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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
REGISTRATION NO. 333-10557
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROMEDCO MANAGEMENT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8011 75-2686148
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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)
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H. WAYNE POSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROMEDCO 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)
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COPIES TO:
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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
</TABLE>
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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]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock (par value $0.01 per share)........... $50,600,000 $17,423.20
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
(2) A fee of $17,241.38 was previously paid in connection with the registration
of $50,000,000 of Common Stock. An additional amount of $181.82 is being
paid herewith in connection with the registration of an additional $600,000
of Common Stock.
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.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, Dated February 12, 1997
PROSPECTUS
dated , 1997
4,000,000 SHARES
[ProMedCo logo]
COMMON STOCK
All of the 4,000,000 shares of Common Stock offered hereby are being issued and
sold by ProMedCo 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 $9.00 and $11.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "PMCO" subject to official notice of
issuance.
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share........................ $ $ $
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Total(3)......................... $ $ $
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</TABLE>
(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 $1,300,000.
(3) The Company and the Selling Stockholder (as defined herein) have granted the
Underwriters a 30-day option to purchase up to an additional 450,000 shares
of Common Stock from the Company and 150,000 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."
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 , 1997.
PIPER JAFFRAY INC.
ROBERTSON, STEPHENS & COMPANY
COWEN & COMPANY
<PAGE> 3
[Map of United States showing locations 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> 4
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 ProMedCo Management Company and its consolidated
subsidiaries. Except as otherwise indicated, all information in this Prospectus
assumes (i) the conversion of all outstanding shares of Series A 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, and (ii) 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 146 physicians and 46 physician
extenders (primarily physician assistants and nurse practitioners) at 24 sites
in Texas, Alabama, Kentucky, and Nevada. Currently, approximately 72% of the
Company's affiliated physicians are primary care providers. Following the
Offering, approximately 21% 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 Company receives a fixed percentage (typically 15%) of
the physician group's operating income (as defined) plus a percentage (typically
a variable percentage ranging from 25% to 50%, depending upon the amount of
revenue) 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 maintain
decentralized management; and (v) align the Company's economic interests with
those of its physician partners.
The Company was incorporated in Texas in 1993 and reincorporated in
Delaware in January 1997. Its executive offices are located at 801 Cherry
Street, Suite 1450, Fort Worth, Texas 76102, and its telephone number is (817)
335-5035.
3
<PAGE> 5
THE OFFERING
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Common Stock offered by the Company......................... 4,000,000 shares
Common Stock to be outstanding after the Offering........... 8,821,657 shares(1)
Use of proceeds............................................. Acquisitions and working
capital, including repayment of
certain indebtedness
Nasdaq National Market symbol............................... PMCO
</TABLE>
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(1) Based upon the number of shares outstanding as of December 31, 1996. Does
not include (i) 2,033,333 shares to be issued on the first day of the
calendar month following the closing of the Offering in connection with the
acquisition of the assets of Abilene Diagnostic Clinic Practices
("Abilene"), (ii) 400,000 shares to be issued in connection with the merger
with Western Medical Management Corp., Inc. (the "Reno Merger") which is
expected to be consummated upon closing of the Offering, (iii) 4,030,525
shares reserved for issuance upon exercise of outstanding options and
warrants with a weighted average exercise price of $3.10 per share, and (iv)
200,030 shares reserved for conversion of outstanding convertible
subordinated notes issued in connection with acquisitions. See
"Business -- Affiliation Structure" and "Management -- Stock Option Plans,"
and "-- Employee Stock Purchase Plan."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
JULY 1, 1994 YEAR ENDED
(INCEPTION) TO DECEMBER 31, PRO FORMA
DECEMBER 31, ------------------------ AS ADJUSTED
1994 1995 1996 1996(1)(2)(3)
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net.............. $ -- $1,918,029 $34,641,222 $64,385,782
Less: amounts retained by physician
groups................................... -- 759,513 15,322,220 26,525,100
---------- ---------- ----------- -----------
Management fee revenue..................... -- 1,158,516 19,319,002 37,860,682
EBITDA(4).................................. (172,462) (668,070) 225,236 1,977,516
Net income (loss).......................... (169,890) (697,342) (549,305) 172,816
Net income (loss) per share................ $ (0.03) $ (0.09) $ (0.07) $ 0.01
Weighted average number of common shares
outstanding.............................. 6,522,237 7,857,308 7,914,560 14,841,889(5)
OTHER DATA (AT END OF PERIOD):
Affiliated physicians...................... 32 146
Affiliated physician groups................ 2 7
Number of service sites.................... 4 24
Number of states........................... 1 4
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(6) AS ADJUSTED(7)
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BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,633,534 $ 1,995,274 $34,302,674
Working capital..................................... 2,830,140 3,453,883 35,761,283
Total assets........................................ 28,470,335 42,759,774 74,502,747
Long-term debt, less current maturities............. 7,867,847 8,206,959 4,049,932
Redeemable equity securities........................ 3,949,417 -- --
Total stockholders' equity.......................... 11,177,764 26,673,389 62,573,389
</TABLE>
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(1) Gives effect to the following transactions as if they had been completed on
January 1, 1996: (i) the affiliations with Cullman Primary Care, P.C.,
Morgan-Haugh, P.S.C., HealthFirst Medical Group, P.A., King's Daughters
Clinic, P.A., and Abilene (collectively, the "Acquisitions") and (ii) the
Reno Merger. The acquisition of the assets of Abilene by the Company will be
completed on the first day of the calendar month following the closing of
the Offering (the "Abilene Acquisition").
(2) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom, assuming
the Offering was completed January 1, 1996. See "Use of Proceeds."
(3) Includes merger costs of $682,269, recorded in the historical financial
statements of Reno, for expenses associated with the Reno Merger.
(4) EBITDA is defined as net income (loss) plus interest expense (income),
provision for income taxes, depreciation and amortization.
(5) Gives effect to the conversion into Common Stock of all outstanding shares
of Series A Redeemable Convertible Preferred Stock, and the termination of
the Company's contingent obligation to repurchase Redeemable Common Stock.
(6) Gives effect to the Abilene Acquisition and the Reno Merger as if they had
been completed on December 31, 1996.
(7) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
4
<PAGE> 6
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."
The Company is in negotiations with two physician groups, each with between
40 and 50 physicians and having pro forma 1996 revenues of approximately $28
million and $26 million, respectively. Should these negotiations result in
definitive affiliation agreements, it is expected that the Company would provide
consideration in the form of combinations of cash and securities of
approximately $22 million and $15 million, respectively, for the assets and
related service agreements associated with each group. Although the Company has
entered into a letter of intent with one of these groups, there can be no
assurance that these negotiations will culminate in binding agreements or that
these or any other physician group affiliations will occur.
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 years ended
December 31, 1995 and 1996, the Company incurred net losses of $697,342 and
$549,305, respectively. 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. The Company's management fee
revenue is dependent upon the physician groups' net medical revenues less
certain contractually agreed-upon clinic expenses, including non-physician
clinic salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. In addition, the distribution to the groups for providing medical
services is increased or decreased by a percentage of the physician groups'
surplus or deficit, respectively, in net revenue under risk-sharing arrangements
pursuant to capitated managed care contracts. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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CONCENTRATION OF REVENUE
The Company's management fee revenue is currently derived from seven
physician groups. King's Daughters Clinic, P.A. in Temple, Texas ("Temple")
accounted for approximately 33%, Abilene accounted for approximately 20%, and
Western Medical Management Corp., Inc. in Reno, Nevada ("Reno") accounted for
approximately 20% of the Company's management fee revenue on a pro forma basis
for the year ended December 31, 1996. 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."
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."
6
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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 groups 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
revenue, 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 revenue 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."
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, net of accumulated amortization, of approximately $14.9 million have
been recorded on the Company's balance sheet at December 31, 1996 ($26.3 million
on a pro forma basis at December 31, 1996). Using a composite average life of 30
years for the service agreements, amortization expense will be approximately
$505,000 per year ($896,000 per year on a pro forma basis). Acquisitions that
result in the recognition of intangible assets will
7
<PAGE> 9
cause amortization expense further to increase. A substantial portion of the
amortization generated by these intangible assets is not deductible for tax
purposes. Although the Company's net unamortized balance of intangible assets
acquired and anticipated to be acquired was not considered to be impaired as of
December 31, 1996, 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 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, repayment
of amounts outstanding under its revolving credit agreement, 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 33% 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 and Selling Stockholders" and "Description of Capital
Stock."
8
<PAGE> 10
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, prior to the
closing of the Offering the Company plans to adopt a stockholder rights plan
that could further discourage attempts to acquire control of the Company. See
"Management" and "Description of Capital Stock."
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" 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."
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds of the Offering, after deducting expenses payable by the
Company and assuming an initial offering price of $10.00 per share, will be
approximately $35,900,000 million ($40,085,000 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, for repayment
of $4,200,000 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."
