereof, the Consideration shall be reduced at the rate of one share of
ProMedCo Stock for each $14.00, rounded up or down, to the nearest number
of whole shares equal to 50% the annualized Distribu tion Funds for the six
months ended June 30, 1996 attributable to each physician who fails to
enter into such agreement.
(e) IPO ADJUSTMENT. Upon completion of the ProMedCo IPO, the number of shares
issued pursuant toss.2.4(a) and (c), net of any adjustments pursuant to
clauses (a), (b), (c) or (d) of thisss. 2.10, shall be adjusted upwards or
downwards, as the case may be such that the aggregate number of the shares
of ProMedCo Stock issued pursuant to ss. 2.4(a) and (c), net of such
adjustments, when multiplied by the ProMedCo IPO Price equals $12,828,819
plus or minus the dollar amount of such adjustments (the dollar amount of
any such adjustments made in shares of ProMedCo Stock will be $14.00 per
share).
Any reduction in the Consideration resulting from this ss. 2.10 shall be
accomplished by first reducing the Balance of the Consideration by the amounts
provided hereunder, and if such reductions exhaust the Balance of the
Consideration, then KDC shall return, or cause its shareholders to return,
within 10 days after a demand therefor by ProMedCo-Temple, sufficient additional
shares of ProMedCo Stock and cash from the Initial Portion of the Consideration
to fully satisfy the reduction in Consideration.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KDC
KDC hereby represents and warrants to ProMedCo-Temple as follows:
3.1 ORGANIZATION, CORPORATE POWER AND QUALIFICATION. KDC is a
corporation duly orga nized, validly existing and in good standing under the
laws of the State of Texas and has full corporate power and authority and all
authorizations, licenses and permits necessary to own, lease and operate its
properties and assets and to carry on its business as and where it is now being
conducted, to enter into this Agreement, and to consummate the transactions
contemplated hereby. KDC is duly qualified to do business and is in good
standing in each jurisdiction in which the
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character of the properties owned or leased by it or the nature of the business
transacted by it makes such qualification necessary. KDC is qualified to do
business in Texas. No jurisdiction where KDC is not presently qualified as a
foreign corporation has made any assertion that such corporation's business or
ownership of property makes qualification as a foreign corporation in such
jurisdiction necessary. A copy of the Articles of Incorporation and all
amendments thereto as of the date hereof of KDC and a copy of its by-laws, as
amended to the date hereof (both certified by the Secretary of KDC), are
included as Exhibit 3.1A of the Exhibit Volume and are true, accurate and
complete as of the date hereof. KDC is not in default under or in violation of
any provision of its Articles of Incorporation or bylaws.
3.2 CAPITALIZATION OF KDC. The authorized capital stock of KDC consists
of 1,000,000 shares of $1.00 par value common stock, of which as of the date
hereof, 3,100 shares are validly issued and outstanding. Except as disclosed on
Exhibit 3.2 of the Exhibit Volume, there are no voting trusts, proxies, or any
other stock restriction agreements or understandings with respect to the voting
stock of KDC.
3.3 SUBSIDIARIES, AFFILIATES, AFFILIATED COMPANIES AND JOINT VENTURE.
Except as set forth in Exhibit 3.3,KDC has no direct or indirect ownership
interest in, by way of stock ownership or otherwise, any corporation,
association or business enterprise.
3.4 FINANCIAL STATEMENTS. Exhibit 3.4 consists of the following
financial statements of KDC: (i) balance sheet of KDC at December 31, 1995 and
the related statement of operations, stockholders' equity and cash flow for the
years then ended, together with the audit opinion report thereon of Arthur
Andersen & Co., LLC certified public accountants and (ii) unaudited balance
sheet of KDC at June 30, 1996 and the related statement of operation for the six
months then ended (such financial statements and the related notes being herein
called "KDC Financial Statements").
The KDC Financial Statements are true, complete and accurate, have been
based upon the information contained in the books and records of KDC and present
fairly the assets, liabilities and financial condition of KDC as of the dates
thereof and the results of its operations for the periods then ended, prepared
in conformity with generally accepted accounting principles. The KDC Financial
Statements do not contain any material inaccuracy and do not suffer from any
material omissions.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the KDC Financial Statements and except for
commitments and obligations incurred in the ordinary course of business accruing
after December 31, 1995, KDC, as of December 31, 1995, had, or will have at
Closing, no liabilities, claims or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to KDC or any
directors, officers or employees of
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KDC, whether due to become payable and regardless of when or by whom asserted)
not fully covered by insurance.
3.6 ABSENCE OF CERTAIN RECENT CHANGES. Except as expressly provided in
this Agreement or as set forth on Exhibit 3.6 in alphabetical order
corresponding to the following subsections, since December 31, 1995, and through
the Closing Date, KDC has not been and will not have:
(a) except in the usual and ordinary course of its business,
consistent with past practice, and in an amount which is usual
and normal incurred any indebtedness or other liabili ties
(whether accrued, absolute, contingent or otherwise),
guaranteed any indebted ness or sold any of its assets;
(b) suffered any damage, destruction or loss, whether or not
covered by insurance, in excess of $10,000;
(c) suffered the resignation or other termination of any
management personnel of KDC, or the loss of or other
termination of a business relationship with any material
customers or suppliers of KDC's business;
(d) increased the regular rate of compensation payable by it to
any employee other than normal merit and cost of living
increases granted in the ordinary course of business; or
increased such compensation by bonus, percentage, compensation
service award or similar arrangement theretofore in effect for
the benefit of any of its employees, and no such increase is
required;
(e) established or agreed to establish, amended or terminated any
pension, retirement or welfare plan or arrangement for the
benefit of its employees not theretofore in effect;
(f) suffered any change in its financial condition, assets,
liabilities, operations, prospects or business or suffered any
other event or condition of any character which individual ly
or in the aggregate has or might reasonably have a material
adverse effect on KDC;
(g) experienced any labor organizational efforts, strikes or
complaints other than griev ance procedures in the ordinary
course of business or entered into any collective bar gaining
agreements with any union;
(h) made any single capital expenditure which exceeded $5,000 or
made aggregate capital expenditures which exceeded $10,000;
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(i) except with respect to liens or encumbrances arising by
operation of law, permitted or allowed any of the Assets to be
subjected to any pledge, lien, security interest, en
cumbrance, restriction or charge of any kind;
(j) written down the value of any of the Assets, or written off as
uncollectible any notes or accounts receivable, except for
write-downs and write-offs in the ordinary course of business
and consistent with past practice, none of which are material
or revalued any of the Assets;
(k) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other
than in the usual and ordinary course of business;
(l) suffered any extraordinary losses, canceled any debts or
waived any claims or rights of substantial value, whether or
not in the usual and ordinary course of business;
(m) paid, lent or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agree ment or
arrangement with, any stockholder of KDC or any of the
officers or directors of KDC or of any "Affiliate" of any of
its officers or directors, except for any immaterial amounts
or for reimbursement of ordinary and reasonable business ex
penses related to the business of KDC and compensation to
officers at rates not ex ceeding the rates of compensation at
;
(n) amended, terminated or otherwise altered (whether by action or
inaction) any contract, agreement or license of significant
value to which KDC is a party, except in the ordinary course
of business;
(o) entered into a material transaction other than in the
ordinary course of business or made any change in any method
of accounting or accounting practice;
(p) canceled, or failed to continue, insurance coverages; or
(q) agreed, whether in writing or otherwise, to take any action
described in this ss. 3.6.
3.7 TITLE TO ASSETS. The Assets consisting of owned personal property
are subject to no liens or encumbrances except the security interests of record
set forth on Exhibit 3.7A of the Exhibit Volume, which Exhibit is a copy of a
Uniform Commercial Code ("UCC") search as of a recent date duly obtained by KDC
and which search shows security interests of record relating to such Assets in
every place where such security interests are filed and includes copies of all
such financing
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statements. KDC agrees to remove all security interests reflected on such UCC
search, if any, prior to the Closing (except those assumed by ProMedCo pursuant
to this Agreement, listed on Exhibit 3.7B, and approved by ProMedCo-Temple in
writing) and to remove any other security interests filed with respect to such
assets between the date of such UCC search and the Closing Date. The bills of
sale and the assignments and other instruments to be executed and delivered by
KDC at the Closing will be valid and binding and enforceable in accordance with
their respective terms, and will effectively vest in ProMedCo-Temple good and
marketable title to all the Assets. If KDC shall fail to remove all such
security interests, ProMedCo-Temple shall have the right to do so and shall have
the right to off-set the cost of doing so against the Consideration payable
under ss. 2.4 hereof.
3.8 CONTRACTS. Exhibit 3.8 of the Exhibit Volume contains a copy of
each contract, lease, agreement and other instrument to which KDC is a party or
is bound which involves an unperformed commitment or obligation (contingent or
otherwise) of more than $10,000 in the aggregate. Except as noted in such
Exhibit, all such contracts, leases and agreements are in full force and effect,
there has been no threatened cancellation thereof, there are no outstanding
disputes thereunder, each is with unrelated third parties and was entered into
on an arms-length basis in the ordinary course of business and all will continue
to be binding in accordance with their terms after consummation of the transac
tions contemplated hereby. There are no contracts, leases, agreements or other
instruments to which KDC is a party or is bound (other than insurance policies)
which, if properly performed, could either singularly or in the aggregate have
an adverse effect on the value of the Assets to ProMedCo-Temple.
Except as described in Exhibit 3.8 or the other Schedules hereto (and
except for purchase contracts and orders for inventory in the ordinary course of
business consistent with past practice), KDC is not, as of the date of this
Agreement, a party to or bound by any:
(a) material agreement or contract not made in the ordinary course
of business;
(b) employee collective bargaining agreement or other contract
with any labor union;
(c) employment agreements or other agreements that contain any
severance or termination pay liabilities or obligations;
(d) covenant not to compete;
(e) lease or similar agreement under which KDC is a lessor or
sublessor of any material real property owned or leased by KDC
or any portion of premises otherwise occupied by KDC;
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(f) (i) lease or similar agreement under which (A) KDC is lessee
of, or holds or uses, any machinery, equipment, vehicle or
other tangible personal property owned by a third party or
(B)KDC is a lessor or sublessor of any tangible personal
property owned by any of its shareholders, (ii) continuing
contract for the future purchase of materials, supplies or
equipment, or (iii) management, service, consulting or other
similar type of contract, in any such case which has a future
liability in excess of $10,000, and which is not terminable by
KDC for a cost of less than $10,000;
(g) license or other agreement relating in whole or in part to,
trademarks (including, but not limited to, any license or
other agreement under which KDC has the right to use any of
the same owned or held by a third party);
(h) agreement or contract under which KDC has borrowed or lent any
money or issued any note, bond, indenture or other evidence of
indebtedness or directly or indirectly guaranteed
indebtedness, liabilities or obligations of others for an
amount in excess of $10,000 (other than (i) endorsements for
the purpose of collection in the ordinary course of business
and (ii) advances to employees of KDC in the ordinary course
of business);
(i) mortgage, pledge, security agreement, deed of trust or other
document granting a lien against the Assets (including liens
upon properties acquired under conditional sales, capital
leases or other title retention or security devices but
excluding operating leases);
(j) other agreement, contract, lease, license, commitment or
instrument to which KDC is a party or by or to which KDC or
any of it assets or businesses are bound or subject, which has
an aggregate future liability in excess of $10,000 and is not
terminable by KDC for a cost of less than $10,000; or
(k) any agreement, contract, understanding or business venture
with any physician, other provider or any other Person which
violates the Medicare/Medicaid Fraud and Abuse amendments or
any regulations thereunder adopted by the U.S. Department of
Health and Human Services.
3.9 BURDENSOME AGREEMENTS. Except as is set forth in Exhibit 3.9 of the
Exhibit Volume, KDC is not a party to, nor are the Assets subject to or bound or
affected by, any provision of any order of any court or other agency of
government or any indenture, agreement or other instrument or commitment which
has a material adverse affect on the operations, earnings, assets, properties,
liabilities, business or prospects of KDC or its condition, financial or
otherwise.
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3.10 ABSENCE OF RELATED PARTY TRANSACTIONS. Except as disclosed on
Exhibit 3.10, neither KDC, nor any officer, director or affiliate of KDC, has
any material direct or indirect financial or economic interest in any competitor
or supplier of KDC. KDC is not a party to any transaction or proposed
transaction, including without limitation the leasing of property, the purchase
or sale of materials or goods (except with respect to KDC's service business) or
the furnishing of its services (except as employees of the KDC), with KDC, or
any Affiliate of KDC, including (without limitation) any family member of a
shareholder of KDC; and KDC has not directly or indirectly entered into any
agreement or commitment which could result in KDC becoming obligated to provide
funds in respect of or to assume any obligation of any such affiliated person or
entity. Except as set forth on Exhibit 3.10, there are no debts owing to KDC by,
or any contractual agreements or understandings between KDC and, any
shareholder, director or officer of KDC, any member of their respective
families, or any affiliate or associate of any of the foregoing individuals, as
the term "affiliate" is defined for purposes of the Securities Act of 1933 and
the rules and regulations thereunder, and none of the foregoing individuals or
any affiliate or associate of them owns any property or rights, tangible or
intangible (other than an equitable interest), used in or related to KDC's
business. KDC is not indebted to any shareholder, officer, director or employee
of KDC, or to any member of their respective families, or to any affiliate or
associate of any of the foregoing individuals, in any amount whatsoever, other
than for payment of salaries and compensation for services actually rendered to
KDC in the ordinary course of their businesses except as disclosed on Exhibit
3.10.
3.11 DEFAULTS. Except as disclosed in Exhibit 3.11, KDC is not in
default under, nor has any event occurred which, with the lapse of time or
action by a third party, could result in a default under any outstanding
indenture, mortgage, contract, instrument or agreement to which KDC is a party
or by which KDC may be bound or under any provision of the Articles of
Incorporation or by-laws of KDC. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not violate any provision of, or result in the breach of, or
constitute a default under, any law the violation of which would result in a
significant liability to KDC, or any order, writ, injunction or decree of any
court, governmental agency or arbitration tribunal; constitute a violation of or
a default under, or a conflict with, any term or provision of the Articles of
Incorporation or by-laws of KDC or any contract, commitment, indenture, lease,
instrument or other agreement, or any other restriction of any kind to which KDC
is a party or is bound; or cause, or give any party grounds to cause (with or
without notice, the passage of time or both) the maturity of any liability or
obligation of KDC, to be accelerated, or increase any such liability or
obligation.
3.12 INVENTORY. The Inventory consists of a quality and quantity usable
and saleable in the ordinary course of business and is carried on the balance
sheet included in the KDC Financial Statements at the lower of cost or market,
except for items of obsolete materials and materials of below standard quality,
all of which have been written down in the balance sheet included in the KDC
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Financial Statements to net realizable market value or for which adequate
reserves have been provided in the balance sheet included in the KDC Financial
Statements. The present quantity of the Inventory of KDC is reasonable and
warranted in the present circumstances of the business conducted by KDC. The
only transactions related thereto since have been additions or sales in the
ordinary course of business.
3.13 EQUIPMENT. All Assets consisting of equipment are well maintained
and in good operating condition, except for reasonable wear and tear and except
for items which have been written down in the KDC Financial Statements to a
realizable market value or for which adequate reserves have been provided in the
KDC Financial Statements. The present quantity of all such equipment of KDC is
reasonable and warranted in the present course of the business conducted by KDC
and its subsidiaries. The only transactions related thereto since , have been
additions thereto in the ordinary course of business.
3.14 RECEIVABLES. All notes and accounts receivable of KDC shown on the
KDC balance sheet and all those arising since the balance sheet dates have
arisen in the ordinary course of business.
3.15 PERMITS AND LICENSES. Included as Exhibit 3.15 in the Exhibit
Volume is a schedule of permits and licenses, listing and briefly describing
each permit, license or similar authorization from each governmental authority
issued with respect to the operation or ownership of properties by KDC together
with the designation of the respective expiration dates of each, and also
listing and briefly describing each association in which KDC is a member and
each association or governmental au thority by which KDC is accredited or
otherwise recognized. KDC is not required to obtain any additional permits,
licenses or similar authorizations (including, without limitation, any
additional certificates of need) from any governmental authority for the proper
conduct of its business or to become a member of or accredited by any
association or governmental authority other than those listed on Exhibit 3.15 in
the Exhibit Volume. All of such permits, licenses and authorizations will
continue to be valid and in full force and effect in accordance with their
respective terms after the consummation of the transactions contemplated hereby.
3.16 LITIGATION, ETC. Except as set forth in Exhibit 3.16 of the
Exhibit Volume, there is no litigation, arbitration, governmental claim,
investigation or proceeding pending or, to the best knowledge of KDC, threatened
against KDC at law or in equity, before any court, arbitration tribunal or
governmental agency. No such proceeding set forth in Exhibit 3.16 concerns the
ownership or other rights with respect to the Assets. To the best knowledge of
KDC, there are no facts based on which material claims may be hereafter made
against KDC. Any and all claims arising from incidents on or before the Closing
Date shall be the sole responsibility of KDC and, except as otherwise provided
herein, are specifically excluded from the liabilities to be assumed by
ProMedCo-Temple hereunder. All claims and litigations against KDC are fully
covered by insurance. KDC shall
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unconditionally indemnify and hold ProMedCo-Temple harmless against any loss or
liability including, without limitation, attorney's fees, resulting from any
claims or litigation arising out of incidents relating to KDC which occurred
prior to the Closing Date, to the extent such loss or liability is not covered
by insurance.
3.17 COURT ORDERS, DECREES AND LAWS. There is not outstanding or to the
best of KDC's knowledge, threatened any order, writ, injunction or decree of any
court, governmental agency or arbitration tribunal against or affecting KDC or
the Assets. KDC is in compliance with all applicable federal, state and local
laws, regulations and administrative orders which are material to the business
of KDC and KDC has received no notices of alleged violations thereof. No
governmental authorities are presently conducting proceedings against KDC and to
the best knowledge of KDC, no such investigation or proceeding is pending or
being threatened.
3.18 TAXES. All federal, state and other tax returns of KDC required by
law to be filed have been timely filed, and KDC has paid or provided for all
taxes (including taxes on properties, income, franchises, licenses, sales and
payrolls) which have become due pursuant to such returns or pursuant to any
assessment, except for any taxes and assessments of which the amount,
applicability or validity is currently being contested in good faith by
appropriate proceedings and with respect to which KDC has set aside on its books
adequate reserves. All such tax returns have been prepared in compliance with
all applicable laws and regulations and are true and accurate in all respects.
The amounts set up as provisions for taxes (including provision for deferred
income taxes) on the KDC Financial Statements are sufficient for the payment of
all unpaid federal, state, county and local taxes accrued for or applicable to
all periods (or portions thereof) ending on or before the Closing Date. There
are no tax liens on any of the Assets except those with respect to taxes not yet
due and payable and except for any taxes and assessments of which the amount,
applicability or validity is currently being contested in good faith by
appropriate proceedings and with respect to which KDC has set aside on its books
adequate reserves. There are no pending tax examinations nor has KDC received a
revenue agent's report asserting a tax deficiency. KDC does not expect any
taxing authority to claim or assess any amount of additional taxes against it.
No claim has ever been made by a taxing authority in a jurisdiction where KDC
does not file tax returns that KDC is or may be subject to taxes assessed by
such jurisdiction.
3.19 IMMIGRATION ACT. KDC is in compliance with the terms and
provisions of the Immigration Act in all material respects. For each employee
(as defined in 8 C.F.R. ss.274a.1(f)) of KDC for whom compliance with the
Immigration Act by KDC is required, KDC has obtained and retained a complete and
true copy of each such employee's Form I-9 (Employment Eligibility Verification
Form) and all other records or documents prepared, procured or retained by KDC
pursuant to the Immigration Act. There are no violations or potential violations
of the Immigration Act by KDC. KDC has not been cited, fined, served with a
Notice of Intent to Fine or with a Cease
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and Desist Order, nor, to KDC's knowledge, has any action or administrative
proceeding been initiated or threatened against KDC, by reason of any actual or
alleged failure to comply with the Immigration Act.
3.20 PROGRAM COMPLIANCE. To the best knowledge of KDC, neither KDC nor
any of its shareholders or employees is a party to, or the beneficiary of, any
agreement, contract, understanding or business venture with any provider or
referral source which violates the Medicare/Medicaid Fraud and Abuse amendments
or any regulations thereunder adopted by the U.S. Department of Health and Human
Services or any regulations adopted by any other federal or state agency or
which results in overutilization of health care services by patients.
3.21 ENVIRONMENTAL MATTERS. Except as disclosed on Exhibit 3.21:
(a) There are no outstanding violations or any consent decrees
entered against KDC regarding environmental matters,
including, but not limited to, matters affecting the emission
of air pollutants, the discharge of water pollutants, the
management of hazardous or toxic substances or wastes, or
noise.
(b) There are no claimed, threatened or alleged violations with
respect to any federal, state or local environmental law,
rule, regulation, ordinance, permit, license or authorization,
and there are no present discussions with any federal, state
or local governmental agency concerning any alleged violation
of environmental laws, rules, regulations, ordinances,
permits, licenses or authorizations.
(c) All operations conducted by KDC have been and are in material
compliance with all federal, state and local statutes, rules,
regulations, ordinances, permits, licenses and authorizations
relating to environmental compliance and control.
3.22 ERISA.
(a) Except as listed in Exhibit 3.22 of the Exhibit has no
"employee benefit plans", as such term is defined under
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any other plan or similar
arrangement, written or otherwise, which provides any type of
pension or welfare benefit to any of its directors, employees,
or former employees.
(b) With respect to all of the plans listed in Exhibit 3.22,KDC
has delivered to ProMedCo-Temple true and exact copies of (i)
all plan documents embodying the provisions of such plans,
together with all amendments thereto, (ii) all summary plan
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descriptions and summaries of material modifications
pertaining thereto, (iii) copies of the most recent Internal
Revenue Service determination letters, if any, relating to
such plans, (iv) copies of the last three (3) years' Annual
Report (Form 5500 series), as filed with respect to such plans
with the Internal Revenue Service, together with all Schedules
and attachments thereto, including, without limitation, copies
of the plan audits and/or actuarial valuations, (v) copies of
all contract administration agreements between KDC and third
party administrators, (vi) copies of all participant-related
forms currently in use in connection with such plans
including, without limitation, salary reduction agreements and
beneficiary designations and (vii) participant-specific claims
history for any "welfare benefit plan" (within the meaning of
Section 3(1) of ERISA) that has been in existence during any
part of the last three years.
(c) No "prohibited transaction", as such term is defined under
Section 4975(c) of the Code or under Section 406 of ERISA, and
the respective regulations thereunder, has occurred or is
occurring with respect to any "employee benefit plan"
maintained by KDC or with respect to any trustee or
administrator thereof.
3.23 PENSION, ETC.
(a) No "unfunded accrued liability", as such term is defined under Section
3(30) of ERISA, exists with respect to any "employee pension benefit plan"
listed in Exhibit 3.22 (each a "Pension Plan" and collectively the "Pension
Plans").
(b) None of the Pension Plans or any related trusts have been partially or
fully terminated (through the complete cessation of contributions thereto
or otherwise). In addition there has not occurred any "reportable events",
as such term is defined under Section 4043 of ERISA, which could have a
material adverse effect on the condition, financial or otherwise, of KDC.
(c) Neither any of the Pension Plans nor any related trusts have incurred any
"accumu lated funding deficiency", as such term is defined under Section
302(a)(2) of ERISA or Section 412(a) of the Code (whether or not waived),
since the effective date of ERISA. Neither KDC nor any administrator or
fiduciary of any Plan (or agent of any administrator or fiduciary of any
Plan. or agent of any of the foregoing) has engaged in any transaction or
acted or failed to act in a manner which is likely to subject KDC to any
liability for a breach of fiduciary or other duty under ERISA or any other
applicable law.
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(d) With respect to each Pension Plan, there are not in existence any
liabilities other than those liabilities shown on the Annual Reports (Form
5500 series) delivered to ProMedCo-Temple in connection herewith. No
material change with respect to the matters covered by the most recent
Annual Report for each Pension Plan has occurred since the filing date
thereof. The terms and operation of each Pension Plan have complied, and
are in compliance, with the applicable provisions of ERISA and the Code.
All Pension Plans have at all times been and are qualified under Section
401(a) of the Code, except for those Pension Plans set forth in Exhibit
3.23 of the Exhibit ------------ Volume. None of the Pension Plans listed
in Exhibit 3.22 is unfunded. ------------
(e) Other than claims for benefits submitted by participants or beneficiaries
or appeals from denial thereof, there is no litigation legal action, suit,
investigation, claim, counterclaim or proceeding pending or threatened
against of the KDC Plan.
(f) All filings required by ERISA and the Code as to the KDC Plan have been
timely made and all notices and disclosures to participants comply in all
material respects with ERISA or the Code with respect to the KDC Plan. No
amounts, nor any assets, of the KDC Plan are subject to tax as unrelated
business taxable income under Section 511, 519, or 419A of the Code.
(g) Except for not more than $_______ relating to contributions required for
1996, the minimum fair market value of the assets held in the trust or
trusts funding the KDC Plan as of the Closing Date plus the amount of all
contributions, if any, made by KDC subsequent to the Closing Date under the
KDC Plan through the date of complete transfer shall be at least equal to
the accrued benefits of all participants under the KDC Plan on such date.
3.24 EMPLOYEE MATTERS. Included as Exhibit 3.24A of the Exhibit Volume
is a list of all em ployees of KDC together with their current annual rates of
compensation (as of June 30, 1996) and a list of all people who were paid
bonuses in the last twelve months plus the amount thereof. No written employment
agreement to which KDC is a party requires longer than a four-week notice before
termination or agreement to lend, or guarantee any loan, to an employee or an
agreement relating to a bonus, severance pay or similar plan, agreement,
arrangement or understanding. Exhibit 3.24B of the Exhibit Volume is a brief
description of employee benefits of KDC.
3.25 INSURANCE AND BONDS. Exhibit 3.25A contains a description of all
fire, liability and other insurance coverage maintained by KDC currently in
force, including the amounts and losses and risks covered; all such policies are
fully paid as to all premiums heretofore due. Exhibit 3.25C contains a
description of all malpractice liability insurance policies of KDC since January
1, 1994.
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Except as set forth on Exhibit 3.25C, KDC has not had in the last seven years
filed a written application for any insurance coverage which has been denied by
an insurance agency or carrier. Exhibit 3.25C sets forth a list of all claims
for any insured loss in excess of $5,000 per occurrence, filed by KDC during the
three year period immediately preceding the date hereof, including, but not
limited to, workers compensation, general liability and environmental liability.
KDC is not in material default with respect to any provision contained in any
such policy and has not failed to give any notice or present any claim under any
such policy in due and timely fashion.
3.26 LABOR MATTERS. There are no collective bargaining agreements with
any labor union to which KDC is a party or by which KDC is bound, and it is not
currently negotiating with a labor union. No employees of KDC have ever
petitioned for a representation election. KDC is in compli ance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. There is no unfair labor practice complaint against KDC pending
before the National Labor Relations Board. There is no labor strike, dispute,
slowdown or stoppage actually pending or, to its knowledge, threatened against
or affecting KDC. No grievance which might have a material adverse effect on KDC
or the conduct of its business nor any such arbitration proceeding arising out
of or under collective bargaining agreements is pending and no claim therefor
exists. KDC has not experienced any employee strikes during the last three
years. KDC will advise ProMedCo-Temple of any such labor dispute, petition for
representative election or negotiations with any labor union which shall arise
before the Closing Date. Except as may be required by ss.4980B of the Code or
applicable state health care continuation coverage statutes, KDC has no
liability under any plan or arrangement which provides welfare benefits,
including medical and life insurance, to any current or future retiree or
terminated employee.
3.27 HEALTHCARE COMPLIANCE. KDC is participating in or otherwise
authorized to receive reimbursement from or is a party to Medicare, Medicaid,
and other third-party payor programs (collectively "Third Party Payor
Programs"). All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned as of the date
hereof, and to the best of KDC's knowledge, no condition exists or event has
occurred which in itself or with the giving of notice or the lapse of time or
both would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such Third Party Payor Program. To the best of KDC's
knowledge, KDC is in full compliance with the requirements of all such Third
Party Payor Programs applicable thereto.
3.28 FACILITY COMPLIANCE. The Clinic Facility is duly licensed and is
lawfully operated in accordance with the requirements of all applicable law and
has all necessary authorizations for the use and operation, all of which are in
full force and effect. There are no outstanding notices of deficiencies relating
to KDC issued by any governmental authority or Third Party payor Program
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requiring conformity or compliance with any applicable law or condition for
participation of such governmental authority or Third Party Payor program, and
after reasonable and independent inquiry and due diligence and investigation,
KDC has neither received notice nor has any knowledge or reason to believe that
such necessary authorizations may be revoked or not renewed in the ordinary
course.
3.29 IMPROPER PAYMENTS. Neither KDC nor any officer or employee of KDC
have made any bribes, kickbacks or other improper payments on behalf of KDC or
received any such payments from vendors, suppliers or other persons contracting
with KDC.
3.30 BOOKS OF ACCOUNT; REPORTS. The books of account of KDC in
reasonable detail, accu rately and fairly reflect its transactions and the
disposition of its assets. KDC has filed all reports and returns required by any
law or regulation to be filed by it.
3.31 NO FINDERS OR BROKERS. Neither KDC nor any officer or director of KDC
has engaged any finder or broker in connection with the transactions
contemplated hereunder.
3.32 DISTRIBUTION OF PROMEDCO STOCK. KDC intends to distribute the
ProMedCo Stock to its shareholders all of whom are executing and delivering
Stockholder Agreements contemplated by ss. 8.5 hereof. KDC has no reason to
believe that any of the statements, representations and warranties made forth in
such instruments by its shareholders are not true and correct.
3.33 REVIEW OF INFORMATION. KDC has been afforded access to all
material information referred to in the ProMedCo Financial Statements delivered
to KDC on August 14, 1996 and, in addition thereto, has been afforded the
opportunity to ask questions of, and receive answers from, ProMedCo concerning
the business and properties of ProMedCo and to review any materials relating to
ProMedCo.
3.34 FUTURE VALUE. KDC is not acquiring the ProMedCo Stock based upon
any representation, oral or written, by any Person with respect to the future
value of, or income from, the ProMedCo Stock, but rather upon an independent
examination and judgment as to the prospects of ProMedCo.
3.35 RESTRICTED SECURITIES. KDC recognizes that the ProMedCo Stock have
not been registered under the Securities Act, or the securities laws of any
other jurisdiction, that KDC (as opposed to its shareholders who are parties to
the Stockholder Agreements contemplated by ss. 8.5 hereof) has no right to
require such registration, and that KDC's right to transfer the ProMedCo Stock
is restricted by the Securities Act and applicable state securities laws
(including suitability requirements).
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3.36 LEGEND. KDC understands that certificates representing the
ProMedCo Stock shall bear the legend set forth in ss. 2.5 hereof.
3.37 AUTHORITY; BINDING EFFECT. KDC has full power and authority to
enter into this Agreement and, subject to the convening of a stockholders'
meeting and the approval of stockholders as required by Texas law, to carry out
the transactions contemplated hereby. The Board of Directors of KDC has taken
all action required by law and by KDC's Articles of Incorporation and by-laws,
or otherwise, to authorize the execution and delivery of this Agreement and the
transactions contem plated hereby. The execution, delivery, and performance of
this Agreement constitutes the valid and binding agreement of KDC enforceable in
accordance with its terms.
3.38 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
characteristic of KDC or of the nature of its business or operations requires
any consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
3.39 DISCLOSURE. No representations and warranties by KDC in this
Agreement and no statement in this Agreement or any document or certificate
furnished or to be furnished to ProMedCo and ProMedCo-Temple pursuant hereto
contains or will contain any untrue statement or omits or will omit to state a
fact necessary in order to make the statements contained therein not materially
misleading. KDC has disclosed to ProMedCo and ProMedCo-Temple all facts known to
KDC material to the assets, liabilities, business, operation and property of
KDC. There are no facts known to KDC not yet disclosed which would have a
material adverse effect the future operations of KDC.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND
PROMEDCO-TEMPLE
ProMedCo and ProMedCo-Temple hereby represent and warrant as follows:
4.1 ORGANIZATION AND STANDING OF PROMEDCO AND PROMEDCO-TEMPLE. ProMedCo
and ProMedCo-Temple are each corporations duly organized, validly existing and
in good standing under the laws of the state of Texas and Delaware,
respectively; each has full corporate power and authority to conduct its
business as now being conducted; and each is duly qualified to do business in
each jurisdiction in which the nature of the property owned or leased or the
nature of the business conducted by it requires such qualification.
4.2 CAPITALIZATION OF PROMEDCO. The authorized capital stock of ProMedCo
consists of 700,000 shares of no par value Series A Convertible Preferred Stock,
20,000,000 shares of no par
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value Common Stock and 2,600,000 shares of no par value Class B Common Stock, of
which as of the date hereof, 500,000 shares of Series A Convertible Preferred
Stock, 2,301,837 shares of Common Stock and 1,226,150 shares of Series B Common
Stock are validly issued and outstanding, fully paid and non-assessable.
4.3 PROMEDCO STOCK. The ProMedCo Stock to be issued in connection with
the transactions contemplated hereby will be duly authorized, validly issued,
fully paid and non-assessable.
4.4 AUTHORITY; BINDING EFFECT. Each of ProMedCo and ProMedCo-Temple has
corporate power to execute and deliver this Agreement and consummate the
transactions contemplated hereby and has taken (or by the Closing Date will have
taken) all action required by law, its Articles of Incorporation, by-laws or
otherwise to authorize such execution and delivery and the consummation of the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement constitutes the valid and binding agreement of each of ProMedCo
and ProMedCo-Temple enforce able in accordance with its terms (except as the
same may be restricted, limited or delayed by applica ble bankruptcy or other
laws affecting creditors' rights generally and except as to the remedy of spe
cific performance which may not be available under the laws of various
jurisdictions) assuming that this Agreement has been duly authorized, delivered
and executed by KDC and constitutes the valid and binding obligation,
enforceable against KDC in accordance with its terms (except as enforce ability
against KDC may be restricted, limited or delayed to the same extent as referred
to in parenthetical phrase immediately above).
4.5 NO FINDERS OR BROKERS. Neither ProMedCo, ProMedCo-Temple nor any
officer or director of either has engaged any finder or broker in connection
with the transactions contemplated hereunder.
4.6 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
characteristic of ProMedCo or ProMedCo-Temple or of the nature of their business
or operations requires any consent, approval or authorization of, or
declaration, filing or registration with any governmental or regulatory
authority in connection with the execution and delivery of this Agreement and
the con summation of the transactions contemplated hereby.
4.7 PENDING LITIGATION. There are no proceedings pending or threatened,
against or affecting ProMedCo in any court or before any governmental authority
or arbitration board or tribunal which involve the possibility of materially and
adversely affecting the properties, business, prospects, profits or condition
(financial or otherwise) of ProMedCo considered as a whole.
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4.8 PROGRAM COMPLIANCE. To the best knowledge of ProMedCo, neither
ProMedCo nor any of its shareholders or employees is a party to, or the
beneficiary of, any agreement, contract, understanding or business venture with
any provider or referral source which violates the Medicare/Medicaid Fraud and
Abuse amendments or any regulations thereunder adopted by the U.S. Department of
Health and Human Services or any regulations adopted by any other federal or
state agency or which results in overutilization of health care services by
patients.
4.9 NO MATERIAL FINANCIAL CHANGES. ProMedCo has not have suffered a
material adverse change in its financial condition from the condition disclosed
in the financial statements disclosed in the ProMedCo Financial Statements.
ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-TEMPLE
ProMedCo and ProMedCo-Temple hereby covenant and agree as follows:
5.1 BEST EFFORTS TO SECURE CONSENTS. ProMedCo and ProMedCo-Temple shall
use their best efforts to secure before the Closing all necessary consents and
approvals needed to satisfy all the conditions precedent to the obligations of
KDC hereunder.
5.2 CORPORATE ACTION. ProMedCo and ProMedCo-Temple will take all
necessary corporate and other action and use its best efforts to obtain all
consents, approvals and amendments of agreements required of it to carry out the
transactions contemplated by this Agreement and to satisfy the conditions
specified herein.
5.3 HANDLING OF DOCUMENTS. With respect to information provided by KDC
pursuant to this Agreement prior to the Closing, ProMedCo and ProMedCo-Temple
shall keep all such information confidential which is not in the public domain,
except to the extent that such information (i) becomes generally available to
the public other than as a result of a disclosure directly or indirectly by
ProMedCo or ProMedCo-Temple, (ii) was known by ProMedCo or ProMedCo-Temple on a
non- confidential basis prior to disclosure to ProMedCo or ProMedCo-Temple by
KDC pursuant to this Agreement or (iii) becomes available to ProMedCo or
ProMedCo-Temple on a non-confidential basis from a source (other than KDC) which
is entitled to disclose the same, and to exercise the same care in handling such
information as it would exercise with similar information of its own.
5.4 NON-DISCLOSURE. ProMedCo and ProMedCo-Temple will keep confidential
and not disclose to any third party any information relating to the business of
KDC, whether acquired by ProMedCo or ProMedCo-Temple before or after the Closing
Date, which KDC has not made generally available to the public.