The Company is continually seeking additional physician groups with which
to affiliate and is currently engaged in negotiations with several such groups,
including two groups with which it is in advanced stages of its due diligence
investigations. There can be no assurance that these negotiations will culminate
in binding agreements or that these or any other such affiliations will occur.
See "Risk Factors -- Risks Associated with Growth Strategy."
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."
10
<PAGE> 12
DILUTION
The Company's pro forma net tangible book value at December 31, 1996 was
$417,392 or approximately $0.06 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 December 31, 1996 (assuming
the conversion into Common Stock of all outstanding Series A Redeemable
Convertible Preferred Stock and the exchange of all outstanding Redeemable
Common Stock and Class B Common Stock for Common Stock and including Common
Stock to be issued). After giving effect to the sale of the shares of Common
Stock offered hereby at an assumed initial offering price of $10.00 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 December 31, 1996 would have been $36,317,392, or $3.23 per share
of Common Stock. This represents an immediate increase in net tangible book
value of $3.40 per share to existing stockholders and an immediate dilution in
net tangible book value of $6.77 per share of Common Stock to purchasers of
Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share before the
Offering.............................................. $0.06
Increase in net tangible book value attributable to new
investors............................................. 3.17
-----
Pro forma net tangible book value per share after the
Offering.................................................. 3.23
------
Dilution per share to new investors......................... $ 6.77
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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 $10.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 4,821,657 42.8% $16,663,718 22.9% $ 3.46
Abilene and Reno issuances..... 2,433,333 21.7 16,200,000 22.2 6.66
New investors.................. 4,000,000 35.5 40,000,000 54.9 10.00
---------- ------ ----------- ------
Total..................... 11,254,990 100.0% $72,863,718 100.0%
========== ====== =========== ======
</TABLE>
The above calculations do not give effect to the exercise of (i)
outstanding options and warrants to purchase 4,030,525 shares of Common Stock at
a weighted average exercise price of $3.10 per share outstanding at December 31,
1996, and (ii) 200,030 shares of Common Stock issuable upon conversion of
outstanding convertible subordinated notes issued in connection with
affiliations.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996 (i) on a pro forma basis to give effect to the conversion of
all outstanding shares of Series A 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
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
$10.00 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>
DECEMBER 31, 1996
---------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Current maturities of long-term debt (1).............. $ 608,192 $ 1,355,443 $ 1,355,443
=========== =========== ===========
Long-term debt, net of current maturities (1)......... $ 7,867,847 $ 8,206,959 $ 4,049,932
Series A Redeemable Convertible Preferred Stock, $0.01
par value; 700,000 shares authorized, 500,000 shares
issued and outstanding; no shares issued and
outstanding pro forma and pro forma as adjusted..... 2,957,641 -- --
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:
Preferred Stock, $0.01 par value; 19,300,000
shares authorized; no shares issued and
outstanding.................................... -- -- --
Class B Common Stock, $0.01 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............ 12,262 -- --
Common Stock, $0.01 par value; 47,400,000 shares
authorized; 2,742,729 shares issued and
outstanding; 6,457,508 shares issued and
outstanding pro forma and 10,457,508 shares
issued and outstanding pro forma as adjusted
(2)............................................ 27,427 64,575 104,575
Additional paid-in-capital....................... 10,371,400 24,456,455 60,316,455
Common Stock to be issued, 187,482, 797,482 and
797,482 shares, respectively................... 2,303,212 5,963,212 5,963,212
Stockholder notes receivable..................... (120,000) (151,306) (151,306)
Accumulated deficit.............................. (1,416,537) (3,659,547) (3,659,547)
----------- ----------- -----------
Total stockholders' equity.................. 11,177,764 26,673,389 62,573,389
Total capitalization........................ $22,995,028 $34,880,348 $66,623,321
=========== =========== ===========
</TABLE>
- ---------------
(1) See Note 6 to Consolidated Financial Statements for information concerning
long-term debt and capital lease obligations.
(2) Excludes 4,030,525 shares reserved for issuance upon exercise of outstanding
options and warrants, at a weighted average exercise price of $3.10 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."
12
<PAGE> 14
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma as adjusted consolidated balance sheet gives effect to the
Reno Merger and the Abilene Acquisition as if they had been completed on
December 31, 1996 and also reflects the Offering and the conversion of all
outstanding Series A 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 December 31, 1996. The pro forma as adjusted
consolidated statement of operations for the year ended December 31, 1996, gives
effect to the Reno Merger, the Acquisitions and the Offering as if they had been
completed on January 1, 1996. Abilene's operations are reflected in the
historical consolidated statement of operations for the year ended December 31,
1996, since Abilene (the assets of which will not be acquired by the Company
until the first day of the calendar month following the closing of the Offering)
has been operated by the Company under an interim service agreement since
December 1995. 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
consolidated 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 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, 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.
13
<PAGE> 15
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RENO
ABILENE ABILENE RENO ELIMINATING EQUITY
HISTORICAL HISTORICAL(A) ADJUSTMENTS HISTORICAL(F) ADJUSTMENTS(G) CONVERSIONS(H)
----------- ------------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 1,633,534 $ 361,740 $ --(e) $ -- $ -- $ --
Accounts receivable,
net................. 4,272,021 1,609,780 -- 1,955,207 -- --
Inventory............. 212,709 -- -- 12,503 -- --
Management fees
receivable.......... 1,266,598 -- (1,200,000)(b) -- -- --
Due from affiliated
physician groups.... 510,220 -- -- 150,058 -- --
Prepaid expenses and
other current
assets.............. 410,365 143,778 (143,778)(c) 138,574 -- --
----------- ---------- ----------- ----------- --------- -----------
Total current
assets.......... 8,305,447 2,115,298 (1,343,778) 2,256,342 -- --
Property and equipment,
net..................... 3,341,775 32,654 -- 588,416 -- --
Intangible assets, net.... 14,860,171 -- 11,395,826(a) -- -- --
Other assets.............. 1,962,942 50,000 (50,000)(c) 19,681 (775,000) --
----------- ---------- ----------- ----------- --------- -----------
Total assets...... $28,470,335 $2,197,952 $10,002,048 $ 2,864,439 $(775,000) $ --
=========== ========== =========== =========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 651,216 $ 459,941 $ (459,941)(c) $ 854,546 $ -- $ --
Payable to affiliated
physician groups.... 1,341,876 -- -- -- -- --
Management fees
payable............. -- 573,715 (573,715)(b) -- -- --
Accrued salaries,
wages and
benefits............ 1,153,558 -- -- -- -- --
Accrued expenses and
other current
liabilities......... 1,551,057 48,667 (48,667)(c) 802,322 -- --
Current maturities of
notes payable and
obligations under
capital leases...... 608,192 820,447 (820,447)(c) 1,522,251 (775,000) --
Deferred purchase
price............... 169,408 -- -- -- --
----------- ---------- ----------- ----------- --------- -----------
Total current
liabilities..... 5,475,307 1,902,770 (1,902,770) 3,179,119 (775,000) --
Notes payable, net........ 4,631,249 77,675 (77,675)(c) 339,112 -- --
Obligations under capital
leases.................. 1,030,171 -- -- -- -- --
Deferred purchase price... 12,578 -- -- -- -- --
Convertible subordinated
notes payable........... 1,800,274 -- -- -- -- --
Other long term
liabilities............. 393,575 -- -- -- -- --
----------- ---------- ----------- ----------- --------- -----------
Total
liabilities..... 13,343,154 1,980,445 (1,980,445) 3,518,231 (775,000) --
----------- ---------- ----------- ----------- --------- -----------
Series A Redeemable
convertible preferred
stock................... 2,957,641 -- -- -- -- (2,957,641)
Redeemable common stock... 991,776 -- -- -- -- (991,776)
Stockholders' equity:
Preferred stock....... -- -- -- 8,500 (8,500) --
Class B common stock.. 12,262 -- -- -- (12,262)
Common stock.......... 27,427 217,507 (217,507)(d) 10,530 (10,530) 18,915
14,233(e) 4,000
Additional paid-in
capital............. 10,371,400 -- 8,525,767(e) 1,601,494 15,030 3,942,764
Common stock to be
issued.............. 2,303,212 -- 3,660,000(e) -- -- --
Stockholder notes
receivable.......... (120,000) -- -- (31,306) -- --
Accumulated deficit... (1,416,537) -- -- (2,243,010) -- --
----------- ---------- ----------- ----------- --------- -----------
Total stockholders'
equity.............. 11,177,764 217,507 11,982,493 (653,792) -- 3,949,417
----------- ---------- ----------- ----------- --------- -----------
Total liabilities
and
stockholders'
equity.......... $28,470,335 $2,197,952 $10,002,048 $ 2,864,439 $(775,000) $ --
=========== ========== =========== =========== ========= ===========
<CAPTION>
OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS(I) AS ADJUSTED
----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash
equivalents......... $ 1,995,274 $32,307,400 $34,302,674
Accounts receivable,
net................. 7,837,008 -- 7,837,008
Inventory............. 225,212 -- 225,212
Management fees
receivable.......... 66,598 -- 66,598
Due from affiliated
physician groups.... 660,278 -- 660,278
Prepaid expenses and
other current
assets.............. 548,939 -- 548,939
----------- ----------- -----------
Total current
assets.......... 11,333,309 32,307,400 43,640,709
Property and equipment,
net..................... 3,962,845 -- 3,962,845
Intangible assets, net.... 26,255,997 -- 26,255,997
Other assets.............. 1,207,623 (564,427) 643,196
----------- ----------- -----------
Total assets...... $42,759,774 $31,742,973 $74,502,747
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 1,505,762 $ -- $ 1,505,762
Payable to affiliated
physician groups.... 1,341,876 -- 1,341,876
Management fees
payable............. -- -- --
Accrued salaries,
wages and
benefits............ 1,153,558 -- 1,153,558
Accrued expenses and
other current
liabilities......... 2,353,379 -- 2,353,379
Current maturities of
notes payable and
obligations under
capital leases...... 1,355,443 -- 1,355,443
Deferred purchase
price............... 169,408 -- 169,408
----------- ----------- -----------
Total current
liabilities..... 7,879,426 -- 7,879,426
Notes payable, net........ 4,970,361 (4,157,027) 813,334
Obligations under capital
leases.................. 1,030,171 -- 1,030,171
Deferred purchase price... 12,578 -- 12,578
Convertible subordinated
notes payable........... 1,800,274 -- 1,800,274
Other long term
liabilities............. 393,575 -- 393,575
----------- ----------- -----------
Total
liabilities..... 16,086,385 (4,157,027) 11,929,358
----------- ----------- -----------
Series A Redeemable
convertible preferred
stock................... -- -- --
Redeemable common stock... -- -- --
Stockholders' equity:
Preferred stock....... -- -- --
Class B common stock.. -- -- --
Common stock.......... 64,575 40,000 104,575
Additional paid-in
capital............. 24,456,455 35,860,000 60,316,455
Common stock to be
issued.............. 5,963,212 -- 5,963,212
Stockholder notes
receivable.......... (151,306) -- (151,306)
Accumulated deficit... (3,659,547) -- (3,659,547)
----------- ----------- -----------
Total stockholders'
equity.............. 26,673,389 35,900,000 62,573,389
----------- ----------- -----------
Total liabilities
and
stockholders'
equity.......... $42,759,774 $31,742,973 $74,502,747
=========== =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
14
<PAGE> 16
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1996 TRANS- ACQUISITION OFFERING PRO FORMA
HISTORICAL ACTIONS (J) ADJUSTMENTS ADJUSTMENTS(U) AS ADJUSTED
----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Physician groups revenue, net......... $34,641,222 $29,744,560 $ -- $ -- $64,385,782
Less: amounts retained by physician
groups.............................. 15,322,220 12,093,378 (12,093,378)(k) -- 26,525,100
11,202,880(l)
----------- ----------- ------------ --------- -----------
Management fee revenue................ 19,319,002 17,651,182 890,498 -- 37,860,682
Operating expenses:
Clinic salaries and benefits..... 7,586,966 8,767,279 (603,070)(m) -- 15,751,175
Clinic rent and lease expense.... 2,027,539 1,976,273 17,630(n) -- 4,021,442
Clinic supplies.................. 2,419,495 1,661,973 -- -- 4,081,468
Other clinic costs............... 4,426,181 4,763,323 (476,277)(o) -- 8,713,227
General corporate expenses....... 2,633,585 -- -- -- 2,633,585
Depreciation and amortization.... 610,827 401,298 (29,365)(p) -- 1,698,781
716,021(q)
Merger costs..................... -- 682,269 -- -- 682,269
Interest expense................. 163,714 155,565 (25,441)(r) (353,042) --
59,204(s)
----------- ----------- ------------ --------- -----------
19,868,307 18,407,980 (341,298) (353,042) 37,581,947
----------- ----------- ------------ --------- -----------
Income (loss) before provision for
income taxes........................ (549,305) (756,798) 1,231,796 353,042 278,735
Provision (benefit) for income
taxes............................... -- (93,974) 93,974(t) 105,919 105,919
----------- ----------- ------------ --------- -----------
Net income (loss)..................... $ (549,305) $ (662,824) $ 1,137,822 $ 247,123 $ 172,816
=========== =========== ============ ========= ===========
Net income (loss) per share........... $ (0.07) $ 0.01
=========== ===========
Weighted average number of common
shares outstanding.................. 7,914,560 14,841,889
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
15
<PAGE> 17
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
During the year ended December 31, 1996, the Company, through its wholly
owned subsidiaries, acquired certain operating assets and assumed certain
operating liabilities of four 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 the
first day of the month following closing of the Offering. In addition, the Reno
Merger will be consummated simultaneously with the closing of the Offering.
PHYSICIAN GROUPS REVENUE, NET
Physician groups revenue represents the revenue of the affiliated physician
groups reported at the estimated realizable amounts from patients, third-party
payors, and others for services rendered, net of contractual and other
adjustments.
MANAGEMENT FEE REVENUE
Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups
(typically 85% of the physician group operating income) represent amounts paid
to the physicians pursuant to the service agreements between the Company and the
physician groups. Under the service agreements, the Company provides each
physician group with the facilities and equipment used in its 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 Company's management fee revenue is dependent upon the operating income
of the physician groups. Physician group operating income is defined in the
service agreements as the physician group's net medical revenue less certain
contractually agreed-upon clinic expenses, including non-physician clinic
salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. The amount of the physician groups revenue retained and paid to the
physician groups primarily consists of the cost of the affiliated physicians'
services. The remaining amount of the physician group operating income
(typically 15%) and an amount equal to 100% of the clinic expenses are reflected
as management fee revenue earned by the Company.
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. This 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 December 31, 1996. Common Stock issued and to
be issued in connection with the acquisition totaled 2,033,333 shares. The
number of shares issued and to be issued in connection with the acquisition
is based upon the estimated fair value of the clinic assets acquired and
liabilities assumed, divided by $6.00. In addition to the issuance of
shares, the Company will pay approximately $1.2 million in cash. The fair
value of the clinic net assets was determined based on an analysis of
estimated future clinic operating results. The $6.00 value per share was
based upon arm's length negotiations between the Company and the sellers.
All negotiations were completed and agreements entered into in December
1995.
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 their historical carrying amount
approximates their fair value.
Property and equipment, net -- The Company performed an asset by
asset review and determined that the historical carrying amount
approximates fair value.
16
<PAGE> 18
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
Liabilities assumed -- Given the short term nature of the
liabilities assumed, the historical carrying amount approximates their
fair value.
Intangible assets -- In connection with the allocation of the
purchase price to identifiable intangible assets, the Company analyzes
the nature of each group with which a service agreement is entered into,
including the number of physicians in each group, number of service
sites and ability to recruit additional physicians, the group's relative
market position, the length of time each group has been in existence,
and the term and enforceability of the service agreement. Because the
Company does not practice medicine, maintain patient relationships, hire
physicians, enter into employment and noncompetition agreements with the
physicians, or directly contract with payors, the intangible asset
created in the purchase allocation process is associated solely with the
service agreement with the physician group. 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 Company believes that there is no material value allocable to
the employment and noncompetition agreements entered into between the
physician group and the individual physicians. The primary economic
beneficiary of these agreements is the physician group, an entity that
the Company does not legally control. In addition, any damages under the
agreements are paid solely to the physician group for purposes of
replacing departing physicians. Generally, due to low expected physician
turnover in the industry and the ability of the physician group to
replace departing physicians, the Company believes there would be no
significant economic loss to either the physician group or the Company
due to physician departure. The physician groups continually recruit
physicians and, as appropriate and necessary, subsequently add qualified
physicians to the group. This manner of operations allows the physician
group to perpetuate itself as individual physicians retire or are
otherwise replaced. The Company believes that the physician groups with
which it has service agreements thus are long-lived entities with an
indeterminable life, and that the physicians, customer demographics, and
various contracts will be continuously replaced. The service agreement
intangible is being amortized on a straight-line method over a composite
average life of 30 years.
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters
relating to the physician practice management industry, which the
Company expects to include a review of accounting for businesses
combinations. The Company is unable to predict the impact, if any, that
this review may have on the Company's acquisition strategy, allocation
of purchase price related to acquisitions, and amortization life
assigned to intangible assets.
(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 balance sheet.
Approximately $1,200,000 of cash to be paid in connection with the purchase
has been reflected as a reduction of the Company's management fees
receivable under the terms of the interim 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 and cash in
exchange for the assets acquired and liabilities assumed in connection with
the Abilene Acquisition. Cash paid will be netted against the management
fee receivable from Abilene. 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 using pooling of interests accounting.
Accordingly, the historical balance sheet of Reno as of December 31, 1996
has been combined with the ProMedCo balance sheet.
17
<PAGE> 19
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
Reno has incurred $682,269 of non-recurring costs (primarily severance and
professional service costs) related to the merger, which are reflected as
merger costs in the pro forma consolidated statement of operations.