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5.5 BOARD VISITATION RIGHTS. Until such time as the physicians employed
by KDCP constitute fewer than 10% of all physicians affiliated with entities
associated with ProMedCo and its affiliates, ProMedCo shall accord the President
of KDCP the right to attend all meetings of the ProMedCo Board of Directors
(including timely notice thereof).
ARTICLE 6 COVENANTS OF KDC
KDC hereby covenants and agrees as follows:
6.1 ACCESS AND INFORMATION. Between the date of this Agreement and the
Effective Date; KDC will: (i) provide to ProMedCo-Temple and its officers,
attorneys, accountants and other representatives, during normal business hours,
or otherwise if ProMedCo-Temple deems reasonably necessary, free and full access
to all of the properties, assets, agreements, commitments, books, records,
accounts, tax returns, and documents of KDC and permit them to make copies
thereof; (ii) furnish ProMedCo-Temple and its representatives with all
information concerning the business, properties and affairs of KDC as
ProMedCo-Temple reasonably requests and certified by the officers, if requested;
(iii) cause the independent public accountants of KDC to make available to
ProMedCo- Temple and its representatives all financial information relating to
KDC requested, including all working papers pertaining to audits and reviews
made heretofore by such auditors; (iv) furnish ProMedCo-Temple true and complete
copies of all financial and operating statements of KDC; (v) permit access to
customers and suppliers for consultation or verification of any information
obtained by ProMedCo-Temple and use their best efforts to cause such customers
and suppliers to cooperate with ProMedCo-Temple in such consultation and in
verifying such information; and (vi) cause their employees, accountants and
attorneys to make disclosure of all material facts known to them affecting the
financial condition and business operations of KDC and to cooperate fully with
any audit, review, investigation or examination made by ProMedCo-Temple and its
representatives, including, without limitation, with respect to:
(a) The books and records of KDC;
(b) The reports of state and federal regulatory examinations;
(c) Leases, contracts and commitments between the KDC and any
other person;
(d) Physical examination of the Clinic Facility; and
(e) Physical examination of the equipment and furnishings within
the Clinic Facility.
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6.2 CONDUCT OF BUSINESS. Between the date hereof and the Effective
Date, except as other wise expressly approved in writing by ProMedCo-Temple, KDC
shall conduct its business only in the ordinary course thereof consistent with
past practice and in such a manner that the representations and warranties
contained in Article 3 of this Agreement shall be true and correct at and as of
the Effective Date (except for changes contemplated, permitted or required by
this Agreement) and so that the conditions to be satisfied by KDC at the Closing
shall have been satisfied. KDC will, consistent with conducting its business in
accordance with reasonable business judgment, preserve the business of the KDC
intact; use its reasonable best efforts to keep available to ProMedCo-Temple the
services of the present employees of the KDC (except those dismissed for cause,
those who voluntarily discontinue their employment and those whose termination
is consented to by ProMedCo- Temple) and preserve for ProMedCo-Temple the
goodwill of the suppliers, patients and others having business relations with
the KDC.
6.3 COMPLIANCE WITH AGREEMENT. KDC shall not undertake any course of
action inconsistent with satisfaction of the conditions applicable to it set
forth in this Agreement, and shall do all such acts and take all such measures
as may be reasonably necessary to comply with the representations, agreements,
conditions and other provisions of this Agreement. KDC shall give
ProMedCo-Temple prompt written notice of any change in any information contained
in the representations and warranties made in Article 3 hereof and on the
Exhibits referred to therein (provided, however, that such notice shall not
limit ProMedCo-Temple's rights under ss. 8.1 hereof) and of any condition or
event which constitutes a default of any covenant or agreement made in Article 6
or in any other section hereof.
6.4 BEST EFFORTS TO SECURE CONSENTS. KDC shall take the necessary
corporate and other action and shall use its reasonable best efforts to secure
before the Closing Date all necessary consents and approvals required to carry
out the transactions contemplated by the Agreement and to satisfy all other
conditions precedent to the obligations of ProMedCo, ProMedCo-Temple and KDC.
6.5 UNUSUAL EVENTS. Until the Closing Date, KDC shall supplement or
amend all relevant Exhibits in the Exhibit Volume with respect to any matter
thereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or de scribed in such
Exhibits; provided, however, that for the purposes of the rights and obligations
of the parties hereunder, any such supplemental disclosure shall not be deemed
to amend or supplement any Exhibits or to prevent or cure any misrepresentation,
breach of warranty or breach of covenant, unless agreed to in writing by
ProMedCo-Temple.
6.6 INTERIM FINANCIAL STATEMENTS. Within 30 days after the end of each
calendar month subsequent to the date of this Agreement and prior to the Closing
Date, KDC shall deliver to
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ProMedCo-Temple an unaudited balance sheet of KDC as of the end of such calendar
month together with the related statement of operations. All such financial
statements shall fairly present the financial position, results of operations
and changes in financial periods indicated, in accordance with generally
accepted accounting principles consistently applied except that note information
may be omitted in such statements, and that such statements shall be subject to
normal year-end audit adjustments, but only if such adjustments are of a normal,
recurring type and are not material in the aggregate..
6.7 DEPARTMENTAL VIOLATIONS. All notes or notices of violations of law
or municipal ordi nances, orders or requirements noted in or issued by the
departments of buildings, fire, labor, health, or any other state or municipal
department having jurisdiction against or affecting the business, property or
assets of KDC shall be complied with prior to the Closing Date. All such notes
or notices, after the date hereof and prior to the Closing Date, shall be
complied with by KDC prior to the Closing Date. Upon written request, KDC shall
furnish ProMedCo-Temple with an authorization to make the necessary searches for
such notes or notices.
6.8 ASSESSMENTS. If, on the Closing Date, the business, property or
assets of KDC are or will be subject to an assessment or assessments which are
or may become payable in annual install ments, of which the first installment is
then a charge or lien, or has been paid, then for the purposes of this Agreement
all the unpaid installments of any such assessment, including those which are to
become due and payable, shall be paid and discharged by KDC prior to the Closing
Date.
6.9 INSURANCE RATINGS. KDC shall take all action reasonably requested
by ProMedCo- Temple to enable it to succeed to the Workers' Compensation and
Unemployment Insurance ratings, insurance policies, deposits and other interests
of KDC and other ratings for insurance or other purposes established by KDC.
ProMedCo-Temple shall not be obligated to succeed to any such rating, insurance
policy, deposit or other interest, except as it may elect to do so.
6.10 MAINTAIN INSURANCE COVERAGE. From the date hereof until the
Closing, KDC shall maintain and cause to be maintained in full force and effect
the existing insurance on the Assets and the operations of KDC and shall
provide, upon request by ProMedCo-Temple, evidence satisfactory to
ProMedCo-Temple that such insurance continues to be in effect and that all
premiums due have been paid.
6.11 EXCLUSIVE DEALINGS. During the period from the date of this
Agreement to the Closing Date, or until the earlier termination of this
Agreement pursuant to Article 9, KDC shall refrain from taking any actions,
directly or indirectly, to encourage, initiate, or engage in discussions or
negotiations with, or provide any information to, any corporation, partnership,
person, or other entity or group, other than ProMedCo-Temple, concerning the
purchase of KDC or its assets, or any
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merger, joint venture or similar transaction involving KDC and will not enter
into any such transaction.
6.12 LIQUIDATION AND DISSOLUTION. As soon as practicable, and in any
event within one year after the Closing, KDC shall dissolve and distribute all
of its assets, including the ProMedCo Stock received at the Closing and the
right to receive additional shares of ProMedCo Stock after the Closing, to its
shareholders.
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF KDC
All obligations of KDC which are to be discharged under this Agreement
at the Closing are subject to the performance, at or prior to the Closing, of
all covenants and agreements contained herein which are to be performed by
ProMedCo and ProMedCo-Temple at or prior to the Closing and to the fulfillment
at, or prior to, the Closing, of each of the following conditions (unless
expressly waived in writing by KDC at any time at or prior to the Closing):
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties made by ProMedCo and ProMedCo-Temple contained in Article 4 of this
Agreement shall be true as of the date of this Agreement, shall be deemed to
have been made again at and as of the date of Closing, and shall be true at and
as of the date of Closing in all material respects; ProMedCo and ProMedCo-
Temple shall have performed and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied
with by then prior to or at the Closing; and KDC shall have been furnished with
a certificate of the President or any Vice President of ProMedCo and of
ProMedCo-Temple, dated the Closing Date, in such officer's capacity, certifying
to the truth of such representations and warranties as of the Closing and to the
fulfillment of such covenants and conditions.
7.2 OPINION OF COUNSEL. KDC shall have been furnished with an opinion
dated the Closing Date of Boult, Cummings, Conners & Berry, PLC, counsel to
ProMedCo and ProMedCo-Temple, in form and substance satisfactory to KDC, to the
effect set forth as Appendix 7.2 attached hereto.
7.3 AUTHORITY. All action required to be taken by or on the part of
ProMedCo and ProMedCo-Temple to authorize the execution, delivery and
performance of this Agreement by ProMedCo and ProMedCo-Temple and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by the Boards of Directors of ProMedCo and ProMedCo- Temple.
7.4 NO OBSTRUCTIVE PROCEEDING. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental
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authority shall be subsisting against KDC, or the officers or directors of KDC,
which seeks to, or would, render it unlawful as of the Closing to effect the
transactions contemplated hereby in accordance with the terms hereof, and no
such action shall seek damages in a material amount by reason of the
transactions contemplated hereby. Also, no substantive legal objection to the
transactions contemplated by this Agreement shall have been received from or
threatened by any governmental department or agency.
7.5 DELIVERY OF CERTAIN CERTIFIED DOCUMENTS. At the Closing,
ProMedCo-Temple shall deliver to KDC copies of the Articles of Incorporation of
each of ProMedCo-Temple and ProMedCo certified (not more than 30 days prior to
the Closing Date) by the appropriate governmental authorities, copies of
resolutions of the Board of Directors of and ProMedCo-Temple, certified by the
secretary or assistant secretary of ProMedCo-Temple approving and authorizing
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and copies of resolutions of the Board of
Directors of ProMedCo, certified by the secretary or assistant secretary of
ProMedCo approving the issuance of the ProMedCo Stock and guaranty of this
Agreement.
7.6 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated hereby and all certificates and
documents delivered to KDC pursuant to this Agreement shall be satisfactory in
form and substance to KDC and its counsel acting reasonably and in good faith.
7.7 NO AGENCY PROCEEDINGS. There shall not be pending or, to the
knowledge of ProMedCo or ProMedCo-Temple, threatened, any claim, suit, action or
other proceeding brought by a governmental agency before any court or
governmental agency, seeking to prohibit or restrain the transactions
contemplated by this Agreement or material damages in connection therewith.
7.8 NO MATERIAL ADVERSE CHANGE. ProMedCo shall not have suffered a
material adverse change in its financial condition, assets, liabilities,
operations, or business prospects represented in the ProMedCo Financial
Statements delivered to KDC.
7.9 EMPLOYEES. All employees of KDC desiring employment with
ProMedCo-Temple shall be so employed at Closing on terms comparable to those of
KDC; provided however, nothing herein shall preclude ProMedCo-Temple from
exercising its rights toward such employee under the Service Agreement.
7.10 CLOSING TRANSACTIONS. All the transactions described in ss. 2.9 shall
have been consummated simultaneously with the Closing.
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ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PROMEDCO AND
PROMEDCO-TEMPLE
All obligations of ProMedCo and ProMedCo-Temple which are to be
discharged under this Agreement at the Closing are subject to the performance,
at or prior to the Closing, of all covenants and agreements contained herein
which are to be performed by KDC at or prior to the Closing and to the
fulfillment at or prior to the Closing of each of the following conditions
(unless expressly waived in writing by ProMedCo and ProMedCo-Temple at any time
at or prior to the Closing):
8.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties of KDC contained in Article 3 of this Agreement shall be true as of
the date of this Agreement, shall be deemed to have been made again at and as of
the Closing, and shall be true at and as of the date of Closing in all material
respects (without taking into account any disclosures made by KDC to ProMedCo
and ProMedCo-Temple pursuant to ss. 6.5 hereof); KDC shall have performed or
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing; and ProMedCo and ProMedCo-Temple shall be furnished with a certificate
of the President or any Vice President of KDC, dated the Closing Date, in such
person's corporate capacity, certifying to the truth of such representations and
warranties as of the time of the Closing and to the fulfillment of such
covenants and conditions.
8.2 NO OBSTRUCTIVE PROCEEDING. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against ProMedCo or
ProMedCo-Temple or the officers or directors of ProMedCo or ProMedCo-Temple
which seeks to, or would, render it unlawful as of the Closing to effect the
transactions contemplated hereby in accordance with the terms hereof, and no
such action shall seek damages in a material amount by reason of the transaction
contemplated hereby. Also, no substantive legal objection to the transactions
contemplated by this Agreement shall have been received from or threatened by
any governmental department or agency.
8.3 OPINION OF KDC COUNSEL. KDC shall have delivered to ProMedCo and
ProMedCo- Temple at the Closing an opinion of Hilgers & Watkins, counsel to KDC,
dated the Closing Date, in form and substance satisfactory to ProMedCo and
ProMedCo-Temple, to the effect set forth as Appendix 8.3 attached hereto.
8.4 POOLING LETTERS. At or prior to the Closing, ProMedCo shall have
received letters from Arthur Anderson & Co. LLP in form and substance
satisfactory to ProMedCo to the effect that the transactions contemplated by
this Agreement and the Appendices hereto will constitute a "Pooling of
Interests" under GAAP.
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8.5 STOCKHOLDER AGREEMENTS. Each of the shareholders of KDC shall have
executed and delivered a stockholder agreement in the form attached hereto as
Appendix 8.5 (the "Stockholder Agreements").
8.6 CONSENTS AND APPROVALS. Each of the parties to any agreement or
instrument under which the transactions contemplated hereby would constitute or
result in a default or acceleration of obligations shall have given such consent
as may be necessary to permit the consummation of the transactions contemplated
hereby without constituting or resulting in a default or acceleration under such
agreement or instrument, and any consents required from any public or regulatory
agency or organization having jurisdiction shall have been given. Also,
ProMedCo-Temple shall have received releases, waivers of default and consents to
assignment in form satisfactory to it from all parties to contracts and
agreements to be assumed by ProMedCo-Temple hereunder.
8.7 DISSENTING SHAREHOLDERS. Not more than 10% the stockholders of KDC
shall have become Dissenting Stockholders within the meaning of the Texas
Business Corporation Act, and each non-Dissenting Stockholder shall have entered
into a Shareholder Physician Employment Agreement as contemplated in ss. 2.9
hereof.
8.8 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated hereby and all certificates and
documents delivered to ProMedCo-Temple pursuant to this Agreement shall be
satisfactory in form and substance to ProMedCo and ProMedCo- Temple and its
counsel acting reasonably and in good faith.
8.9 NO MATERIAL ADVERSE CHANGE. From the date of this Agreement until
the Closing, the operations of KDC shall have been conducted in the ordinary
course of business consistent with past practice and from the date of the KDC
Financial Statements until the Closing no event shall have occurred or have been
threatened which has or would have a material and adverse affect upon the
financial condition, assets, liabilities, operations, prospects or business of
KDC; and KDC shall have not sustained any loss or damage to their assets,
whether or not insured, or union activity that affects materially and adversely
its ability to conduct its business.
8.10 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, KDC shall have
delivered to ProMedCo-Temple copies of the Articles of Incorporation of KDC
certified (not more than 30 days prior to the Closing Date) by the appropriate
governmental authorities and copies of resolutions of the stockholders of KDC
and of the Board of Directors of KDC, certified by the secretary of KDC,
approving and authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
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8.11 CLOSING TRANSACTIONS. All the transactions described in ss. 2.9 shall
have been consummated simultaneously with the Closing.
ARTICLE 9 TERMINATION
9.1 OPTIONAL TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Effective
Date, notwithstanding stockholder approval as follows:
(a) By the mutual consent of ProMedCo, ProMedCo-Temple and KDC; or
(b) By KDC, if any of the conditions set forth in Article 7 shall
not have met by September 20, 1996; provided that KDC shall
not be entitled to terminate this Agreement pursuant to this
ss. 9.1(b) if KDC's willful breach of this Agreement has
prevented the consummation of the transactions contemplated
hereby; or
(c) By ProMedCo-Temple, if any of the conditions provided in
Article 8 hereof have not been met by September 20, 1996;
provided that ProMedCo-Temple shall not be enti tled to
terminate this Agreement pursuant to this ss. 9.1(c) if
ProMedCo-Temple's willful breach of this Agreement has
prevented the consummation of the transactions contemplated
hereby.
Notwithstanding anything to the contrary set forth herein, the parties
acknowledge and agree that the Exhibits referred to in Article 3 herein were not
prepared or delivered to ProMedCo and ProMedCo- Temple prior to or
contemporaneously with the execution of this Agreement. By ________, KDC shall
deliver to ProMedCo and ProMedCo-Temple all the Exhibits referred to in Article
3, to be pre pared in accordance with Article 3 of this Agreement, and ProMedCo
and ProMedCo-Temple may, at their discretion, within five days after its receipt
of such Exhibits, terminate this Agreement by notice to KDC if any information
contained in any of such Exhibits or any information obtained by ProMedCo and
ProMedCo-Temple pursuant to ss. 6.3 of this Agreement shall establish that any
rep resentation or warranty of KDC contained in Article 3 of this Agreement or
any information pre viously furnished to ProMedCo and ProMedCo-Temple by KDC
concerning KDC shall not be true and accurate in all material respects as of the
date of the termination notice or in the opinion of ProMedCo and
ProMedCo-Temple, any of such Exhibits shall disclose facts which shall be
materially adverse concerning the financial condition, business or operations of
KDC.
9.2 NOTICE OF ABANDONMENT. In the event of such termination by either
ProMedCo and ProMedCo-Temple or KDC pursuant to ss. 9.1 above, written notice
shall forthwith be given to the other party hereto.
9.3 MANDATORY TERMINATION. If the Closing has not occurred by September 30,
1996, this Agreement shall automatically terminate and no longer be of any force
or effect.
9.4 TERMINATION. In the event this Agreement is terminated as provided
above, ProMedCo and ProMedCo-Temple shall deliver to KDC all documents (and
copies thereof in their possession) concerning KDC and its Affiliates previously
delivered by KDC to ProMedCo and ProMedCo- Temple; and none of the parties nor
any of their respective partners, shareholders, directors, or officers shall
have any liability to the other party for costs, expenses, loss of anticipated
profits, consequential damages, or otherwise, except for any deliberate breach
of any of the provisions of this Agreement.
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ARTICLE 10 INDEMNIFICATION
10.1 GRANT OF INDEMNITY.
(a) KDC agrees to indemnify, defend and hold ProMedCo and ProMedCo-Temple and
their Affiliates, and subsidiaries, and its and their respective employees,
representa tives, officers and agents, harmless from and against any
claims, losses, liability, obligations, lawsuits, deficiencies, damages or
expense of whatever nature, whether known or unknown, accrued, absolute,
contingent or otherwise including (without limitation) interest, penalties,
attorneys' fees, costs of investigation and all amounts paid in defense or
settlement of the foregoing, suffered or incurred by ProMedCo or
ProMedCo-Temple as a result of the occurrence of any of the following: (i)
the Assets were subject to any liabilities or obligations of any kind,
whether accrued, absolute, contingent or otherwise, which are not being
specifically assumed by ProMedCo- Temple hereunder or otherwise consented
to by ProMedCo-Temple, including without limitation, liabilities for
federal, state, local and other applicable taxes of every kind and
description, whether or not said liabilities or obligations are disclosed
in Exhibit 3.4; (ii) KDC did not have title to any of the Assets; (iii) a
breach of any ----------- obligation, representation, warranty, covenant or
agreement made by KDC in this Agreement or any agreement referred to herein
or because any representation or warranty by KDC contained herein, in any
document furnished or required to be furnished pursuant to this Agreement
by KDC to ProMedCo or ProMedCo-Temple or any of their representatives, or
any documents furnished to ProMedCo and ProMedCo-Temple in connection with
the Closing hereunder, shall be false; (iv) any litigation arising out of
or based upon events or operative facts occurring prior to the Closing
Date, in connection with the Assets, whether or not disclosed in Exhibit
3.16; ------------ (v) any employee benefits, including pension or
retirement benefits, and any severance payments to the employees of KDC
which are or may be assessed as a result of the transactions contemplated
by this Agreement, payable to or on behalf of the employees of KDC as of
the Closing Date, or due through the consummation of this Agreement; (vi)
unless otherwise specifically agreed in this Agreement, any and all claims,
including legal, administrative or creditor claims or actions, in
connection with the Assets or their sale or transfer hereunder, if any fact
material to any such claim or cause of action pleaded or stated there
occurred prior to or on the Closing Date; and (vii) costs and expenses
(including reasonable attorneys' fees) incurred by ProMedCo and
ProMedCo-Temple in connection with any demand, action, suit, proceeding,
assessment or judgment incident to any of the foregoing.
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(b) ProMedCo and ProMedCo-Temple agree to indemnify, defend and hold KDC and
its Affiliates, and subsidiaries, and its and their respective employees,
representatives, officers and agents, harmless from and against any claims,
losses, liability, obliga tions, lawsuits, deficiencies, damages or expense
of whatever nature, whether known or unknown, accrued, absolute, contingent
or otherwise including (without limitation) interest, penalties, attorneys'
fees, costs of investigation and all amounts paid in defense or settlement
of the foregoing, suffered or incurred by ProMedCo or ProMedCo-Temple as a
result of the occurrence of any of the following: (i) a breach of any
obligation, representation, warranty, covenant or agreement made by
ProMedCo and ProMedCo-Temple in this Agreement or any agreement referred to
herein or because any representation or warranty by ProMedCo and ProMedCo-
Temple contained herein, in any document furnished or required to be
furnished pursuant to this Agreement by ProMedCo and ProMedCo-Temple to
ProMedCo or ProMedCo-Temple or any of their representatives, or any
documents furnished to KDC in connection with the Closing hereunder, shall
be false; (ii) unless otherwise specifically agreed in this Agreement, any
and all claims, including legal, administra tive or creditor claims or
actions, in connection with the Assets or their sale or transfer hereunder,
if any fact material to any such claim or cause of action pleaded or stated
there occurred after the Closing Date; and (iii) costs and expenses
(including reasonable attorneys' fees) incurred by KDC in connection with
any demand, action, suit, proceeding, assessment or judgment incident to
any of the foregoing.
10.2 REPRESENTATION, COOPERATION AND SETTLEMENT.
(a) Any party entitled to indemnification hereunder (the "Indemnified Party")
shall give prompt notice to the party obligated to indemnify it hereunder
(the "Indemnifying Party") of any claim against Indemnified Party might
give rise to a claim based on the indemnity contained in this Article 10,
stating the nature and basis of the claim and the amount thereof.
(b) In the event any claim, action, suit or proceeding is brought against the
Indemnified Party with respect to which the Indemnifying Party may have
liability under the indemnity contained in this Article 10, the Indemnified
Party shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting from such claim, provided that the
Indemnified Party shall not be required to permit the Indemnifying Party to
assume the defense of any third party claim which if not first paid,
discharged, or otherwise complied with would result in an interruption or
cessation of the conduct of ProMedCo-Temple's business or any material part
thereof. Failure by the Indemnifying Party to notify the Indemnified Party
of its election to
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defend any such claim or action by a third party within thirty (30) days after
notice thereof shall have been given by the Indemnified Party, shall be
deemed a waiver of any such election. If the Indemnifying Party assumes the
defense of such claim or litigation resulting therefrom, the obligations of
the Indemnifying Party hereunder as to such claim shall include taking all
steps reasonably necessary in the defense or settlement of such claim or
litigation resulting in the defense or settlement of such claim or
litigation resulting therefrom, including the retention of counsel
satisfactory to the Indemnified Party, and holding the Indemnified Party
harmless from and against any and all damage resulting from, arising out
of, or incurred with respect to any settlement approved by the Indemnifying
Party or any judgment in connection with such claim or litigation resulting
therefrom. The Indemnifying Party shall not, in the defense of such claim
or litigation, consent to the entry of any judgment (other than a judgment
of dismissal on the merits with costs) except with the written consent of
the Indemnified Party nor enter into any settlement (except with the
written consent of the Indemnified Party) which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect to such claim
or litigation.
(c) If the Indemnifying Party shall not assume the defense of any such claim by
a third party or litigation resulting therefrom, the Indemnified Party may
defend against such claim or litigation in such manner as it deems
appropriate. the Indemnifying Party shall, in accordance with the
provisions hereof, promptly reimburse the Indemnified Party for the amount
of any settlement reasonably entered into by the Indemnified Party and for
all damage incurred by the Indemnified Party in connection with the defense
against or settlement of such claim or litigation.
10.3 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude ProMedCo and ProMedCo-Temple from asserting
any other rights or seeking any other remedies against KDC to which ProMedCo and
ProMedCo-Temple are entitled by law.
ARTICLE 11 MISCELLANEOUS
11.1 EXPENSES. All expenses of the preparation of this Agreement and of
the transactions contemplated hereby, including, without limitation, counsel
fees, accounting fees, investment adviser's fees and disbursements, shall be
borne by the respective parties incurring such expense, whether or not such
transactions are consummated.
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11.2 EMPLOYEE TRANSITION.
(a) TERMINATION OF AFFECTED EMPLOYEES. Effective at the Closing Date, KDC shall
terminate all Affected Employees who shall be given the option of becoming
employees of ProMedCo-Temple on terms comparable to those in effect
immediately prior to the Closing. "Affected Employees" shall mean
non-medical employees of KDC on the Closing Date.
(b) INSURANCE AND BENEFIT PLANS. KDC shall satisfy, or cause its insurance
carriers to satisfy, all claims for medical, health and hospital benefits,
whether insured or otherwise (including, but not limited to, workers
compensation, life insurance, medical and disability programs), under KDC's
employee benefit plans brought by, or in respect of, Affected Employees and
former employees of the KDC prior to the Closing Date, in accordance with
the terms and conditions of such employee benefit plans or applicable
workers compensation statutes without interruption as a result of the
employment by ProMedCo-Temple of any such employees after the Closing Date.
(c) PAYROLL AND PAYROLL TAXES. KDC shall make a clean cut-off of payroll and
payroll tax reporting with respect to the Affected Employees paying over to
the federal, state and city governments those amounts respectively withheld
or required to be withheld for periods ending prior to the Closing Date.
KDC shall issue, by the date prescribed by IRS Regulations, Forms W-2 for
wages paid to the Closing Date. ProMedCo-Temple shall be responsible for
all payroll and payroll tax obligations accruing on and after the Closing
Date for Affected Employees.
(d) TERMINATION BENEFITS. KDC shall be solely responsible for, and shall pay or
cause to be paid, severance payments and other termination benefits, if any
(not including state unemployment compensation), to Affected Employees who
may become entitled to such benefits by reason of any events. If any action
on the part of KDC prior to the Closing or the purchase by ProMedCo-Temple
of the Assets of KDC pursuant to this Agreement or the transactions
contemplated hereby, shall result in any liability or claim of liability
for severance payments or termination benefits, or any liability,
forfeiture, fine or other obligation by virtue of any state, federal or
local law, such liability or claim of liability shall be the sole
responsibility of KDC, and KDC shall indemnify and hold harmless
ProMedCo-Temple for any losses resulting directly or indirectly from such
liability or claim. ProMedCo-Temple shall be solely responsible for and
shall pay or cause to be paid severance payments and other termination
benefits, if any, to Affected Employees who may become entitled to such
benefits by reason of events occurring after Closing. If any action on the
part of ProMedCo- Temple after Closing shall result in any liability or
claim of liability for severance payments or termination benefits, or any
liability, forfeiture, fine or other obligation
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by virtue of any state, federal or local law, such liability or claim of
liability shall be the sole responsibility of ProMedCo-Temple, and
ProMedCo-Temple shall indemnify and hold harmless KDC for any losses
resulting directly or indirectly from such liability or claim.
(e) EMPLOYEE BENEFIT PLANS. ProMedCo-Temple and KDC shall take, or cause to be
taken, such action as may be necessary or appropriate in order to establish
ProMed Co-Temple as successor sponsor with all rights, assets, duties,
liabilities and obligations as of the Closing Date under, or with respect
to, the King's Daughters Clinics, P.A. Profit Sharing Plan (the "KDC
Plan"). Except for funding KDC's payment of not more than $_______ relating
to itsss.125 Plan contribution in 1996, neither ProMedCo nor ProMedCo-
Temple shall assume any responsibility under any other employee benefit
plan maintained by KDC.
KDC shall provide ProMedCo-Temple either prior to, or as soon as practical
after, the Closing Date, with a list of the Employees who were participants
in or otherwise entitled to benefits under the KDC Plan immediately prior
to the Closing Date, together with a listing of each such Employee's term
of service for eligibility and vesting purposes under the KDC Plan. KDC
shall, as soon as practicable after the Closing Date, provide
ProMedCo-Temple with such additional information as may be reasonably
requested by ProMedCo-Temple and necessary in order for ProMedCo- Temple to
administer effectively the KDC Plan.
Notwithstanding the foregoing, ProMedCo-Temple shall have the right to postpone
the actions contemplated by this Section 11.2 to a date after the Closing Date.
11.3 OCCASIONAL SALE. KDC, ProMedCo and ProMedCo-Temple believe that
the transaction contemplated by this Agreement constitute the sale of an entire
operating unit or a separate division or a separate identifiable segment of a
division in accordance with the Texas Code, and, therefore, the sale of any and
all items of tangible personal property to ProMedCo-Temple pursuant to this
Agreement is exempt from any and all state and local sales and use tax. In the
event the transactions contemplated by this Agreement do not qualify for such
exemption or other applicable exemption and the State of Texas seeks to collect
sale or use tax under the Texas Tax Code, ProMedCo-Temple shall be liable and
responsible for any such tax. KDC shall cooperate with ProMedCo-Temple in
connection with any audit of this transaction regarding the application of the
sales tax law thereto.
11.4 NON-ASSIGNABLE PROPERTY INTERESTS.
(a) To the extent that any lease, contract, permit or other
property interest which would otherwise constitute a part of
the Assets is not capable of being assigned, transferred or
subleased or if such assignment, transfer or sublease or
attempted assignment,
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transfer or sublease would constitute a breach thereof or a
violation of any law, decree, order, regulation or other
governmental edict, neither this Agreement nor the Closing
shall constitute an assignment, transfer or sublease thereof,
or an attempted assignment, transfer or sublease thereof.
(b) To the extent that any lease, contract, permit or other
property interest constituting a part of the Assets is not
capable of being assigned, transferred or subleased, from and
after the Closing Date, and to the extent reasonably possible,
KDC shall make all benefits of such non-assignable interests
available to ProMedCo-Temple at no charge, cost or expense to
ProMedCo-Temple.
11.5 COOPERATION BY PROMEDCO AND PROMEDCO-TEMPLE. In the event KDC is
required to defend against any action, suit or proceeding arising out of a claim
pertaining to the business or operations of KDC, ProMedCo and ProMedCo-Temple
shall provide such assistance and cooperation, including, without limitation,
witnesses and documentary or other evidence as may reasonably be requested by
KDC in connection with its defense. KDC shall reimburse ProMedCo and
ProMedCo-Temple for their reasonable out-of-pocket expenses incurred in
providing such assistance and cooperation.
11.6 COOPERATION BY KDC. In the event ProMedCo or ProMedCo-Temple is
required to defend against any action, suit or proceeding arising out of a claim
pertaining to a liability assumed by ProMedCo-Temple pursuant to this Agreement
relating to the business or operations of KDC, KDC shall provide such assistance
and cooperation, including without limitation, witnesses and documentary or
other evidence, as may reasonably be requested by ProMedCo-Temple in connection
with its defense. ProMedCo-Temple shall reimburse KDC for its reasonable
out-of-pocket expenses incurred in providing such assistance.
11.7 NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person or mailed by certified mail or registered mail (postage prepaid) or sent
by reputable overnight courier service (charges prepaid):
To KDC: King's Daughters Clinics, P.A.
1905 S.W. H. K. Dodgen Loop
Temple, Texas 76302
Attention: President
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with a copy to: David W. Hilgers
Hilgers & Watkins, P.C.
PO Box 2063
Austin, TX 78768-2063
To ProMedCo and
ProMedCo-Temple: ProMedCo, Inc.
801 Cherry Street
Suite 1450
Fort Worth, TX 76102
Attention: Chief Executive Officer
with a copy to John E. Gillmor
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
Nashville, TN 38219
or to such other address as either KDC or ProMedCo may designate by notice to
the other.
11.8 ENTIRE AGREEMENT. This Agreement and the Appendices, Exhibits,
schedules and docu ments delivered pursuant hereto constitute the entire
contract between the parties hereto pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements, understand ings,
negotiations and discussions, whether written or oral, of the parties, and there
are no representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the parties to be bound thereby.
11.9 ALTERNATIVE DISPUTE RESOLUTION. Any dispute, disagreement, claim
or controversy arising out of or related to this Agreement (a "Disputed Matter")
may, at the option of either party hereto upon written notice to the other
party, be submitted to non-binding mediation before a mutually acceptable
neutral advisor. To the extent the neutral advisor is compensated, the parties
shall each bear half the cost. Any Disputed Matter that is not resolved through
mediation will be settled by binding arbitration in accordance with the rules of
commercial arbitration of the American Arbitration Association, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Such arbitration shall occur within Bell County, Texas,
unless the parties mutually agree to have such proceedings in some other locale.
The arbitrator(s) may in any such proceeding award attorneys' fees and costs to
the prevailing party.
11.10 GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREE
MENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
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11.11 LEGAL FEES AND COSTS. In the event either party elects to incur
legal expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, reasonable attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which such party shall be
entitled.
11.12 TIME. Time is of the essence for purposes of each and every provision
of this Agreement.
11.13 SECTION HEADINGS. The Section headings are for reference only and
shall not limit or control the meaning of any provision of this Agreement.
11.14 WAIVER. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
11.15 NATURE AND SURVIVAL OF REPRESENTATIONS. All statements contained
in any certificate delivered by or on behalf of any of the parties to this
Agreement pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties made by the
respective parties hereunder. The covenants, representations and warranties made
by the parties each to the other in this Agreement or pursuant hereto shall
survive the transactions contemplated hereby and any investigation made by
ProMedCo or ProMedCo-Temple.
11.16 EXHIBITS. All Exhibits, Appendices, schedules and documents
referred to in or at tached to this Agreement are integral parts of this
Agreement as if fully set forth herein and all statements appearing therein
shall be deemed to be representations. All items disclosed hereunder shall be
deemed disclosed only in connection with the specific representation to which
they are explicitly referenced.
11.17 ASSIGNMENT. No party hereto shall assign this Agreement without
first obtaining the written consent of the other party, except ProMedCo and
ProMedCo-Temple shall have the right to assign this Agreement to an Affiliate or
any institutional lender providing financing to ProMedCo and its subsidiaries.
11.18 BINDING ON SUCCESSORS AND ASSIGNS. Subject to ss. 11.17, this
Agreement shall inure to the benefit of and bind the respective heirs,
administrators, successors and assigns of the parties hereto. Nothing expressed
or referred to in this Agreement is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or permitted assigns any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein, it being the
intention of the parties to this Agreement that this Agreement shall be for the
sole and exclusive benefit of such parties or such successors and assigns and
not for the benefit of any other person.
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11.19 PARTIES IN INTEREST. Nothing in this Agreement is intended to
confer any right on any person other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to modify or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or action over against any party to this Agreement.
11.20 AMENDMENTS. This Agreement may be amended, but only in writing,
signed by the parties hereto, at any time prior to the Closing, before or after
approval hereof by the stockholders of KDC, with respect to any of the terms
contained herein, but after such stockholder approval, no amendment shall be
made which reduces the consideration per share paid each such stockholder
without the further approval of such stockholders.
11.21 DRAFTING PARTY. The provisions of this Agreement, and the
documents and instruments referred to herein, have been examined, negotiated,
drafted and revised by counsel for each party hereto and no implication shall be
drawn nor made against any party hereto by virtue of the drafting of this
Agreement.
11.22 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
11.23 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including without limitation, consents, waivers and
modifications which may hereafter be executed, the Exhibits and documents
delivered at the Closing, and financial statements, certificates and other
information previously or hereafter furnished to ProMedCo-Temple may be
reproduced by ProMedCo-Temple by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and ProMedCo-Temple
may destroy any original documents so reproduced. KDC agrees and stipulates that
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by ProMedCo-Temple in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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11.24 PRESS RELEASES. Except as required by law, KDC shall not make any
press releases or other public announcements relating to this Agreement or the
transactions contemplated hereby without the prior written consent of
ProMedCo-Temple.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROMEDCO, INC.
By
Its
Name
PROMEDCO OF TEMPLE, INC.
By
Its
Name
KING'S DAUGHTERS CLINICS, P.A.
By
Its
Name
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UNANIMOUS CONSENT OF DIRECTORS
The undersigned constituting all of the directors of King's Daughters
Clinics, P.A., a Texas corporation (the "Company"), hereby unanimously (i)
consent to, and approve, the foregoing Plan and Agreement for Reorganization and
the various Appendices and Exhibits thereto (collectively the "Agreement") and
to the transactions contemplated thereby; (ii) ratify the actions of officers of
the Company in negotiating, executing and delivering the Agreement; (iii)
recommend that the shareholders of the Company authorize the sale of
substantially all of the assets of the Company pursuant to the Agreement and
(iv) contingent upon authorization of such sale by the shareholders of the
Company, authorize the officers of the Company to carry into effect the
transactions contemplated by the Agreement, including the taking of any action
and the delivery of any document reasonably in furtherance thereof.
Jon Dula, M.D.
Todd Gordon, M.D.
Gopal Guttikonda, M.D.
Larry Orrick, M.D.
Herman Poteet, Jr., M.D.
Victor Schulze, III, M.D.
Richard Tay, M.D.
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Shareholder Shareholder's Spouse
UNANIMOUS CONSENT OF SHAREHOLDERS
The undersigned constituting all of the shareholders of King's
Daughters Clinics, P.A., a Texas corporation (the "Company"), hereby unanimously
authorize the sale of substantially all of the assets of the Company pursuant to
the foregoing Plan and Agreement for Reorganization and the various Appendices
and Exhibits thereto.
EFFECTIVE as of the latest date set forth below.
Shareholder Shareholder's Spouse
William Bean, M.D.
Date:
Ellis Brown, M.D.
Date:
John Ditzler, M.D.
Date:
Jon Dula, M.D.
Date:
James Finch, M.D.
Date:
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Shareholder Shareholder's Spouse
Todd Gorden, M.D.
Date:
Gopal Guttickonda, M.D.
Date:
Ronald Guy, M.D.
Date:
Gene Hardin, M.D.
Date:
Bill Hardin, M.D.
Date:
Donald Hopkins, D.O.
Date:
Jeffrey Hoover, M.D.
Date:
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Shareholder Shareholder's Spouse
Chris Hunter, M.D.
Date:
James Kliewer, M.D.
Date:
Rober Kylberg, M.D.
Date:
Douglas Kyle, M.D.
Date:
William Long, M.D.
Date:
Henry Mayer, Jr., M.D.
Date:
Edward McCaffrey, D.P.M.
Date:
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Shareholder Shareholder's Spouse
Dewayne Nash, M.D.
Date:
Larry Orrick, M.D.
Date:
Herman Poteet, Jr., M.D.
Date:
Victor Schulze, III, M.D.
Date:
John Shelby, M.D.
Date:
Murphy Talley, M.D.
Date:
Richard Tay, M.D.
Date:
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Shareholder Shareholder's Spouse
Ralph Wallace, M.D.
Date:
Dave Webster, D.O.
Date:
Mark Wilson, M.D.
Date:
Richard Winkler, M.D.
Date:
James Wood, M.D.
Date:
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LIST OF APPENDICES
NUMBER DESCRIPTION
2.2 Form of Undertaking
2.3 List of Excluded Assets
2.9A Service Agreement
2.9B Form of Shareholder Physician Employment Agreement
2.9C Form of Non-Shareholder Physician Employment Agreement
2.9E Properties to be leased from Temple
7.2 Form of opinion of ProMedCo-Temple's counsel to be delivered at
the Closing
8.3 Form of opinion of KDC's counsel to be delivered at the Closing
8.5 Form of Stockholder Agreement
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LIST OF EXHIBITS
NUMBER DESCRIPTION
3.1A List of States in which KDC is qualified to do business
3.1B Copies of KDC's Articles of Incorporation and Bylaws
3.2 KDC Voting Agreements
3.3 Subsidiaries of KDC
3.4 KDC Financial Statements
3.6 Exceptions to Absence of Recent Changes Representation
3.7A Recent UCC report on KDC's Assets
3.7B Security Interests to be Assumed by ProMedCo-Temple
3.8 Contracts
3.9 List of Burdensome Agreements
3.10 Related party transactions
3.11 Exceptions to No Default Representation
3.15 Permits and licenses
3.16 Litigation
3.21 Environmental Matters
3.22 List of Employee Benefit Plans
3.23 List of Employee Benefit Plans not qualified underss.401(a)
of the Internal Revenue Code
3.24A List of highly compensated employees
3.24B Description of Employee Benefits
3.25A List of Insurance coverages and bonds
3.25B Description denials of coverage
3.25C Claims History
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APPENDIX 2.2
FORM OF UNDERTAKING
UNDERTAKING
Undertaking dated as of September 18, 1996 ("Undertaking") by ProMedCo of
Temple, Inc., a Delaware corporation ("ProMedCo-Temple"), in favor of King's
Daughters Clinics, P.A. ("KDC").
RECITAL:
By a Plan and Agreement for Reorganization dated as of September 13,
1996 (the "Acquisition Agreement") between KDC and ProMedCo-Temple, KDC agreed
to sell, convey, transfer and deliver to ProMedCo-Temple at the Closing under
the Agreement, certain assets (the "Assets") of Target in consideration for the
payment by ProMedCo-Temple to KDC of the purchase price of the Assets and
delivery by ProMedCo-Temple to KDC of an undertaking of the character described
below. For the purpose of consummating such Closing, KDC has delivered to
ProMedCo- Temple various instruments and has taken other actions to effect such
sale, conveyance, transfer and delivery, and ProMedCo-Temple has delivered to
KDC the documents required by the Agreement to be so delivered at the Closing.
To complete the action required of ProMedCo-Temple by the Agreement as full
consideration for such sale, conveyance, transfer and delivery, ProMedCo-Temple
hereby undertakes and agrees as follows:
12. ProMedCo-Temple hereby assumes and agrees to pay, perform and
discharge the liabilities and obligations of KDC relating to the Assets
described in Schedule 1 hereto, except for liabilities or obligations arising
out of any breach of any such obligations by KDC.
13. ProMedCo-Temple assumes and agrees to discharge only the
obligations of KDC set forth in Section 1 above, and no others. Without limiting
the generality of the foregoing, ProMedCo- Temple specifically does not assume
any of the following obligations or liabilities of the KDC:
(a) any other liabilities reflected in the KDC Financial Statements;
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(b) any litigation or other claims involving incidents or courses
of conduct prior to the date hereof including, without
limitation, any litigation described in Exhibit 3.16 to the
Agreement;
(c) any unfunded liability existing on the date hereof under any
pension plan of KDC.
14. This Undertaking shall inure to the benefit of KDC, its successors
and assigns. The terms defined in the Agreement, unless otherwise defined herein
or unless the context otherwise requires, shall have the same defined meanings
herein. The sole purpose hereof is to relieve KDC of certain obligations and not
to create third party beneficiary rights. Therefore, this Agreement may be
modified by a writing signed by the KDC and ProMedCo-Temple without the consent
of any third party.
15. This Undertaking, particularly Section 1 hereof, is not intended to
and does not waive, compromise or in any other manner lessen the rights of
ProMedCo-Temple under the Agreement relating to the representations and
warranties of KDC and its obligations thereunder to indemnify ProMedCo-Temple
thereunder against various liabilities.
16. Capitalized terms not otherwise defined in this Undertaking shall
have the meanings ascribed thereto in the Acquisition Agreement.
IN WITNESS WHEREOF, ProMedCo-Temple has caused this Undertaking to be
signed in several counterparts (each of which shall constitute an original
hereof) by its duly authorized officer as of the date first above written.
PROMEDCO OF TEMPLE, INC.
By
Its
Name
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GUARANTY
ProMedCo, Inc., a Texas corporation ("ProMedCo") which is the sole
shareholder of ProMedCo of Temple, Inc., a Delaware corporation
("ProMedCo-Temple"), hereby guarantees the performance of ProMedCo-Temple under
the above Undertaking.
PROMEDCO, INC.
By
Its
Name
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SCHEDULE 1
TO UNDERTAKING
1. The Assumed Balance Sheet Liabilities as defined in ss. 2.4(b) of the
Acquisition Agreement.
2. The contracts and equipment leases of KDC listed in Exhibit 3.8 to the
Acquisition Agreement.
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APPENDIX 2.3
EXCLUDED ASSETS
The ownership interests in the Affiliates of KDC listed in Exhibit 3.3
of the Exhibit Volume.
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APPENDIX 2.9A
FORM OF SERVICE AGREEMENT
- --------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------
PROMEDCO OF TEMPLE, INC.
AND
PHYSICIANS OF KING'S DAUGHTERS, P.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EFFECTIVE SEPTEMBER 1, 1996
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TABLE OF CONTENTS
1. RESPONSIBILITIES OF THE PARTIES.................................1
1.1 General Responsibilities of the Parties...............1
1.2 KDCP's Matters........................................1
1.3 Patient Referrals.....................................1
2. POLICY COUNCIL..................................................1
2.1 Formation and Operation of the Policy Council.........1
2.2 Duties and Responsibilities of the Policy Council.....2
3. OBLIGATIONS OF PROMEDCO-TEMPLE..................................3
3.1 Management and Administration.........................4
3.2 Administrator.........................................8
3.3 Expansion of Clinic...................................8
3.4 Events Excusing Performance...........................8
3.5 Compliance With Applicable Laws.......................8
3.6 Capital Needs.........................................8
4. OBLIGATIONS OF KDCP.............................................8
4.1 Professional Services.................................8
4.2 Employment Of Physician Employees.....................9
4.3 Non-Clinic Expenses...................................9
4.4 Medical Practice......................................9
4.5 Professional Insurance Eligibility....................9
4.6 Employment Of Non-Physician Employees.................9
4.7 Events Excusing Performance...........................9
4.8 Compliance With Applicable Laws......................10
4.9 Restrictions on Use of Clinic Facility...............10
4.10 KDCP Employee Benefit Plans.........................10
4.11 Physician Powers of Attorney........................11
4.12 Spokesperson........................................11
5. RECORDS........................................................11
5.1 Patient Records......................................11
5.2 Other Records........................................11
5.3 Access to Records....................................11
6. FACILITIES TO BE PROVIDED BY PROMEDCO-TEMPLE...................11
6.1 Facilities...........................................11
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6.2 Use of Facilities....................................12
7. FINANCIAL ARRANGEMENTS.........................................12
7.1 Payments to KDCP and ProMedCo-Temple..........................12
7.2 Distribution.........................................12
7.3 Clinic Expenses......................................12
7.4 Accounts Receivables.................................12
8. INSURANCE AND INDEMNITY........................................13
8.1 Insurance to Be Maintained by ProMedCo-Temple........13
8.2 Insurance to be Maintained by KDCP...................13
8.3 Tail Insurance Coverage..............................13
8.4 Additional Insured...................................14
8.5 Indemnification......................................14
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES..................14
9.1 Restrictive Covenants by KDCP........................14
9.2 Restrictive Covenants By Medical Professionals.......14
9.3 Physician Shareholder and Physician
Employee Liquidated Damages..........................15
9.4 Enforcement..........................................16
9.5 Termination of Restrictive Covenants.................16
10. TERM..........................................................16
10.1 Term and Renewal....................................16
10.2 Termination by KDCP.................................17
10.3 Termination by ProMedCo-Temple......................18
10.4 Actions After Termination...........................18
11. DEFINITIONS...................................................20
11.1 Adjustments ........................................20
11.2 Clinic .............................................20
11.3 Clinic Expenses ....................................20
11.4 Clinic Expenses shall not include...................22
11.5 Clinic Facility ....................................22
11.6 Distribution Funds .................................23
11.7 Effective Date .....................................23
11.9 KDCP Employees .....................................23
11.10 Medical Professional ..............................23
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11.11 Net Clinic Revenues ...............................23
11.12 Opening Balance Sheet .............................23
11.13 Physician Employees ...............................23
11.14 Physician Extenders ...............................23
11.15 Physician Shareholders ............................23
11.16 Plan and Agreement for Reorganization .............24
11.17 ProMedCo...........................................24
11.18 ProMedCo IPO Date..................................24
11.19 ProMedCo IPO Price.................................24
11.20 ProMedCo-Temple Distribution ......................24
11.21 Risk Pool Surpluses ...............................24
11.22 Technical Employees ...............................24
12. GENERAL PROVISIONS............................................24
12.1 Independent Contractor..............................24
12.2 Other Contractual Arrangement.......................25
12.3 Proprietary Property................................26
12.4 Cooperation.........................................26
12.5 Licenses, Permits and Certificates..................26
12.6 Compliance with Rules, Regulations and Laws.........26
12.7 Generally Accepted Accounting Principles (GAAP).....27
12.8 Notices.............................................27
12.9 Attorneys' Fees.....................................27
12.10 Severability.......................................27
12.11 Arbitration........................................27
12.12 Construction of Agreement..........................27
12.13 Assignment and Delegation..........................28
12.14 Confidentiality....................................28
12.15 Waiver.............................................28
12.16 Headings...........................................28
12.17 No Third Party Beneficiaries.......................28
12.18 Time is of the Essence.............................28
12.19 Modifications of Agreement for
Prospective Legal Events...........................28
12.20 No Right of Off-Set................................29
12.21 Whole Agreement....................................29
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SERVICE AGREEMENT
Service Agreement ("Agreement") dated September 18, 1996, between
ProMedCo of Temple, Inc., a Delaware corporation ("ProMedCo-Temple"), and
Physicians of King's Daughters, P.A., a Texas professional association ("KDCP").
RECITALS:
Subject to the terms and conditions hereof, KDCP desires to engage
ProMedCo-Temple to provide to KDCP management services, facilities, personnel,
equipment and supplies necessary to operate the Clinic (as defined herein) and
ProMedCo-Temple desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 GENERAL RESPONSIBILITIES OF THE PARTIES. ProMedCo-Temple shall
provide KDCP with offices, facilities, equipment, supplies, non-professional
support personnel, and management and financial advisory services.
ProMedCo-Temple shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of KDCP and their patients.
1.2 KDCP'S MATTERS. KDCP shall maintain sole discretion and authority
over the financial matters relative to its corporate existence. It shall set
compensation levels for KDCP Employees. KDCP will also be responsible for all
other matters pertaining to the operation of KDCP.
1.3 PATIENT REFERRALS. The parties agree that the benefits to KDCP do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo-Temple to any of KDCP's patients in any facility or
laboratory controlled, managed or operated by ProMedCo-Temple.
2. POLICY COUNCIL
2.1 FORMATION AND OPERATION OF THE POLICY COUNCIL. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of six members. ProMedCo-Temple shall designate, at its sole discretion,
three members of the Policy Council. Members of the Policy Council designated by
ProMedCo-Temple and/or KDCP shall be entitled to attend and vote by proxy at any
meetings of the Policy Council so long as at least one such representative is
present in person. KDCP at its sole discretion shall designate three members.
Except as may otherwise be provided, the act of a majority of the six members of
the Policy Council shall be the act of the Policy Council.
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2.2 DUTIES AND RESPONSIBILITIES OF THE POLICY COUNCIL. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
(a) ANNUAL BUDGETS. All annual capital and operating budgets prepared by
ProMedCo- Temple, as set forth in Section 3 and employing ProMedCo-Temple's
financial expertise, shall be subject to the review and approval of the
Policy Council, provided; however, ProMedCo-Temple shall have final
approval of any capital expenditure required by ProMedCo-Temple.
(b) ADMINISTRATOR. The selection and retention of the Administrator pursuant to
Section 3.1 shall be subject to the reasonable approval of the Policy
Council. If KDCP is dissatisfied with the services provided by the
Administrator, KDCP shall refer the matter to the Policy Council.
ProMedCo-Temple and Policy Council shall in good faith determine whether
the performance of the Administrator could be brought to acceptable levels
through counsel and assistance, or whether the Administrator should be
terminated. ProMedCo-Temple shall have the ultimate authority to terminate
the Administrator.
(c) ADVERTISING. All advertising, marketing, and public relations shall be
subject to the prior review and approval of the Policy Council, in
compliance with applicable laws and regulations governing professional
advertising and in accordance with the standards and medical ethics of the
American Medical Association and the Texas Medical Association.
(d) ANCILLARY SERVICES. The Policy Council shall approve Clinic provided
ancillary services based upon the pricing, access to and quality of such
services.
(e) CAPITAL IMPROVEMENTS AND EXPANSION. The Policy Council shall determine the
priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Any capital
expenditure in excess of $20,000 shall require the approval of the Policy
Council; all others may be made by ProMedCo-Temple at its discretion in the
exercise of prudent business judgement..
(f) EXCEPTIONS TO INCLUSION IN THE NET REVENUE CALCULATION. The exclusion of
any revenue from Net Clinic Revenues, whether now or in the future, shall
be subject to the approval of the Policy Council.
(g) GRIEVANCE ISSUES. Subject to the provisions of Section 1.2 of this
Agreement, the Policy Council shall consider and make final decisions
regarding grievances pertaining
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to matters not specifically addressed in this Agreement as referred to it
by KDCP's Board or ProMedCo-Temple.
(h) PATIENT FEES. In consultation with KDCP and ProMedCo-Temple, the Policy
Council shall review and adopt the fee schedule for all physician and
ancillary services rendered by the Clinic.
(i) PHYSICIAN HIRING. The Policy Council, with information and analysis
provided by ProMedCo-Temple, shall determine the number and type of
physicians required for the efficient operation of the Clinic and KDCP
shall determine the individual physicians to be hired to fill such
positions. The approval of ProMedCo-Temple shall be required for any
variations to the restrictive covenants in any physician employ ment
contract.
(j) PROVIDER AND PAYOR RELATIONSHIPS. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between
the professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo-Temple and KDCP may choose to
use actuarial data from a nationally recognized actuarial firm as agreed to
by both parties, for the purposes of allocating capitation funds, for those
professional services provided directly by KDCP.
(k) STRATEGIC PLANNING. The Policy Council, with the assistance of
ProMedCo-Temple, shall develop long-term strategic planning objectives.
3. OBLIGATIONS OF PROMEDCO-TEMPLE
During the term of this Agreement, ProMedCo-Temple shall provide or
arrange for the services set forth in this Section 3, the cost of all of which
shall be included in Clinic Expenses. ProMedCo-Temple is hereby expressly
authorized to perform its services in whatever manner it deems reasonably
appropriate, in accordance with policies approved by the Policy Council, and
including without limitation, performance of some functions at locations other
than the Clinic Facility. KDCP will not act in a manner which would prevent
ProMedCo-Temple from efficiently managing the Clinic Facility operations in a
businesslike manner. KDCP, through KDCP Employees, will provide all medical
services. ProMedCo-Temple will have no authority, directly or indirectly, to
perform, and will not perform, any medical function. ProMedCo-Temple may,
however, advise KDCP as to the relationship between its performance of medical
functions and the overall administrative and business functioning of the Clinic.
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3.1 MANAGEMENT AND ADMINISTRATION. During the term of this Agreement,
KDCP hereby appoints ProMedCo-Temple as the sole and exclusive manager and
administrator of all non-medical functions and services related to KDCP's
services at the Clinic. KDCP shall perform all medical services, and
ProMedCo-Temple shall have no authority, directly or indirectly, to perform, and
will not perform, any medical function. Without limiting the generality of the
foregoing, ProMedCo- Temple shall provide the following administrative,
management and marketing services as may be required in conjunction with KDCP's
services at the Clinic. ProMedCo-Temple shall hire and supervise an
Administrator, subject to the reasonable approval of the Policy Council, to
manage and administer all of the day-to-day business functions of
ProMedCo-Temple, including without limitation:
3.1.1 ANNUAL BUDGETS. Financial planning and preparation of
annual budgets. Annually and at least 30 days prior to the commencement
of each fiscal year, ProMedCo- Temple shall prepare and deliver to KDCP
capital and operating budgets reflecting in reasonable detail
anticipated revenues and expenses, sources and uses of capital to
maintain and enhance KDCP's medical practice and Clinic services.
3.1.2 FINANCIAL STATEMENTS. ProMedCo-Temple shall prepare
monthly and fiscal year unaudited financial statements containing a
balance sheet and a statement of income for Clinic operations, which
shall be delivered to KDCP within thirty (30) days after the close of
each calendar month. The fiscal year statement shall be reviewed by a
certified public accountant as selected by ProMedCo-Temple in
connection with the audit of the financial statements of ProMedCo. If
KDCP desires an audit in addition to the audit provided by
ProMedCo-Temple, such an audit would be at KDCP's expense.
3.1.3 NON-PROFESSIONAL PERSONNEL. ProMedCo-Temple will provide
all personnel reasonably necessary for the conduct of Clinic operations
with the exception of Physician Extenders and Technical Employees.
ProMedCo-Temple shall determine and cause to be paid the salaries,
fringe benefits and any sums for income taxes, unemployment insurance,
social security taxes or any other withholding amounts required by
applicable law or governmental authority, of all such personnel. Such
personnel shall be under the direction, supervision and control of
ProMedCo-Temple, with those personnel performing patient care services
subject to the professional supervision of KDCP. If KDCP is
dissatisfied with the services of any person, KDCP shall consult with
ProMedCo-Temple. ProMedCo-Temple shall in good faith determine whether
the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be
terminated. All of ProMedCo-Temple's obligations regarding staff shall
be governed by the overriding principle and goal of providing high
quality medical care. At ProMedCo-Temple's option some or all of the
non-physician personnel may be carried on the books of KDCP as
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KDCP's employees in which event the costs associated with such
employees will be a Clinic Expense.
3.1.4 QUALITY ASSURANCE. ProMedCo-Temple will assist KDCP in
fulfilling its obligation to its patients to maintain high quality
medical and professional services, including patient satisfaction
programs, employee education, outcomes analysis, clinical protocol
development and to implement a risk management program.
3.1.5 FACILITIES AND EQUIPMENT. ProMedCo-Temple will ensure
the proper cleanliness of the premises, maintenance and cleanliness of
the equipment, furniture and furnishings located on the premises.
3.1.6 INVENTORY CONTROL AND PURCHASING SUPPLIES.
ProMedCo-Temple shall order and purchase inventory and supplies, and
such other ordinary, necessary or appropriate materials which
ProMedCo-Temple shall deem to be necessary in the operation of the
Clinic, to deliver quality Clinic services in a cost effective manner.
3.1.7 MANAGED CARE CONTRACTING. ProMedCo-Temple will be
responsible for marketing, negotiation, and administering all managed
care contracts, subject to the provisions of Section 2.2(j); provided,
however, no contract or arrangement regarding the provision of clinical
services shall be entered into without KDCP's consent.
3.1.8 BILLING AND COLLECTIONS. ProMedCo-Temple shall bill
patients and collect all fees for services performed inside or outside
the Clinic Facility or arrange for such billing and collection. KDCP
hereby appoints ProMedCo-Temple, for the term hereof, to be its true
and lawful attorney-in-fact for the following purposes (i) to bill
patients in KDCP's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in KDCP's name and on its
behalf, (iii) to receive payments from Blue Cross and Blue Shield,
Medicare, Medicaid, payments from health plans, and all other third
party payors; (iv) to receive the cash proceeds of any accounts
receivable; (v) to take possession of and endorse in the name of KDCP
(and/or in the name of an individual physician, such payment intended
for purpose of payment of a physician's bill) any notes, checks, money
orders, insurance payments and other instruments received in payment of
accounts receivable; and (vi) in accordance with policies adopted by
the Policy Council, to initiate legal proceedings in the name of KDCP
to collect any accounts and monies owed to the Clinic, to enforce the
rights of KDCP as creditors under any contract or in connection with
the rendering of any service, and to contest adjustments and denials by
governmental agencies (or its fiscal intermediaries) as third-party
payors. All adjustments made for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee
shall be done in a reasonable and consistent manner acceptable to
ProMedCo-Temple's independent certified public accountants.
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3.1.9 DEPOSIT OF NET CLINIC REVENUES. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the
operations of the Clinic shall be deposited directly into a bank
account of which KDCP shall be the owner ("Account"). ProMedCo- Temple
and KDCP shall maintain their accounting records in such a way as to
clearly segregate Net Clinic Revenues from other funds of
ProMedCo-Temple or KDCP. KDCP hereby appoints ProMedCo-Temple as its
true and lawful attorney-in-fact to deposit in the Account all revenues
collected. KDCP covenants, and shall cause all KDCP Employees to
covenant, to forward any payments received with respect to Net Clinic
Revenues for services provided by KDCP and KDCP Employees to
ProMedCo-Temple for deposit. ProMedCo- Temple shall have the right to
withdraw funds from the Account and all owners of the Account shall
execute a revocable standing transfer order ("Transfer Order") under
which the bank maintaining the Account shall periodically transfer the
entire balance of the Account to a separate bank account owned solely
by ProMedCo-Temple ("ProMedCo-Temple Account"). KDCP and
ProMedCo-Temple hereby agree to execute from time to time such
documents and instructions as shall be required by the bank maintaining
the Account and mutually agreed upon to effectuate the foregoing
provisions and to extend or amend such documents and instructions. Any
action by KDCP that interferes with the operation of this Section,
including, but not limited to, any failure to deposit or allow
ProMedCo-Temple to deposit any Net Clinic Revenues into the Account,
any withdrawal of any funds from the Account not authorized by the
express terms of this Agreement, or any revocation of or attempt to
revoke the Transfer Order (otherwise than upon expiration or
termination of this Agreement), will constitute a breach of this
Agreement and will entitle ProMedCo-Temple, in addition to any other
remedies that it may have at law or in equity, to seek a court ordered
assignment of the following rights:
(a) To collect accounts receivable resulting from the
provision of services to patients of KDCP and the
KDCP Employees;
(b) To receive payments from patients, third party payor
plans, insurance companies, Medicare, Medicaid and
all other payors with respect to services rendered by
KDCP and its KDCP Employees;
(c) To take possession of and endorse any notes, checks,
money orders, insurance payments and any other
instruments received as payment of such accounts
receivable; and
(d) To collect all revenues of the Clinic.
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3.1.10 MANAGEMENT INFORMATION SYSTEMS/COMPUTER SYSTEMS.
ProMedCo-Temple shall supervise and provide information systems that
are necessary and appropriate for the operation of the Clinic.
3.1.11 LEGAL AND ACCOUNTING SERVICES. ProMedCo-Temple shall
arrange for or render to KDCP such business and financial management
consultation and advice as may be reasonably required or requested by
KDCP and directly related to the operations of the Clinic.
ProMedCo-Temple shall not be responsible for rendering any legal or tax
advice or services or personal financial services to KDCP or any
employee or agent of KDCP.
3.1.12 NEGOTIATION AND PAYMENT OF PREMIUMS FOR ALL INSURANCE
PRODUCTS HELD BY KDCP. ProMedCo-Temple shall negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Section 8. Premiums and deductibles with respect to such policies shall
be a Clinic Expense.
3.1.13 PHYSICIAN RECRUITING. ProMedCo-Temple shall assist KDCP
in recruiting additional physicians, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, KDCP shall interview and make the ultimate decision
as to the suitability of any physician to become associated with the
Clinic. All physicians recruited by ProMedCo-Temple and accepted by
KDCP shall be the sole employees of KDCP to the extent such physicians
are hired as employees. Any expenses incurred in the recruitment of
physicians, including, but not limited to, employment agency fees,
relocation and interviewing expenses shall be Clinic Expenses approved
by the Policy Council.
3.1.14 SUPERVISION OF ANCILLARY SERVICES. ProMedCo-Temple
shall operate and supervise such ancillary services as approved by the
Policy Council.
3.1.15 STRATEGIC PLANNING ASSISTANCE. ProMedCo-Temple
shall assist with and implement the strategic plan as approved by the
Policy Council.
3.1.16 ADVERTISING AND PUBLIC RELATIONS. From time to time
ProMedCo-Temple shall recommend to the Policy Council various
advertising and public relations initiatives which shall not be
implemented without Policy Council approval.
3.1.17 FILES AND RECORDS. ProMedCo-Temple shall supervise and
maintain custody of all files and records relating to the operation of
the Clinic, including but not limited to accounting, billing, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of KDCP and shall be located at
Clinic facilities so that they are readily accessible for patient care.
The management of all files and records
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shall comply with applicable state and federal statutes.
ProMedCo-Temple shall use its reasonable efforts to preserve the
confidentiality of patients' medical records and use information
contained in such records only for the limited purpose necessary to
perform the services set forth herein, provided, however, in no event
shall a breach of said confidentiality be deemed a default under this
Agreement.
3.2 ADMINISTRATOR. The selection and retention of the Administrator,
subject to the provisions of Section 2.2(b).
3.3 EXPANSION OF CLINIC. ProMedCo-Temple will pursue various programs
to increase revenue and profitability including assisting KDCP in adding
additional office based procedures, ancillary services and adding additional
satellite office(s) as determined by the Policy Council to be beneficial to the
Clinic. ProMedCo-Temple will also assist in recruiting new physicians and
developing relationships and affiliations with other physicians, hospitals,
networks, HMOs, etc. To assist in the continued growth and development of the
Clinic within a 30 mile radius of Temple, Texas, ProMedCo-Temple may acquire
other physician practices for incorporation into KDCP. KDCP will cooperate with
ProMedCo-Temple in such expansion efforts and use its reasonable efforts to
assist ProMedCo-Temple with respect thereto. Without limiting the generality of
the foregoing, neither party not enter into any agreements with respect to any
such matter without the prior approval of the Policy Council.
3.4 EVENTS EXCUSING PERFORMANCE. ProMedCo-Temple shall not be liable to
KDCP for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo-Temple has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
3.5 COMPLIANCE WITH APPLICABLE LAWS. ProMedCo-Temple shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
3.6 CAPITAL NEEDS. ProMedCo-Temple shall be responsible for the capital
necessary to maintain, expand and grow KDCP, subject to the approval of the
Policy Committee.
4. OBLIGATIONS OF KDCP
4.1 PROFESSIONAL SERVICES. KDCP shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. KDCP shall also ensure that each physician
associated with KDCP is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, KDCP shall immediately inform the Administrator of such action
and the
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underlying facts and circumstances. KDCP shall carry out a program to monitor
the quality of medical care practiced, with ProMedCo-Temple's assistance. KDCP
will cooperate with ProMedCo- Temple in taking steps to resolve any utilization
review or quality assurance issues which may arise in connection with the
Clinic.
4.2 EMPLOYMENT OF PHYSICIAN EMPLOYEES. KDCP shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of KDCP, ProMedCo-Temple shall consult with KDCP regarding such
matters. KDCP shall enforce formal employee agreements from each of its
Physician Shareholders and Physician Employees, hired or contracted,
substantially in the form attached to the Plan and Agreement for Reorganization
as Appendix 2.9B-2.
4.3 NON-CLINIC EXPENSES. KDCP shall be solely responsible for the
payment of all costs and expenses incurred in connection with KDCP operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes,
membership in professional associations, continuing medical education, licensing
and board certification fees for its Physician Employees and Physician Extenders
and automobile and cellular telephone expenses of KDCP Physician Employees and
Physician Extenders.
4.4 MEDICAL PRACTICE. KDCP shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with
KDCP, and no other physician or medical practitioner shall be permitted to use
or occupy the Clinic Facility without the prior written consent of the Policy
Council.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. KDCP shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
4.6 EMPLOYMENT OF NON-PHYSICIAN EMPLOYEES. There will be certain
Technical Employees that perform technical functions for KDCP. These Technical
Employees will remain in the employ of KDCP. As provided in Section 3.1.3,
ProMedCo-Temple will provide payroll and administrative services for such
Technical Employees which shall be a Clinic Expense.
4.7 EVENTS EXCUSING PERFORMANCE. KDCP shall not be liable to
ProMedCo-Temple for failure to perform any of the services required herein in
the event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events over which KDCP has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
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4.8 COMPLIANCE WITH APPLICABLE LAWS. KDCP shall comply with all applicable
federal, state and local laws, regulations and restrictions in the conduct of
its obligations under this Agreement.
4.9 RESTRICTIONS ON USE OF CLINIC FACILITY. KDCP shall at all times
during the term of this Agreement comply with the policy of ProMedCo-Temple
stated in Section 6.2 herein.
4.10 KDCP EMPLOYEE BENEFIT PLANS.
(a) As of the Effective Date of this Agreement, KDCP has in effect the employee
welfare benefit plans (as such term is defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
the employee pension benefit plans (as such term is defined in Section 3(2)
of ERISA), as set forth in Exhibit 3.22 to the Plan and Agreement for
Reorgani zation.
(b) KDCP shall not enter into any new "employee benefit plan" (as defined in
Section 3(3) of ERISA) without the express written consent of ProMedCo-
Temple. Except as otherwise required by law, KDCP shall not materially
amend, freeze, terminate or merge any employee welfare or employee benefit
plan without the express written consent of ProMedCo-Temple unless such
action is contemplated by the Plan and Agreement for Reorganization. KDCP
agrees to make such changes to any employee welfare or employee benefit
plan, including the freeze, termination, or merger of such plan, as may be
approved by ProMedCo-Temple.
(c) Expenses incurred in connection with any KDCP Plan or other employee
benefit plan maintained by KDCP, including without limitation the compensa
tion of counsel, accountants, corporate trustees and other agents shall not
be included in Clinic Expenses.
(d) The contribution and administration expenses for Medical Professionals
shall be an expense of KDCP. ProMedCo-Temple shall make contributions or
payments with respect to any KDCP Plan, as a Clinic Expense, on behalf of
eligible Technical Employees or other non-Medical Professionals employed by
KDCP at ProMedCo-Temple's request pursuant to ss. 3.1.3.
(e) ProMedCo-Temple shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employ
ees. ProMedCo-Temple shall have the sole and exclusive authority to appoint
the trustee, custodian, and administrator of any such plan.
4.11 PHYSICIAN POWERS OF ATTORNEY. KDCP shall require all KDCP
Employees to execute and deliver to ProMedCo-Temple powers of attorney,
satisfactory in form and substance to ProMedCo-Temple and KDCP, appointing
ProMedCo-Temple as attorney-in-fact for each for the purposes set forth in
Sections 3.1.8 and 3.1.9, which powers of attorney shall immediately terminate
upon termination of this Agreement.
4.12 SPOKESPERSON. KDCP shall serve as spokesperson for ProMedCo-Temple
and ProMedCo in Clinic, ProMedCo-Temple and ProMedCo development activities. The
parties agree that such Physician Shareholders as the Policy Council shall
appoint, shall serve in this capacity on behalf of KDCP.
5. RECORDS
5.1 PATIENT RECORDS. Upon termination of this Agreement, KDCP shall
retain all patient medical records maintained by KDCP or ProMedCo-Temple in the
name of KDCP. KDCP shall, at its option, be entitled to retain copies of
financial and accounting records relating to all services performed by KDCP.
5.2 OTHER RECORDS. All records relating in any way to the operation of the
Clinic which are not the property of KDCP under the provisions of Section 5.1
above, shall at all times be the property of ProMedCo-Temple.
5.3 ACCESS TO RECORDS. During the term of this Agreement, and
thereafter, KDCP or its designee shall upon 24 hours notice have reasonable
access during normal business hours to KDCP's and ProMedCo-Temple's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo-Temple in performing ProMedCo-Temple's
obligations under this Agreement, and KDCP may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO-TEMPLE
6.1 FACILITIES. ProMedCo-Temple hereby agrees to provide or arrange as
a Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonably incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
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6.2 USE OF FACILITIES. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo-Temple or any of its affiliates
in whole or in part. ProMedCo-Temple and KDCP agree that KDCP, as an independent
contractor, is a separate organization that retains the authority to direct the
medical, professional, and ethical aspects of its medical practice. If a
Physician Shareholder or a Physician Employee performs abortion procedures in
any facility, ProMedCo- Temple shall not receive any ProMedCo-Temple
Distribution from the revenue generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 PAYMENTS TO KDCP AND PROMEDCO-TEMPLE. KDCP and ProMedCo-Temple
agree that the compensation set forth herein is being paid to ProMedCo-Temple in
consideration of a substantial commitment made by ProMedCo-Temple hereunder and
that such fees are fair and reasonable. As payment for its services rendered to
KDCP, each month ProMedCo-Temple shall be paid the amount of all Clinic Expenses
and the ProMedCo-Temple Distribution. All Net Clinic Revenues after deduction of
Clinic Expenses, and the ProMedCo-Temple Distribution, shall be referred to as
the "KDCP Distribution." In the event ProMedCo or ProMedCo-Temple shall be
obligated pursuant to the Plan and Agreement for Reorganization or other
documents related thereto to make payments to any of the Physician Employees of
KDCP and shall have failed to make such payments, the amount of such payments
not made shall be added to the KDCP Distribution until paid in full.
7.2 DISTRIBUTION. The amounts to be paid to ProMedCo-Temple under this
Section 7.2 shall be payable monthly. ProMedCo-Temple shall pay to KDCP, in
accordance with the provisions of Section 7.4, the KDCP Distribution amounts on
or about the 15th day of such following month. Some amounts may need to be
estimated, with adjustments made as necessary the following month. Any audit
adjustments would be made after completion of the fiscal year audit.
7.3 CLINIC EXPENSES. Commencing on the Effective Date, ProMedCo-Temple
shall pay all Clinic Expenses as they fall due (including without limitation the
expenses of any Non-Physician Personnel carried on the books of KDCP at the
requirement of ProMedCo-Temple), provided, however, that ProMedCo-Temple may, in
the name of and on behalf of KDCP, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo-Temple hereby agrees to
indemnify and hold KDCP harmless from and against any liability, loss, damages,
claims, causes of action and reasonable expenses of KDCP resulting from the
contest of any Clinic Expenses.