(g) To record eliminating adjustments to Reno's historical financial
statements: (i) to eliminate the note payable to the Company and related
note receivable on the Company's and Reno's historical financial
statements, and (ii) to record common stock at $0.01 par value.
(h) To reflect the conversion of all Series A 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.
(i) To reflect effects of the Offering.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The adjustments reflected in the pro forma consolidated statement of
operations for the year ended December 31, 1996 are as follows:
(j) The 1996 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 1996 transactions include
additional physicians who joined the Abilene Diagnostic Clinic Practices
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.
(k) To eliminate the historical amounts retained by physician groups
for each acquired physician group.
(l) To record the amounts retained by physician groups to the
percentage specified in the service agreement (typically 85% of each of the
physician group's operating income) entered into with each affiliated
physician group. The adjustment is for the periods the physician groups
were not managed under the service agreements.
(m) 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.
(n) To record additional rental expense related to the rental of
clinic space from the physician groups.
(o) To eliminate physician benefits and other physician-related costs,
such as club dues and subscriptions, that will not be paid by the Company.
(p) To eliminate the depreciation and amortization expense recorded by
the physician groups at historical values.
(q) To adjust depreciation expense by $85,637 and amortization expense
by $630,384. The adjustment for depreciation expense is computed by
dividing total fixed assets acquired by the weighted average life of the
fixed assets acquired (approximately seven years), less depreciation
expense recorded on an historical basis. The adjustment for amortization
expense is computed by dividing total service agreement rights acquired by
a composite average life of 30 years, less agreement amortization expense
recorded on an historical basis. The adjustments assume the acquired assets
were held for the entire period presented.
(r) To eliminate interest expense related to liabilities not assumed
in connection with acquisitions.
18
<PAGE> 20
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(s) To record interest expense on debt issued in connection with
acquisitions.
(t) To eliminate estimated federal and state income taxes.
(u) To eliminate interest expense assuming repayment of the Company's
borrowings with a portion of the proceeds of the Offering received by the
Company as of January 1, 1996, net of estimated federal and state income
taxes at a combined rate of 38%.
19
<PAGE> 21
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 as adjusted consolidated statement of operations data for the year ended
December 31, 1996 give effect to the Acquisitions, the Reno Merger and the
Offering as if they had been completed on January 1, 1996. The selected
unaudited pro forma as adjusted consolidated balance sheet data as of December
31, 1996 give effect to the Abilene Acquisition, the Reno Merger and the
Offering as if they had been completed on December 31, 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.
<TABLE>
<CAPTION>
JULY 1, 1994 YEAR ENDED
(INCEPTION) TO DECEMBER 31, PRO FORMA
DECEMBER 31, ------------------------ AS ADJUSTED
1994 1995 1996 1996(1)(2)(3)
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net............................. $ -- $1,918,029 $34,641,222 $64,385,782
Less: amounts retained by physician groups................ -- 759,513 15,322,220 26,525,100
---------- ---------- ----------- -----------
Management fee revenue.................................... -- 1,158,516 19,319,002 37,860,682
Operating expenses:
Clinic salaries and benefits.......................... -- 554,384 7,586,966 15,751,175
Clinic rent and lease expense......................... -- 115,028 2,027,539 4,021,442
Clinic supplies....................................... -- 111,703 2,419,495 4,081,468
Other clinic costs.................................... -- 242,491 4,426,181 8,713,227
General corporate expenses............................ 172,462 802,980 2,633,585 2,633,585
Depreciation and amortization......................... 1,182 34,302 610,827 1,698,781
Merger costs.......................................... -- -- -- 682,269
Interest expense (income)............................. (3,754) (5,030) 163,714 --
---------- ---------- ----------- -----------
169,890 1,855,858 19,868,307 37,581,947
---------- ---------- ----------- -----------
Income (loss) before provision for income taxes........... (169,890) (697,342) (549,305) 278,735
Income tax................................................ -- -- -- 105,919
---------- ---------- ----------- -----------
Net income (loss)......................................... $ (169,890) $ (697,342) $ (549,305) $ 172,816
========== ========== =========== ===========
Net income (loss) per share............................... $ (0.03) $ (0.09) $ (0.07) $ 0.01
========== ========== =========== ===========
Weighted average number of common shares outstanding...... 6,522,237 7,857,308 7,914,560 14,841,889(4)
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
----------- --------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,633,534 $ 1,995,274 $34,302,674
Working capital............................................. 2,830,140 3,453,883 35,761,283
Total assets................................................ 28,470,335 42,759,774 74,502,747
Long-term debt, less current maturities..................... 7,867,847 8,206,959 4,049,932
Redeemable equity securities................................ 3,949,417 -- --
Total stockholders' equity.................................. 11,177,764 26,673,389 62,573,389
</TABLE>
- ---------------
(1) Gives effect to (i) the Acquisitions as if they had been completed on
January 1, 1996, and (ii) the Reno Merger. The Abilene Acquisition will be
completed on the first day of the calendar month following the closing of
the Offering.
(2) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom, assuming
the Offering was completed January 1, 1996.
(3) Includes merger costs of $682,269, recorded in the historical financial
statements of Reno, for expenses associated with the Reno Merger.
(4) Gives effect to the conversion into Common Stock of all outstanding shares
of Series A Redeemable Convertible Preferred Stock, and the termination of
the Company's contingent obligation to repurchase Redeemable Common Stock.
(5) Gives effect to the Abilene Acquisition and the Reno Merger as if they had
been completed on December 31, 1996.
(6) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company at an assumed public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
20
<PAGE> 22
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 was reincorporated in Delaware
in January 1997. 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. The Company is affiliated with seven physician groups in four
states representing 146 physicians and 46 physician extenders practicing at 24
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. The Company has also entered into a merger
agreement with Reno, a physician management company. Reno commenced operations
in 1988 and provides physician management services similar to those provided by
the 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 upon the closing of the Offering and will be accounted for as a
pooling of interests, as defined by APB No. 16, "Business Combinations." The
Company is continually seeking additional physician groups with which to
affiliate and is currently engaged in negotiations with several such groups,
including two groups with which it is in advanced stages of its due diligence
investigations.
Physician groups revenue represents the revenue of the physician groups,
reported at the estimated realizable amounts from patients, third-party payors
and others for services rendered, net of contractual and other adjustments.
Management fee revenue represents physician groups revenue less amounts retained
by physician groups. The amounts retained by physician groups (typically 85% of
the physician group operating income) represent amounts paid to the physicians
pursuant to the service agreements between the Company and the physician groups.
Under the service agreements, the Company provides each physician group with the
facilities and equipment used in its medical practice, assumes responsibility
for the management of the non-medical operations of the practice, and employs
substantially all of the non-physician personnel utilized by the group. The
Company's management fee revenue is dependent upon the operating income of the
physician groups. Physician group operating income is defined in the service
agreements as the physician group's net medical revenues less certain
contractually agreed-upon clinic expenses, including non-physician clinic
salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. The amount of the physician groups' revenue retained and paid to the
physician groups primarily consists of the cost of the affiliated physicians'
services. The remaining amount of the physician group operating income
(typically 15%) and an amount equal to 100% of the clinic expenses are reflected
as management fee revenue earned by the Company.
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 physician 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.
21
<PAGE> 23
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 year ended December 31, 1996, three of the Company's affiliated
physician groups each contributed 10% or more of the Company's pro forma
management fee revenue. Temple, Abilene, and Reno represented approximately 33%,
20%, and 20% of the pro forma management fee revenue, respectively.
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 five additional
groups during 1996. Changes in results of operations for the year ended December
31, 1996 as compared to the year ended December 31, 1995 were caused primarily
by affiliations with these five physician groups.
The following table sets forth the percentages of physician groups revenue
represented by certain items reflected in the Company's consolidated statements
of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
PRO FORMA
AS ADJUSTED
1995 1996 1996
----- ----- -----------
<S> <C> <C> <C>
Physician groups revenue, net............................... 100.0% 100.0% 100.0%
Less: amounts retained by physician groups.................. 39.6 44.2 41.2
----- ----- -----
Management fee revenue...................................... 60.4 55.8 58.8
Operating expenses:
Clinic salaries and benefits........................... 28.9 21.9 24.5
Clinic rent and lease expense.......................... 6.0 5.9 6.2
Clinic supplies........................................ 5.8 6.9 6.3
Other clinic costs..................................... 12.6 12.8 13.5
General corporate expenses............................. 41.9 7.6 4.1
Depreciation and amortization.......................... 1.8 1.8 2.6
Merger costs........................................... -- -- 1.1
Interest expense (income).............................. (0.3) 0.5 --
----- ----- -----
Net income (loss)........................................... (36.3)% (1.6)% 0.5%
===== ===== =====
</TABLE>
For the year ended December 31, 1996, physician groups revenue was
$34,641,222, compared with $1,918,029 for the year ended December 31, 1995, an
increase of $32,723,193. For the year ended December 31, 1996, pro forma
physician groups revenue was $64,385,782. For the year ended December 31, 1996,
amounts retained by physician groups was $15,322,220, compared with $759,513 for
the year ended December 31, 1995. For the year ended December 31, 1996,
management fee revenue was $19,319,002, compared with $1,158,516 for the year
ended December 31, 1995, an increase of $18,160,486. For the year ended December
31, 1996, pro forma management fee revenue was $37,860,682. The increase in net
physician groups revenue, amounts retained by physician groups, and management
fee revenue resulted from the affiliation with six physician groups since
December 1995.