7.4 ACCOUNTS RECEIVABLES. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo-Temple shall purchase the
accounts receivable of KDCP arising during the previous month, by payment of
cash, or other readily available funds into an
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account of KDCP. The consideration for the purchase shall be an amount equal to
the KDCP Distribution for such previous month. Although it is the intention of
the parties that ProMedCo- Temple purchase and thereby become owner of the
accounts receivable of KDCP, in case such purchase shall be ineffective for any
reason, KDCP, as of the Effective Date of this Agreement, grants and shall cause
each KDCP Employee to grant to ProMedCo-Temple a first priority lien on and
security interest in and to any and all interest of KDCP and such KDCP Employees
in any accounts receivable generated by the medical practice of KDCP and the
KDCP Employees or otherwise generated through the operations of the Clinic, and
all proceeds with respect thereto, to secure the payment to ProMedCo-Temple of
all such accounts receivable, and this Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing. In
addition, KDCP shall cooperate with ProMedCo-Temple and execute and deliver, and
cause each KDCP Employee to execute and deliver, all necessary documents in
connection with the pledge of such accounts receivable to ProMedCo-Temple or at
ProMedCo-Temple's option, its lenders. All collections in respect of such
accounts receivable shall be deposited in a bank account at a bank designated by
ProMedCo-Temple. To the extent KDCP or any KDCP Employee comes into possession
of any payments in respect of such accounts receivable, KDCP or such KDCP
Employee shall direct such payments to ProMedCo-Temple for deposit in bank
accounts designated by ProMedCo-Temple.
8. INSURANCE AND INDEMNITY
8.1 INSURANCE TO BE MAINTAINED BY PROMEDCO-TEMPLE. Throughout the term
of this Agreement, ProMedCo-Temple will use reasonable efforts to provide and
maintain, as a Clinic Expense, comprehensive professional liability insurance
for all professional employees of ProMedCo- Temple and KDCP with limits for KDCP
Medical Professionals required by ss. 8.2 as reasonably determined by
ProMedCo-Temple in its national program, comprehensive general liability
insurance and property insurance covering the Clinic Facility and operations.
8.2 INSURANCE TO BE MAINTAINED BY KDCP. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, KDCP shall maintain
comprehensive professional liability insurance with limits of not less than
$1,000,000 per claim and with aggregate policy limits of not less than
$1,000,000 per physician with limits for specialists of not less than $3,000,000
per physician with a separate limit for KDCP. KDCP shall be responsible for all
liabilities (including without limitation deductibles and excess liabilities)
not paid within the limits of such policies. ProMedCo-Temple shall have the
option of providing such professional liability insurance through an alternative
program, provided such program meets the requirements of the Insurance Commis
sioner of the State of Texas and is approved by the Policy Council.
8.3 TAIL INSURANCE COVERAGE. KDCP will cause each individual physician
associated with the Clinic to enter into an agreement with KDCP that upon
termination of such physician's relationship with KDCP, for any reason, tail
insurance coverage will be purchased by the individual
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physician. Such provisions shall be contained in employment agreements,
restrictive covenant agreements or other agreements entered into by KDCP and the
individual physicians, and KDCP hereby covenants with ProMedCo-Temple to enforce
such provisions relating to the tail insurance coverage or to provide such
coverage at the expense of KDCP.
8.4 ADDITIONAL INSURED. KDCP and ProMedCo-Temple agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective professional liability insurance programs at
ProMedCo-Temple's expense.
8.5 INDEMNIFICATION. KDCP shall indemnify, hold harmless and defend
ProMedCo-Temple, its officers, directors and employees, from and against any and
all liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of medical services or any other acts or omissions by KDCP and/or
its shareholders, agents, employees and/or subcontractors (other than
ProMedCo-Temple) during the term hereof, including any claim against
ProMedCo-Temple by a KDCP Employee, which claim arises out of such KDCP
Employees' employment relationship with KDCP or as a result of services
performed by such KDCP Employee, and which claim would typically be covered by
worker's compensation. ProMedCo-Temple shall indemnify, hold harmless and defend
KDCP, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of any intentional acts, negligent acts or omissions by
ProMedCo-Temple and/or its shareholders, agents, employees and/or subcontractors
(other than KDCP) during the term of this Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by
ProMedCo-Temple shall be feasible only if KDCP operates an active medical
practice to which the physicians associated with KDCP devote their full time and
attention. To that end:
9.1 RESTRICTIVE COVENANTS BY KDCP. During the term of this Agreement,
KDCP shall not, without the prior written consent of ProMedCo-Temple, establish,
operate or provide physician services at any medical office, clinic or other
health care facility providing services substantially similar to those provided
by KDCP pursuant to this Agreement anywhere within a radius of 30 miles of the
Clinic Facility, or within a radius of 30 miles of any current or future medical
office, clinic or other health care facility from which KDCP provides medical
services.
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9.2 RESTRICTIVE COVENANTS BY MEDICAL PROFESSIONALS. KDCP shall:
(a) Current Medical Professionals. Enforce employment agreements, in a form
satisfactory to ProMedCo-Temple, with its current Medical Professionals;
and
(b) Future Medical Professionals. Obtain and enforce formal employment
agreements from each of its future Medical Professionals in the form
attached to the Plan and Agreement for Reorganization;
pursuant to which each of the Medical Professionals agrees that unless (i) KDCP
is in default under the employment agreement or (ii) the employment of the
Medical Professional is terminated without cause, during the term of such
Medical Professional's employment agreement, and for a period of two years after
any termination of employment with KDCP, such Medical Professional will not
establish, operate or provide physician services at any medical office, clinic
or outpatient and/or ambulatory treatment or diagnostic facility providing
services substantially similar to those provided by KDCP pursuant to this
Agreement within a radius of 30 miles of the Clinic Facility or within a radius
of 30 miles of any current or future medical office, clinic or other health care
facility from which KDCP provides medical services and that ProMedCo-Temple
shall have third-party rights to enforce such agreements.
9.3 PHYSICIAN SHAREHOLDER AND PHYSICIAN EMPLOYEE LIQUIDATED DAMAGES.
(a) RELEASE FROM RESTRICTIVE COVENANTS. The restrictive covenants described in
Section 9.2 of this Agreement will provide that the Physician Shareholders
and Physician Employees (existing or future) may be released from such
restrictive covenants by paying Liquidated Damages in the amount of one
times such physician's income related to the Clinic, as reported to the
Internal Revenue Service for the previous 12 months.
(b) LIQUIDATED DAMAGES IN CERTAIN EVENTS. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo-Temple
consideration pursuant to the Plan and Agreement for Reorganization, and
said Physician Shareholder or Physician Employee terminates his or her
employment agreement with KDCP for any reason (other than death, Retirement
or Total Disability as defined in the employment agreement between such
Physician Shareholder and KDCP) prior to the fifth anniversary of the
Closing under the Plan and Agreement for Reorganization, or is terminated
with or without cause by KDCP prior to the fifth anniversary of the Closing
under the Plan and Agreement for Reorganization, then KDCP (or if the
Physician Shareholder or Physician Employee has received any of the
consideration paid to KDCP by ProMedCo-Temple under the Plan and Agreement
for Reorganiza tion, said Physician Shareholder or Physician Employee)
shall pay KDCP $300,000 in liquidated damages which amount may be paid in
cash, in ProMedCo Stock valued at $14.00, as adjusted to reflect stock
splits, stock dividends, reverse stock splits or other similar changes in
capitalization, or a combination thereof; provided however, in the event
fewer than 10% of the Physician Employees employed by KDCP as of the date
of this Agreement shall have been terminated without cause, at the time a
Physician Employee is terminated without cause, the liquidated damages
provision shall not be applicable. KDCP shall retain such payments in a
separate fund (the "Recruitment Fund") to be used first to defray all costs
incurred by KDCP or ProMedCo-Temple in the enforcement of the employment
agreement for that departing physician and second for recruiting,
relocating and funding the compensa tion for a replacement physician for
that departing physician and/or additional physicians.
9.4 ENFORCEMENT. ProMedCo-Temple and KDCP acknowledge and agree that
since a remedy at law for any breach or attempted breach of the provisions of
this Section 9 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory or time described
therein shall be declared by a court of competent jurisdiction to exceed the
maximum time period, scope of activity, restricted or geographical area such
court deems reasonable and enforceable under applicable law, the time period,
scope of activity, restricted and/or area of restriction deemed to be reasonable
and enforceable by the court shall thereafter be the time period, scope of
activity, restricted and/or area of restriction applicable to the restrictive
covenant provisions in this Section 9. The invalidity of non-enforceability of
this Section 9 in any respect shall not affect the validity of enforceability of
the remainder of this Section 9 or of any other provisions of this Agreement
unless the invalid or non-enforceable provisions materially affect the benefits
either party would otherwise be entitled to receive under this Section 9 or any
other provision of this Agreement.
9.5 TERMINATION OF RESTRICTIVE COVENANTS. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the employment agreement term contained in this Section 9
shall be null and void and of no force or effect.
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10. TERM RENEWAL; TERMINATION;
10.1 TERM AND RENEWAL. The term of this Agreement shall commence on the
Effective Date hereof and shall continue for 40 years, after which it shall
automatically renew for five-year terms unless either party provides the other
party with at least 12 months but not more than 13 months written notice prior
to any renewal date.
10.2 TERMINATION BY KDCP. KDCP may terminate this Agreement as
follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assign ment for the benefit of creditors by ProMedCo-Temple, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by ProMedCo-Temple, except for the
filing of a petition in involuntary bankruptcy against ProMedCo-Temple
which is dismissed within 30 days thereafter, KDCP may give notice of the
immediate termination of this Agreement.
(ii) In the event ProMedCo-Temple shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or any agreement
between ProMedCo-Temple or ProMedCo with KDC and such default shall
continue for a period of 90 days after written notice thereof has been
given to ProMedCo-Temple by KDCP; or ProMedCo-Temple shall fail to remit
the payments due as provided in Section 7.2 hereof or under other
agreements between ProMedCo-Temple or ProMedCo and KDC and such failure to
remit shall continue for a period of 30 days after written notice thereof,
KDCP may terminate this Agreement. Termination of this Agreement pursuant
to this Section 10.2(ii) by KDCP shall require the affirmative vote of 75%
of the Physician Shareholders.
(iii)In the event the ProMedCo IPO Date shall not have occurred by September
30, 2001 and ProMedCo shall not have satisfied demands from all sharehold
ers of KDCP holding ProMedCo Stock who have made demand therefor (the
"Demanding Stockholders") to repurchase such stock at a purchase price
determined by the method described in this clause (iii); this right of
termina tion shall expire 30 days after the value of the ProMedCo Stock is
determined pursuant to the following procedures or ProMedCo fails to timely
comply with such procedures: (A) Within 45 days of ProMedCo's receipt of
repurchase demands pursuant to this clause (iii) from the Demanding
Stockholders who hold a majority in interest of the ProMedCo stock held by
the Demanding Stockholders, ProMedCo shall submit to the Demanding
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Stockholders an appraisal (the "ProMedCo Appraisal") of the value its stock as
of September 30, 2001 on a per share basis (the "ProMedCo Stock Value")
made by a reputable appraiser; if the ProMedCo Appraisal is acceptable to
Demanding Stockholders holding a majority of the ProMedCo stock held by the
Demanding Stockholders, the ProMedCo Stock Value shall be as set forth in
the ProMedCo Appraisal; (B) if the Demanding Stockholders holding a
majority of the ProMedCo stock held by Demanding Stockholders, notify
ProMedCo within 14 days of receipt of the ProMedCo Appraisal that they
disagree with the ProMedCo Stock Value set forth therein, the Demanding
Stockholders shall have 30 days to submit to ProMedCo an appraisal (the
"Demanding Stockholder Appraisal") of ProMedCo Stock Value made by a
reputable appraiser selected by the Demanding Stockholders; if the Demand
ing Stockholder Appraisal is acceptable to ProMedCo, the ProMedCo Stock
Value shall be as set forth in the Demanding Stockholder Appraisal; if the
Demanding Stockholder Appraisal is not delivered to ProMedCo within 44 days
of the date the ProMedCo Appraisal is delivered to the Demanding
Stockhholders, ProMedCo Stock Value shall be as set forth in the ProMedCo
Appraisal; (C) if ProMedCo notifies the Demanding Stockholders within 14
days of its receipt of the Demanding Stockholder Appraisal that the Demand
ing Stockholder Appraisal is not acceptable, the appraisers who conducted
the ProMedCo Appraisal and the Demanding Stockholder Appraisal shall select
a third, independent appraiser who, within 30 days, shall appraise the
ProMedCo Stock to determine the ProMedCo Stock Value, and such appraisal
shall be binding on the parties.
10.3 TERMINATION BY PROMEDCO-TEMPLE. ProMedCo-Temple may terminate
this Agreement as follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assign ment for the benefit of
creditors by KDCP, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
KDCP, except for the filing of a petition in
involuntary bankruptcy against KDCP which is
dismissed within 30 days thereafter, ProMedCo-Temple
may give notice of the immediate termination of this
Agreement.
(ii) In the event KDCP shall materially default in the
performance of any duty or obligation imposed upon it
by this Agreement or in the event a majority of the
Physicians Shareholders shall materially default in
the performance of any duty or obligation imposed
upon them by this Agreement or by their employment
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agreements with KDCP, and such default shall continue
for a period of 90 days after written notice thereof
has been given to KDCP and such Physician
Shareholders by ProMedCo-Temple, ProMedCo-Temple may
terminate this Agreement.
10.4 ACTIONS AFTER TERMINATION. In the event that this Agreement shall
be terminated, the KDCP Distribution and the ProMedCo-Temple Distribution shall
be paid through the effective date of termination. In addition, the various
rights and remedies herein granted to the aggrieved party shall be cumulative
and in addition to any others such party may be entitled to by law. The exercise
of one or more rights or remedies shall not impair the right of the aggrieved
party to exercise any other right or remedy, at law. Upon termination of this
Agreement, KDCP shall:
10.4.1 ASSET REPURCHASE. Purchase from ProMedCo-Temple at book
value the intangible assets set forth on the Opening Balance Sheet, as
adjusted through the last day of the month most recently ended prior to
the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, which
amortization shall be for a period not in excess of 40 years.
10.4.2 REAL ESTATE. Purchase from ProMedCo-Temple all real
estate, if any, associated with the Clinic and owned by ProMedCo-Temple
at the then book value thereof.
10.4.3 IMPROVEMENTS. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo-Temple as
reflected on ProMedCo- Temple's books as of the last day of this
Agreement and which relate solely to the performance of its obligations
under this Agreement or the properties subleased by ProMedCo-Temple, if
any.
10.4.4 DEBTS. Assume or otherwise discharge all ordinary and
necessary debt, contracts, payables and leases which are obligations of
ProMedCo-Temple and which relate principally to the performance of its
obligations under this Agreement or the properties subleased by
ProMedCo-Temple, if any.
10.4.5 EQUIPMENT; INVENTORIES; ACCOUNTS RECEIVABLE; ETC.
Purchase from ProMedCo-Temple at book value as reflected on ProMedCo-
Temple's books as of the last day of this Agreement:
(i) EQUIPMENT. All of the equipment acquired by
ProMedCo-Temple pursuant to the Plan and Agreement
for Reorganization, including all replacements and
additions thereto made by ProMedCo-Temple with the
approval of the Policy Council pursuant to the
performance of its obligations under this Agreement;
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(ii) INVENTORY. All stock, including inventory and
supplies, tangibles and intangibles of ProMedCo-
Temple relating to KDCP operations;
(iii) ACCOUNTS RECEIVABLE. All uncollected accounts
receivable theretofore purchased by ProMedCo-Temple
pursuant to Section 7.4 hereof at the book
value thereof on ProMedCo-Temple's books; and
(iv) OTHER ASSETS. All other assets of ProMedCo-Temple
relating to the operations of KDCP.
10.4.6 CLOSING OF REPURCHASE. KDCP shall pay cash for the
repurchased assets or may use shares of ProMedCo no par common stock
valued at 75% of the ProMedCo IPO Price, adjusted to reflect stock
splits and the like, or if the ProMedCo IPO Date shall not have
occurred, valued at $14.00 per share. The amount of the purchase price
shall be reduced by the amount of debt and liabilities of
ProMedCo-Temple assumed by KDCP and shall be reduced by any payment
ProMedCo-Temple has failed to make under this Agreement. KDCP and any
physician associated with KDCP shall execute such documents as may be
required to assume the liabilities set forth in Section 10.4.4 and to
remove ProMedCo-Temple from any liability with respect to such
repurchased Stocks and with respect to any property leased or subleased
by ProMedCo-Temple. The closing date for the repurchase shall be
determined by KDCP, but shall in no event occur later than 180 days
from the date of the notice of termination. The termination of this
Agreement shall become effective upon the closing of the sale of the
assets and KDCP shall be released from the Restrictive Covenants
provided for in Section 9 on the closing date. From and after any
termination, each party shall provide the other party with reasonable
access to books and records then owned by it to permit such requesting
party to satisfy reporting and contractual obligations which may be
required of it.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 ADJUSTMENTS shall mean any adjustments to KDCP's gross billings
for uncollectible accounts, discounts, PCA, Medicare and Medicaid disallowances,
workers' compensation discount, employee/dependent health care benefit programs,
professional courtesies, and other activities that do not generate a collectible
fee. Any adjustments shall be based on a reasonable historical basis or a
reasonable prospective basis should a new payor agreement apply and shall be
periodically modified during the year to reflect he annual adjustments. Final
Adjustments and any resulting payments owed by one party to the other shall be
made within 30 days after completion of the fiscal year audit.
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11.2 CLINIC shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by KDCP and the KDCP Employees, utilizing the management services of
ProMedCo-Temple and the Clinic Facility, regardless of the location where such
services are rendered.
11.3 CLINIC EXPENSES shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
(i) Salaries, benefits (including contributions under any ProMedCo benefit
plan), and other direct costs of all employees of ProMedCo-Temple and
Technical Employees attributable to KDCP;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-Temple who, with approval of the Policy
Council, provides services at or in connection with KDCP required for
improved performance, such as work management, purchasing, information
systems, charge and coding analysis, managed care sales, negotiating and
contracting, financial analysis, and business office consultation;
provided, however, only that portion of such employee's or consultant's
costs without mark-up by ProMedCo that is allocable to Clinic will be a
Clinic Expense;
(iii)Obligations of ProMedCo-Temple or ProMedCo under leases or subleases
related to Clinic operations;
(iv) Interest Expense on indebtedness incurred by ProMedCo-Temple or ProMedCo to
finance or refinance any of its obligations hereunder or services provided
hereunder, irrespective of whether such funds are provided by ProMedCo or
borrowed from outside sources with funds provided by ProMedCo; funds
borrowed from outside sources will be charged at the rate charged by the
lender and funds borrowed from ProMedCo will be charged at a floating rate
equal to the then current blended borrowing rate of ProMedCo.
(v) Personal property and intangible taxes assessed against ProMedCo-Temple's
assets used in connection with the operation of Clinic commencing on the
date of this Agreement;
(vi) All insurance expenses for insurance maintained by ProMedCo-Temple pursuant
to ss. 8.1 for ProMedCo's operations and for the KDCP Employees,
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as well as any deductibles and non-insured expenses relating to claims covered
by such insurance.
(vii)Other expenses incurred by ProMedCo-Temple in carrying out its obligations
under this Agreement, including, but not limited to, recruitment expenses
for new Physician Employees and legal and accounting expenses necessary for
the operations and expansion of KDCP; however, legal and accounting
expenses required by KDCP for its corporate needs not requested by ProMedCo
or ProMedCo-Temple shall be excluded.
(viii) Amortization of intangible asset value resulting from the employment of,
merger with, or other acquisition of, additional physicians in the KDCP
service area approved by the Policy Council.
(ix) Pagers for Physician Employees.
11.4 CLINIC EXPENSES SHALL NOT INCLUDE:
(i) Corporate overhead charges or any other expenses of ProMedCo or any
corporation affiliated with ProMedCo other than the kind of items listed
above;
(ii) Any federal or state income taxes;
(iii)Any expenses which are expressly designated herein as expenses or
responsibilities of KDCP and/or KDCP Employees other than Technical
Employees;
(iv) Any amortization or depreciation expense resulting from the amortization or
depreciation expenses incurred as shown on ProMedCo's financial state
ments, in connection with the acquisition and execution of the Plan and
Agreement for Reorganization and the execution of this Agreement or any
depreciation expenses associated with acquisition of physicians as set
forth in ss. 11.3(viii) hereof;
(v) Any on-going expenses relating to the obligations listed in Exhibit A to
this Agreement assumed by ProMedCo-Temple pursuant to the Plan and
Agreement for Reorganization.
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(vi) Any debt service or interest expense on indebtedness incurred by ProMedCo-
Temple or ProMedCo to finance the consideration paid under the Plan and
Agreement for Reorganization;
(vii)Any liabilities, judgments or settlements assessed against KDCP or
Physician Shareholders in excess of any insurance policy limits.
11.5 CLINIC FACILITY shall mean the clinic facilities located at 1905 S.W.
H. K. Dodgen Loop, Temple, Texas 76302, and the clinic facilities located at (i)
Neurology & Headache Center of King's Daughters Clinics, 1717 S.W. H. K. Dodgen
Loop, Suite 100A, Temple, Texas 76302, (ii) Dermatology Center of King's
Daughters Clinics, 1717 S.W. H. K. Dodgen Loop, Suite 100B, Temple, Texas 76302,
(iii) Womens Center of King's Daughters Clinics, 1713 S.W. H. K. Dodgen Loop,
Suite 122, Temple, Texas 76302 (iv) Killeen Clinic, 401 West Jasper, Killeen, TX
76543 and (v) Belton Family Practice Clinic, 1300 E. Sixth St., Belton, TX 76513
and (vi) any substitute facility or additional facility location, whether within
or without Coryell, Lampasas, Burnet, Williamson, Milam or Falls Counties, Texas
as approved by the Policy Council.
11.6 DISTRIBUTION FUNDS shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.7 EFFECTIVE DATE shall mean 12:01 a.m. on September 1, 1996.
11.8 KDCP CAPITATION shall mean any capitation payments received by
KDCP from any HMO or other managed care payor for health care services provided
by KDCP.
11.9 KDCP EMPLOYEES shall mean all Medical Professionals and Technical
Employees employed by KDCP at the relevant dates.
11.18 RETIREMENT means total permanent withdrawal from the practice of
medicine to pursue activities not related in any way to the provision of health
care services.
11.10 MEDICAL PROFESSIONAL shall mean Physician Shareholders, Physician
Employees and Physician Extenders.
11.11 NET CLINIC REVENUES shall mean KDCP's gross billings, including
Risk Pool Surpluses, ancillaries and any other revenues that have historically
been recorded by KDCP, less Adjustments.
11.12 OPENING BALANCE SHEET shall mean the balance sheet of
ProMedCo-Temple as of the Effective Date (as defined in the Plan and Agreement
for Reorganization), prepared in accordance with GAAP (except for the absence of
certain note information), and substantially in the form of the attached Exhibit
B subject to adjustments in the Consideration (as defined in the Plan and
Agreement for Reorganization).
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11.13 PHYSICIAN EMPLOYEES shall mean any physician employed by KDCP and
providing medical services to patients on behalf of KDCP, who are not Physician
Shareholders.
11.14 PHYSICIAN EXTENDERS shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
11.15 PHYSICIAN SHAREHOLDERS shall mean any physician who is a
shareholder of KDCP, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.16 PLAN AND AGREEMENT FOR REORGANIZATION shall mean the Plan and
Agreement for Reorganization dated as of September 13, 1996 between King's
Daughters Clinics, P.A., a Texas corporation ("KDC") the shareholders of which
are the same as KDCP, ProMedCo and ProMedCo- Temple.
11.17 PROMEDCO shall mean ProMedCo, Inc., a Texas corporation which is
sole shareholder of ProMedCo-Temple.
11.18 PROMEDCO IPO DATE shall mean the date on which ProMedCo first
sells stock to the public pursuant to its initial public offering.
11.19 PROMEDCO IPO PRICE shall mean the price per share at which
ProMedCo offers ProMedCo Stock to the public at its initial public offering.
11.20 PROMEDCO-TEMPLE DISTRIBUTION shall mean 15% of Distribution
Funds.
11.21 RISK POOL SURPLUSES shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position.
11.22 TECHNICAL EMPLOYEES shall mean technicians who provide services
in the diagnostic areas of KDCP's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be KDCP employees.
12. GENERAL PROVISIONS
12.1 INDEPENDENT CONTRACTOR. It is acknowledged and agreed that KDCP and
ProMedCo- Temple are at all times acting and performing hereunder as independent
contractors. ProMedCo- Temple shall neither have nor exercise any control or
direction over the methods by which KDCP or
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the KDCP Employees practice medicine. The sole function of ProMedCo-Temple
hereunder is to provide all management services in a competent, efficient and
satisfactory manner. ProMedCo- Temple shall not, by entering into and performing
its obligations under this Agreement, become liable for any of the existing
obligations, liabilities or debts of KDCP unless otherwise specifically provided
for under the terms of this Agreement. ProMedCo-Temple will in its management
role have only an obligation to exercise reasonable care in the performance of
the management services. Neither party shall have any liability whatsoever for
damages suffered on account of the willful misconduct or negligence of any
employee, agent or independent contractor of the other party. Each party shall
be solely responsible for compliance with all state and federal laws pertaining
to employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
12.2 OTHER CONTRACTUAL ARRANGEMENT.
(a) The parties acknowledge and agree that they have been advised and consent
to the fact that ProMedCo-Temple, or its affiliates (i) may have, prior to
the date of this Agreement, discussed proposals with respect to, or (ii)
may, from time to time hereafter, enter into agreements with one or more
KDCP Employees to provide consulting, medical direction, advisory or
similar services relating to activities of ProMedCo-Temple or its
affiliates in clinical areas. The parties agree that such agreements, if
any, shall be entered into at the sole discretion of the parties thereto
and subject to such terms and conditions to which such parties may agree,
and any compensation payable to or by ProMedCo-Temple, on the one hand, and
such KDCP Employees, on the other hand, shall not constitute Net Clinic
Revenues, or KDCP Compensation, and shall otherwise not be subject to the
provisions of this Agreement.
(b) Each current Physician Shareholder, by his execution of this Agreement as
provided on the signature page hereof, agrees that neither the negotiation
nor the entry into any agreement or arrangement of a type described in
Section 12.2(a) above shall constitute a breach of any fiduciary or other
duty owned by any KDCP Employee to another, or by ProMedCo-Temple, to KDCP
or any Physician Shareholder. Accordingly, KDCP and each Physician
Shareholder hereby waive any right to disclosure of the negotiations,
proposals or terms of any such agreement, arrangement or right to
participate in and/or share revenues derived from any such agreement or
arrangement with any KDCP Employee, and hereby forever release and
discharge KDCP, the Physician Shareholders, ProMedCo-Temple, and their
respective representatives (including, but not limited to, their respective
attorneys, accountants, affiliates, shareholders, officer, directors,
employees and agents) from any and all actions, claims, charges, suits,
damages and liabilities of any kind whatsoever arising from or by reason of
the participation of any KDCP Employee in any agreement or
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arrangement with ProMedCo-Temple, or their affiliates of a type described in
Section 12.2(a) above or from or by reason of the failure of
ProMedCo-Temple, any KDCP Employee or their respective representatives to
disclose the negotiation, existence or terms of any such agreement or
arrangement. In keeping with the private nature of these matters, the
Physician Shareholders further agree that such negotiations, proposals or
terms of agreement are to be kept confidential between a KDCP Employee on
the one hand, and ProMedCo-Temple, on the other hand, and shall not be
disclosed by them or their representatives, except as required by
applicable law.
12.3 PROPRIETARY PROPERTY.
12.3.1 Each party agrees that the other party's proprietary
property shall not be possessed, used or disclosed otherwise than may
be necessary for the performance of this Agreement. Each party
acknowledges that its violation of this Agreement would cause the other
party irreparable harm, and may (without limiting the other party's
remedies for such breach) be enjoined at the instance of the other
party. Each party agrees that upon termination of this Agreement for
any reason, absent the prior written consent of the other party, it
shall have no right to and shall cease all use of the other party's
proprietary property, and shall return all such proprietary property of
the other party in its possession to the other party.
12.3.2 ProMedCo-Temple shall be the sole owner and holder of
all right, title and interest, to all intellectual property furnished
by it under this Agreement, including, but not limited to the trade
name "ProMedCo," all computer software, copyright, services mark and
trademark right to any material or documents acquired, prepared,
purchased or furnished by ProMedCo-Temple pursuant to this Agreement.
KDCP shall have no right, title or interest in or to such material and
shall not, in any manner, distribute or use the same without the prior
written authorization of ProMedCo-Temple, provided, however, that the
foregoing shall not restrict KDCP from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo-Temple provided no Proprietary Property of ProMedCo-Temple
is contained therein. Notwithstanding the preceding, however,
ProMedCo-Temple agrees that KDCP shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement
the name "KDCP Family Practice" as may be necessary or appropriate in
the performance of KDCP's services and obligations hereunder.
12.4 COOPERATION. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
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12.5 LICENSES, PERMITS AND CERTIFICATES. ProMedCo-Temple and KDCP shall
each obtain and maintain in effect, during the term of this Agreement, all
licenses, permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 COMPLIANCE WITH RULES, REGULATIONS AND LAWS. ProMedCo-Temple and
KDCP shall comply with all federal and state laws and regulations in performance
of their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo-Temple and KDCP shall take particular care to
ensure that no employee or agent of either party takes any action intended to
violate Section 1128B of the Social Security Act with respect to soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe,
or rebate) directly or indirectly, overtly or covertly, in cash or in kind in
return for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole
or in part under Title XVIII or XIX of the Social Security Act, or for
purchasing, leasing, ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part under Title XVIII or XIX of the Social Security Act.
12.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.8 NOTICES. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 ATTORNEYS' FEES. ProMedCo-Temple and KDCP agree that the
prevailing party in any legal dispute among the parties hereto shall be entitled
to payment of its attorneys' fees by the other party.
12.10 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof will be settled by binding arbitration in
accordance with the rules of commercial
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arbitration of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Such arbitration shall occur within Bell County, Texas, unless the
parties mutually agree to have such proceedings in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
12.12 CONSTRUCTION OF AGREEMENT. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.13 ASSIGNMENT AND DELEGATION. ProMedCo-Temple shall have the right
to assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo-Temple and to any lending
institution, for security purposes or as collateral, from which ProMedCo-Temple
or ProMedCo obtains financing for itself and as agent. Except as set forth
above, neither ProMedCo-Temple nor KDCP shall have the right to assign their
respective rights and obligations hereunder without the written consent of the
other party. KDCP may not delegate any of KDCP's duties hereunder, except as
expressly contemplated herein; however, ProMedCo-Temple may delegate some or all
of ProMedCo-Temple' s duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto.
12.14 CONFIDENTIALITY. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.15 WAIVER. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
12.16 HEADINGS. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
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12.18 TIME IS OF THE ESSENCE. Time is hereby expressly declared to be of
the essence in this Agreement.
12.19 MODIFICATIONS OF AGREEMENT FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Texas State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by KDCP to practice medicine in the State of Texas,
KDCP and ProMedCo-Temple shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between KDCP and ProMedCo-Temple. In the event it is not
possible to amend this Agreement to preserve in all material respects the
underlying economic and financial arrangements between KDCP and ProMedCo-Temple,
this Agreement may be terminated by written notice by either party within 90
days from date of such interpretation or action, termination to be effective no
sooner than the earlier of 180 days from the date notice of termination is given
or the latest possible date specified for such termination in any regulatory
order or notice. Termination pursuant to this Section 12.19 by KDCP shall
require the affirmative vote of a majority of Physician Shareholders.
12.20 NO RIGHT OF OFF-SET. Notwithstanding any provision of this
Agreement to the contrary, neither ProMedCo-Temple nor ProMedCo shall have any
right of off-set with respect to payments to be made to such Physician Employee
hereunder arising out of obligations of such Physician Employees under the Plan
and Agreement for Reorganization and related agreements.
12.21 WHOLE AGREEMENT; MODIFICATION. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto
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represent the final agreement between the parties hereto and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements by the parties. There are no unwritten oral agreements between the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO OF TEMPLE, INC.
By:
Name:
Title:
Address: 801 Cherry Street
Suite 1450
Fort Worth, TX 76102
PHYSICIANS OF KING'S DAUGHTERS, P.A.
By:
Name:
Title:
Address: 1905 S.W. H. K. Dodgen Loop
Temple, Texas 76302
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Acknowledgment and Agreement by Physician Shareholders
to abide by the terms of the Service Agreement
William Bean, M.D.
Ellis Brown, M.D.
John Ditzler, M.D.
Jon Dula, M.D.
James Finch, M.D.
Todd Gorden, M.D.
Gopal Guttickonda, M.D.
Ronald Guy, M.D.
Gene Hardin, M.D.
Bill Hardin, M.D.
Donald Hopkins, D.O.
Jeffrey Hoover, M.D.
Chris Hunter, M.D.
James Kliewer, M.D.
Rober Kylberg, M.D.
Douglas Kyle, M.D.
William Long, M.D.
Henry Mayer, Jr., M.D.
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Edward McCaffrey, D.P.M.
Dewayne Nash, M.D.
Larry Orrick, M.D.
Herman Poteet, Jr., M.D.
Victor Schulze, III, M.D.
John Shelby, M.D.
Murphy Talley, M.D.
Richard Tay, M.D.
Ralph Wallace, M.D.
Dave Webster, D.O.
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Mark Wilson, M.D.
Richard Winkler, M.D.
James Wood, M.D.
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GUARANTY
ProMedCo, Inc., a Texas corporation which is the sole shareholder of
ProMedCo of Temple, Inc., a Delaware corporation ("ProMedCo-Temple"), hereby
guarantees the performance of ProMedCo-Temple under the above Service Agreement.
PROMEDCO, INC.
By
Its
Name
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APPENDIX 2.9B-1
FORM OF SHAREHOLDER PHYSICIAN EMPLOYMENT AGREEMENT
[To be drafted by Mr. Hilgers]
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APPENDIX 2.9B-2
FORM OF NON-SHAREHOLDER PHYSICIAN EMPLOYMENT AGREEMENT
[To be drafted by Mr. Hilgers]
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APPENDIX 2.9D
PROPERTIES TO BE LEASED BY PROMEDCO-TEMPLE FROM TEMPLE
AND RELATED ENTITIES
(i) 1905 S.W. H. K. Dodgen Loop, Temple, Texas 76302 (from Temple)
(ii) Neurology & Headache Center of King's Daughters Clinics, 1717 S.W. H. K.
Dodgen Loop, Suite 100A, Temple, Texas 76302 (from Temple Medical Center)
(iii)Dermatology Center of King's Daughters Clinics, 1717 S.W. H. K. Dodgen
Loop, Suite 100B, Temple, Texas 76302 (from Temple Medical Center)
(iv) Womens Center of King's Daughters Clinics, 1713 S.W. H. K. Dodgen Loop,
Suite 122, Temple, Texas 76302 (from Temple Medical Center)
(v) Killeen Clinic, 401 West Jasper, Killeen, TX 76543 (from Temple)
(vi) Belton Family Practice Clinic, 1300 E. Sixth St., Belton, TX 76513 (from
Temple)
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APPENDIX 7.2
OPINION OF COUNSEL TO PROMEDCO AND PROMEDCO-TEMPLE
The Closing opinion of Boult, Cummings, Conners & Berry, PLC, special
counsel to ProMedCo and ProMedCo-Temple which is called for by ss. 7.2 of the
Agreement, shall be dated the Closing Date and shall be to the following effect:
[Letterhead of Boult, Cummings, Conners & Berry, PLC]1
[Closing Date]
King's Daughters Clinics, P.A.
[Address]
Ladies and Gentlemen:
We have acted as counsel to ProMedCo of Temple, Inc., a Delaware
corporation ("ProMedCo-Temple"), and ProMedCo, Inc., a Texas corporation
("ProMedCo") in connection with the preparation of the Plan and Agreement for
Reorganization dated as of September 13, 1996 (the "Acquisition Agreement"), and
the Undertaking, between ProMedCo-Temple and King's Daughters Clinics, P.A.
("KDC") and the guaranty at the foot of the Undertaking executed by ProMedCo
(the "ProMedCo Guaranties") and have participated on behalf of ProMedCo-Temple
and ProMedCo in connection with the purchase by ProMedCo-Temple of certain
assets from KDC. The Acquisition Agreement and Undertaking are collectively
referred to herein as the "Acquisition Documents". This Opinion Letter is
provided to you at the request of ProMedCo-Temple pursuant to
- --------
1Draft only; subject to internal firm review.
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Section 7.2 of the Acquisition Agreement. Except as otherwise indicated herein,
capitalized terms used in this Opinion Letter are defined as set forth in the
Acquisition Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The attorneys in this firm are
licensed to practice law in the State of Tennessee and consequently the law
covered by the opinions expressed herein is limited to the Federal Law of the
United States, the corporate law of the States of Texas and Delaware and in
reliance on public documents issued by the States of Texas and Delaware and
certificates of officers of ProMedCo and ProMedCo-Temple.
We have relied upon factual representations made by ProMedCo- Temple in
Article 3 of the Acquisition Agreement.
Based upon the foregoing and subject to the foregoing, we are of the
opinion that:
1. The Acquisition Documents are enforceable against
ProMedCo-Temple.
2. The ProMedCo Guaranties are enforceable against ProMedCo.
3. The ProMedCo Stock has been duly authorized, validly
issued and is non-assessable.
4. Execution and delivery by ProMedCo-Temple of, and performance of its
agreements in, the Acquisition Documents and the execution and delivery by
ProMedCo of, and performance of its agreements in, ProMedCo Guaranties, do not
(i) violate the Constituent Documents, (ii) breach, or result in a default
under, any existing obligation of ProMedCo-Temple or ProMedCo under contracts
dealing with money borrowed by either such corporation
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known to us, or (iii) breach or otherwise violate any existing obligation of
ProMedCo-Temple or ProMedCo under Court Orders identified in Article 4 of the
Acquisition Agreement and the Schedules pertaining thereto.
5. Execution and delivery by ProMedCo-Temple and ProMedCo of, and
performance by each such corporation of its agreements in, the Acquisition
Documents and ProMedCo Guaranties, as the case may be, do not violate applicable
provisions of statutory law or regulation.
The General Qualifications apply to the opinions set forth above.
This Opinion Letter may be relied upon by you only in connection with
the transaction and may not be used or relied upon by you or any other person
for any purpose whatsoever, except to the extent authorized in the Accord,
without in each instance, our prior written consent.
Very truly yours,
BOULT, CUMMINGS, CONNERS & BERRY, PLC
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APPENDIX 8.3
OPINION OF COUNSEL TO KDC
The Closing opinion of Messrs. Hilgers & Watkins, counsel to KDC, Temple
and KDCP which is called for by ss. 8.3 of the Agreement, shall be dated the
Closing Date and shall be to the effect that:
1. KDC is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Texas, with full corporate power to
carry on its business as it is then being conducted, and to enter into this
Agreement and to carry out the transactions contemplated hereby; and KDC is duly
qualified and in good standing in each other jurisdiction in which the character
of the properties owned by it or the nature of the activities conducted by it
make such qualification necessary, except in a jurisdiction or jurisdictions in
which failure to qualify will not adversely affect each such entity's ability to
derive income from, or enforce its right in, any property located therein and,
considering all such jurisdictions, will not have any material adverse effect,
in the aggregate, on KDC.
2. The authorized capital stock of KDC consists of 1,000,000 shares of
common stock, $1.00 par value, of which 3,100 shares were issued and outstanding
as of the record date for determining the stockholders of KDC entitled to vote
at the meeting of KDC stockholders called to vote upon the sale of assets
contemplated by the Plan and Agreement for Reorganization.
3. The execution, delivery and performance of the Plan and Agreement
for Reorganization and the Service Agreement have been duly authorized and
approved by all requisite action of KDC's Board of Directors and stockholders,
and neither the execution, delivery, nor performance of the Plan and Agreement
for Reorganization by KDC violates any provision of its Articles of
Incorporation or by-laws, or the provisions of any indenture, agreement or other
instrument
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to which KDC is a party, and the Plan and Agreement for Reorganiza tion has been
duly authorized, executed and delivered by KDC and constitute the valid and
binding obligation of KDC, enforceable against KDC in accordance with its terms
(except as enforceability may be restricted, limited, or delayed by bankruptcy,
insolvency, moratorium or similar laws affecting or relating to the enforcement
of creditors' rights in general and except as the enforceability of any
provision of the Plan and Agreement for Reorganization is subject to general
principles of equity, regardless of whether enforceability is considered in a
proceeding at law or in equity).
4. All other actions and proceedings required by law or the Plan and
Agreement for Reorganization to be taken by KDC at or prior to the Closing
hereunder in connection with this Agreement and the transactions provided for
herein have been duly and validly taken.
5. Except as disclosed in Exhibit 3.16, such counsel does not know of
any litigation, administrative, arbitration, other proceeding, or governmental,
regulatory or accrediting agency investigation, pending or threatened against,
or relating to, KDC or its subsidiaries or the properties or business thereof or
the transactions contemplated by this Agreement.
6. Except as referred to in this Agreement or as stated in such
opinion, none of the indentures, agreements or other instru ments specified
pursuant to clause (c) above creates any mortgages, pledges, liens, charges, or
other encumbrances upon any of the real or personal property of KDC or its
subsidiaries.
7. KDC has complete and unrestricted power and the unquali fied right
to sell, assign, transfer and deliver the Assets to ProMedCo-Temple, and upon
consummation of the transfer, ProMedCo- Temple will have valid, good and
marketable title to the Assets.
8. No facts have come to the attention of such counsel which would lead
it to believe that any representation or warranty of KDC contained in the Plan
and Agreement for Reorganization or any Exhibit thereto is incorrect.
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9. The execution, delivery and performance of the Service Agreement by
KDCP has been duly authorized and approved by all requisite action of KDCP's
Board of Directors and stockholders, and neither the execution, delivery, nor
performance of the Service Agreement by KDCP violates any provision of its
Articles of Incorporation or by-laws, or the provisions of any indenture,
agreement or other instrument to which KDCP is a party, and Service Agreement
has each been duly authorized, executed and delivered by KDCP and constitutes
the valid and binding obligations of KDCP, enforceable against KDCP in
accordance with its terms (except as enforceability may be restricted, limited,
or delayed by bankrupt cy, insolvency, moratorium or similar laws affecting or
relating to the enforcement of creditors' rights in general and except as the
enforceability of any provision of Service Agreement is subject to general
principles of equity, regardless of whether enforceability is considered in a
proceeding at law or in equity).
10. The relationships created by the Service Agreement and the
Employment Agreements will not result in the unauthorized practice of medicine
by ProMedCo-Temple.
11. The UCC-1 financing statements in connection with the sale of
Accounts Receivable by KDCP to ProMedCo-Temple have been filed in all places
necessary to create a security interest in such Accounts Receivable in favor of
ProMedCo-Temple.
12. The Employment Agreements have been duly executed and delivered by
the Employee parties thereto and each Employment Agreement constitutes the valid
and binding obligation of such Employee enforceable against such Employee in
accordance with its terms (except as enforceability may be restricted, limited,
or delayed by bankruptcy, insolvency, moratorium or similar laws affecting or
relating to the enforcement of creditors' rights in general and except as the
enforceability of any provision of such Employment Agreement is subject to
general principles of equity, regardless of whether enforceability is considered
in a proceeding at law or in equity).
13. The execution, delivery and performance of the Bill of
Sale and Assignment by Temple relating to the assets it is
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conveying to ProMedCo-Temple has been duly authorized and approved by all
requisite action of Temple's Board of Directors and stockholders, and neither
the execution, delivery, nor performance of such Bill of Sale by Temple violates
any provision of its Articles of Organization or the provisions of any
indenture, agreement or other instrument to which Temple is a party, and such
Bill of Sale has each been duly authorized, executed and delivered by Temple and
constitutes the valid and binding obligations of Temple, enforceable against
Temple in accordance with its terms (except as enforceability may be restricted,
limited, or delayed by bankruptcy, insolvency, moratorium or similar laws
affecting or relating to the enforcement of creditors' rights in general and
except as the enforceability of any provision of such Bill of sale is subject to
general principles of equity, regardless of whether enforceability is considered
in a proceeding at law or in equity).
14. Such other legal matters as ProMedCo-Temple may reason
ably request.
Such opinion may state that such counsel has relied, as to matters of
fact, upon certificates of officers of KDC(unless they have reason to believe
that such certificate or certificates are inaccurate), as to matters governed by
the laws of any jurisdiction other than Texas upon the opinion of local counsel
satisfactory to and ProMedCo-Temple and as to matters of incorporation, good
standing, accreditation, and the existence or status of licenses,
authorizations, approvals or related matters upon certificates from the agency
or entity having jurisdiction over such matters; provided, however, that a copy
of all such certificates and opinions shall have been furnished to
ProMedCo-Temple prior to Closing or be attached to such counsel's opinion.
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APPENDIX 8.5
FORM OF STOCK AGREEMENT
PROMEDCO, INC.
STOCK AGREEMENT
STOCK AGREEMENT (the "Agreement") is made as of this __th day of
September, 1996 between ______________________________ ("Stockholder") and
PROMEDCO, INC., a Texas corporation, ("ProMedCo").
RECITALS:
Stockholder is a shareholder of King's Daughters Clinics, P.A., a Texas
Professional Association ("KDC") with has entered into a Plan and Agreement for
Reorganization dated as of September 13, 1996 (the "Plan and Agreement for
Reorganization") with ProMedCo of Temple, Inc., a Delaware corporation
("ProMedCo-Temple which is a wholly owned subsidiary of ProMedCo. Pursuant to
the Plan and Agreement for Reorganization, KDC has transferred, and ProMedCo-
Temple has acquired, certain assets, and as a condition of which Stockholder has
received or will receive as part of the liquidation distribution from KDC shares
of ProMedCo common stock (such shares, as adjusted in accordance with the terms
of the Plan and Agreement for Reorganization, herein referred to as the
"Shares").
Stockholder and ProMedCo desire to restrict the transfer of the Shares
according to the terms and conditions hereafter stated. All capitalized terms
used in this Agreement not otherwise defined herein shall have the meanings as
assigned to them in the Plan and Agreement for Reorganization.
The parties agree as follows:
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ARTICLE 1
REPRESENTATIONS AND ACKNOWLEDGMENTS BY STOCKHOLDER
1.1. Experience in Business and Financial Matters. Stockholder
represents and warrants that Stockholder has such knowledge and experience in
business and financial matters, or competent professional advice concerning
ProMedCo, that Stockholder is capable of evaluating the merits and risks of
owning the Shares.
1.2. Information regarding ProMedCo. Stockholder acknowledges that
Stockholder has had and continues to have the opportunity to obtain from
ProMedCo any additional information, to the extent possessed or obtainable
without unreasonable effort and expense, necessary to evaluate the merits and
risks of owning the Shares and Stockholder has concluded, based on the
information presented to Stockholder, Stockholder's own understanding of
investments of this nature and of this investment in particular, and the advice
of such consultants as Stockholder has deemed appropriate, that Stockholder
wishes to own the Shares.
1.3. Unregistered Stock. Stockholder acknowledges that the Shares being
acquired have not been registered under the Securities Act of 1933, or under the
Blue Sky or other securities laws of certain states, and, therefore, that
Stockholder must bear the economic risk of the investment for an indefinite
period of time, as the Shares cannot be sold or offered for sale unless the
Shares are subsequently so registered or an exemption from registration is
available. Stockholder also understands that there is no market for the resale
of the Shares and that there is no certainty that a market will develop.
1.4. Securities Legend. Stockholder understands that any document
evidencing the Shares will bear a restrictive legend in substantially the
following form:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED ("THE SECURITIES ACT"), OR ANY APPLICA BLE STATE SECURITIES
LAW. THESE SECURITIES HAVE BEEN AC QUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO OR FOR RESALE IN CONNECTION WITH THE DISTRIBUTION THEREOF. NO
DISPOSITION OF THESE SECURITIES MAY BE MADE IN THE ABSENCE OF (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; OR (ii) AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH DISPOSITION
WITHOUT REGISTRATION IS IN COMPLIANCE WITH THE SECURITIES ACT.
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Stockholder also understands that the records of ProMedCo will indicate
the restrictions on transferability and sale noted above in this Section 1.4 and
stop transfer instructions have been or will be placed with respect to the
Shares so as to restrict the transfer thereof. Stockholder agrees not to dispose
of any of the Shares unless ProMedCo receives a satisfactory opinion of counsel
that the Shares can be transferred without violation of the registration
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission, and any applicable state securities laws or
regulations, or ProMedCo receives evidence satisfactory to it that the Shares
have been validly registered under the Securities Act and any applicable state
securities laws. Stockholder understands that the Shares may be transferred only
in accordance with Article 2 of this Agreement. Stockholder also understands
that any document evidencing the Shares will bear a restrictive legend
prohibiting transfer other than in accordance with this Agreement.
1.5. Investment Intent. Stockholder is acquiring the Shares solely for
investment for his or her own account; Stockholder has no present agreement,
understanding, intent or arrangement to subdivide, sell, assign or transfer any
part or all of his Shares, or any interest therein, to any other person.
Stockholder has sufficient and adequate means to provide for his or her current
needs and personal contingencies and has no need for liquidity with respect to
an investment in ProMedCo.
1.6. ProMedCo's Limited Operating History. Stockholder is aware of and
understands that ProMedCo has been in operation for approximately one year, and
has a limited financial or operating history and that the Shares are speculative
investments which involve a risk of loss by him of his investment. Stockholder
understands ProMedCo's future operations are subject to many significant risks.
1.7. No Representations Regarding Future Profits. Stockholder has not
relied on any representation by any person, whether such representation was made
directly or indirectly, regarding the amount, percentage or type of profit or
loss to be realized, if any, from an investment in the Shares. Stockholder
further acknowledges that the prior experience of ProMedCo or any other person
is not in any way a prediction of the results which Stockholder may obtain as a
result of his investment in the Shares.
ARTICLE 2
TRANSFER RESTRICTION
2.1 Prohibited Transfers. Except as expressly permitted in this
Agreement, Stockholder shall not, for a period of 48 months from the date of
this Agreement (the "Restricted Period") sell, transfer, assign, pledge,
hypothecate, encumber or in any way alienate any of the Shares owned by
Stockholder, or any right or interest therein, whether voluntarily or by
operation of law, without the
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prior written consent of ProMedCo. Any purported transfer by Stockholder in
violation of any provision of this Agreement shall be void and ineffectual and
shall not operate to transfer any interest or title to the purported transferee.
2.2 Permitted Transfers. Notwithstanding the restrictions on transfer of
the Shares contained in this Article, the following transfers may be effected
without the consent of ProMedCo:
(a) Upon the death of Stockholder, pursuant to the laws of descent
and distribution or a properly probated Last Will and
Testament; provided, however, that in the event of a transfer
pursuant to this clause (a), the Shares shall continue to be
subject to the provisions of this Agreement;
(b) A transfer by the Stockholder, by gift or otherwise, to a
member of the Stockholder's Immediate Family (as hereafter
defined) or to a trust solely for the benefit of one or more
members of the Stockholder's Immediate Family; provided,
however, that any Shares so transferred shall continue to be
subject to the provisions of this Agreement. The term
"Immediate Family" shall mean a Stockholder's spouse,
ancestors and lineal descendants;
(c) A sale or transfer to ProMedCo; and
(d) Any sale of Shares in a public offering pursuant to a
registration statement filed by ProMedCo with the Securities
and Exchange Commission.
2.3 Additional Prohibited Transfers. At no time, whether during the
Restricted Period or thereafter, shall the Stockholder sell any part of the
Shares owned by the Stockholder to a person firm or corporation deemed to be a
competitor of ProMedCo as determined by a majority vote of the ProMedCo board of
directors. Notwithstanding the preceding, however, the prohibitions of this
Section 2.3 shall terminate upon the completion of an IPO by ProMedCo.
2.4 Lock-up Agreement. Stockholder hereby agrees that in connection
with an underwritten, firm commitment public offering pursuant to an effective
registration under the Act covering the offer and sale by ProMedCo of its
securities ("Qualified Public Offering"), upon the request of the principal
underwriter managing the Qualified Public Offering, Stockholder shall not sell,
make any short sale of, loan, grant an option for the purchase of, or otherwise
dispose of any shares owned by Stockholder without the prior written consent of
such underwriter, for ninety (90) days or such other period of time as such
underwriter shall reasonably request and which is applied to all stockholders
similarly situated.
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2.5 Definition of Shares. As used in this Agreement, the term "Shares"
shall include any additional stock issued to the Stockholder with respect to the
Shares as the result of any recapitalization, stock dividend or stock split, and
all other shares of the common stock of ProMedCo owned by the Stockholder,
whether presently held or hereafter acquired.
ARTICLE 3
REGISTRATION OF PROMEDCO STOCK
3.1 Registrations of ProMedCo Common Stock. On or prior to the 180th
day after the ProMedCo IPO Date, ProMedCo shall make application to register
under the Securities Act of 1933, as amended (the "Act") 20% of the Shares held
by Stockholder, and during the second year after the ProMedCo IPO Date, ProMedCo
shall make application to register under the Act an additional 20% of the Shares
held by Stockholder. In each case, ProMedCo will use its best efforts to cause
each such registration to become and remain effective for a reasonable period of
time not to exceed sixty (60) days or such longer period of time acceptable to
ProMedCo.
3.2 Duty to Furnish Information. Stockholder shall furnish to ProMedCo
and the underwriters such information as ProMedCo and the underwriters may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance of any registration statement with
applicable securities laws, and shall otherwise cooperate with ProMedCo and the
underwriters in connection therewith.
3.3 Expenses of Registration. All expenses incident to ProMedCo's
performance of or compliance with this Section, including without limitation all
commissions and any National Association of Securities Dealers, Inc.
registration and filing fees and expenses, fees and expenses of compliance with
securities and blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Shares), document and certificate preparation and printing expenses, messenger
and delivery expenses, fees and expenses of any transfer agent or registrar,
internal expenses, fees and disbursements of counsel and independent certified
public accountants of ProMedCo, and fees and expenses of any other persons,
including without limitation any special experts retained by ProMedCo
(collectively, the "Registration Expenses") will be borne by ProMedCo except
that the Stockholder shall pay ratably in proportion to the number of Shares to
be registered for the account of the Stockholder any incremental cost incurred
by ProMedCo by inclusion of Stockholder's Shares in such offering, such
incremental cost to be determined by the lead underwriter. Stockholder shall
also pay all underwriting discounts and commissions attributable to the sale of
Stockholder's Shares and the fees and disbursements of any counsel or other
advisors or experts retained by Stockholder.
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3.4 Conditions on Participation in Underwriting. Stockholder may not
participate in any underwritten offering hereunder unless such Stockholder (i)
agrees to sell Shares owned by Stockholder on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements, and (ii) completes and executes all questionnaires, powers of
attorneys, indemnities, underwriting agreements (as a party thereto) and other
documents reasonably required under the terms of such underwriting arrangements.
3.5 Stockholder Holder Put Right. If the ProMedCo IPO Date shall not
have occurred within 180 days after the Closing, Stockholder shall have the
right, to required ProMedCo to purchase up to 20% of the Shares of ProMedCo
Stock held by Stockholder at $14.00 per share, as adjusted to reflect changes in
capitalization resulting stock splits, stock dividends, reverse stock splits or
other changes in capitalization. Such purchase shall occur within 30 days after
ProMedCo has received a notice signed by Stockholder Holder requiring such
purchase. If the ProMedCo IPO Date thereafter occurs, ProMedCo shall have no
obligation to effect the first of the two registrations described in ss. 3.1.
ARTICLE 4
NOTICES
All notices, demands and other communications required or permitted
hereunder shall be made in writing and be deemed communicated on the date when
delivered in person or when delivered, if mailed by certified mail, postage
prepaid, addressed as follows:
Stockholder: 1905 S.W. H. K. Dodgen Loop
Temple, Texas 76302
ProMedCo: ProMedCo, Inc.
801 Cherry Street
Suite 1450
Ft. Worth, TX 76102
Attn: President
or to such other address as either Stockholder or ProMedCo may designate by
notice to the other.
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ARTICLE 5
MISCELLANEOUS
5.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the parties, and there
are no representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein.
5.2 Governing Law. The validity and construction of this Agreement shall be
governed by the laws of the State of Texas.
5.3 Section Headings. The section headings are for reference only and shall
not limit or control the meaning of any provision of this Agreement.
5.4 Waiver. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
5.5 Successors and Assigns. This Agreement shall inure to the benefit of
and bind the respective successors and assigns of the parties hereto.
5.6 Amendments. This Agreement may be amended, but only in writing, signed
by the parties hereto.
5.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
5.8 Severability. Each section and subsection of this Agreement
constitutes a separate and distinct undertaking, covenant and/or provision
hereof. Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law. In the event
that any provision of this Agreement shall finally be determined by a competent
court or tribunal to be unlawful or unenforceable, such provision shall be
deemed severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect, and in substitution for any such
provision held unlawful or unenforceable, there shall be substituted a provision
of similar import reflecting the original intent of the parties hereto to the
extent permissible under law.
5.9 Termination. Except for the provisions of Section 1.4 of this
Agreement, which the parties hereto agree shall survive the termination of this
Agreement and for so long as the Stockholder shall own any Shares, this
Agreement shall terminate upon the first to occur of (i) a
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successful completion of a Qualified Public Offering by ProMedCo, (ii) upon the
mutual written agreement of the parties hereto, or (iii) the fourth anniversary
of this Agreement.
5.10 Spousal Consent. The spouse of the Stockholder is fully aware of,
understands, and fully consents and agrees to the provisions of this Agreement
and its binding effect upon any community property interest she may now or
hereafter own, and agrees that the termination of her marital relationship with
the Stockholder for any reason shall not have the effect of removing the shares
otherwise subject to this Agreement from the coverage hereof and that her
awareness, understanding, consent, and agreement is evidenced by her signing
this Agreement.
5.11 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Bell, State of Texas, unless the
parties mutually agree to have such proceedings in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROMEDCO, INC.
By:
STOCKHOLDER:
SPOUSE OF STOCKHOLDER:
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made and entered into as of July 1, 1996,
between, ProMedCo, Inc., a Texas corporation (the "Company"), and H. Wayne Posey
("Executive").
WHEREAS, Company and Executive were parties to that certain Employment
Agreement of July 1, 1994;
NOW THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Executive, and Executive accepts
employment with the Company, under the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Period"). The date on which Executive ceases
to be employed by the Company and/or its Subsidiaries (as defined below) or its
successors or assigns is referred to herein as the "Termination Date."
2. Position and Duties.
(a) During the Employment Period, Executive shall perform such
duties for the Company, its affiliates and its Subsidiaries as
the Company's Board of Directors (the "Board") may from time
to time direct. Executive shall serve as the Company's
President and Chief Executive Officer. Company agrees to
nominate Employee to the Board and to the Executive Committee
of the Board during the term of employment.
(b) Executive shall report to the Board, and shall devote his best
efforts and substantially his full business time and attention
(except for permitted vacation periods and reasonable periods
of illness or other incapacity) to the business and affairs of
the Company, its affiliates and its Subsidiaries
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having at least 50% of the
voting power in electing directors are, at the time of
determination, owned by the Company, directly or through one
or more Subsidiaries.
(e) The Board shall not have the right to change the office and/or
duties of the Executive, including being the person primarily
responsible for interacting with the Board and implementing
its policy decisions, without Executive's express prior
written consent. Should another person be named to the
position of President, Company agrees to nominate Executive to
the position of Chairman and Chief Executive Officer, with the
current Chairman, Richard E. Ragsdale, being nominated
Chairman of the Executive Committee.
(f) Executive's principal place of employment shall be Fort Worth,
Texas during the term of this Agreement.
3. Compensation and Benefits.
(a) Executive's initial Base Salary (the "Base Salary") shall be
$325,000 per annum effective September 1, 1996. Thereafter,
the Base Salary shall be reviewed at least annually by the
Compensation Committee. However, the Base Salary shall be
subject to annual
<PAGE>
increases of no less than the increase in the Consumer Price
Index for all goods and services, U.S. All City Average
Report, published by the United States Department of Labor for
the preceding 12 months. The Base Salary shall be payable in
regular installments in accordance with the Company's general
payroll practices.
(b) The Company shall reimburse Executive for all expenses
incurred by him in the course of performing his duties under
this Agreement, including travel, entertainment and other
business expenses.
(c) In addition to the Base Salary, Executive shall be entitled to a bonus
at the end of each calendar year ("Bonus"). Beginning with the first calendar
year following the Company's initial public offering, the Bonus will be based on
the relationship of the Adjusted Earnings Per Share ("AEPS") of the capital
stock of Company in a calendar year, or a portion thereof, to the Budgeted
Earnings Per Share ("BEPS") of the capital stock in its annual budget as adopted
and approved by the Board. For Bonus purposes, AEPS shall be defined as follows:
the reported earnings per share of Company adjusted (i) to eliminate the effects
of any changes in capital structure resulting in interest savings, additional
interest expense or other material non-recurring gains or charges, (ii) to
eliminate the effect of any extraordinary gains or losses, (iii) for any change
in consolidated average shares outstanding as a result of a sale by the Company
of equity securities, all to the extent not reflected in the Company's annual
budget; and (iv) to exclude corporate consolidation reserves expensed during the
year or taken into income from prior year reserves. The Bonus will typically be
structured such that a portion (the "Current Portion") will be payable after the
end of the fiscal year upon determination of the amount due with the remaining
balance (the " Deferred Portion") payable in equal amounts on January 15 of the
following three fiscal years (provided Executive is then currently employed by
the Company). The Current Portion, to the extent earned, shall be a minimum of
60% of Executive's Base Salary earned during the preceding calendar year. Any
amount earned in excess of 60% of Base Salary may be deferred, as described
above, at the discretion of the Compensation Committee. The total amount earned
shall be that percentage of the Base Salary earned by Executive for that fiscal
year determined under the Bonus schedule as set forth below.
Bonus
AEPS Earned
as % of Bonus as % of
BEPS Increment Base Sala[y
Below Threshold None
THRESHOLD 95% N/A 65%
96% 7.0% 72%
97% 7.0% 79%
98% 7.0% 86%
99% 7.0% 93%
TARGET BONUS 100% 7.0% 100%
("Target Bonus")
More than 100% 100% plus 3% for
each 1% of AEPS
achieved over 100%
of BEPS to maximum
<PAGE>
of 120% Base Salary
(d) In addition to the Base Salary and any bonuses payable to
Executive pursuant to this paragraph, during the Employment
Period Executive shall be entitled to participate in all
benefit plans adopted by Company for all or a select group of
its employees, including:
(i) term life insurance of not less than two times Base
Salary, health insurance (including coverage for
Executive's wife and other legal dependents) and
Executive's individual disability insurance coverage
(regardless of whether commercial insurance is
available and with no coverage exclusions), with all
premiums paid by the Company. Total disability
coverage shall not be less than 60% of Executive's
Base Salary and Target Bonus.
(ii) participation in a stock option program with grants
as approved by the Option Committee from time to
time.
(iii) four weeks of vacation each year, but such time shall
not accrue or carry over.
(iv) Company shall pay for or reimburse Executive for any
and all expenses for personal financial and estate planning.
(v) Company shall provide Executive with an automobile for use in
connection with performance of his duties and for his personal use. Company
shall pay, or reimburse Executive for, any and all expenses for gas, insurance,
maintenance, and repairs incurred in connection with his use of the Company Car,
including personal use. The Company Car shall be of a quality commensurate with
employee's position with the Company and shall be replaced every three years by
Company with a comparable automobile. Whenever Executive's employment with
Company shall cease, for any reason, he shall at that time have the option, for
30 days following termination, to purchase the Company Car at a price equal to
the lower of (i) the book value of the Company Car reflected on the Employer's
financial accounting records as of the end of the month preceding such
termination, or (ii) the "loan value" of the Company Car listed in the N.A.D.A.
Official Used Car Guide for the month during which such termination occurs. The
right to purchase the Company Car in no way changes the Company's other
severance obligations set forth in this Agreement.
(vi) deposits to a deferred compensation plan to restore
benefits lost under the Company's 401(k) Plan due to
legislative limits.
4. Term and Termination Provisions.
(a) This Agreement shall continue for an initial period of five
years from the date hereof, unless otherwise terminated as
provided herein, provided that (i) the Employment Period shall
terminate prior to such date upon Executive's resignation,
death or permanent disability or incapacity (as determined by
the Board in its good faith judgment) and (ii) the Employment
Period may be terminated by the Company at any time prior to
such date For or Without Cause Cause (both as defined below).
Commencing 90 days prior to the second anniversary of this
Agreement (and thereafter commencing on each date
<PAGE>
which is 39 months prior to the end of the then term) the
Company and Executive will negotiate in good faith for the
renewal of this Agreement for an additional term, with the
intent that this Agreement shall at all times have a remaining
term of at least 36 months. In the event (a) the Company
elects not to renew this Agreement or (b) the parties have
failed to enter into a renewal agreement by 36 months prior to
the end of the then term or extend the negotiation period, or
(c) the parties have failed to enter into a renewal agreement
by the end of the extended negotiation period, then the
Company shall be deemed to have terminated this Agreement
Without Cause.
(b) If the Employment Period is terminated by the Company Without
Cause, Executive shall be entitled to 36 months of Severance
Benefits as follows:
(i) Base Salary, as in effect immediately prior to the
Termination Date.
(ii) The average percentage of base salary of bonuses paid
during the prior three years applied to the Base
Salary as in effect immediately prior to the
Termination Date.
(iii) The Deferred Portion of all unpaid Bonus payments and
any other deferred compensation.
(iv) All benefits in effect at the Termination Date, including the
applicable benefits specified in Section 3 and further specifically including
(a) Company portion of FICA tax, (b) contributions to the Company 401(k) Plan,
as amended from time to time, based on the Executive's prior three-year average
employee deferral (as a percentage of Base Salary) times the actual Company
matching contribution for similarly situated employees during the period of
Severance Benefits, and (c) survivor benefits under any Company welfare plans,
as amended from time to time.
Any termination of the Employment Period by the
Company for any reason other than "Cause" ((as
defined in 4(e)) shall be deemed to be a termination
Without Cause. Additionally, the occurrence of any of
the following events shall entitle Executive to the
above Severance Benefits:
- The Executive's voluntary termination within 90
days after the failure for him to have been elected
to the Board and the Executive Committee of the
Board. Notwithstanding, after a "Change of Control"
((as defined in 4(f)), the preceding sentence shall
no longer apply.
- The Executive's voluntary termination within 90
days after the Company changes the Executive's
position or duties without first obtaining the
Executive's express written consent.
- The Executive's voluntary termination within 90
days after the failure for him to have been elected
Chairman and Chief Executive Officer immediately upon
the election of another person to the position of
President. Notwithstanding, after a "Change of
Control" ((as defined in Section 4(f)), the preceding
sentence shall no longer apply.
<PAGE>
- The Executive's voluntary termination within 90
days after the Company changes the principal location
of the Executive's employment without first obtaining
the Executive's express written consent.
- The Executive's voluntary termination within 90
days after the Company's breach of any of its
obligations under this Agreement.
Severance Benefits are payable within 30 days of
Executive's Termination Date and consist of the
present value (the "present value" of such benefits
shall be determined using the interest rate for sixty
day certificates of deposit published in the Wall
Street Journal on Executive's Termination Date) of
the Severance Benefits outlined in this Section 4(b).
(c) The Employment Period shall terminate upon the death or total
disability of Executive. If terminated due to death, any payments due including
any deferred compensation and deferred Bonuses, shall be paid to the Executive's
estate within 30 days of the Termination Date. As a condition to any benefits
due to disability, the Company may require the Executive to submit to such
physical or mental evaluations and tests (at the expense of the Company) as the
Board deems appropriate. If the Employment Period is terminated due to total
disability, Executive shall receive all Base Salary, total Bonus (Current
Portion and Deferred Portion) and other applicable benefits payable to him under
Section 3, reduced by any disability benefits Executive receives under the
Company's benefit plans, for a period of 12 months from the Termination Date.
(d) If the Employment Period is terminated by the Company For Cause or is
terminated by Executive (other than for the reasons outlined in subsection (b)
above) or normal expiration of the Agreement by mutual agreement, then all Base
Salary, Bonus and other benefits shall cease as of the Termination Date. The
Executive shall be entitled to receive the total Bonus (Current Portion and
Deferred Portion) that would have been payable to him based upon year-to-date
results through the last complete month prior to the Termination Date. Such
Bonus shall be paid within 30 days after the Termination Date.
(e) For purposes of this Agreement, "Cause" shall mean (i) Executive's
gross neglect of duties, which gross neglect continues more than 10 days after
receiving written notice from the Board of the actions or in-actions
constituting the gross neglect, (ii) Executive's conviction of a felony, (iii)
Executive's dishonesty, embezzlement, or fraud committed in connection with his
employment with the Company resulting in substantial financial harm to the
Company, (iv) the issuance of any final order for Executive's removal as an
employee of the Company by any state or federal regulatory agency, (v)
Executive's violation of the non-competition provisions of Section 7 which
continues for more than 5 days after the Executive receives written notice from
the Board specifying those actions that constitute a violation of Section 7 and
what actions Executive must take in order to cure such violation, (vi)
Executive's material breach of any duty owed to the Company, including without
limitation the duty of loyalty, or (vii) any other material breach of this
Agreement, all of the above as determined solely by the Board of the Company.
Cause shall not include acts or failure to act if Executive has exercised
substantial efforts in good faith to perform the duties reasonably assigned or
appropriate to his position, as determined solely by the Board.
<PAGE>
(f) If a "Change of Control" occurs and the Employment Period is
terminated or Executive voluntarily resigns within 12 months,
such termination shall constitute a termination Without Cause.
For this purpose, a "Change of Control" occurs when:
- any "Person" or "Group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934
("Exchange Act")), other than the Executive or the Founders
(Richard E. Ragsdale, H. Wayne Posey, E. Thomas Chaney, and
Jack W. McCaslin), or an entity the majority of the voting
stock of which is owned or controlled by the Executive or the
Founders becomes the "beneficial owner" (within the meaning of
Rule 13d-3 and/or Rule 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership"
of all shares that such Person has the right to acquire
without condition, other than the passage of time, whether
such right is exercisable immediately or only after the
passage of time), directly or indirectly 30% or more of the
total voting power of the then outstanding voting stock of the
Company; or
- the Company consolidates with or merges into another Person
or conveys, transfers or leases all or substantially all of
its assets to any Person, or any corporation consolidates with
or merges into the Company pursuant to a transaction in which
the outstanding voting stock of the Company is changed into or
exchanged for cash, securities or other property, other than a
transaction between the Company and (i) an Affiliate of the
Company, or (ii) any other entity owned or controlled by the
Founders.
- Individuals who at the beginning of any period of two
consecutive calendar years constituted the Company's Board
(together with any new directors whose election by such Board
or whose nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds of the members
of the Board of Directors then still in office who either were
members of the Board at the beginning of such period or whose
election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
members of the Board then in office.
In addition to the Severance Benefits provided in Section
4(b), if a Change of Control occurs, any unvested options will
vest immediately and Executive shall have 36 months to
exercise all options. Notwithstanding the 36 month exercise
period, the exercise of an option shall not be permitted more
than ten years after the date on which the option was granted.
(f) Any benefits which are subject to post-termination
continuation under COBRA, and which are provided by the
Company during the 36-month period, shall be deemed to be
provided as part of the continuation period available under
COBRA.
(g) If the Executive becomes entitled to any Severance Benefits under this
Section 4, it shall be a condition precedent to the obligation of the Company to
pay any such benefits that the Executive execute a general release, in form
acceptable to legal counsel of the Company, of any claims the Executive may have
against the Company (except for the Executive's claim for the Severance
Benefits) and/or any Affiliate of the Company, including, by way of example and
not limitation, any claims by Executive under any state age or employment
discrimination law; any federal claims under the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act, as amended; the Employee
Retirement Income Security Act of 1974, as amended; the Rehabilitation Act of
1973, as amended; the Americans with Disabilities Act of 1990, as amended; the
<PAGE>
Vietnam Era Veterans' Readjustment Assistance Act of 1974, as
amended; the Civil Rights Act of 1866, as amended; the Civil
Rights Act of 1871, as amended; any other claims of age, race,
sex, religious, national origin or handicap discrimination,
retaliation, claims or demands arising under either express or
implied contract, tort, public policy, the common law or any
federal, state or local statute, ordinance, regulation or
constitutional provision.
5. Confidential Information. The Executive acknowledges that the information,
observations and data obtained by him while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Company, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the information concerning the Company, its
affiliates, Subsidiaries and its predecessors and that his services have been
and will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, during the Employment Period and for the
period of two years thereafter, the Executive shall not directly or indirectly
own, manage, control, participate in, consult with, render services for, or in
any manner engage in any business competing with the business of the Company or
its Subsidiaries as such businesses exist or are in process on the date of the
termination of Executive's employment, within any geographic area in which the
Company, its affiliates or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 3% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the non-compete Period, executive shall not directly or
indirectly through another entity (i) induce or attempt to
induce any employee of the Company, any of its affiliates or
any Subsidiary to leave the employ of the Company or such
affiliate or Subsidiary, or in any way interfere with the
relationship between the Company, any of its affiliates
<PAGE>
or any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company, any of its
affiliates or any Subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company,
any of its affiliates or any subsidiary to cease doing
business with the Company or such affiliate or Subsidiary, or
in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the
Company, any of its affiliates or any Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the
Company is liquidated, the Non-compete provisions of this
Agreement will also terminate upon the Termination Date.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
9. Carryover of Nondeductible Compensation. If any compensation payable to
Executive under this Agreement would be nondeductible to the Company because it
exceeds the $1 million deduction limit under the Internal Revenue Code of 1986
("Code"), as amended (or such other amount to which the limit may be changed),
then such compensation in excess of the deduction limit shall accrue to the
following year or years and be paid to Executive (together with accrued interest
at the prime rate of the Company's primary lender, from time to time) in the
earliest year in which it can be paid and deducted by the Company.
Notwithstanding the preceding provisions of this Section 9, any amounts deferred
under this Section shall be deposited into a trust as provided in this Section 9
and paid from the trust in the earliest year in which it can be paid and
deducted by the Company.
Any amounts deferred pursuant to this Section 9 shall be deposited by the
Company into a trust established by the Company the assets of which are
dedicated to the payment of such deferred amounts to the Executive (such trust
to be established with (i) a Commercial bank in Fort Worth, Texas having both
trust powers and over $500 million net worth serving as trustee, (ii) terms that
are satisfactory to the Executive). The trustee of such trust shall then have
primary responsibility for paying such deferred amounts, but the Company shall
remain liable for any such deferred amounts for which the assets of the trust
are insufficient.