For the period from July 1, 1994 (inception) to December 31, 1994, general
corporate expenses exceeded management fee revenue due to the start-up nature of
the Company. While declining as a percentage of management fee revenue, the
level of these expenses continued to increase during 1995 and 1996, as the
Company continued to add to its management infrastructure. While the Company
expects that these expenses
22
<PAGE> 24
will 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 management fee revenue.
Pro forma as adjusted net income for the year ended December 31, 1996 was
$172,816. This pro forma as adjusted net income is net of merger costs of
$682,269 recorded in the historical financial statements of Reno for expenses
associated with the Reno Merger.
The mix of physician specialities and ancillary services affects clinic
salaries and benefits, clinic supplies, and depreciation 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 68% (72% on a pro forma
basis) at December 31, 1995 and 1996, respectively.
Clinic rent and lease expense as a percentage of physician groups 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 physician groups
revenue based on regional cost differences and the Company's ability to
implement operational efficiencies and negotiate more favorable purchasing
arrangements.
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
---------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1996 1996 1996 1996
------------ ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net.... $1,227,919 $4,139,217 $6,981,105 $9,659,391 $13,861,509
Less: amounts retained by
physician groups............... 512,410 2,010,147 3,286,250 3,953,024 6,072,799
---------- ---------- ---------- ---------- -----------
Management fee revenue........... 715,509 2,129,070 3,694,855 5,706,367 7,788,710
Operating expenses:
Clinic salaries and
benefits.................. 322,374 778,356 1,434,784 2,270,801 3,103,025
Clinic rent and lease
expense................... 77,070 262,838 395,255 563,913 805,532
Clinic supplies............. 69,570 241,329 417,935 752,208 1,008,023
Other clinic costs.......... 155,119 492,078 855,919 1,296,616 1,781,568
General corporate
expenses.................. 264,947 581,596 676,099 643,705 732,186
Depreciation and
amortization.............. 13,062 31,591 50,611 179,295 349,330
Interest expense (income)... 7,907 (28,768) 27,618 51,505 113,359
---------- ---------- ---------- ---------- -----------
Net loss......................... $ (194,540) $ (229,950) $ (163,366) $ (51,676) $ (104,313)
========== ========== ========== ========== ===========
OTHER DATA (AT END OF PERIOD):
Affiliated physicians............ 32 51 72 118 146
Affiliated physician groups...... 2 3 5 6 7
Number of service sites.......... 4 6 15 19 24
Number of states................. 1 2 3 3 4
</TABLE>
23
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $2,830,140 in working capital, a
decrease of $162,468 from December 31, 1995. The Company's principal sources of
liquidity as of December 31, 1996 consisted of cash and cash equivalents of
$1,633,534 and net accounts receivable of $4,272,021. In addition, effective
July 15, 1996 the Company entered into the Credit Facility, providing a $25.0
million revolving working capital loan.
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 December 31, 1996, the Company paid or
committed to pay consideration in the following amounts in connection with the
Acquisitions: North Texas Medical Surgical, P.A., $1,088,000, consisting of
$992,000 of issuances or committed issuances of Common Stock and $96,000 of cash
paid; Cullman Primary Care, P.C., $2,458,000, consisting of $204,000 of
issuances or committed issuances of Common Stock, $1,800,000 of debt assumed and
$454,000 of cash paid; Morgan-Haugh, P.S.C., $1,317,000, consisting of $909,000
of debt assumed and $408,000 of cash paid; HealthFirst Medical Group, P.A.,
$4,788,000, consisting of $3,119,000 of issuances or committed issuances of
Common Stock, $888,000 of debt assumed and $781,000 of cash paid; and King's
Daughters Clinic, P.A., $8,210,000, consisting of $8,046,000 of issuances or
committed issuances of Common Stock and $164,000 of cash paid.
For the years ended December 31, 1995 and 1996, cash used by operations was
$642,196 and provided by operations was $86,187, respectively. During 1995, the
Company incurred a loss of $697,342, and increases in non-cash current assets
were offset by increases in current liabilities. During 1996, the Company's net
loss of $549,305 was reduced primarily as the result of noncash expenses.
Cash used in investing activities was $2,091,349 in 1995 and $2,263,846 in
1996. In 1995, the Company purchased government-sponsored agency debt securities
with maturities of less than six months. During 1996, proceeds from the maturity
of these debt securities were offset primarily by purchases of clinic assets and
property and equipment.
Cash provided by financing activities (primarily related to the issuance of
the Company's Series A Redeemable Convertible Preferred Stock) for the year
ended December 31, 1995 totaled $3,319,990. Cash provided by financing
activities for the year ended December 31, 1996 totaled $2,734,357 and related
primarily to borrowings under the Credit Facility.
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) the 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 December 31, 1996, borrowings under the Credit
Facility were $4,203,103 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
24
<PAGE> 26
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 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.
25
<PAGE> 27
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 146 physicians and 46 physician
extenders (primarily physician assistants and nurse practitioners) at 24 sites
in Texas, Alabama, Kentucky, and Nevada. Currently, approximately 72% of the
Company's affiliated physicians, on a pro forma basis, are primary care
providers. Following the Offering, approximately 21% 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 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
26
<PAGE> 28
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 multispecialty 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 located 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.
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
depends upon the operating income of the group, providing a common incentive to
expand the group and increase its efficiency. In conjunction with the
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<PAGE> 29
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 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 146 physicians and 46 physician extenders at
24 sites in Texas, Alabama, Kentucky, and Nevada. Approximately 72% 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, mam-
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<PAGE> 30
mography, 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.
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 SPECIALTIES SERVICE
- ----------------------- --------------- -------------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
North Texas
Medical Surgical,
P.A.................. Denton, TX June 1995 8 -- 3 1
Abilene Diagnostic
Clinic Practices..... Abilene, TX December 1995 36 8 9 3
Cullman Primary
Care, P.C............ Cullman, AL March 1996 11 1 1 4
Morgan-Haugh,
P.S.C................ Mayfield, KY April 1996 12 1 6 2
HealthFirst Medical
Group, P.A........... Lake Worth, TX June 1996 12 6 4 6
King's Daughters
Clinic, P.A.......... Temple, TX September 1996 41 11 17 3
The Medical Group of
Northern Nevada...... Reno, NV October 1996 26 19 7 5
--- -- --
TOTAL.................. 146 46 24
</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 the first day of the calendar month following the closing of the
Offering 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 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
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<PAGE> 31
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 -- Stock Option
Plans."
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.
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 Company receives a fixed percentage (typically 15%) 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 Company is
increased or decreased by a percentage (typically a variable percentage ranging
from 25% to 50%, depending upon the amount of revenue) 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
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<PAGE> 32
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 involved 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 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 payors
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
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<PAGE> 33
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 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 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 December 31, 1996, the Company employed approximately 490 people,
including those employed in its corporate office. The Company is not party to
any collective bargaining agreement with a labor union and
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<PAGE> 34
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 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.
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<PAGE> 35
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard E. Ragsdale(1)(2)(3)............... 53 Chairman and Director
H. Wayne Posey(1)(2)....................... 58 President, Chief Executive Officer, and Director
Richard R. D'Antoni........................ 49 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
Robert D. Smith............................ 36 Vice President and Controller
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
</TABLE>
- ---------------
(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, and he also
served on HAI's Board of Directors and Executive Committee. He serves as a
director of GMS Dental Group, Inc., a dental practice management company.
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 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
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<PAGE> 36
integrated healthcare delivery company, Galen Health Care Inc., a hospital
management company, and Columbia/HCA Healthcare Corporation, an integrated
healthcare delivery company ("Columbia/HCA"). 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, 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.
ROBERT D. SMITH has served as Vice President and Controller of the Company
since January 1997. From September 1996 to January 1997, Mr. Smith was
Controller of Rykoff-Sexton, Inc., a publicly owned foodservice distribution
company. He was Controller of US Foodservice, a privately owned foodservice
distribution company, from November 1993 until its merger with Rykoff-Sexton in
1996. Mr. Smith was employed by White Swan, Inc., a privately owned foodservice
distribution company, from July 1992 until it was acquired by US Foodservice in
1993. He joined White Swan as its Controller and subsequently served as Chief
Financial Officer and was a member of its board of directors. Prior to joining
White Swan, Mr. Smith was a Senior Manager with Ernst & Young.
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, 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.