10. Optional Waiver of Parachute Payments. In the event that any payment or
benefit provided under this agreement or otherwise provided to Executive by or
on behalf of the Company would, in the opinion of counsel selected by the
Company and Executive, not be deemed to be deductible in whole or in part in the
calculation of the Federal income tax of the Company, or any other person making
such payment or providing such benefit, by reason of Section 28OG of the Code,
at Executive's sole discretion, Executive may waive the right to any payment or
benefit hereunder or may agree to reduce the aggregate payments or benefits
provided hereunder so that no portion of such amount which is paid to Executive
is not deductible for tax purposes by reason of Section 28OG of the Code. Any
such determination shall take into account that some or all of Executive's
entitlements may constitute reasonable compensation for
<PAGE>
services rendered or to be rendered and, therefore, do not constitute "parachute
payments" or "excess parachute payments' within the meaning of Section 28OG of
the Code.
11. Acquisition of the Company. In the event the Company (i) merges, (ii)
consolidates, (iii) sells or leases substantially all of the assets of the
Company, or (iv) a like event occurs, the Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
is required.
9. Executive Representation. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
10. Survival. Paragraphs 5, 6 and 7 shall survive and continue in full
force in accordance with their terms notwithstanding any termination of the
Employment Period, unless such termination was Without Cause.
11. Notices. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the Address indicated below, or such
other address as may be provided in writing from time to time:
Notice to Executive: 6478 Woodstock Road
Fort Worth, Texas 76116
Notices to Company 801 Cherry Street
Suite 1450
Fort Worth, Texas 76102
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may be related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate counterparts,
each of which is
<PAGE>
deemed to be in an original and all of which taken together constitute one and
the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. No Strict Construction; Interpretation. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term "including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ProMedCo, Inc.
Compensation Committee
By: /s/ E. THOMAS CHANEY
E. Thomas Chaney
"Executive"
/s/ H. WAYNE POSEY
H. Wayne Posey
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of February 10, 1996, between ProMedCo,
Inc. a Texas corporation (the "Company"), and Richard R. D'Antoni ("Executive
").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company hereby employs Executive, and Executive accepts
employment with the Company, under the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Period"). The date on which Executive ceases
to be employed by the Company and/or its Subsidiaries (as defined below) or its
successors or assigns is referred to herein as the "Termination Date."
2. Position and Duties.
(a) During the Employment Period, Executive shall perform such
duties for the Company, its affiliates and its Subsidiaries as
the Company's Chief Executive Officer may specify in his sole
discretion. Executive shall serve as the Company's Chief
Operating Officer and Company agrees to nominate Executive to
the Board of Directors.
(b) Executive shall devote his best efforts and his full business
time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the
business and affairs of the Company, its affiliates and its
Subsidiaries. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having at least 50% of the
voting power in electing directors are, at the time of
determination, owned by the Company, directly or through one
or more Subsidiaries.
(e) The parties to this Agreement shall use their good faith
efforts to develop a written succession plan agreed to by the
Board, CEO and COO no later than March 1, 1999.
3. Compensation and Benefits.
(a) During the Employment Period, Executive's initial Base Salary (the
"Base Salary") shall be $150,000 per annum. The Base Salary shall increase to
$200,000 per annum beginning the first of the month following the Company's
achievement of a $40 million net revenue run rate. After the Company's initial
public offering, the Base Salary shall be as determined by the Compensation
Committee, considering studies of other similar companies in the industry.
However, the Base Salary shall be subject to annual increases of no less than
the increase in the Consumer Price Index for all goods and services, U.S. All
City Average Report, published by the United States Department of Labor for the
preceding 12 months. In any case, the Base Salary shall be a minimum of 80% of
the Base Salary of the Chief Executive Officer of Company. The Base Salary shall
be payable in regular installments in accordance with the Company's general
payroll practices.
<PAGE>
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) The Company will pay relocation expenses as follows:
(i) temporary housing expense in Fort Worth for a maximum period of six
months,
(ii) travel expenses for trips back to Boston (or for Mrs. D'Antoni to Ft.
Worth) will be reimbursed for a maximum of one trip every two weeks,
(iii) moving expenses will be reimbursed, based on competitive bids as
approved by the CEO,
(iv) the brokerage costs of selling Executive's home plus the transaction
cost related to the sale and the purchase of a home in Ft. Worth, and
(v) the Company will "gross up" the reimbursement of such expenses that are
taxable as compensation to the Executive.
(d) In addition to the Base Salary, the Company may award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon the Company's achievement of operating goals during such fiscal year.
The percentage and goals shall be as approved by the Compensation Committee of
the Board of Directors for each such fiscal year, and will typically be
structured such that a portion will be payable after the end of the fiscal year
(the "Current Portion") with the remaining balance payable in equal amounts
after the end of each of the following three fiscal years, provided Executive is
still employed by Company on such payment date. The Current Portion of the
bonus, if any, shall be payable upon determination of the amount due,
approximately 75 days after the end of the fiscal year. For the period ending
June 30, 1996 only, Executive is guaranteed a minimum bonus of $47,000 ($50,000
for period February 1 to June 30, prorated to the February 10 start date).
(e) In addition to the Base Salary and any bonuses payable to Executive
pursuant to this paragraph, during the Employment Period Executive shall be
entitled to participate in all benefit plans adopted by Company for all or a
select group of its employees, including:
(i) term life insurance of not less than one times Base Salary and health
insurance, with all premiums paid by the Company,
(ii) If the Employment Period is terminated as a result of Executive's
permanent disability or incapacity, Executive shall be entitled to receive his
Base Salary, as in effect immediately prior to the Termination Date, for 6
months following the Termination Date. Should the disability or incapacity
continue, the Company is to pay Executive an amount equal to 60% of Base Salary
for the previous year throughout the period that the disability continues. The
Company may purchase insurance to fund the amounts payable pursuant to this
paragraph 4(d)(ii). All amounts payable pursuant to this paragraph 4(d)(ii)
shall be paid in equal
<PAGE>
monthly installments beginning immediately following the month in which the
Termination Date occurs, reduced by the amount of any proceeds Executive
receives from any insurance provided to him by the Company.
(iii) Incentive Stock Options ("ISOs") for an initial 480,000 shares of
Common Stock of the Company at $6.00 per share, 20,000 of such shares to vest
immediately, with the balance vesting 1/60th per month, with not less than 25%
(120,000 shares) to be vested at the date of the Company's Initial Public
Offering (IPO). The Company will finance the purchase of stock up to $500,000
with a non- recourse loan for a maximum of 48 months from inception. Prior to 48
months, repayment will be required only to the extent of proceeds of any sale of
the stock. At the end of 48 months, any outstanding balance will be due and
payable. Prior to the IPO, the Company will have first right of refusal on any
proposed sale. Any stock purchased by Executive that is financed by the Company,
will be held by the Company to serve as collateral for the loan. Interest on
such loans will be at the Applicable Federal Rate for a "mid-term" loan, and
will be paid by payroll deduction. Stock owned may be used to exercise vested
options. Stock underlying ISOs will be registered soon after Company's IPO. To
the extent some of the options do not qualify as ISOs for tax treatment and
Company receives tax deductions for the difference between the exercise price
and fair market value at the date of exercise, the amount of tax saved first
reduces any loan balance, with any excess to be paid to Executive.
(iv) up to four weeks of vacation each year, but such time shall not accrue
or carry over.
4. Term.
(a) The Employment Period is for a term of two years ending on February 9,
1998, provided that (i) the Employment Period shall terminate prior to such date
upon Executive's resignation, death or permanent disability or incapacity (as
determined by the Board in its good faith judgment) and (ii) the Employment
Period may be terminated by the Company at any time prior to such date For Cause
(as defined below) or Without Cause. The Employment Period is automatically
extended for successive years unless notice to the contrary is given not later
than ninety (90) days preceding the end of the final year of the contract.
(b) If the Employment Period is terminated by the Company Without Cause
prior to the second anniversary of the date of this Agreement, or if Executive's
position is eliminated or responsibilities materially reduced without a
substantial reduction in Company's most recent 6 month earnings, excluding
extraordinary charges, Executive shall be entitled to receive his Base Salary,
as in effect immediately prior to the Termination Date, plus the average of
bonuses paid during the prior three years, through the second anniversary of
this Agreement, or one year, whichever is greater, so long as Executive has not
breached the provisions of paragraphs 5, 6 and 7 hereof. The Base Salary and
bonus payments described in this paragraph 4(b) shall be payable in regular
installments in accordance with the Company's general payroll practice.
(c) If the Employment Period is terminated by the Company For Cause or is
terminated as a result of Executive's resignation or normal expiration of the
Agreement, Executive shall
<PAGE>
be entitled to receive only his Base Salary through the Termination Date.
In the case of normal expiration, any earned bonus which is due will be paid.
(d) All of Executive's rights to fringe benefits and bonuses hereunder (if
any) accruing after the termination of the Employment Period shall cease upon
termination, provided however, if Employment Period is terminated by the Company
Without Cause ((4(b) above)), term life, health and disability insurance will
continue through the second anniversary of this Agreement, or one year, which
ever is greater, so long as Executive has not breached the provisions of
paragraphs 5, 6 and 7 hereof.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission
of a felony or a crime involving moral turpitude, (ii) the commission of any act
involving dishonesty, embezzlement or fraud with respect to the Company or any
of its Subsidiaries, (iii) conduct tending to bring the Company or any of its
Subsidiaries into substantial public disgrace or disrepute, (iv) failure to
perform duties as reasonably directed by the Company's Chief Executive Officer,
(v) gross negligence or willful misconduct with respect to the Company or any of
its Subsidiaries, (vi) Executive's violation of the non- competition provisions
of Section 7, (vii) Executive's material breach of any duty owed to the Company,
including without limitation the duty of loyalty, or (vii) any other material
breach of this Agreement, all of the above as determined solely by the Chief
Executive Officer of the Company (the "CEO"). Cause shall not include acts or
failure to act if Executive has exercised substantial efforts in good faith to
perform the duties reasonably assigned or appropriate to his position, as
determined solely by the CEO.
(f) If a "Change of Control" occurs and the Employment Period is terminated
or Executive voluntarily resigns within 12 months, such termination shall
constitute a termination Without Cause. For this purpose, a "Change of Control"
occurs when:
- any "Person" or "Group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")), other than
the Executive or the Founders (Richard E. Ragsdale, H. Wayne Posey, E. Thomas
Chaney, and Jack W. McCaslin), or an entity the majority of the voting stock of
which is owned or controlled by the Executive or the Founders becomes the
"beneficial owner" (within the meaning of Rule 13d-3 and/or Rule 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that such Person has the right to acquire without
condition, other than the passage of time, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly 30% or
more of the total voting power of the then outstanding voting stock of the
Company; or
- the Company consolidates with or merges into another Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates with or merges into the Company pursuant to a
transaction in which the outstanding voting stock of the Company is changed into
or exchanged for cash, securities or other property, other than a transaction
between the Company and (i) an Affiliate of the Company, or (ii) any other
entity owned or controlled by the Founders.
In addition to the severance rights provided in section 4(b), if a Change
of Control occurs, any unvested options will vest immediately and Executive
shall have 36 months
<PAGE>
to exercise all options. Notwithstanding the 36 month exercise period, the
exercise of an option shall not be permitted more than ten years after the date
on which the option was granted.
5. Confidential Information. The Executive acknowledges that the information,
observations and data obtained by him while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Company, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the information concerning the Company, its
affiliates, Subsidiaries and its predecessors and that his services have been
and will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, during the Employment Period and for the
period of two years thereafter, the Executive shall not directly or indirectly
own, manage, control, participate in, consult with, render services for, or in
any manner engage in any business competing with the business of the Company or
its Subsidiaries as such businesses exist or are in process on the date of the
termination of Executive's employment, within any geographic area in which the
Company, its affiliates or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 3% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the non-compete Period, executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company, any of its affiliates or any Subsidiary to leave the employ of
the Company or such affiliate or Subsidiary, or in any way interfere with the
relationship between the Company, any of its affiliates or any Subsidiary and
any employee thereof, (ii) hire any person who was an employee of the Company,
any of its affiliates or any Subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee
<PAGE>
or other business relation of the Company, any of its affiliates or any
subsidiary to cease doing business with the Company or such affiliate or
Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company, any of its
affiliates or any Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the Company
is liquidated, the Non-compete provisions of this Agreement will also terminate
upon the Termination Date or date of liquidation.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
9. Executive Representation. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, except for Cellcor
technology (autolymphocyte therapy), and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.
10. Survival. Paragraphs 5, 6 and 7 shall survive and continue in full
force in accordance with their terms notwithstanding any termination of the
Employment Period, unless such termination was Without Cause.
11. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the Address indicated below:
Notice to Executive: 801 Cherry Street
Suite 1450
Fort Worth, Texas 76102
Notices to Company 801 Cherry Street
Suite 1450
Fort Worth, Texas 76102
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such
<PAGE>
a manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may be related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be in an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. No Strict Construction; Interpretation. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term "including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ProMedCo, "Executive"
BY: /s/ H. WAYNE POSEY /s/ RICHARD R. D'ANTONI
H. Wayne Posey Richard R. D'Antoni
President and Chief Executive Officer
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of November 15, 1994, between ProMedCo, Inc., a
Texas corporation (the "Company"), and Dale K. Edwards ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ Executive, and Executive
accepts employment with the Company, under the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 4 hereof (the "Employment Period"). The date on which
Executive ceases to be employed by the Company and/or its Subsidiaries (as
defined below) or its successors or assigns is referred to herein as the
"Termination Date."
2. Position and Duties.
(a) During the Employment Period, Executive shall perform such duties for
the Company, its affiliates and its Subsidiaries as the Company's Chief
Executive Officer or other Company officer to whom Executive reports may from
time to time direct. Executive shall be a Vice President of the Company.
(b) Executive shall initially report to the Company's President, but
reporting relationship may change as Company develops. Executive shall devote
his best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company, its affiliates and its Subsidiaries.
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having at least 50% of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be $110,000
per annum or such higher rate as the Board may designate from time to time (the
"Base Salary"), provided that the Base Salary shall be subject to annual
increases of no less than the increase in the Consumer Price Index announced
from time to time. The Base Salary shall be payable in regular installments in
accordance with the Company's general payroll practices.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
<PAGE>
(c) In addition to the Base Salary, the Company shall award a bonus to
Executive following the end of each fiscal year during the Employment Period
based upon the Company's achievement of operating goals during such fiscal year.
The percentage and goals shall be mutually agreed upon by the Company and
Executive prior to each such fiscal year. The initial Bonus Plan for the partial
fiscal year ending June 30, 1995, is attached as Appendix A.
(d) In addition to the Base Salary and any bonuses payable to Executive
pursuant to this paragraph, during the Employment Period Executive shall be
entitled to participate in all benefit plans adopted by Company for all or a
select group of its employees, including:
(i) term life insurance, health insurance and disability insurance
coverage,
(ii) participation in a stock option program approved by the Board of the
Company granting options for an initial 20,000 shares of Common Stock of the
Company at $1.00 per share,
(iii) annual paid vacation in accordance with Company's policies as from
time to time established.
(e) The Company shall issue to Executive 20,000 shares of the Company's
Common Stock on the date hereof. Purchase price of the stock is $1.00 per share.
Company will receive payment by withholding $10,000 per year, plus interest,
from Executive's payroll check in equal amounts each pay period, in accordance
with a promissory note, bearing interest at the rate of 5.71% per annum. If
Executive is terminated prior to the second anniversary of the date of this
Agreement, Company shall have the right to purchase the stock for Executive's
purchase price, less any amount still owed the Company by Executive. If
Executive is terminated after the second anniversary but prior to the fourth
anniversary of the date of this Agreement, Company shall have the right to
purchase 10,000 shares of the stock for Executive's purchase price, less any
amount still owed the Company by Executive.
4. Term.
(a) Unless renewed by the mutual agreement of the Company and Executive,
the Employment Period shall end on November 14, 1996, provided that (i) the
Employment Period shall terminate prior to such date upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgement) and (ii) the Employment Period may be
terminated by the Company at any time prior to such date For Cause (as defined
below) or Without Cause. The Employment Period is automatically extended for
successive years unless notice to the contrary is given not later than 90 days
preceding November 14 of the final year of the contract. In the event the
Company is liquidated and has cumulative net losses at the time of liquidation,
this Agreement will terminate with the Company having no further obligation to
Executive, beyond November 14, 1995.
(b) If the Employment Period is terminated by the Company without Cause
prior to the second anniversary of the date of this Agreement, except in the
event of liquidation as outlined in 4(a), Executive shall be entitled to receive
his Base Salary, as in effect immediately prior to the Termination Date, through
the second anniversary of this
<PAGE>
Agreement, so long as Executive has not breached the provisions of
paragraphs 5, 6 and 7 hereof. The Base Salary payments described in this
paragraph 4(b) shall be payable in regular installments in accordance with the
Company's general payroll practice. The amounts payable pursuant to this
paragraph 4(b) shall be reduced by the amount of any compensation Executive
receives with respect to any other employment during the period prior to the
second anniversary hereof. Upon request from time to time, Executive shall
furnish the Company with a true and complete certificate specifying any such
compensation due to or received by him.
(c) If the Employment Period is terminated by the Company For Cause or is
terminated as a result of Executive's resignation or normal expiration of the
Agreement, Executive shall be entitled to receive his Base Salary through the
Termination Date.
(e) All of Executive's rights to fringe benefits and bonuses hereunder (if
any) accruing after the termination of the Employment Period shall cease upon
termination.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission
of a felony or a crime involving moral turpitude or the commission of any other
act involving dishonesty, disloyalty or fraud with respect to the Company or any
of its Subsidiaries, (ii) conduct tending to bring the Company or any of its
Subsidiaries into substantial public disgrace or disrepute, (iii) substantial
and repeated failure to perform duties as reasonably directed by the Company's
Chief Executive Officer or other Company Officer to whom Executive reports, (iv)
gross negligence or willful misconduct with respect to the Company or any of its
Subsidiaries, or (v) any other material breach of this Agreement.
5. Confidential Information. The Executive acknowledges that the information,
observations and data obtained by him while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
<PAGE>
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the information concerning the Company, its
affiliates, Subsidiaries and its predecessors and that his services have been
and will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, during the Employment Period and for the
period of two years thereafter, the Executive shall not directly or indirectly
own, manage, control, participate in, consult with, render services for, or in
any manner engage in any business competing with the business of the Company or
its Subsidiaries as such businesses exist or are in process on the date of the
termination of Executive's employment, within any geographic area in which the
Company, its affiliates or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Non-compete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company, any of its affiliates or any Subsidiary to leave the employ of
the Company or such affiliate or Subsidiary, or in any way interfere with the
relationship between the Company, any of its affiliates or any Subsidiary and
any employee thereof, (ii) hire any person who was an employee of the Company,
any of its affiliates or any Subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company, any of its affiliates or any Subsidiary
to cease doing business with the Company or such affiliate or Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company, any of its affiliates or any
Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the Company
is liquidated, the Non-compete provisions of this Agreement will also terminate
upon the Termination Date or date of liquidation.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
9. Executive Representations. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgement or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
10. Survival. Paragraphs 5, 6 and 7 shall survive and continue in full
force in accordance
<PAGE>
with their terms notwithstanding any termination of the Employment Period,
unless such termination was without cause.
11. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the address indicated below:
Notice to Executive: 1040 Oak View Drive
Oak Point, Tx. 75068
Notices to Company: 801 Cherry Street
Suite 1050
Fort Worth, Tx. 76102
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may be related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be in an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
<PAGE>
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. No Strict Construction; Interpretation. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term "including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ProMedCo, Inc.
BY: /s/ H. WAYNE POSEY
H. Wayne Posey
ITS: President and CEO
"Executive"
/s/ DALE K. EDWARDS
Dale K. Edwards
<PAGE>
Appendix A
ProMedCo, Inc.
Bonus Plan
Dale K. Edwards
Fiscal Year ending 6/30/95
The bonus plan for fiscal 1994-95 will entitle Dale Edwards to accrue a bonus of
up to 100% of base salary dependent upon the accomplishments relative to Net
Income and # of Physicians as indicated in the following table:
Total
Net Income % Bonus # Physicians % Bonus % Bonus
($000 omitted)
(476)or more 0 19 or less 0 0
(475) 2 20 3 5
(402) 4 25 6 10
(325) 4 30 11 15
(250) 6 35 16 22
(150) 6 40 24 30
0 8 45 32 40
150 10 50 40 50
300 12 55 43 55
400 14 60 46 60
500 16 65 49 65
600 18 75 57 75
700 20 85 65 85
800 22 95 73 95
900 or more 25 100 or more 75 100
The "# Physicians" is the number of affiliated physicians (acquired or managed)
at June 30, 1995. Based upon preliminary financial results, ninety percent of
the indicated bonus will be paid on July 31, 1995. The balance will be paid when
final results are available. The maximum total amount payable for the twelve
months ended June 30, 1995 will be limited to 50% of base salary for that
period, with the balance deferred and payable in equal increments following the
end of each of the following three fiscal years, provided Dale is still an
employee of Company on the date of payment.
ProMedCo Inc. Dale K. Edwards
/s/ H. WAYNE POSEY /s/ DALE K. EDWARDS
Date: 11/15/1994 Date: 11/15/1994
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of January 4, 1995, between ProMedCo,
Inc., a Texas corporation (the "Company"), and R. Alan Gleghorn ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
employment with the Company, under the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Period"). The date on which Executive ceases
to be employed by the Company and/or its Subsidiaries (as defined below) or its
successors or assigns is referred to herein as the "Termination Date."
2. Position and Duties.
(a) During the Employment Period, Executive shall perform such duties for the
Company, its affiliates and its Subsidiaries as the Company's Chief
Executive Officer or other Company officer to whom Executive reports may
from time to time direct. Executive shall be a Vice President of the
Company.
(b) Executive shall initially report to the Company's President, but reporting
relationship may change as Company develops. Executive shall devote his
best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to
the business and affairs of the Company, its affiliates and its
Subsidiaries. Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and
efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any corporation
of which the securities having at least 50% of the voting power in electing
directors are, at the time of determination, owned by the Company, directly
or through one or more Subsidiaries.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be $100,000 per
annum or such higher rate as the Compensation Committee may designate from
time to time (the "Base Salary"), provided that the Base Salary shall be
subject to annual increases of no less than the increase in the Consumer
Price Index announced from time to time. The Base Salary shall be payable
in regular installments in accordance with the Company's general payroll
practices.
(b) The Company shall reimburse Executive for all reasonable expenses incurred
by him in the course of performing his duties under this Agreement which
are consistent with the Company's policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of
such expenses.
(c) In addition to the Base Salary, the Company shall award a bonus to
Executive following the end of each fiscal year during the Employment
Period based upon the Company's
<PAGE>
achievement of operating goals during such fiscal year. The
percentage and goals shall be mutually agreed upon by the
Company and Executive prior to each such fiscal year. The
initial Bonus Plan for the partial fiscal year ending June 30,
1995, is attached as Appendix A.
(d) In addition to the Base Salary and any bonuses payable to Executive
pursuant to this paragraph, during the Employment Period Executive shall be
entitled to participate in all benefit plans adopted by Company for all or
a select group of its employees, including:
(I) term life insurance, health insurance and disability
insurance coverage,
(ii) participation in a stock option program approved by
the Board of the Company granting options for an
initial 12,000 shares of Common Stock of the Company
at $1.00 per share,
(iii) annual paid vacation in accordance with Company's
policies as from time to time established.
(e) The Company shall issue to Executive 10,000 shares of the Company's Common
Stock on the date hereof. Purchase price of the stock is $1.00 per share.
Company will receive payment by withholding $5,000 per year, plus interest,
from Executive's payroll check in equal amounts each pay period, in
accordance with a promissory note, bearing interest at the rate of 6.2% per
annum. If Executive is terminated prior to the second anniversary of the
date of this Agreement, Company shall have the right to purchase the stock
for Executive's purchase price, less any amount still owed the Company by
Executive. If Executive is terminated after the second anniversary but
prior to the fourth anniversary of the date of this Agreement, Company
shall have the right to purchase one half of the shares for Executive's
purchase price, less any amount still owed the Company by Executive.
4. Term.
(a) Unless renewed by the mutual agreement of the Company and Executive, the
Employment Period shall end on November 14, 1996, provided that (i) the
Employment Period shall terminate prior to such date upon Executive's
resignation, death or permanent disability or incapacity (as determined by
the Board in its good faith judgment) and (ii) the Employment Period may be
terminated by the Company at any time prior to such date For Cause (as
defined below) or Without Cause. The Employment Period is automatically
extended for successive years unless notice to the contrary is given not
later than ninety (90) days preceding November 14 of the final year of the
contract. In the event the Company is liquidated and has cumulative net
losses at the time of liquidation, this Agreement will terminate with the
Company having no further obligation to Executive, beyond January 3, 1996.
(b) If the Employment Period is terminated by the Company without Cause prior
to the second anniversary of the date of this Agreement, except in the
event of liquidation as outlined in 4(a), Executive shall be entitled to
receive his Base Salary, as in effect immediately prior to the Termination
Date, through the second anniversary of this Agreement, so long as
Executive has not breached the provisions of paragraphs 5, 6 and 7 hereof.
The Base Salary payments described in this paragraph 4(b) shall be payable
<PAGE>
in regular installments in accordance with the Company's
general payroll practice. The amounts payable pursuant to this
paragraph 4(b) shall be reduced by the amount of any
compensation Executive receives with respect to any other
employment or consulting during the period prior to the second
anniversary hereof. Upon request from time to time, Executive
shall furnish the Company with a true and complete certificate
specifying any such compensation due to or received by him.
(c) If the Employment Period is terminated by the Company For Cause or is
terminated as a result of Executive's resignation or normal expiration of
the Agreement, Executive shall be entitled to receive only his Base Salary
through the Termination Date.
(d) All of Executive's rights to fringe benefits and bonuses hereunder (if any)
accruing after the termination of the Employment Period shall cease upon
termination.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission of a
felony or a crime involving moral turpitude or the commission of any other
act involving dishonesty, disloyalty or fraud with respect to the Company
or any of its Subsidiaries, (ii) conduct tending to bring the Company or
any of its Subsidiaries into substantial public disgrace or disrepute,
(iii) substantial and repeated failure to perform duties as reasonably
directed by the Company's Chief Executive Officer or other Company Officer
to whom Executive reports, (iv) gross negligence or willful misconduct with
respect to the Company or any of its Subsidiaries, or (v) any other
material breach of this Agreement, all of the above as determined solely by
the Chief Executive Officer of the Company.
5. Confidential Information. The Executive acknowledges that the information,
observations and data obtained by him while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
<PAGE>
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the information concerning the
Company, its affiliates, Subsidiaries and its predecessors and that his
services have been and will be of special, unique and extraordinary value
to the Company. Therefore, Executive agrees that, during the Employment
Period and for the period of two years thereafter, the Executive shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with
the business of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination of Executive's employment,
within any geographic area in which the Company, its affiliates or its
Subsidiaries engage or plan to engage in such businesses. Nothing herein
shall prohibit Executive from being a passive owner of not more than 2% of
the outstanding stock of any class of a corporation which is publicly
traded, so long a Executive has no active participation in the business of
such corporation.
(b) During the non-compete Period, executive shall not directly or indirectly
through another entity (i) induce or attempt to induce any employee of the
Company, any of its affiliates or any Subsidiary to leave the employ of the
Company or such affiliate or Subsidiary, or in any way interfere with the
relationship between the Company, any of its affiliates or any Subsidiary
and any employee thereof, (ii) hire any person who was an employee of the
Company, any of its affiliates or any Subsidiary at any time during the
Employment Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company, any of its
affiliates or any subsidiary to cease doing business with the Company or
such affiliate or Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company, any of its affiliates or any Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the Company is
liquidated, the Non-compete provisions of this Agreement will also
terminate upon the Termination Date or date of liquidation.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Produce, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
9. Executive Representation. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
10. Survival. Paragraphs 5, 6 and 7 shall survive and continue in full
force in accordance with their
<PAGE>
terms notwithstanding any termination of the Employment Period, unless such
termination was without cause.
11. Notices. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the Address indicated below:
Notice to Executive: 2129 Fawn Ridge Trail
Carrollton, Texas 75010
Notices to Company: 801 Cherry Street
Suite 1050
Fort Worth, Texas 76102
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may be related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate counterparts, each
of which is deemed to be in an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
<PAGE>
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. No Strict Construction; Interpretation. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term "including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ProMedCo, Inc.
BY: /s/ H. WAYNE POSEY
H. Wayne Posey
ITS: President and Chief Executive Officer
"Executive"
/s/ R. ALAN GLEGHORN
R. Alan Gleghorn
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of , February 10, 1996, between ProMedCo, Inc. a
Texas corporation (the "Company"), and Rick E. Weymier ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
employment with the Company, under the terms and conditions set forth in this
Agreement for the period beginning on March 4, 1996 (or earlier if released by
present employer) and ending as provided in paragraph 4 hereof (the "Employment
Period"). The date on which Executive ceases to be employed by the Company
and/or its Subsidiaries (as defined below) or its successors or assigns is
referred to herein as the "Termination Date."
2. Position and Duties.
(a) During the Employment Period, Executive shall perform such
duties for the Company, its affiliates and its Subsidiaries as
the Company's Chief Executive Officer or other Company officer
to whom Executive reports may from time to time may direct.
Executive shall be Vice President of Managed Care for the
Company.
(b) Executive shall initially report to the Company's Chief
Operating Officer, but reporting relationship may change as
Company develops. Executive shall devote his best efforts and
his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, its
affiliates and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having at least 50% of the
voting power in electing directors are, at the time of
determination, owned by the Company, directly or through one
or more Subsidiaries.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$100,000 per annum or such higher rate as the Compensation
Committee may designate from time to time (the "Base Salary"),
provided that the Base Salary shall be subject to annual
increases of no less than the increase in the Consumer Price
Index announced from time to time. The Base Salary shall be
payable in regular installments in accordance with the
Company's general payroll practices.
(b) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the
Company's policies in effect from time to time with respect to
travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and
documentation of such expenses.
<PAGE>
(c) In addition to the Base Salary, the Company shall award a
bonus to Executive following the end of each fiscal year
during the Employment Period based upon the Company's
achievement of operating goals and other criteria as may be
adopted from time to time. The percentage and goals shall be
mutually agreed upon by the Company and Executive prior to
each such fiscal year.
(d) In addition to the Base Salary and any bonuses payable to
Executive pursuant to this paragraph, during the Employment
Period Executive shall be entitled to participate in all
benefit plans adopted by Company for all or a select group of
its employees, including:
(I) term life insurance, health insurance and disability
insurance coverage,
(ii) participation in a stock option program approved by
the Board of the Company granting options for an
initial 15,000 shares of Common Stock of the Company
at $6.00 per share,
(iii) annual paid vacation in accordance with Company's
policies as from time to time established.
4. Term.
(a) Unless renewed by the mutual agreement of the Company and Executive, the
Employment Period shall end on March 4, 1997, provided that (i) the
Employment Period shall terminate prior to such date upon Executive's
resignation, death or permanent disability or incapacity (as determined by
the Board in its good faith judgment) and (ii) the Employment Period may be
terminated by the Company at any time prior to such date For Cause (as
defined below) or Without Cause. The Employment Period is automatically
extended for successive years unless notice to the contrary is given not
later than ninety (90) days preceding the end of the final year of the
contract.
(b) If the Employment Period is terminated by the Company without Cause prior
to the second anniversary of the date of this Agreement. Executive shall be
entitled to receive his Base Salary, as in effect immediately prior to the
Termination Date, for a six month period, so long as Executive has not
breached the provisions of paragraphs 5, 6 and 7 hereof. The Base Salary
payments described in this paragraph 4(b) shall be payable in regular
installments in accordance with the Company's general payroll practice. The
amounts payable pursuant to this paragraph 4(b) shall be reduced by the
amount of any compensation Executive receives with respect to any other
employment or consulting during the period prior to the second anniversary
hereof. Upon request from time to time, Executive shall furnish the Company
with a true and complete certificate specifying any such compensation due
to or received by him.
(c) If the Employment Period is terminated by the Company For Cause or is
terminated as a result of Executive's resignation or normal expiration of
the Agreement, Executive shall be entitled to receive only his Base Salary
through the Termination Date.
(d) All of Executive's rights to fringe benefits and bonuses hereunder (if any)
accruing after the termination of the Employment Period shall cease upon
termination.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission of a
felony or
<PAGE>
a crime involving moral turpitude or the commission of any other act
involving dishonesty, disloyalty or fraud with respect to the Company or
any of its Subsidiaries, (ii) conduct tending to bring the Company or any
of its Subsidiaries into substantial public disgrace or disrepute, (iii)
failure to perform duties as reasonably directed by the Company's Chief
Executive Officer or other Company Officer to whom Executive reports, (iv)
gross negligence or willful misconduct with respect to the Company or any
of its Subsidiaries, or (v) any other material breach of this Agreement,
all of the above as determined solely by the Chief Executive Officer of the
Company.
5. Confidential information. The Executive acknowledges that the information,
observations and data obtained by him while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with the information concerning the
Company, its affiliates, Subsidiaries and its predecessors and that his
services have been and will be of special, unique and extraordinary value
to the Company. Therefore, Executive agrees that, during the Employment
Period and for the period of two years thereafter, the Executive shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with
the business of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination of Executive's employment,
within any geographic area in which the Company, its affiliates or its
Subsidiaries engage or plan to engage in such businesses. Nothing herein
shall prohibit Executive from being a passive owner of not more than 2% of
the outstanding stock of any class of a corporation which is publicly
traded, so long as Executive has no active participation in the business of
such corporation.
(b) During the non-compete Period, executive shall not directly or indirectly
through another entity (i) induce or attempt to induce any employee of the
Company, any of its affiliates
<PAGE>
or any Subsidiary to leave the employ of the Company or such affiliate or
Subsidiary, or in any way interfere with the relationship between the
Company, any of its affiliates or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company, any of its
affiliates or any Subsidiary at any time during the Employment Period, or
(iii) induce or attempt to induce any customer, supplier, licensee or other
business relation of the Company, any of its affiliates or any subsidiary
to cease doing business with the Company or such affiliate or Subsidiary,
or in any way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company, any of its
affiliates or any Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the Company is
liquidated, the Non-compete provisions of this Agreement will also
terminate upon the Termination Date or date of liquidation.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Produce, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
previsions hereof (without posting a bond or other security).
9. Executive Representation. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
10. Survival. Paragraphs 5, 6 and 7 shall survive and continue in full
force in accordance with their terms notwithstanding any termination of the
Employment Period, unless such termination was without cause.
11. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the Address indicated below:
Notice to Executive: Rick E. Weymier
840 Devenish Lane
Roswell, GA 30075
Notices to Company: 801 Cherry Street
Suite 1050
Fort Worth, Texas 76102
or such other address or to the attention of such other person as the recipient
party shall have specified
<PAGE>
by prior written notice to the sending party. Any notice under this Agreement
will be deemed to have been given when so delivered or mailed.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may be related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate counterparts, each
of which is deemed to be in an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. Amendment and Waiver. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. No Strict Construction; Interpretation. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term "including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ProMedCo, Inc. "Executive"
By: /s/ H. WAYNE POSEY /s/ RICK E. WEYMIER
H. Wayne Posey
Its: President and Chief Executive Officer
1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of October 18, 1996, between ProMedCo,
Inc. a Texas corporation (the "Company"), and Deborah A. Johnson ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive accepts
employment with the Company, under the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Period"). The date on which Executive ceases
to be employed by the Company and/or its Subsidiaries (as defined below) or its
successors or assigns is referred to herein as the "Termination Date."
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall perform such duties for the
Company, its affiliates and its Subsidiaries as the Company's Chief Executive
Officer (the "CEO") may specify in his sole discretion. Executive shall serve as
Senior Vice President of the Company.
(b) Executive shall devote Executive's best efforts and full business time and
attention (except for permitted vacation periods and reasonable periods of
illness or other incapacity) to the business and affairs of the Company, its
affiliates and its Subsidiaries. Executive shall perform such duties and
responsibilities to the best of Executive's abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any corporation of
which the securities having at least 50% of the voting power in electing
directors are, at the time of determination, owned by the Company, directly or
through one or more Subsidiaries.
3. COMPENSATION AND BENEFITS.
(a) During the Employment Period, Executive's Base Salary (the "Base Salary")
shall be $150,000 per annum or such higher rate as the Compensation Committee
may designate from time to time. The Base Salary shall be subject to annual
increases of no less than the increase in the Consumer Price Index for all goods
and services, U.S. All City Average Report, published by the United States
Department of Labor for the preceding 12 months. The Base Salary shall be
payable in regular installments in accordance with the Company's general payroll
practices.
(b) The Company shall reimburse Executive for all reasonable expenses incurred
by her in the course of performing her duties under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
(c) The Company will pay relocation expenses as follows:
(i) temporary housing expense in Fort Worth for a maximum period of six
months, not to exceed $1,000 per month.
<PAGE>
2
(ii) moving expenses will be reimbursed, based on competitive bids as
approved by the CEO,
(iii) The Company will "gross up" the reimbursement of such expenses that are
taxable as compensation to the Executive.
(d) In addition to the Base Salary, the Company may award a bonus to Executive
following the end of each fiscal year during the Employment Period based
upon the Company's achievement of operating goals during such fiscal year.
The percentage and goals shall be as approved by the Compensation Committee
of the Board of Directors for each such fiscal year, and will typically be
structured such that a portion will be payable after the end of the fiscal
year (the "Current Portion") with the remaining balance payable in equal
amounts after the end of each of the following three fiscal years, provided
Executive is still employed by Company on such payment dates. The Current
Portion of the bonus, if any, shall be payable upon determination of the
amount due, approximately 75 days after the end of the fiscal year.