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<PAGE> 37
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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned in the year ended
December 31, 1996 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....................... $243,750 $62,218 $-- -- $23,668
President and CEO
Richard R. D'Antoni.................. 181,314 47,000 -- 480,000 89,918
Executive Vice President and COO
Dale K. Edwards...................... 148,333 43,176 -- -- 0
Vice President--Development
R. Alan Gleghorn..................... 120,000 35,700 -- -- 0
Vice President--Operations
</TABLE>
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<PAGE> 38
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL YEAR PRICE EXPIRATION -----------------------
NAME GRANTED(1) 1996 PER SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................... -- -- -- -- -- --
Richard R. D'Antoni.............. 480,000 52.4% $6.00 7/1/04 $4,359,532 $7,837,944
Dale K. Edwards.................. -- -- -- -- -- --
R. Alan Gleghorn................. -- -- -- -- -- --
</TABLE>
- ---------------
(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 Executive Officers for the full term of the options.
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES WARRANTS/OPTIONS AT WARRANTS/OPTIONS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey............... -- -- 277,109(2) 40,000 $2,540,954 $ 300,000
Richard R. D'Antoni.......... 20,000 $80,000 76,667 383,333 $ 306,668 $1,533,332
Dale K. Edwards.............. -- -- 32,000 88,000 $ 216,000 $ 484,000
R. Alan Gleghorn............. -- -- 20,800 83,200 $ 109,600 $ 438,400
</TABLE>
- ---------------
(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, 1996.
(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.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Posey,
D'Antoni, Edwards, Gleghorn, Smith, 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. 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.
37
<PAGE> 39
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 automatically
renew in November of each year 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. 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. Smith's agreement
expires December 31, 1998 and provides for an annual salary of $120,000. 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, Smith, and Weymier provide for an annual bonus based
upon the achievement of certain operating goals. In addition, all of the
above-referenced 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 "-- Stock Option Plans." 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
38
<PAGE> 40
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 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. The purchase prices for
the shares issued in July 1994 in connection with the initial capitalization of
the Company were determined by negotiation; those for the shares issued
subsequently were based upon estimates of the Company's value and prospects in
light of its development as of the date of each respective transaction. The
amounts and exercise prices of the warrants were determined by negotiations.
In December 1995 the Company issued an aggregate of 500,000 shares of
Series A 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 Series A 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 Series A 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.
STOCK OPTION PLANS
The Company has reserved 1,500,000 shares of Common Stock for issuance
under its 1994 Stock Option Plan and 1,600,000 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. In addition, under the 1996 Stock Option Plan, directors not employed
by the Company, physicians and physician extenders employed by the Company's
affiliated physician groups, and consultants and advisors to the Company may be
granted stock options. Options granted under the plans may not be exercised
until vested. Upon a change in control, the Option Committee has the authority
to accelerate the vesting of options granted under the 1996 Stock Option Plan.
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.
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
39
<PAGE> 41
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.
The Company has reserved 1,000,000 shares of Common Stock for issuance to
physicians and physician extenders employed by the Company's affiliated
physician groups who may be granted non-qualified options to purchase shares of
Common Stock.
As of December 31, 1996, options to purchase 1,432,000 shares of Common
Stock had been granted under the 1994 Stock Option Plan and none had been
granted under the 1996 Stock Option 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 December 31, 1996, no shares had been purchased under the Employee Stock
Purchase Plan.
40
<PAGE> 42
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 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 Management Company 801 Cherry Street, Suite 1450, Fort Worth, Texas
76102.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING(1) OWNED AFTER OFFERING(1)
NUMBER AND ADDRESS ------------------------- -------------------------
OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Richard E. Ragsdale......................... 2,026,540 27.3 2,026,540 17.7
H. Wayne Posey(2)........................... 1,510,665 20.3 1,510,665 13.2
E. Thomas Chaney............................ 1,114,780 15.0 1,114,780 9.8
Jack W. McCaslin............................ 518,572 7.0 518,572 4.5
Richard R. D'Antoni......................... 127,333 1.7 127,333 1.1
Dale K. Edwards............................. 72,000 1.0 72,000 *
R. Alan Gleghorn............................ 45,600 * 45,600 *
David T. Bailey, M.D........................ 1,000 * 1,000 *
James F. Herd, M.D.......................... 143,020 1.9 143,020 1.3
Bessemer Venture Partners III L.P.(3)....... 653,667 8.8 653,667 5.7
All Directors and executive officers
as a group (12 persons)................... 5,574,177 75.1 5,574,177 48.8
</TABLE>
- ---------------
* Less than 1%.
(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 Company's chief executive officer (the
"Selling Stockholder"), have granted to the Underwriters an over-allotment
option to purchase up to an additional 600,000 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 (in which
case he will own 1,360,665 shares, or 11.9% of the outstanding Common Stock
assuming the over-allotment option is exercised in full, after the
Offering) 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 employed by, and two
subchapter S corporations affiliated with, employees of 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 its 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 Series A
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 Series A Redeemable
Convertible Preferred Stock will be converted into an equal number of
shares of Common Stock upon consummation of the Offering 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, 9,117; the limited partnership of
which Deer III & Co. is the general partner, 283; and the six individuals
and two subchapter S corporations, 260. This number does not include 682 of
such shares issuable to partners of Deer III & Co. or to entities
controlled by such partners or 52 of such option shares issuable to
associates of Deer III & Co. These individuals disclaim beneficial
ownership of such shares 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.
41
<PAGE> 43
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, $0.01 par value
per share, of which 8,821,657 shares will be issued and outstanding, and
20,000,000 shares of Preferred Stock, $0.01 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.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). 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
42
<PAGE> 44
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
Business Combinations. In addition to the requirements of Section 203, the
Company's Certificate of Incorporation requires the affirmative vote of at least
75% of the outstanding shares of Common Stock held by stockholders other than a
beneficial owner of 10% or more of the Common Stock (a "Related Person") for any
merger or certain other business combinations (a "Business Combination") with a
Related Person unless the Business Combination is approved by at least 75% of
the Company's Board of Directors. If the requisite approval of the Board is
obtained with respect to a Business Combination, only a majority vote of the
Common Stock is required, or, for certain transactions, no stockholder vote is
necessary unless the Business Combination is subject to Section 203 as described
above. Therefore, depending upon the circumstances, this provision will require
a 75% stockholder vote for a Business Combination in cases in which either a
majority vote or no vote of stockholders is otherwise required under Delaware
law.
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 75% 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 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 DGCL
43
<PAGE> 45
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the DGCL) 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
that the Offering is completed (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-thousandth of a share of Series B
Junior Participating Preferred Stock, par value $0.01 per share (the "Junior
Preferred Shares"), at a price to be approved by the Board of Directors (the
"Purchase Price"), subject to adjustment. 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 Harris Trust and Savings Bank, as
Rights Agent. A copy of a form 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 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) 10 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"),
44
<PAGE> 46
(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, shares of Common Stock (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.
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, each outstanding share of Common Stock
will receive one Right.
45
<PAGE> 47
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.
46
<PAGE> 48
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 4,000,000 shares sold in this Offering (600,000 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 4,821,657 shares of Common Stock that will be
outstanding immediately following this Offering consist of shares issued in
private transactions (the "Restricted Shares").
The Restricted Shares, together with 4,030,525 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 90 days after the date of
this Prospectus. In general, Rule 144 allows a stockholder who has beneficially
owned Restricted Shares for at least two years (including persons 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 88,217 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, who
beneficially own in the aggregate 6,705,293 shares of Common Stock, 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.
47
<PAGE> 49
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:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Piper Jaffray Inc...........................................
Robertson, Stephens & Company LLC...........................
Cowen & Company.............................................
------
Total..................................................
======
</TABLE>
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 600,000 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 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.
48
<PAGE> 50
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
6,705,293 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
its stock option plans, 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.
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, 1995 and 1996, and for the period from inception (July 1, 1994) to
December 31, 1994, and for the years ended December 31, 1995 and 1996, 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.
49
<PAGE> 51
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.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
Report of Independent Public Accountants............... F-3
Consolidated Balance Sheets as of December 31, 1995 and
1996.................................................. F-4
Consolidated Statements of Operations for the period
from inception (July 1, 1994) to December 31, 1994,
and the years ended December 31, 1995, and 1996....... F-6
Consolidated Statements of Stockholders' Equity for the
period from inception (July 1, 1994) to December 31,
1994, and the years ended December 31, 1995, and
1996.................................................. F-7
Consolidated Statements of Cash Flows for the period
from inception (July 1, 1994) to December 31, 1994,
and the years ended December 31, 1995, and 1996....... F- 8
Notes to Consolidated Financial Statements............. F-9
NORTH TEXAS MEDICAL SURGICAL, P.A.
Report of Independent Public Accountants............... F-21
Balance Sheets as of December 31, 1994, and June 30,
1995.................................................. F-22
Statements of Operations for the years ended December
31, 1993 and 1994, and the six months ended June 30,
1995.................................................. F-23
Statements of Stockholders' Equity for the years ended
December 31, 1993 and 1994, and the six months ended
June 30, 1995......................................... F-24
Statements of Cash Flows for the years ended December
31, 1993 and 1994, and the six months ended June 30,
1995.................................................. F-25
Notes to Financial Statements.......................... F-26
CULLMAN FAMILY PRACTICE, P.C.
Report of Independent Public Accountants............... F-28
Balance Sheets as of December 31, 1994 and 1995........ F-29
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-30
Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995............................ F-31
Statements of Cash Flows for the years ended December
31, 1994 and 1995..................................... F-32
Notes to Financial Statements.......................... F-33
FAMILY MEDICAL CLINIC, P.C.
Report of Independent Public Accountants............... F-36
Balance Sheets as of December 31, 1994 and 1995........ F-37
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-38
Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995............................ F-39
Statements of Cash Flows for the years ended December
31, 1994 and 1995..................................... F-40
Notes to Financial Statements.......................... F-41
MORGAN-HAUGH, P.S.C.
Report of Independent Public Accountants............... F-44
Balance Sheets as of December 31, 1994 and 1995........ F-45
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-46
Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994, and 1995..................... F-47
Statements of Cash Flows for the years ended December
31, 1993, 1994, and 1995.............................. F-48
Notes to Financial Statements.......................... F-49
</TABLE>
F-1
<PAGE> 53
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
Report of Independent Public Accountants............... F-54
Combined Balance Sheets as of December 31, 1994 and
1995.................................................. F-55
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-56
Combined Statements of Owners' Equity for the years
ended December 31, 1993, 1994,
and 1995............................................. F-57
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1994,
and 1995............................................. F-58
Notes to Combined Financial Statements................. F-59
ABILENE DIAGNOSTIC CLINIC PRACTICES
Report of Independent Public Accountants............... F-62
Combined Balance Sheets as of December 31, 1995 and
1996.................................................. F-63
Combined Statements of Operations for the years ended
December 31, 1994, 1995, and 1996..................... F-64
Combined Statements of Owners' Equity for the years
ended December 31, 1994, 1995, and 1996............... F-65
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995, and 1996..................... F-66
Notes to Combined Financial Statements................. F-67
KING'S DAUGHTERS CLINIC, P.A.
Report of Independent Public Accountants............... F-70
Balance Sheets as of December 31, 1994 and 1995, and
August 31, 1996 (unaudited)........................... F-71
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-72
Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994, and 1995, and the eight
months ended August 31, 1996 (unaudited).............. F-73
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-74
Notes to Financial Statements.......................... F-75
WESTERN MEDICAL MANAGEMENT CORP., INC.
Report of Independent Public Accountants............... F-79
Balance Sheets as of December 31, 1995 and 1996........ F-80
Statements of Operations for the years ended December
31, 1994, 1995, and 1996.............................. F-81
Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995, and 1996..................... F-82
Statements of Cash Flows for the years ended December
31, 1994, 1995, and 1996.............................. F-83
Notes to Financial Statements.......................... F-84
</TABLE>
F-2
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ProMedCo Management Company:
We have audited the accompanying consolidated balance sheets of ProMedCo
Management Company (a Delaware corporation) and subsidiaries as of December 31,
1995 and 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 years ended December 31, 1995 and 1996.
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 ProMedCo Management Company
and subsidiaries as of December 31, 1995 and 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 years ended December 31, 1995 and 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
February 10, 1997
F-3
<PAGE> 55
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ FOR EQUITY
1995 1996 CONVERSIONS
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $1,076,836 $ 1,633,534 $ 1,633,534
Short-term investments............................ 1,970,530 -- --
Accounts receivable, net of allowances of
approximately $135,000 and $2,732,000,
respectively.................................... 168,177 4,272,021 4,272,021
Inventory......................................... 13,035 212,709 212,709
Management fees receivable........................ 116,968 1,266,598 1,266,598
Due from affiliated physician groups.............. -- 510,220 510,220
Prepaid expenses and other current assets......... 17,559 410,365 410,365
---------- ----------- -----------
Total current assets......................... 3,363,105 8,305,447 8,305,447
Property and equipment, net of accumulated depreciation
and amortization of $22,907 and $302,819,
respectively......................................... 96,035 3,341,775 3,341,775
Intangible assets, net of accumulated amortization of
$11,515 and $288,695, respectively................... 976,025 14,860,171 14,860,171
Other assets........................................... 16,182 1,962,942 1,962,942
---------- ----------- -----------
Total assets................................. $4,451,347 $28,470,335 $28,470,335
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ FOR EQUITY
1995 1996 CONVERSIONS
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 94,174 $ 651,216 $ 651,216
Payable to affiliated physician groups................. -- 1,341,876 1,341,876
Accrued salaries, wages and benefits................... 24,079 1,153,558 1,153,558
Accrued expenses and other current liabilities......... 185,346 1,551,057 1,551,057
Current maturities of notes payable and obligations
under capital leases................................ 66,898 608,192 608,192
Deferred purchase price................................ -- 169,408 169,408
---------- ----------- -----------
Total current liabilities......................... 370,497 5,475,307 5,475,307
Notes payable, net of current maturities................. 1,429 4,631,249 4,631,249
Notes payable to stockholders............................ 261,604 -- --
Obligations under capital leases......................... -- 1,030,171 1,030,171
Deferred purchase price.................................. -- 12,578 12,578
Convertible subordinated notes payable................... -- 1,800,274 1,800,274
Other long term liabilities.............................. -- 393,575 393,575
---------- ----------- -----------
Total liabilities................................. 633,530 13,343,154 13,343,154
---------- ----------- -----------
Commitments and contingencies
Series A redeemable convertible preferred stock, 700,000
shares authorized; 500,000 shares issued and
outstanding (liquidation preference of $6,000,000)..... 2,953,358 2,957,641 --
Redeemable common stock, 165,296 shares issued and
outstanding ........................................... 991,776 991,776 --
Stockholders' equity:
Preferred stock, $0.01 par value, 19,300,000 shares
authorized, no shares issued and outstanding........ -- -- --
Class B Common Stock, $0.01 par value; 2,600,000 shares
authorized; 1,226,150 shares issued and outstanding
(liquidation preference of $1,226,150).............. 12,262 12,262 --
Common stock, $0.01 par value; 47,400,000 shares
authorized; 1,899,000 and 2,742,729 shares issued
and outstanding at December 31, 1995 and 1996,
respectively........................................ 18,990 27,427 46,342
Additional paid-in-capital............................. 736,497 10,371,400 14,314,164
Common stock to be issued, 667 and 187,482 shares, at
December 31, 1995 and 1996, respectively............ 4,000 2,303,212 2,303,212
Stockholder notes receivable........................... (31,834) (120,000) (120,000)
Accumulated deficit.................................... (867,232) (1,416,537) (1,416,537)
---------- ----------- -----------
Total stockholders' equity........................ (127,317) 11,177,764 15,127,181
---------- ----------- -----------
Total liabilities and stockholders' equity........ $4,451,347 $28,470,335 $28,470,335
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 1, 1994)
TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1994 1995 1996
-------------- ------------ -----------
<S> <C> <C> <C>
Physician groups revenue, net.......................... $ -- $1,918,029 $34,641,222
Less: amounts retained by physician groups............. -- 759,513 15,322,220
--------- ---------- -----------
Management fee revenue................................. -- 1,158,516 19,319,002
Operating expenses:
Clinic salaries and benefits...................... -- 554,384 7,586,966
Clinic rent and lease expense..................... -- 115,028 2,027,539
Clinic supplies................................... -- 111,703 2,419,495
Other clinic costs................................ -- 242,491 4,426,181
General corporate expenses........................ 172,462 802,980 2,633,585
Depreciation and amortization..................... 1,182 34,302 610,827
Interest expense (income)......................... (3,754) (5,030) 163,714
--------- ---------- -----------
169,890 1,855,858 19,868,307
--------- ---------- -----------
Loss before provision for income taxes................. (169,890) (697,342) (549,305)
Provision for income taxes............................. -- -- --
--------- ---------- -----------
Net loss............................................... $(169,890) $ (697,342) $ (549,305)
========= ========== ===========
Net loss per share..................................... $ (0.03) $ (0.09) $ (0.07)
========= ========== ===========
Weighted average number of common shares outstanding... 6,522,237 7,857,308 7,914,560
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 58
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS B COMMON
COMMON STOCK COMMON STOCK ADDITIONAL STOCK STOCKHOLDER
------------------- ------------------- PAID-IN TO BE NOTES ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUED RECEIVABLE DEFICIT
--------- ------- --------- ------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994,
(inception).................. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................... -- -- 1,878,000 18,780 83,930 -- (34,750) --
Issuance of Class B common
stock.................... 1,226,150 12,262 -- -- 589,631 -- -- --
Payments on stockholder
notes.................... -- -- -- -- -- -- 1,250 --
Net loss................... -- -- -- -- -- -- -- (169,890)
--------- ------- --------- ------- ----------- ---------- --------- -----------
Balance, December 31, 1994..... 1,226,150 12,262 1,878,000 18,780 673,561 -- (33,500) (169,890)
Common stock
subscribed............... -- -- -- -- -- 4,000 (4,000) --
Issuance of common stock
and warrants............. -- -- 21,000 210 62,936 -- (10,000) --
Payments on stockholder
notes.................... -- -- -- -- -- -- 15,666 --
Net loss................... -- -- -- -- -- -- -- (697,342)