(e) In addition to the Base Salary and any bonuses payable to Executive
pursuant to this paragraph, during the Employment Period Executive
shall be entitled to participate in all benefit plans adopted by
Company for all or a select group of its employees, including:
(I) term life insurance, health insurance and disability insurance
coverage,
(ii) participation in a stock option program with grants as approved by the
option Committee from time to time, with an initial grant of 100,000
shares exercisable at 85% of the IPO price, and
(iii) annual paid vacation in accordance with Company's policies as from time to
time established.
4. TERM.
(a) The Employment Period is for a term of two years ending on October 18,
1998, provided that (i) the Employment Period shall terminate prior to such
date upon Executive's resignation, death or permanent disability or
incapacity (as determined by the Board in its good faith judgment) and (ii)
the Employment Period may be terminated by the Company at any time prior to
such date For Cause (as defined below) or Without Cause. The Employment
Period is automatically extended for successive years unless notice to the
contrary is given not later than ninety (90) days preceding the end of the
final year of the contract.
(b) If the Employment Period is terminated by the Company Without Cause prior
to the second anniversary of the date of this Agreement, Executive shall be
entitled to receive her Base Salary, as in effect immediately prior to the
Termination Date, plus the average of bonuses paid during the prior three
years, through the second anniversary of this Agreement, or one year,
whichever is greater, so long as Executive has not breached the provisions
of paragraphs 5, 6 and 7 hereof. The Base Salary and bonus payments
described in this paragraph 4(b) shall be payable in regular installments
in accordance with the Company's general payroll practice.
(c) If the Employment Period is terminated by the Company For Cause or is
terminated as a result of Executive's resignation or normal expiration of
the Agreement, Executive shall be entitled to receive only her Base Salary
through the Termination Date. In the case of normal expiration, any earned
bonus which is due will be paid.
<PAGE>
3
(d) All of Executive's rights to fringe benefits and bonuses hereunder (if any)
accruing after the termination of the Employment Period shall cease upon
termination, provided however, if Employment Period is terminated by the
Company Without Cause ((4(b) above)), term life, health and disability
insurance will continue through the second anniversary of this Agreement,
or one year, which ever is greater, so long as Executive has not breached
the provisions of paragraphs 5, 6 and 7 hereof.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission of a
felony or a crime involving moral turpitude, (ii) the commission of any act
involving dishonesty, embezzlement or fraud with respect to the Company or
any of its Subsidiaries, (iii) conduct tending to bring the Company or any
of its Subsidiaries into substantial public disgrace or disrepute, (iv)
failure to perform duties as reasonably directed by the Company's CEO, (v)
gross negligence or willful misconduct with respect to the Company or any
of its Subsidiaries, (vi) Executive's violation of the non-competition
provisions of Section 7, (vii) Executive's material breach of any duty owed
to the Company, including without limitation the duty of loyalty, or (vii)
any other material breach of this Agreement, all of the above as determined
solely by the CEO of the Company. Cause shall not include acts or failure
to act if Executive has exercised substantial efforts in good faith to
perform the duties reasonably assigned or appropriate to her position, as
determined solely by the CEO.
(f) If a "Change of Control" occurs and the Employment Period is terminated or
Executive voluntarily resigns within 12 months, such termination shall
constitute a termination Without Cause. For this purpose, a "Change of
Control" occurs when:
- - any "Person" or "Group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")), other than the Executive
or the Founders (Richard E. Ragsdale, H. Wayne Posey, E. Thomas Chaney, and Jack
W. McCaslin), or an entity the majority of the voting stock of which is owned or
controlled by the Executive or the Founders becomes the "beneficial owner"
(within the meaning of Rule 13d-3 and/or Rule 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that such Person has the right to acquire without condition, other than
the passage of time, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly 30% or more of the total voting
power of the then outstanding voting stock of the Company; or
- - the Company consolidates with or merges into another Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates with or merges into the Company pursuant to a
transaction in which the outstanding voting stock of the Company is changed into
or exchanged for cash, securities or other property, other than a transaction
between the Company and (i) an Affiliate of the Company, or (ii) any other
entity owned or controlled by the Founders.
In addition to the severance rights provided in section 4(b), if a Change of
Control occurs, any unvested options will vest immediately and Executive shall
have 36 months to exercise all options. Notwithstanding the 36 month exercise
period, the exercise of an option shall not be permitted more than ten years
after the date on which the option was granted.
5. CONFIDENTIAL INFORMATION. The Executive acknowledges that the information,
observations and data obtained by her while employed by the Company concerning
the business or affairs of the Company, any of its affiliates or any Subsidiary
("Confidential Information") are the property of the Company or such affiliate
or Subsidiary, as the case may be. Therefore, Executive agrees not to disclose
to any
<PAGE>
4
unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Company, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to the Company at the termination of the Employment
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
or the business of the Company, any of its affiliates or any Subsidiary which
Executive may then possess or have under her control.
6. INVENTIONS AND PATENTS. Executive agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company and/or its Subsidiaries ("Work
Product") belong to the Company or such Subsidiary. Executive will promptly
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. NON-COMPETE, NON-SOLICITATION.
(a) Executive acknowledges that in the course of her employment with the
Company he will become familiar with the information concerning the
Company, its affiliates, Subsidiaries and its predecessors and that her
services have been and will be of special, unique and extraordinary value
to the Company. Therefore, Executive agrees that, during the Employment
Period and for the period of two years thereafter, the Executive shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with
the business of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination of Executive's employment,
within any geographic area in which the Company, its affiliates or its
Subsidiaries engage or plan to engage in such businesses. Nothing herein
shall prohibit Executive from being a passive owner of not more than 3% of
the outstanding stock of any class of a corporation which is publicly
traded, so long as Executive has no active participation in the business of
such corporation.
(b) During the non-compete Period, executive shall not directly or indirectly
through another entity (i) induce or attempt to induce any employee of the
Company, any of its affiliates or any Subsidiary to leave the employ of the
Company or such affiliate or Subsidiary, or in any way interfere with the
relationship between the Company, any of its affiliates or any Subsidiary
and any employee thereof, (ii) hire any person who was an employee of the
Company, any of its affiliates or any Subsidiary at any time during the
Employment Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company, any of its
affiliates or any subsidiary to cease doing business with the Company or
such affiliate or Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company, any of its affiliates or any Subsidiary.
(c) If Executive is terminated by the Company Without Cause or the Company
is liquidated, the Non-compete provisions of this Agreement will also
terminate upon the Termination Date or date of liquidation.
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5
8. ENFORCEMENT. If, at the time of enforcement of paragraph 5, 6 or 7 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
9. EXECUTIVE REPRESENTATION. Executive hereby represents and warrants to the
Company that (i) the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by an employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
10. SURVIVAL. Paragraphs 5, 6 and 7 shall survive and continue in full force in
accordance with their terms notwithstanding any termination of the Employment
Period, unless such termination was Without Cause.
11. NOTICES. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the Address indicated below:
Notice to Executive: 4125 South Hulen, Apartment 711
Fort Worth, Texas 76109
Notices to Company 801 Cherry Street
Suite 1450
Fort Worth, Texas 76102
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
12. Severability. Whenever possible, each provision of this Agreement will be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. COMPLETE AGREEMENT. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the
<PAGE>
6 parties, written or oral, which may be related to the subject matter hereof in
any way.
14. COUNTERPARTS. This Agreement may be executed in separate counterparts, each
of which is deemed to be in an original and all of which taken together
constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign her rights
or delegate her obligations hereunder without the prior written consent of the
Company.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas. In furtherance of the
foregoing, the internal law of the State of Texas shall control the
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be amended or
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
18. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
19. NO STRICT CONSTRUCTION; INTERPRETATION. The language used in this agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent and no rule of strict construction will be applied against any
person. The term " including" as used in this Agreement is used to list items by
way of example and shall not be deemed to constitute a limitation of any term or
provision contained herein. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context so requires.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ProMedCo, Inc. "Executive"
BY: /s/ H. WAYNE POSEY /s/ DEBORAH A. JOHNSON
H. Wayne Posey Deborah A. Johnson
President and CEO
CONFIDENTIAL TREATMENT REQUESTED
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SERVICE AGREEMENT
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PROMEDCO OF TEMPLE, INC.
AND
PHYSICIANS OF KING'S DAUGHTERS, P.A.
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EFFECTIVE SEPTEMBER 1, 1996
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
1. RESPONSIBILITIES OF THE PARTIES..................................1
1.1 General Responsibilities of the Parties................1
1.2 KDCP's Matters.........................................1
1.3 Patient Referrals......................................1
2. POLICY COUNCIL...................................................1
2.1 Formation and Operation of the Policy Council..........1
2.2 Duties and Responsibilities of the Policy Council......2
3. OBLIGATIONS OF PROMEDCO-TEMPLE...................................3
3.1 Management and Administration..........................4
3.2 Administrator..........................................8
3.3 Expansion of Clinic....................................8
3.4 Events Excusing Performance............................8
3.5 Compliance With Applicable Laws........................8
3.6 Capital Needs..........................................8
4. OBLIGATIONS OF KDCP..............................................8
4.1 Professional Services..................................8
4.2 Employment Of Physician Employees......................9
4.3 Non-Clinic Expenses....................................9
4.4 Medical Practice.......................................9
4.5 Professional Insurance Eligibility.....................9
4.6 Employment Of Non-Physician Employees..................9
4.7 Events Excusing Performance............................9
4.8 Compliance With Applicable Laws.......................10
4.9 Restrictions on Use of Clinic Facility................10
4.10 KDCP Employee Benefit Plans..........................10
4.11 Physician Powers of Attorney.........................11
4.12 Spokesperson.........................................11
5. RECORDS.........................................................11
5.1 Patient Records.......................................11
5.2 Other Records.........................................11
5.3 Access to Records.....................................11
6. FACILITIES TO BE PROVIDED BY PROMEDCO-TEMPLE....................11
6.1 Facilities............................................11
6.2 Use of Facilities.....................................12
7. FINANCIAL ARRANGEMENTS..........................................12
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7.1 Payments to KDCP and ProMedCo-Temple...........................12
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7.2 Distribution...........................................12
7.3 Clinic Expenses........................................12
7.4 Accounts Receivables...................................12
8. INSURANCE AND INDEMNITY..........................................13
8.1 Insurance to Be Maintained by ProMedCo-Temple..........13
8.2 Insurance to be Maintained by KDCP.....................13
8.3 Tail Insurance Coverage................................13
8.4 Additional Insured.....................................14
8.5 Indemnification........................................14
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES....................14
9.1 Restrictive Covenants by KDCP..........................14
9.2 Restrictive Covenants By Medical Professionals.........14
9.3 Physician Shareholder and Physician Employee
Liquidated Damages.....................................15
9.4 Enforcement.............................................16
9.5 Termination of Restrictive Covenants....................16
10. TERM.............................................................16
10.1 Term and Renewal.......................................16
10.2 Termination by KDCP....................................17
10.3 Termination by ProMedCo-Temple.........................18
10.4 Actions After Termination..............................18
11. DEFINITIONS......................................................20
11.1 Adjustments ...........................................20
11.2 Clinic ................................................20
11.3 Clinic Expenses .......................................20
11.4 Clinic Expenses shall not include......................22
11.5 Clinic Facility .......................................22
11.6 Distribution Funds ....................................23
11.7 Effective Date ........................................23
11.9 KDCP Employees ........................................23
11.10 Medical Professional .................................23
11.11 Net Clinic Revenues ..................................23
11.12 Opening Balance Sheet ................................23
11.13 Physician Employees ..................................23
11.14 Physician Extenders ..................................23
11.15 Physician Shareholders ...............................23
11.16 Plan and Agreement for Reorganization ................24
11.17 ProMedCo..............................................24
11.18 ProMedCo IPO Date.....................................24
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11.19 ProMedCo IPO Price..................................24
11.20 ProMedCo-Temple Distribution .......................24
11.21 Risk Pool Surpluses ................................24
11.22 Technical Employees ................................24
12. GENERAL PROVISIONS.............................................24
12.1 Independent Contractor...............................24
12.2 Other Contractual Arrangement........................25
12.3 Proprietary Property.................................26
12.4 Cooperation..........................................26
12.5 Licenses, Permits and Certificates...................26
12.6 Compliance with Rules, Regulations and Laws..........26
12.7 Generally Accepted Accounting Principles (GAAP)......27
12.8 Notices..............................................27
12.9 Attorneys' Fees......................................27
12.10 Severability........................................27
12.11 Arbitration.........................................27
12.12 Construction of Agreement...........................27
12.13 Assignment and Delegation...........................28
12.14 Confidentiality.....................................28
12.15 Waiver..............................................28
12.16 Headings............................................28
12.17 No Third Party Beneficiaries........................28
12.18 Time is of the Essence..............................28
12.19 Modifications of Agreement for
Prospective Legal Events............................28
12.20 No Right of Off-Set.................................29
12.21 Whole Agreement.....................................29
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SERVICE AGREEMENT
Service Agreement ("Agreement") dated September 18, 1996, between
ProMedCo of Temple, Inc., a Delaware corporation ("ProMedCo-Temple"), and
Physicians of King's Daughters, P.A., a Texas professional association ("KDCP").
RECITALS:
Subject to the terms and conditions hereof, KDCP desires to engage
ProMedCo-Temple to provide to KDCP management services, facilities, personnel,
equipment and supplies necessary to operate the Clinic (as defined herein) and
ProMedCo-Temple desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 GENERAL RESPONSIBILITIES OF THE PARTIES. ProMedCo-Temple shall
provide KDCP with offices, facilities, equipment, supplies, non-professional
support personnel, and management and financial advisory services.
ProMedCo-Temple shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of KDCP and their patients.
1.2 KDCP'S MATTERS. KDCP shall maintain sole discretion and authority
over the financial matters relative to its corporate existence. It shall set
compensation levels for KDCP Employees. KDCP will also be responsible for all
other matters pertaining to the operation of KDCP.
1.3 PATIENT REFERRALS. The parties agree that the benefits to KDCP do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo-Temple to any of KDCP's patients in any facility or
laboratory controlled, managed or operated by ProMedCo-Temple.
2. POLICY COUNCIL
2.1 FORMATION AND OPERATION OF THE POLICY COUNCIL. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of six members. ProMedCo-Temple shall designate, at its sole discretion,
three members of the Policy Council. Members of the Policy Council designated by
ProMedCo-Temple and/or KDCP shall be entitled to attend and vote by proxy at any
meetings of the Policy Council so long as at least one such representative is
present in person. KDCP at its sole discretion shall designate three members.
Except as may otherwise be provided, the act of a majority of the six members of
the Policy Council shall be the act of the Policy Council.
2.2 DUTIES AND RESPONSIBILITIES OF THE POLICY COUNCIL. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
(a) ANNUAL BUDGETS. All annual capital and operating budgets prepared by
ProMedCo- Temple, as set forth in Section 3 and employing ProMedCo-Temple's
financial expertise, shall be subject to the review and approval of the Policy
Council, provided; however, ProMedCo-Temple shall have final approval of any
capital expenditure required by ProMedCo-Temple.
(b) ADMINISTRATOR. The selection and retention of the Administrator pursuant to
Section 3.1 shall be subject to the reasonable approval of the Policy Council.
If KDCP is dissatisfied with the services provided by the Administrator, KDCP
shall refer the matter to the Policy Council. ProMedCo-Temple and Policy Council
shall in good faith determine whether the performance of the Administrator could
be brought to acceptable levels through counsel and assistance, or whether the
Administrator should be terminated. ProMedCo-Temple shall have the ultimate
authority to terminate the Administrator.
(c) ADVERTISING. All advertising, marketing, and public relations shall be
subject to the prior review and approval of the Policy Council, in compliance
with applicable laws and regulations governing professional advertising and in
accordance with the standards and medical ethics of the American Medical
Association and the Texas Medical Association.
(d) ANCILLARY SERVICES. The Policy Council shall approve Clinic provided
ancillary services based upon the pricing, access to and quality of such
services.
(e) CAPITAL IMPROVEMENTS AND EXPANSION. The Policy Council shall determine the
priority for any renovation, expansion plans and major equipment expenditures
with respect to the Clinic based upon economic feasibility, physician support,
productivity and market conditions. Any capital expenditure in excess of $20,000
shall require the approval of the Policy Council; all others may be made by
ProMedCo-Temple at its discretion in the exercise of prudent business
judgement..
(f) EXCEPTIONS TO INCLUSION IN THE NET REVENUE CALCULATION. The exclusion of any
revenue from Net Clinic Revenues, whether now or in the future, shall be subject
to the approval of the Policy Council.
(g) GRIEVANCE ISSUES. Subject to the provisions of Section 1.2 of this
Agreement, the Policy Council shall consider and make final decisions regarding
grievances pertaining to matters not specifically addressed in this Agreement as
referred to it by KDCP's Board or ProMedCo-Temple.
(h) PATIENT FEES. In consultation with KDCP and ProMedCo-Temple, the Policy
Council shall review and adopt the fee schedule for all physician and ancillary
services rendered by the Clinic.
(i) PHYSICIAN HIRING. The Policy Council, with information and
analysis provided by
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ProMedCo-Temple, shall determine the number and type of physicians required for
the efficient operation of the Clinic and KDCP shall determine the individual
physicians to be hired to fill such positions. The approval of ProMedCo-Temple
shall be required for any variations to the restrictive covenants in any
physician employment contract.
(j) PROVIDER AND PAYOR RELATIONSHIPS. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo-Temple and KDCP may choose to use
actuarial data from a nationally recognized actuarial firm as agreed to by both
parties, for the purposes of allocating capitation funds, for those professional
services provided directly by KDCP.
(k) STRATEGIC PLANNING. The Policy Council, with the assistance of
ProMedCo-Temple, shall develop long-term strategic planning objectives.
3. OBLIGATIONS OF PROMEDCO-TEMPLE
During the term of this Agreement, ProMedCo-Temple shall provide or
arrange for the services set forth in this Section 3, the cost of all of which
shall be included in Clinic Expenses. ProMedCo-Temple is hereby expressly
authorized to perform its services in whatever manner it deems reasonably
appropriate, in accordance with policies approved by the Policy Council, and
including without limitation, performance of some functions at locations other
than the Clinic Facility. KDCP will not act in a manner which would prevent
ProMedCo-Temple from efficiently managing the Clinic Facility operations in a
businesslike manner. KDCP, through KDCP Employees, will provide all medical
services. ProMedCo-Temple will have no authority, directly or indirectly, to
perform, and will not perform, any medical function. ProMedCo-Temple may,
however, advise KDCP as to the relationship between its performance of medical
functions and the overall administrative and business functioning of the Clinic.
3.1 MANAGEMENT AND ADMINISTRATION. During the term of this Agreement,
KDCP hereby appoints ProMedCo-Temple as the sole and exclusive manager and
administrator of all non-medical functions and services related to KDCP's
services at the Clinic. KDCP shall perform all medical services, and
ProMedCo-Temple shall have no authority, directly or indirectly, to perform, and
will not perform, any medical function. Without limiting the generality of the
foregoing, ProMedCo- Temple shall provide the following administrative,
management and marketing services as may be required in conjunction with KDCP's
services at the Clinic. ProMedCo-Temple shall hire and supervise an
Administrator, subject to the reasonable approval of the Policy Council, to
manage and administer all of the day-to-day business functions of
ProMedCo-Temple, including without limitation:
3.1.1 ANNUAL BUDGETS. Financial planning and preparation
of annual budgets.
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Annually and at least 30 days prior to the commencement of each fiscal
year, ProMedCo- Temple shall prepare and deliver to KDCP capital and
operating budgets reflecting in reasonable detail anticipated revenues
and expenses, sources and uses of capital to maintain and enhance
KDCP's medical practice and Clinic services.
3.1.2 FINANCIAL STATEMENTS. ProMedCo-Temple shall prepare
monthly and fiscal year unaudited financial statements containing a
balance sheet and a statement of income for Clinic operations, which
shall be delivered to KDCP within thirty (30) days after the close of
each calendar month. The fiscal year statement shall be reviewed by a
certified public accountant as selected by ProMedCo-Temple in
connection with the audit of the financial statements of ProMedCo. If
KDCP desires an audit in addition to the audit provided by
ProMedCo-Temple, such an audit would be at KDCP's expense.
3.1.3 NON-PROFESSIONAL PERSONNEL. ProMedCo-Temple will provide
all personnel reasonably necessary for the conduct of Clinic operations
with the exception of Physician Extenders and Technical Employees.
ProMedCo-Temple shall determine and cause to be paid the salaries,
fringe benefits and any sums for income taxes, unemployment insurance,
social security taxes or any other withholding amounts required by
applicable law or governmental authority, of all such personnel. Such
personnel shall be under the direction, supervision and control of
ProMedCo-Temple, with those personnel performing patient care services
subject to the professional supervision of KDCP. If KDCP is
dissatisfied with the services of any person, KDCP shall consult with
ProMedCo-Temple. ProMedCo-Temple shall in good faith determine whether
the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be
terminated. All of ProMedCo-Temple's obligations regarding staff shall
be governed by the overriding principle and goal of providing high
quality medical care. At ProMedCo-Temple's option some or all of the
non-physician personnel may be carried on the books of KDCP as KDCP's
employees in which event the costs associated with such employees will
be a Clinic Expense.
3.1.4 QUALITY ASSURANCE. ProMedCo-Temple will assist KDCP in
fulfilling its obligation to its patients to maintain high quality
medical and professional services, including patient satisfaction
programs, employee education, outcomes analysis, clinical protocol
development and to implement a risk management program.
3.1.5 FACILITIES AND EQUIPMENT. ProMedCo-Temple will ensure
the proper cleanliness of the premises, maintenance and cleanliness of
the equipment, furniture and furnishings located on the premises.
3.1.6 INVENTORY CONTROL AND PURCHASING SUPPLIES.
ProMedCo-Temple shall order and purchase inventory and supplies, and
such other ordinary, necessary or appropriate materials which
ProMedCo-Temple shall deem to be necessary in the operation of the
Clinic, to deliver quality Clinic services in a cost effective manner.
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3.1.7 MANAGED CARE CONTRACTING. ProMedCo-Temple will be
responsible for marketing, negotiation, and administering all managed
care contracts, subject to the provisions of Section 2.2(j); provided,
however, no contract or arrangement regarding the provision of clinical
services shall be entered into without KDCP's consent.
3.1.8 BILLING AND COLLECTIONS. ProMedCo-Temple shall bill
patients and collect all fees for services performed inside or outside
the Clinic Facility or arrange for such billing and collection. KDCP
hereby appoints ProMedCo-Temple, for the term hereof, to be its true
and lawful attorney-in-fact for the following purposes (i) to bill
patients in KDCP's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in KDCP's name and on its
behalf, (iii) to receive payments from Blue Cross and Blue Shield,
Medicare, Medicaid, payments from health plans, and all other third
party payors; (iv) to receive the cash proceeds of any accounts
receivable; (v) to take possession of and endorse in the name of KDCP
(and/or in the name of an individual physician, such payment intended
for purpose of payment of a physician's bill) any notes, checks, money
orders, insurance payments and other instruments received in payment of
accounts receivable; and (vi) in accordance with policies adopted by
the Policy Council, to initiate legal proceedings in the name of KDCP
to collect any accounts and monies owed to the Clinic, to enforce the
rights of KDCP as creditors under any contract or in connection with
the rendering of any service, and to contest adjustments and denials by
governmental agencies (or its fiscal intermediaries) as third-party
payors. All adjustments made for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee
shall be done in a reasonable and consistent manner acceptable to
ProMedCo-Temple's independent certified public accountants.
3.1.9 DEPOSIT OF NET CLINIC REVENUES. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the
operations of the Clinic shall be deposited directly into a bank
account of which KDCP shall be the owner ("Account"). ProMedCo- Temple
and KDCP shall maintain their accounting records in such a way as to
clearly segregate Net Clinic Revenues from other funds of
ProMedCo-Temple or KDCP. KDCP hereby appoints ProMedCo-Temple as its
true and lawful attorney-in-fact to deposit in the Account all revenues
collected. KDCP covenants, and shall cause all KDCP Employees to
covenant, to forward any payments received with respect to Net Clinic
Revenues for services provided by KDCP and KDCP Employees to
ProMedCo-Temple for deposit. ProMedCo- Temple shall have the right to
withdraw funds from the Account and all owners of the Account shall
execute a revocable standing transfer order ("Transfer Order") under
which the bank maintaining the Account shall periodically transfer the
entire balance of the Account to a separate bank account owned solely
by ProMedCo-Temple ("ProMedCo-Temple Account"). KDCP and
ProMedCo-Temple hereby agree to execute from time to time such
documents and instructions as shall be required by the bank maintaining
the Account and mutually agreed upon to effectuate the foregoing
provisions and to extend or amend such documents and instructions. Any
action by KDCP that interferes with the operation of this Section,
including, but not limited to, any failure to deposit or allow
ProMedCo-Temple to deposit any Net Clinic Revenues into the Account,
any withdrawal of any funds from the Account not authorized by the
express terms of this Agreement, or any revocation of or
<PAGE>
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attempt to revoke the Transfer Order (otherwise than upon expiration or
termination of this Agreement), will constitute a breach of this
Agreement and will entitle ProMedCo-Temple, in addition to any other
remedies that it may have at law or in equity, to seek a court ordered
assignment of the following rights:
(a) To collect accounts receivable resulting from
the provision of services to
patients of KDCP and the KDCP Employees;
(b) To receive payments from patients, third party payor
plans, insurance companies, Medicare, Medicaid and
all other payors with respect to services rendered by
KDCP and its KDCP Employees;
(c) To take possession of and endorse any notes, checks,
money orders, insurance payments and any other
instruments received as payment of such accounts
receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 MANAGEMENT INFORMATION SYSTEMS/COMPUTER SYSTEMS.
ProMedCo-Temple shall supervise and provide information systems that
are necessary and appropriate for the operation of the Clinic.
3.1.11 LEGAL AND ACCOUNTING SERVICES. ProMedCo-Temple shall
arrange for or render to KDCP such business and financial management
consultation and advice as may be reasonably required or requested by
KDCP and directly related to the operations of the Clinic.
ProMedCo-Temple shall not be responsible for rendering any legal or tax
advice or services or personal financial services to KDCP or any
employee or agent of KDCP.
3.1.12 NEGOTIATION AND PAYMENT OF PREMIUMS FOR ALL INSURANCE
PRODUCTS HELD BY KDCP. ProMedCo-Temple shall negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Section 8. Premiums and deductibles with respect to such policies shall
be a Clinic Expense.
3.1.13 PHYSICIAN RECRUITING. ProMedCo-Temple shall assist KDCP
in recruiting additional physicians, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, KDCP shall interview and make the ultimate decision
as to the suitability of any physician to become associated with the
Clinic. All physicians recruited by ProMedCo-Temple and accepted by
KDCP shall be the sole employees of KDCP to the extent such physicians
are hired as employees. Any expenses incurred in the recruitment of
physicians, including, but not limited to, employment agency fees,
relocation and interviewing expenses shall be Clinic Expenses approved
by the Policy Council.
3.1.14 SUPERVISION OF ANCILLARY SERVICES. ProMedCo-Temple
shall operate and
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supervise such ancillary services as approved by the Policy Council.
3.1.15 STRATEGIC PLANNING ASSISTANCE. ProMedCo-Temple shall
assist with and implement the strategic plan as approved by the
Policy Council.
3.1.16 ADVERTISING AND PUBLIC RELATIONS. From time to time
ProMedCo-Temple shall recommend to the Policy Council various
advertising and public relations initiatives which shall not be
implemented without Policy Council approval.
3.1.17 FILES AND RECORDS. ProMedCo-Temple shall supervise and
maintain custody of all files and records relating to the operation of
the Clinic, including but not limited to accounting, billing, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of KDCP and shall be located at
Clinic facilities so that they are readily accessible for patient care.
The management of all files and records shall comply with applicable
state and federal statutes. ProMedCo-Temple shall use its reasonable
efforts to preserve the confidentiality of patients' medical records
and use information contained in such records only for the limited
purpose necessary to perform the services set forth herein, provided,
however, in no event shall a breach of said confidentiality be deemed a
default under this Agreement.
3.2 ADMINISTRATOR. The selection and retention of the Administrator,
subject to the provisions of Section 2.2(b).
3.3 EXPANSION OF CLINIC. ProMedCo-Temple will pursue various programs
to increase revenue and profitability including assisting KDCP in adding
additional office based procedures, ancillary services and adding additional
satellite office(s) as determined by the Policy Council to be beneficial to the
Clinic. ProMedCo-Temple will also assist in recruiting new physicians and
developing relationships and affiliations with other physicians, hospitals,
networks, HMOs, etc. To assist in the continued growth and development of the
Clinic within a 30 mile radius of Temple, Texas, ProMedCo-Temple may acquire
other physician practices for incorporation into KDCP. KDCP will cooperate with
ProMedCo-Temple in such expansion efforts and use its reasonable efforts to
assist ProMedCo-Temple with respect thereto. Without limiting the generality of
the foregoing, neither party not enter into any agreements with respect to any
such matter without the prior approval of the Policy Council.
3.4 EVENTS EXCUSING PERFORMANCE. ProMedCo-Temple shall not be liable to
KDCP for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo-Temple has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
3.5 COMPLIANCE WITH APPLICABLE LAWS. ProMedCo-Temple shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of its obligations under this Agreement.
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3.6 CAPITAL NEEDS. ProMedCo-Temple shall be responsible for the
capital necessary to maintain, expand and grow KDCP, subject to the approval of
the Policy Committee.
4. OBLIGATIONS OF KDCP
4.1 PROFESSIONAL SERVICES. KDCP shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. KDCP shall also ensure that each physician
associated with KDCP is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, KDCP shall immediately inform the Administrator of such action
and the underlying facts and circumstances. KDCP shall carry out a program to
monitor the quality of medical care practiced, with ProMedCo-Temple's
assistance. KDCP will cooperate with ProMedCo- Temple in taking steps to resolve
any utilization review or quality assurance issues which may arise in connection
with the Clinic.
4.2 EMPLOYMENT OF PHYSICIAN EMPLOYEES. KDCP shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of KDCP, ProMedCo-Temple shall consult with KDCP regarding such
matters. KDCP shall enforce formal employee agreements from each of its
Physician Shareholders and Physician Employees, hired or contracted,
substantially in the form attached to the Plan and Agreement for Reorganization
as Appendix 2.9B-2.
4.3 NON-CLINIC EXPENSES. KDCP shall be solely responsible for the
payment of all costs and expenses incurred in connection with KDCP operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes,
membership in professional associations, continuing medical education, licensing
and board certification fees for its Physician Employees and Physician Extenders
and automobile and cellular telephone expenses of KDCP Physician Employees and
Physician Extenders.
4.4 MEDICAL PRACTICE. KDCP shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with
KDCP, and no other physician or medical practitioner shall be permitted to use
or occupy the Clinic Facility without the prior written consent of the Policy
Council.
4.5 PROFESSIONAL INSURANCE ELIGIBILITY. KDCP shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
4.6 EMPLOYMENT OF NON-PHYSICIAN EMPLOYEES. There will be certain
Technical Employees that perform technical functions for KDCP. These Technical
Employees will remain in the employ of KDCP. As provided in Section 3.1.3,
ProMedCo-Temple will provide payroll and
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administrative services for such Technical Employees which shall be a Clinic
Expense.
4.7 EVENTS EXCUSING PERFORMANCE. KDCP shall not be liable to
ProMedCo-Temple for failure to perform any of the services required herein in
the event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events over which KDCP has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
4.8 COMPLIANCE WITH APPLICABLE LAWS. KDCP shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.9 RESTRICTIONS ON USE OF CLINIC FACILITY. KDCP shall at all times
during the term of this Agreement comply with the policy of ProMedCo-Temple
stated in Section 6.2 herein.
4.10 KDCP EMPLOYEE BENEFIT PLANS.
(a) As of the Effective Date of this Agreement, KDCP has in effect the employee
welfare benefit plans (as such term is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and the employee
pension benefit plans (as such term is defined in Section 3(2) of ERISA), as set
forth in Exhibit 3.22 to the Plan and Agreement for Reorganization.
(b) KDCP shall not enter into any new "employee benefit plan" (as defined in
Section 3(3) of ERISA) without the express written consent of ProMedCo- Temple.
Except as otherwise required by law, KDCP shall not materially amend, freeze,
terminate or merge any employee welfare or employee benefit plan without the
express written consent of ProMedCo-Temple unless such action is contemplated by
the Plan and Agreement for Reorganization. KDCP agrees to make such changes to
any employee welfare or employee benefit plan, including the freeze,
termination, or merger of such plan, as may be approved by ProMedCo-Temple.
(c) Expenses incurred in connection with any KDCP Plan or other employee benefit
plan maintained by KDCP, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall not be included
in Clinic Expenses.
(d) The contribution and administration expenses for Medical Professionals shall
be an expense of KDCP. ProMedCo-Temple shall make contributions or payments with
respect to any KDCP Plan, as a Clinic Expense, on behalf of eligible Technical
Employees or other non-Medical Professionals employed by KDCP at
ProMedCo-Temple's request pursuant to ss. 3.1.3.
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(e) ProMedCo-Temple shall have the sole and exclusive authority to adopt, amend,
or terminate any employee benefit plan for the benefit of its employees.
ProMedCo-Temple shall have the sole and exclusive authority to appoint the
trustee, custodian, and administrator of any such plan.
4.11 PHYSICIAN POWERS OF ATTORNEY. KDCP shall require all KDCP
Employees to execute and deliver to ProMedCo-Temple powers of attorney,
satisfactory in form and substance to ProMedCo-Temple and KDCP, appointing
ProMedCo-Temple as attorney-in-fact for each for the purposes set forth in
Sections 3.1.8 and 3.1.9, which powers of attorney shall immediately terminate
upon termination of this Agreement.
4.12 SPOKESPERSON. KDCP shall serve as spokesperson for ProMedCo-Temple
and ProMedCo in Clinic, ProMedCo-Temple and ProMedCo development activities. The
parties agree that such Physician Shareholders as the Policy Council shall
appoint, shall serve in this capacity on behalf of KDCP.
5. RECORDS
5.1 PATIENT RECORDS. Upon termination of this Agreement, KDCP shall
retain all patient medical records maintained by KDCP or ProMedCo-Temple in the
name of KDCP. KDCP shall, at its option, be entitled to retain copies of
financial and accounting records relating to all services performed by KDCP.
5.2 OTHER RECORDS. All records relating in any way to the operation
of the Clinic which are not the property of KDCP under the provisions of Section
5.1 above, shall at all times be the property of ProMedCo-Temple.
5.3 ACCESS TO RECORDS. During the term of this Agreement, and
thereafter, KDCP or its designee shall upon 24 hours notice have reasonable
access during normal business hours to KDCP's and ProMedCo-Temple's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo-Temple in performing ProMedCo-Temple's
obligations under this Agreement, and KDCP may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO-TEMPLE
6.1 FACILITIES. ProMedCo-Temple hereby agrees to provide or arrange as
a Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonably incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
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6.2 USE OF FACILITIES. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo-Temple or any of its affiliates
in whole or in part. ProMedCo-Temple and KDCP agree that KDCP, as an independent
contractor, is a separate organization that retains the authority to direct the
medical, professional, and ethical aspects of its medical practice. If a
Physician Shareholder or a Physician Employee performs abortion procedures in
any facility, ProMedCo- Temple shall not receive any ProMedCo-Temple
Distribution from the revenue generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 PAYMENTS TO KDCP AND PROMEDCO-TEMPLE. KDCP and ProMedCo-Temple
agree that the compensation set forth herein is being paid to ProMedCo-Temple in
consideration of a substantial commitment made by ProMedCo-Temple hereunder and
that such fees are fair and reasonable. As payment for its services rendered to
KDCP, each month ProMedCo-Temple shall be paid the amount of all Clinic Expenses
and the ProMedCo-Temple Distribution. All Net Clinic Revenues after deduction of
Clinic Expenses, and the ProMedCo-Temple Distribution, shall be referred to as
the "KDCP Distribution." In the event ProMedCo or ProMedCo-Temple shall be
obligated pursuant to the Plan and Agreement for Reorganization or other
documents related thereto to make payments to any of the Physician Employees of
KDCP and shall have failed to make such payments, the amount of such payments
not made shall be added to the KDCP Distribution until paid in full.
7.2 DISTRIBUTION. The amounts to be paid to ProMedCo-Temple under this
Section 7.2 shall be payable monthly. ProMedCo-Temple shall pay to KDCP, in
accordance with the provisions of Section 7.4, the KDCP Distribution amounts on
or about the 15th day of such following month. Some amounts may need to be
estimated, with adjustments made as necessary the following month. Any audit
adjustments would be made after completion of the fiscal year audit.
7.3 CLINIC EXPENSES. Commencing on the Effective Date, ProMedCo-Temple
shall pay all Clinic Expenses as they fall due (including without limitation the
expenses of any Non-Physician Personnel carried on the books of KDCP at the
requirement of ProMedCo-Temple), provided, however, that ProMedCo-Temple may, in
the name of and on behalf of KDCP, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo-Temple hereby agrees to
indemnify and hold KDCP harmless from and against any liability, loss, damages,
claims, causes of action and reasonable expenses of KDCP resulting from the
contest of any Clinic Expenses.
7.4 ACCOUNTS RECEIVABLES. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo-Temple shall purchase the
accounts receivable of KDCP arising during the previous month, by payment of
cash, or other readily available funds into an account of KDCP. The
consideration for the purchase shall be an amount equal to the KDCP Distribution
for such previous month. Although it is the intention of the parties that
ProMedCo- Temple purchase and thereby become owner of the accounts receivable of
KDCP, in case such purchase shall be ineffective for any reason, KDCP, as of the
Effective Date of this Agreement, grants
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and shall cause each KDCP Employee to grant to ProMedCo-Temple a first priority
lien on and security interest in and to any and all interest of KDCP and such
KDCP Employees in any accounts receivable generated by the medical practice of
KDCP and the KDCP Employees or otherwise generated through the operations of the
Clinic, and all proceeds with respect thereto, to secure the payment to
ProMedCo-Temple of all such accounts receivable, and this Agreement shall be
deemed to be a security agreement to the extent necessary to give effect to the
foregoing. In addition, KDCP shall cooperate with ProMedCo-Temple and execute
and deliver, and cause each KDCP Employee to execute and deliver, all necessary
documents in connection with the pledge of such accounts receivable to
ProMedCo-Temple or at ProMedCo-Temple's option, its lenders. All collections in
respect of such accounts receivable shall be deposited in a bank account at a
bank designated by ProMedCo-Temple. To the extent KDCP or any KDCP Employee
comes into possession of any payments in respect of such accounts receivable,
KDCP or such KDCP Employee shall direct such payments to ProMedCo-Temple for
deposit in bank accounts designated by ProMedCo-Temple.
8. INSURANCE AND INDEMNITY
8.1 INSURANCE TO BE MAINTAINED BY PROMEDCO-TEMPLE. Throughout the term
of this Agreement, ProMedCo-Temple will use reasonable efforts to provide and
maintain, as a Clinic Expense, comprehensive professional liability insurance
for all professional employees of ProMedCo- Temple and KDCP with limits for KDCP
Medical Professionals required by ss. 8.2 as reasonably determined by
ProMedCo-Temple in its national program, comprehensive general liability
insurance and property insurance covering the Clinic Facility and operations.
8.2 INSURANCE TO BE MAINTAINED BY KDCP. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, KDCP shall maintain
comprehensive professional liability insurance with limits of not less than
$1,000,000 per claim and with aggregate policy limits of not less than
$1,000,000 per physician with limits for specialists of not less than $3,000,000
per physician with a separate limit for KDCP. KDCP shall be responsible for all
liabilities (including without limitation deductibles and excess liabilities)
not paid within the limits of such policies. ProMedCo-Temple shall have the
option of providing such professional liability insurance through an alternative
program, provided such program meets the requirements of the Insurance
Commissioner of the State of Texas and is approved by the Policy Council.
8.3 TAIL INSURANCE COVERAGE. KDCP will cause each individual physician
associated with the Clinic to enter into an agreement with KDCP that upon
termination of such physician's relationship with KDCP, for any reason, tail
insurance coverage will be purchased by the individual physician. Such
provisions shall be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by KDCP and the individual
physicians, and KDCP hereby covenants with ProMedCo-Temple to enforce such
provisions relating to the tail insurance coverage or to provide such coverage
at the expense of KDCP.
8.4 ADDITIONAL INSURED. KDCP and ProMedCo-Temple agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective professional liability insurance programs at
ProMedCo-Temple's expense.
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8.5 INDEMNIFICATION. KDCP shall indemnify, hold harmless and defend
ProMedCo-Temple, its officers, directors and employees, from and against any and
all liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of medical services or any other acts or omissions by KDCP and/or
its shareholders, agents, employees and/or subcontractors (other than
ProMedCo-Temple) during the term hereof, including any claim against
ProMedCo-Temple by a KDCP Employee, which claim arises out of such KDCP
Employees' employment relationship with KDCP or as a result of services
performed by such KDCP Employee, and which claim would typically be covered by
worker's compensation. ProMedCo-Temple shall indemnify, hold harmless and defend
KDCP, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of any intentional acts, negligent acts or omissions by
ProMedCo-Temple and/or its shareholders, agents, employees and/or subcontractors
(other than KDCP) during the term of this Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by
ProMedCo-Temple shall be feasible only if KDCP operates an active medical
practice to which the physicians associated with KDCP devote their full time and
attention. To that end:
9.1 RESTRICTIVE COVENANTS BY KDCP. During the term of this Agreement,
KDCP shall not, without the prior written consent of ProMedCo-Temple, establish,
operate or provide physician services at any medical office, clinic or other
health care facility providing services substantially similar to those provided
by KDCP pursuant to this Agreement anywhere within a radius of 30 miles of the
Clinic Facility, or within a radius of 30 miles of any current or future medical
office, clinic or other health care facility from which KDCP provides medical
services.
9.2 RESTRICTIVE COVENANTS BY MEDICAL PROFESSIONALS. KDCP shall:
(a) Current Medical Professionals. Enforce employment agreements, in a form
satisfactory to ProMedCo-Temple, with its current Medical Professionals; and
(b) Future Medical Professionals. Obtain and enforce formal employment
agreements from each of its future Medical Professionals in the form attached to
the Plan and Agreement for Reorganization;
pursuant to which each of the Medical Professionals agrees that unless (i) KDCP
is in default under the employment agreement or (ii) the employment of the
Medical Professional is terminated without cause, during the term of such
Medical Professional's employment agreement, and for a period of two years after
any termination of employment with KDCP, such Medical Professional will not
establish, operate or provide physician services at any medical office, clinic
or outpatient and/or ambulatory treatment or diagnostic facility providing
services substantially similar to those provided by KDCP
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pursuant to this Agreement within a radius of 30 miles of the Clinic Facility or
within a radius of 30 miles of any current or future medical office, clinic or
other health care facility from which KDCP provides medical services and that
ProMedCo-Temple shall have third-party rights to enforce such agreements.
9.3 PHYSICIAN SHAREHOLDER AND PHYSICIAN EMPLOYEE LIQUIDATED DAMAGES.
(a) RELEASE FROM RESTRICTIVE COVENANTS. The restrictive covenants described in
Section 9.2 of this Agreement will provide that the Physician Shareholders and
Physician Employees (existing or future) may be released from such restrictive
covenants by paying Liquidated Damages in the amount of one times such
physician's income related to the Clinic, as reported to the Internal Revenue
Service for the previous 12 months.
(b) LIQUIDATED DAMAGES IN CERTAIN EVENTS. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo-Temple consideration
pursuant to the Plan and Agreement for Reorganization, and said Physician
Shareholder or Physician Employee terminates his or her employment agreement
with KDCP for any reason (other than death, Retirement or Total Disability as
defined in the employment agreement between such Physician Shareholder and KDCP)
prior to the fifth anniversary of the Closing under the Plan and Agreement for
Reorganization, or is terminated with or without cause by KDCP prior to the
fifth anniversary of the Closing under the Plan and Agreement for
Reorganization, then KDCP (or if the Physician Shareholder or Physician Employee
has received any of the consideration paid to KDCP by ProMedCo-Temple under the
Plan and Agreement for Reorganization, said Physician Shareholder or Physician
Employee) shall pay KDCP $300,000 in liquidated damages which amount may be paid
in cash, in ProMedCo Stock valued at $14.00, as adjusted to reflect stock
splits, stock dividends, reverse stock splits or other similar changes in
capitalization, or a combination thereof; provided however, in the event fewer
than 10% of the Physician Employees employed by KDCP as of the date of this
Agreement shall have been terminated without cause, at the time a Physician
Employee is terminated without cause, the liquidated damages provision shall not
be applicable. KDCP shall retain such payments in a separate fund (the
"Recruitment Fund") to be used first to defray all costs incurred by KDCP or
ProMedCo-Temple in the enforcement of the employment agreement for that
departing physician and second for recruiting, relocating and funding the
compensation for a replacement physician for that departing physician and/or
additional physicians.
9.4 ENFORCEMENT. ProMedCo-Temple and KDCP acknowledge and agree that
since a remedy at law for any breach or attempted breach of the provisions of
this Section 9 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond
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in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory or time described
therein shall be declared by a court of competent jurisdiction to exceed the
maximum time period, scope of activity, restricted or geographical area such
court deems reasonable and enforceable under applicable law, the time period,
scope of activity, restricted and/or area of restriction deemed to be reasonable
and enforceable by the court shall thereafter be the time period, scope of
activity, restricted and/or area of restriction applicable to the restrictive
covenant provisions in this Section 9. The invalidity of non-enforceability of
this Section 9 in any respect shall not affect the validity of enforceability of
the remainder of this Section 9 or of any other provisions of this Agreement
unless the invalid or non-enforceable provisions materially affect the benefits
either party would otherwise be entitled to receive under this Section 9 or any
other provision of this Agreement.
9.5 TERMINATION OF RESTRICTIVE COVENANTS. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the employment agreement term contained in this Section 9
shall be null and void and of no force or effect.
10. TERM RENEWAL; TERMINATION;
10.1 TERM AND RENEWAL. The term of this Agreement shall commence on the
Effective Date hereof and shall continue for 40 years, after which it shall
automatically renew for five-year terms unless either party provides the other
party with at least 12 months but not more than 13 months written notice prior
to any renewal date.
10.2 TERMINATION BY KDCP. KDCP may terminate this Agreement as
follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by ProMedCo-Temple, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo-Temple, except for the filing of a
petition in involuntary bankruptcy against ProMedCo-Temple which is dismissed
within 30 days thereafter, KDCP may give notice of the immediate termination of
this Agreement.
(ii) In the event ProMedCo-Temple shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or any agreement
between ProMedCo-Temple or ProMedCo with KDC and such default shall continue for
a period of 90 days after written notice thereof has been given to
ProMedCo-Temple by KDCP; or ProMedCo-Temple shall fail to remit the payments due
as provided in Section 7.2 hereof or under other agreements between
ProMedCo-Temple or ProMedCo and KDC and such failure to remit shall continue for
a period of 30 days after written notice thereof, KDCP may terminate this
Agreement. Termination of this Agreement pursuant to this Section 10.2(ii) by
KDCP shall require the affirmative vote of 75% of the Physician Shareholders.
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(iii) In the event the ProMedCo IPO Date shall not have occurred by September
30, 2001 and ProMedCo shall not have satisfied demands from all shareholders of
KDCP holding ProMedCo Stock who have made demand therefor (the "Demanding
Stockholders") to repurchase such stock at a purchase price determined by the
method described in this clause (iii); this right of termination shall expire 30
days after the value of the ProMedCo Stock is determined pursuant to the
following procedures or ProMedCo fails to timely comply with such procedures:
(A) Within 45 days of ProMedCo's receipt of repurchase demands pursuant to this
clause (iii) from the Demanding Stockholders who hold a majority in interest of
the ProMedCo stock held by the Demanding Stockholders, ProMedCo shall submit to
the Demanding Stockholders an appraisal (the "ProMedCo Appraisal") of the value
its stock as of September 30, 2001 on a per share basis (the "ProMedCo Stock
Value") made by a reputable appraiser; if the ProMedCo Appraisal is acceptable
to Demanding Stockholders holding a majority of the ProMedCo stock held by the
Demanding Stockholders, the ProMedCo Stock Value shall be as set forth in the
ProMedCo Appraisal; (B) if the Demanding Stockholders holding a majority of the
ProMedCo stock held by Demanding Stockholders, notify ProMedCo within 14 days of
receipt of the ProMedCo Appraisal that they disagree with the ProMedCo Stock
Value set forth therein, the Demanding Stockholders shall have 30 days to submit
to ProMedCo an appraisal (the "Demanding Stockholder Appraisal") of ProMedCo
Stock Value made by a reputable appraiser selected by the Demanding
Stockholders; if the Demanding Stockholder Appraisal is acceptable to ProMedCo,
the ProMedCo Stock Value shall be as set forth in the Demanding Stockholder
Appraisal; if the Demanding Stockholder Appraisal is not delivered to ProMedCo
within 44 days of the date the ProMedCo Appraisal is delivered to the Demanding
Stockhholders, ProMedCo Stock Value shall be as set forth in the ProMedCo
Appraisal; (C) if ProMedCo notifies the Demanding Stockholders within 14 days of
its receipt of the Demanding Stockholder Appraisal that the Demanding
Stockholder Appraisal is not acceptable, the appraisers who conducted the
ProMedCo Appraisal and the Demanding Stockholder Appraisal shall select a third,
independent appraiser who, within 30 days, shall appraise the ProMedCo Stock to
determine the ProMedCo Stock Value, and such appraisal shall be binding on the
parties.
10.3 TERMINATION BY PROMEDCO-TEMPLE. ProMedCo-Temple may terminate
this Agreement as follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by KDCP, or upon other action taken or
suffered, voluntarily or involuntarily, under any federal or state law for the
benefit of debtors by KDCP, except for the filing of a petition in involuntary
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bankruptcy against KDCP which is dismissed within 30 days thereafter,
ProMedCo-Temple may give notice of the immediate termination of this Agreement.
(ii) In the event KDCP shall materially default in the performance of any duty
or obligation imposed upon it by this Agreement or in the event a majority of
the Physicians Shareholders shall materially default in the performance of any
duty or obligation imposed upon them by this Agreement or by their employment
agreements with KDCP, and such default shall continue for a period of 90 days
after written notice thereof has been given to KDCP and such Physician
Shareholders by ProMedCo-Temple, ProMedCo-Temple may terminate this Agreement.
10.4 ACTIONS AFTER TERMINATION. In the event that this Agreement shall
be terminated, the KDCP Distribution and the ProMedCo-Temple Distribution shall
be paid through the effective date of termination. In addition, the various
rights and remedies herein granted to the aggrieved party shall be cumulative
and in addition to any others such party may be entitled to by law. The exercise
of one or more rights or remedies shall not impair the right of the aggrieved
party to exercise any other right or remedy, at law. Upon termination of this
Agreement, KDCP shall:
10.4.1 ASSET REPURCHASE. Purchase from ProMedCo-Temple at book
value the intangible assets set forth on the Opening Balance Sheet, as
adjusted through the last day of the month most recently ended prior to
the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, which
amortization shall be for a period not in excess of 40 years.
10.4.2 REAL ESTATE. Purchase from ProMedCo-Temple all real
estate, if any, associated with the Clinic and owned by ProMedCo-Temple
at the then book value thereof.
10.4.3 IMPROVEMENTS. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo-Temple as
reflected on ProMedCo- Temple's books as of the last day of this
Agreement and which relate solely to the performance of its obligations
under this Agreement or the properties subleased by ProMedCo-Temple, if
any.
10.4.4 DEBTS. Assume or otherwise discharge all ordinary and
necessary debt, contracts, payables and leases which are obligations of
ProMedCo-Temple and which relate principally to the performance of its
obligations under this Agreement or the properties subleased by
ProMedCo-Temple, if any.
10.4.5 EQUIPMENT; INVENTORIES; ACCOUNTS RECEIVABLE; ETC.
Purchase from ProMedCo-Temple at book value as reflected on ProMedCo-
Temple's books as of the last day of this Agreement:
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(i) EQUIPMENT. All of the equipment acquired by
ProMedCo-Temple pursuant to the Plan and Agreement
for Reorganization, including all replacements and
additions thereto made by ProMedCo-Temple with the
approval of the Policy Council pursuant to the
performance of its obligations under this Agreement;
(ii) INVENTORY. All stock, including inventory and
supplies, tangibles and intangibles of ProMedCo-
Temple relating to KDCP operations;
(iii) ACCOUNTS RECEIVABLE. All uncollected accounts
receivable theretofore purchased by ProMedCo-Temple
pursuant to Section 7.4 hereof at the book
value thereof on ProMedCo-Temple's books; and
(iv) OTHER ASSETS. All other assets of ProMedCo-Temple
relating to the operations of KDCP.
10.4.6 CLOSING OF REPURCHASE. KDCP shall pay cash for the
repurchased assets or may use shares of ProMedCo no par common stock
valued at 75% of the ProMedCo IPO Price, adjusted to reflect stock
splits and the like, or if the ProMedCo IPO Date shall not have
occurred, valued at $14.00 per share. The amount of the purchase price
shall be reduced by the amount of debt and liabilities of
ProMedCo-Temple assumed by KDCP and shall be reduced by any payment
ProMedCo-Temple has failed to make under this Agreement. KDCP and any
physician associated with KDCP shall execute such documents as may be
required to assume the liabilities set forth in Section 10.4.4 and to
remove ProMedCo-Temple from any liability with respect to such
repurchased Stocks and with respect to any property leased or subleased
by ProMedCo-Temple. The closing date for the repurchase shall be
determined by KDCP, but shall in no event occur later than 180 days
from the date of the notice of termination. The termination of this
Agreement shall become effective upon the closing of the sale of the
assets and KDCP shall be released from the Restrictive Covenants
provided for in Section 9 on the closing date. From and after any
termination, each party shall provide the other party with reasonable
access to books and records then owned by it to permit such requesting
party to satisfy reporting and contractual obligations which may be
required of it.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 ADJUSTMENTS shall mean any adjustments to KDCP's gross billings
for uncollectible accounts, discounts, PCA, Medicare and Medicaid disallowances,
workers' compensation discount, employee/dependent health care benefit programs,
professional courtesies, and other activities that do not generate a collectible
fee. Any adjustments shall be based on a reasonable historical basis or a
reasonable prospective basis should a new payor agreement apply and shall be
periodically modified during the year to reflect he annual adjustments. Final
Adjustments and any resulting payments owed by one party to the other shall be
made within 30 days after completion of the fiscal year audit.
<PAGE>
-18-
11.2 CLINIC shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by KDCP and the KDCP Employees, utilizing the management services of
ProMedCo-Temple and the Clinic Facility, regardless of the location where such
services are rendered.
11.3 CLINIC EXPENSES shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
(i) Salaries, benefits (including contributions under any ProMedCo benefit
plan), and other direct costs of all employees of ProMedCo-Temple and Technical
Employees attributable to KDCP;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-Temple who, with approval of the Policy
Council, provides services at or in connection with KDCP required for improved
performance, such as work management, purchasing, information systems, charge
and coding analysis, managed care sales, negotiating and contracting, financial
analysis, and business office consultation; provided, however, only that portion
of such employee's or consultant's costs without mark-up by ProMedCo that is
allocable to Clinic will be a Clinic Expense;
(iii) Obligations of ProMedCo-Temple or ProMedCo under leases or subleases
related to Clinic operations;
(iv) Interest Expense on indebtedness incurred by ProMedCo-Temple or ProMedCo to
finance or refinance any of its obligations hereunder or services provided
hereunder, irrespective of whether such funds are provided by ProMedCo or
borrowed from outside sources with funds provided by ProMedCo; funds borrowed
from outside sources will be charged at the rate charged by the lender and funds
borrowed from ProMedCo will be charged at a floating rate equal to the then
current blended borrowing rate of ProMedCo.
(v) Personal property and intangible taxes assessed against ProMedCo-Temple's
assets used in connection with the operation of Clinic commencing on the date of
this Agreement;
(vi) All insurance expenses for insurance maintained by ProMedCo-Temple pursuant
to ss. 8.1 for ProMedCo's operations and for the KDCP Employees, as well as any
deductibles and non-insured expenses relating to claims covered by such
insurance.
(vii) Other expenses incurred by ProMedCo-Temple in carrying out its obligations
under this Agreement, including, but not limited to, recruitment expenses for
<PAGE>
-19-
new Physician Employees and legal and accounting expenses necessary for the
operations and expansion of KDCP; however, legal and accounting expenses
required by KDCP for its corporate needs not requested by ProMedCo or
ProMedCo-Temple shall be excluded.
(viii) Amortization of intangible asset value resulting from the employment of,
merger with, or other acquisition of, additional physicians in the KDCP service
area approved by the Policy Council.
(ix) Pagers for Physician Employees.
11.4 CLINIC EXPENSES SHALL NOT INCLUDE:
(i) Corporate overhead charges or any other expenses of ProMedCo or any
corporation affiliated with ProMedCo other than the kind of items listed above;
(ii) Any federal or state income taxes;
(iii) Any expenses which are expressly designated herein as expenses or
responsibilities of KDCP and/or KDCP Employees other than Technical Employees;
(iv) Any amortization or depreciation expense resulting from the amortization or
depreciation expenses incurred as shown on ProMedCo's financial statements, in
connection with the acquisition and execution of the Plan and Agreement for
Reorganization and the execution of this Agreement or any depreciation expenses
associated with acquisition of physicians as set forth in ss. 11.3(viii) hereof;
(v) Any on-going expenses relating to the obligations listed in Exhibit A to
this Agreement assumed by ProMedCo-Temple pursuant to the Plan and Agreement for
Reorganization.
(vi) Any debt service or interest expense on indebtedness incurred by ProMedCo-
Temple or ProMedCo to finance the consideration paid under the Plan and
Agreement for Reorganization;
(vii) Any liabilities, judgments or settlements assessed against KDCP or
Physician Shareholders in excess of any insurance policy limits.
11.5 CLINIC FACILITY shall mean the clinic facilities located at 1905 S.W.
H. K. Dodgen Loop, Temple, Texas 76302, and the clinic facilities located at (i)
Neurology & Headache Center of King's Daughters Clinics, 1717 S.W. H. K. Dodgen
Loop, Suite 100A, Temple, Texas 76302,
<PAGE>
-20-
(ii) Dermatology Center of King's Daughters Clinics, 1717 S.W. H. K. Dodgen
Loop, Suite 100B, Temple, Texas 76302, (iii) Womens Center of King's Daughters
Clinics, 1713 S.W. H. K. Dodgen Loop, Suite 122, Temple, Texas 76302 (iv)
Killeen Clinic, 401 West Jasper, Killeen, TX 76543 and (v) Belton Family
Practice Clinic, 1300 E. Sixth St., Belton, TX 76513 and (vi) any substitute
facility or additional facility location, whether within or without Coryell,
Lampasas, Burnet, Williamson, Milam or Falls Counties, Texas as approved by the
Policy Council.
11.6 DISTRIBUTION FUNDS shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.7 EFFECTIVE DATE shall mean 12:01 a.m. on September 1, 1996.
11.8 KDCP CAPITATION shall mean any capitation payments received by
KDCP from any HMO or other managed care payor for health care services provided
by KDCP.
11.9 KDCP EMPLOYEES shall mean all Medical Professionals and Technical
Employees employed by KDCP at the relevant dates.
11.18 RETIREMENT means total permanent withdrawal from the practice of
medicine to pursue activities not related in any way to the provision of health
care services.
11.10 MEDICAL PROFESSIONAL shall mean Physician Shareholders, Physician
Employees and Physician Extenders.
11.11 NET CLINIC REVENUES shall mean KDCP's gross billings, including
Risk Pool Surpluses, ancillaries and any other revenues that have historically
been recorded by KDCP, less Adjustments.
11.12 OPENING BALANCE SHEET shall mean the balance sheet of
ProMedCo-Temple as of the Effective Date (as defined in the Plan and Agreement
for Reorganization), prepared in accordance with GAAP (except for the absence of
certain note information), and substantially in the form of the attached Exhibit
B subject to adjustments in the Consideration (as defined in the Plan and
Agreement for Reorganization).
11.13 PHYSICIAN EMPLOYEES shall mean any physician employed by KDCP and
providing medical services to patients on behalf of KDCP, who are not Physician
Shareholders.
11.14 PHYSICIAN EXTENDERS shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
11.15 PHYSICIAN SHAREHOLDERS shall mean any physician who is a
shareholder of KDCP, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.16 PLAN AND AGREEMENT FOR REORGANIZATION shall mean the Plan and
Agreement for Reorganization dated as of September 13, 1996 between King's
Daughters Clinics, P.A., a Texas corporation ("KDC") the shareholders of which
are the same as KDCP, ProMedCo and ProMedCo- Temple.
<PAGE>
-21-
11.17 PROMEDCO shall mean ProMedCo, Inc., a Texas corporation which is
sole shareholder of ProMedCo-Temple.
11.18 PROMEDCO IPO DATE shall mean the date on which ProMedCo first
sells stock to the public pursuant to its initial public offering.
11.19 PROMEDCO IPO PRICE shall mean the price per share at which
ProMedCo offers ProMedCo Stock to the public at its initial public offering.
11.20 PROMEDCO-TEMPLE DISTRIBUTION shall mean [*] of Distribution
Funds.
11.21 RISK POOL SURPLUSES shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position.
11.22 TECHNICAL EMPLOYEES shall mean technicians who provide services
in the diagnostic areas of KDCP's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be KDCP employees.
12. GENERAL PROVISIONS
12.1 INDEPENDENT CONTRACTOR. It is acknowledged and agreed that KDCP
and ProMedCo- Temple are at all times acting and performing hereunder as
independent contractors. ProMedCo- Temple shall neither have nor exercise any
control or direction over the methods by which KDCP or the KDCP Employees
practice medicine. The sole function of ProMedCo-Temple hereunder is to provide
all management services in a competent, efficient and satisfactory manner.
ProMedCo- Temple shall not, by entering into and performing its obligations
under this Agreement, become liable for any of the existing obligations,
liabilities or debts of KDCP unless otherwise specifically provided for under
the terms of this Agreement. ProMedCo-Temple will in its management role have
only an obligation to exercise reasonable care in the performance of the
management services. Neither party shall have any liability whatsoever for
damages suffered on account of the willful misconduct or negligence of any
employee, agent or independent contractor of the other party. Each party shall
be solely responsible for compliance with all state and federal laws pertaining
to employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
12.2 OTHER CONTRACTUAL ARRANGEMENT.
(a) The parties acknowledge and agree that they have been advised and consent to
the fact that ProMedCo-Temple, or its affiliates (i) may have, prior to the date
of this Agreement, discussed proposals with respect to, or (ii) may, from time
to time hereafter, enter into agreements with one or more KDCP Employees to
provide consulting, medical direction, advisory or similar services relating to
activities of
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON THIS
PAGE WHERE CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH THE
SYMBOL "[*]."
<PAGE>
-22-
ProMedCo-Temple or its affiliates in clinical areas. The parties agree that such
agreements, if any, shall be entered into at the sole discretion of the parties
thereto and subject to such terms and conditions to which such parties may
agree, and any compensation payable to or by ProMedCo-Temple, on the one hand,
and such KDCP Employees, on the other hand, shall not constitute Net Clinic
Revenues, or KDCP Compensation, and shall otherwise not be subject to the
provisions of this Agreement.
(b) Each current Physician Shareholder, by his execution of this Agreement as
provided on the signature page hereof, agrees that neither the negotiation nor
the entry into any agreement or arrangement of a type described in Section
12.2(a) above shall constitute a breach of any fiduciary or other duty owned by
any KDCP Employee to another, or by ProMedCo-Temple, to KDCP or any Physician
Shareholder. Accordingly, KDCP and each Physician Shareholder hereby waive any
right to disclosure of the negotiations, proposals or terms of any such
agreement, arrangement or right to participate in and/or share revenues derived
from any such agreement or arrangement with any KDCP Employee, and hereby
forever release and discharge KDCP, the Physician Shareholders, ProMedCo-Temple,
and their respective representatives (including, but not limited to, their
respective attorneys, accountants, affiliates, shareholders, officer, directors,
employees and agents) from any and all actions, claims, charges, suits, damages
and liabilities of any kind whatsoever arising from or by reason of the
participation of any KDCP Employee in any agreement or arrangement with
ProMedCo-Temple, or their affiliates of a type described in Section 12.2(a)
above or from or by reason of the failure of ProMedCo-Temple, any KDCP Employee
or their respective representatives to disclose the negotiation, existence or
terms of any such agreement or arrangement. In keeping with the private nature
of these matters, the Physician Shareholders further agree that such
negotiations, proposals or terms of agreement are to be kept confidential
between a KDCP Employee on the one hand, and ProMedCo-Temple, on the other hand,
and shall not be disclosed by them or their representatives, except as required
by applicable law.
12.3 PROPRIETARY PROPERTY.
12.3.1 Each party agrees that the other party's proprietary
property shall not be possessed, used or disclosed otherwise than may
be necessary for the performance of this Agreement. Each party
acknowledges that its violation of this Agreement would cause the other
party irreparable harm, and may (without limiting the other party's
remedies for such breach) be enjoined at the instance of the other
party. Each party agrees that upon termination of this Agreement for
any reason, absent the prior written consent of the other party, it
shall have no right to and shall cease all use of the other party's
proprietary property, and shall return all such proprietary property of
the other party in its possession to the other party.
12.3.2 ProMedCo-Temple shall be the sole owner and holder of
all right, title and interest, to all intellectual property furnished
by it under this Agreement, including, but not
<PAGE>
-23-
limited to the trade name "ProMedCo," all computer software, copyright,
services mark and trademark right to any material or documents
acquired, prepared, purchased or furnished by ProMedCo-Temple pursuant
to this Agreement. KDCP shall have no right, title or interest in or to
such material and shall not, in any manner, distribute or use the same
without the prior written authorization of ProMedCo-Temple, provided,
however, that the foregoing shall not restrict KDCP from distributing
managed care information brochures and materials without the prior
written approval of ProMedCo-Temple provided no Proprietary Property of
ProMedCo-Temple is contained therein. Notwithstanding the preceding,
however, ProMedCo-Temple agrees that KDCP shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement
the name "KDCP Family Practice" as may be necessary or appropriate in
the performance of KDCP's services and obligations hereunder.
12.4 COOPERATION. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.5 LICENSES, PERMITS AND CERTIFICATES. ProMedCo-Temple and KDCP shall
each obtain and maintain in effect, during the term of this Agreement, all
licenses, permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 COMPLIANCE WITH RULES, REGULATIONS AND LAWS. ProMedCo-Temple and
KDCP shall comply with all federal and state laws and regulations in performance
of their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo-Temple and KDCP shall take particular care to
ensure that no employee or agent of either party takes any action intended to
violate Section 1128B of the Social Security Act with respect to soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe,
or rebate) directly or indirectly, overtly or covertly, in cash or in kind in
return for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole
or in part under Title XVIII or XIX of the Social Security Act, or for
purchasing, leasing, ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part under Title XVIII or XIX of the Social Security Act.
12.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
<PAGE>
-24-
12.8 NOTICES. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 ATTORNEYS' FEES. ProMedCo-Temple and KDCP agree that the
prevailing party in any legal dispute among the parties hereto shall be entitled
to payment of its attorneys' fees by the other party.
12.10 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within Bell County, Texas, unless the parties mutually
agree to have such proceedings in some other locale. The arbitrator(s) may in
any such proceeding award attorneys' fees and costs to the prevailing party.
12.12 CONSTRUCTION OF AGREEMENT. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.13 ASSIGNMENT AND DELEGATION. ProMedCo-Temple shall have the right
to assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo-Temple and to any lending
institution, for security purposes or as collateral, from which ProMedCo-Temple
or ProMedCo obtains financing for itself and as agent. Except as set forth
above, neither ProMedCo-Temple nor KDCP shall have the right to assign their
respective rights and obligations hereunder without the written consent of the
other party. KDCP may not delegate any of KDCP's duties hereunder, except as
expressly contemplated herein; however, ProMedCo-Temple may delegate some or all
of ProMedCo-Temple' s duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto.
12.14 CONFIDENTIALITY. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.15 WAIVER. The waiver of any provision, or of the breach of any
provision of this
<PAGE>
-25-
Agreement must be set forth specifically in writing and signed by the waiving
party. Any such waiver shall not operate or be deemed to be a waiver of any
prior or future breach of such provision or of any other provision.
12.16 HEADINGS. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.18 TIME IS OF THE ESSENCE. Time is hereby expressly declared to be
of the essence in this Agreement.
12.19 MODIFICATIONS OF AGREEMENT FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Texas State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by KDCP to practice medicine in the State of Texas,
KDCP and ProMedCo-Temple shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between KDCP and ProMedCo-Temple. In the event it is not
possible to amend this Agreement to preserve in all material respects the
underlying economic and financial arrangements between KDCP and ProMedCo-Temple,
this Agreement may be terminated by written notice by either party within 90
days from date of such interpretation or action, termination to be effective no
sooner than the earlier of 180 days from the date notice of termination is given
or the latest possible date specified for such termination in any regulatory
order or notice. Termination pursuant to this Section 12.19 by KDCP shall
require the affirmative vote of a majority of Physician Shareholders.
12.20 NO RIGHT OF OFF-SET. Notwithstanding any provision of this
Agreement to the contrary, neither ProMedCo-Temple nor ProMedCo shall have any
right of off-set with respect to payments to be made to such Physician Employee
hereunder arising out of obligations of such Physician Employees under the Plan
and Agreement for Reorganization and related agreements.
12.21 WHOLE AGREEMENT; MODIFICATION. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral
<PAGE>
-26-
agreements between the parties are superseded by and merged into such writings.
This Agreement (As amended in writing from time to time), the exhibits, and the
schedules delivered pursuant hereto represent the final agreement between the
parties hereto and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements by the parties. There are no
unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO OF TEMPLE, INC.
By:
Name:
Title:
Address: 801 Cherry Street
Suite 1450
Fort Worth, TX 76102
PHYSICIANS OF KING'S DAUGHTERS, P.A.
By:
Name:
Title:
Address: 1905 S.W. H. K. Dodgen Loop
Temple, Texas 76302
<PAGE>
-27-
Acknowledgment and Agreement by Physician Shareholders
to abide by the terms of the Service Agreement
William Bean, M.D.
Ellis Brown, M.D.
John Ditzler, M.D.
Jon Dula, M.D.
James Finch, M.D.
Todd Gorden, M.D.
Gopal Guttickonda, M.D.
Ronald Guy, M.D.
Gene Hardin, M.D.
Bill Hardin, M.D.
Donald Hopkins, D.O.
Jeffrey Hoover, M.D.
Chris Hunter, M.D.
James Kliewer, M.D.
Rober Kylberg, M.D.
Douglas Kyle, M.D.
William Long, M.D.
Henry Mayer, Jr., M.D.
Edward McCaffrey, D.P.M.
Dewayne Nash, M.D.
<PAGE>
-28-
Larry Orrick, M.D.
Herman Poteet, Jr., M.D.
Victor Schulze, III, M.D.
John Shelby, M.D.
Murphy Talley, M.D.
Richard Tay, M.D.
Ralph Wallace, M.D.
Dave Webster, D.O.
Mark Wilson, M.D.
Richard Winkler, M.D.
James Wood, M.D.
<PAGE>
-29-
GUARANTY
ProMedCo, Inc., a Texas corporation which is the sole shareholder of
ProMedCo of Temple, Inc., a Delaware corporation ("ProMedCo-Temple"), hereby
guarantees the performance of ProMedCo-Temple under the above Service Agreement.
PROMEDCO, INC.
By
Its
Name
Exhibit 11
<TABLE>
<CAPTION>
July 1, 1994 Year Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, Pro Forma Pro Forma
1994 1995 1995 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Primary
Weighted average shares
outstanding.................... 3,027,900 4,523,972 4,523,972 4,500,849 4,591,797 4,591,797
Net common shares issuable
on exercise of certain stock
options (1)(2)................. 553,844 553,844 927,129 553,844 553,844 899,928
Net common shares issuable
on exercise of certain
warrants (1)(2)................ 114,286 114,286 2,295,368 114,286 114,286 2,295,368
Contingently issuable shares in
business combinations.......... 2,318,167 2,318,167 2,603,881 2,318,167 2,318,167 2,603,881
Number of common shares
outstanding.................... 6,014,197 7,510,269 10,350,350 7,487,146 7,578,094 10,390,974
Fully Diluted
Weighted average shares
outstanding.................... 3,027,900 4,523,972 4,523,972 4,500,849 4,591,797 4,591,797
Net common shares issuable
on exercise of certain stock
options (1)(2)................. 553,844 553,844 927,129 553,844 553,844 899,928
Net common shares issuable
on exercise of certain
warrants (1)(2)................ 114,286 114,286 2,295,368 114,286 114,286 2,295,368
Contingently issuable shares in
business combinations.......... 2,318,167 2,318,167 2,603,881 2,318,167 2,318,167 2,603,881
Other dilutive securities........... 200,030 200,030 200,030 200,030 200,030 200,030
Number of common shares
outstanding.................... 6,214,227 7,710,299 10,550,380 7,687,176 7,778,124 10,591,004
<FN>
(1) Net common shares issuable on exercise of certain stock options and
warrants is calculated based on the treasury stock method using an estimate
of the initial public offering price.
(2) Common shares issuable on exercise of certain stock options and warrants
were not included since the effect of inclusion would be anti-dilutive.
(Pursuant to applicable rules of the SEC stock, options, and warrants
issued or contingently issuable within one year prior to the initial filing
of this registration statement are treated as outstanding for all periods
presented regardless of the antidilutive effect.)
</FN>
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Fort Worth, Texas
November 8, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CURRENCY> USD
<EXCHANGE-RATE> 1
<CASH> 941,038
<SECURITIES> 0
<RECEIVABLES> 9,369,321
<ALLOWANCES> 4,559,730
<INVENTORY> 194,385
<CURRENT-ASSETS> 7,814,378
<PP&E> 3,095,732
<DEPRECIATION> 108,970
<TOTAL-ASSETS> 25,921,274
<CURRENT-LIABILITIES> 5,926,706
<BONDS> 0
2,953,358
0
<COMMON> 9,226,653
<OTHER-SE> 1,689,736
<TOTAL-LIABILITY-AND-EQUITY> 25,921,274
<SALES> 11,530,292
<TOTAL-REVENUES> 11,530,292
<CGS> 0
<TOTAL-COSTS> 11838477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,355
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (308,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308,185)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