--------- ------- --------- ------- ----------- ---------- --------- -----------
Balance, December 31, 1995..... 1,226,150 12,262 1,899,000 18,990 736,497 4,000 (31,834) (867,232)
Issuance of common
stock.................... -- -- 843,729 8,437 9,634,903 -- -- --
Stock subscription
canceled................. -- -- -- -- -- (4,000) 4,000 --
Common stock to be issued
in connection with
acquisitions............. -- -- -- -- -- 2,303,212 -- --
Issuance of stockholder
note..................... -- -- -- -- -- -- (120,000) --
Payments on stockholder
notes.................... -- -- -- -- -- -- 27,834 --
Net loss................... -- -- -- -- -- -- -- (549,305)
--------- ------- --------- ------- ----------- ---------- --------- -----------
Balance, December 31, 1996..... 1,226,150 $12,262 2,742,729 $27,427 $10,371,400 $2,303,212 $(120,000) $(1,416,537)
========= ======= ========= ======= =========== ========== ========= ===========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, July 1, 1994,
(inception).................. $ --
Issuance of common
stock.................... 67,960
Issuance of Class B common
stock.................... 601,893
Payments on stockholder
notes.................... 1,250
Net loss................... (169,890)
-----------
Balance, December 31, 1994..... 501,213
Common stock
subscribed............... --
Issuance of common stock
and warrants............. 53,146
Payments on stockholder
notes.................... 15,666
Net loss................... (697,342)
-----------
Balance, December 31, 1995..... (127,317)
Issuance of common
stock.................... 9,643,340
Stock subscription
canceled................. --
Common stock to be issued
in connection with
acquisitions............. 2,303,212
Issuance of stockholder
note..................... (120,000)
Payments on stockholder
notes.................... 27,834
Net loss................... (549,305)
-----------
Balance, December 31, 1996..... $11,177,764
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 59
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 1, 1994) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, --------------------------
1994 1995 1996
-------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (169,890) $ (697,342) $ (549,305)
Adjustments to reconcile net loss to net cash
used in operating activities (net of effects of
purchase transactions):
Depreciation and amortization............... 1,182 34,302 610,827
Noncash compensation........................ -- -- 14,750
Changes in assets and liabilities:
Accounts receivable.................... (200) (45,791) (310,647)
Inventory.............................. -- (13,035) (134,315)
Management fees receivable............. -- (116,968) (1,149,630)
Due from affiliated physician groups... -- -- (272,681)
Prepaid expenses and other current
assets............................... (62) 11,914 (67,119)
Other assets........................... (2,366) (13,949) (79,212)
Accounts payable....................... 19,794 55,048 (243,290)
Accrued expenses and other current
liabilities.......................... 359 143,625 2,266,809
---------- ----------- ------------
Net cash provided by (used in)
operating activities............ (151,183) (642,196) 86,187
---------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment.............. (32,604) (30,395) (1,023,471)
Purchases of clinic assets, net of cash.......... -- (90,424) (2,435,905)
Purchases of short-term investments.............. -- (1,970,530) --
Proceeds from short-term investments............. -- -- 1,970,530
Issuance of note receivable to Reno.............. -- -- (775,000)
---------- ----------- ------------
Net cash used in investing
activities...................... (32,604) (2,091,349) (2,263,846)
---------- ----------- ------------
Cash flows from financing activities:
Borrowings under notes payable................... 3,075 297,820 3,742,557
Payment of deferred financing costs.............. -- -- (565,137)
Payment of deferred offering costs............... -- -- (564,427)
Proceeds from issuance of Series A redeemable
convertible preferred stock.................... -- 2,953,358 --
Proceeds from issuance of common stock........... 704,603 63,146 125,000
Issuance (payments) of stockholder notes
receivable,
net............................................ (33,500) 5,666 (3,636)
---------- ----------- ------------
Net cash provided by financing
activities...................... 674,178 3,319,990 2,734,357
---------- ----------- ------------
Increase in cash...................................... 490,391 586,445 556,698
Cash and cash equivalents, beginning of period........ -- 490,391 1,076,836
---------- ----------- ------------
Cash and cash equivalents, end of period.............. $ 490,391 $ 1,076,836 $ 1,633,534
========== =========== ============
Supplemental disclosure of cash flow information (See
also Notes 3 and 6):
Cash paid during the year --
Interest expense............................ $ -- $ 14,391 $ 90,722
Income taxes................................ $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 60
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. DESCRIPTION OF BUSINESS:
ProMedCo Management Company and subsidiaries ("ProMedCo" or the "Company"),
a Delaware corporation is engaged in operating and managing physician groups.
The Company, through its wholly owned subsidiaries, acquires certain net assets
of and manages physician groups under long-term service agreements with
affiliated physician groups. The Company was originally 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. The Company's subsidiaries acquire the operating assets and assume
certain liabilities of the physician groups and account for the Company's
management activities with the physician groups under the Company's long-term
service agreements. The Company does not consolidate the operating results and
accounts of the physician groups. For display purposes, the Company has
presented the physician groups revenues and amounts retained by the physician
groups (which consists of 85% of the physician groups' operating income and is
paid to the affiliated physicians in accordance with the service agreements), in
the accompanying consolidated statements of operations to arrive at the
Company's gross management fee revenue. See further discussion below. 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").
Physician Groups Revenue, Net
Physician groups revenue represents the revenue of the physician groups
reported at the estimated realizable amounts from patients, third-party payors
and others for services rendered, net of contractual and other adjustments.
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 physician groups revenue, net was
received under government-sponsored healthcare programs (principally, the
Medicare and Medicaid programs). The physician groups have 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.
Management Fee Revenue
Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups (85% of
the physician groups' operating income) represents amounts paid to the
physicians pursuant to the service agreements between the Company and the
physician groups. Under the service agreements, the Company provides each
physician group with the facilities and equipment used in its 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.
F-9
<PAGE> 61
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company's management fee revenues are dependent upon the operating
income of the physician groups. As discussed previously, the physician groups
retain a fixed percentage (typically 85%) of physician group operating income.
Physician group operating income is defined in the service agreements as the
physician group's net medical revenue less certain contractually agreed-upon
clinic expenses, including non-physician clinic salaries and benefits, rent,
insurance, interest and other direct clinic expenses. The amount of the
physician groups revenue retained and paid to the physician group primarily
consists of the cost of the affiliated physician services. The remaining amount
of the physician group operating income (typically 15%) and an amount equal to
100% of the clinic expenses are reflected as management fee revenue earned by
the Company and is detailed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCEPTION TO -------------------------
DECEMBER 31, 1994 1995 1996
----------------- ---------- -----------
<S> <C> <C> <C>
Component based upon percentage of physician
groups operating income......................... $ -- $ 134,031 $ 2,703,921
Reimbursement of clinic expenses.................. -- 1,024,485 16,615,081
---------- ---------- -----------
Management fee revenue............................ $ -- $1,158,516 $19,319,002
========== ========== ===========
</TABLE>
Clinic Expenses and General Corporate Expenses
Clinic expenses represent substantially all clinic operating expenses,
including clinic salaries and benefits, rent, supplies, maintenance and repairs,
insurance, utilities, and other direct clinic expenses. Other clinic costs of
$4,426,181 for the year ended December 31, 1996 included $2,091,930, $377,668
and $1,956,583 of other clinic expenses. General corporate expenses represent
primarily the salaries and benefits of corporate headquarters personnel, rent,
travel, and other administrative expenses.
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 Series A Redeemable Convertible Preferred Stock
are assumed to be Common Stock equivalent shares for all periods presented.
Fully diluted net loss per share is not presented because the effect would be
antidilutive.
Unaudited Pro Forma Information at December 31, 1996
Upon completion of the Offering, all outstanding Series A 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 December 31, 1996.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
F-10
<PAGE> 62
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Short-Term Investments
In 1995, the Company had government-sponsored agency debt securities which
were classified as "held-to-maturity." These securities matured in February and
May 1996.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
other third party payors for medical services provided by the Physician Groups.
Such amounts are recorded net of contractual allowances and estimated bad debts.
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.
In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of each group with which a
service agreement is entered into, including the number of physicians in each
group, number of service sites and ability to recruit additional physicians, the
Group's relative market position, the length of time each group has been in
existence, and the term and enforceability of the service agreement. Because the
Company does not practice medicine, maintain patient relationships, hire
physicians, enter into employment and noncompete agreements with the physicians,
or directly contract with payors, the intangible asset created in the purchase
allocation process is associated solely with the service agreement with the
physician group.
The Company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the physician group
and the individual physicians. The primary economic beneficiary of these
agreements is the physician group, an entity that the Company does not legally
control. In addition, any damages under the agreements are paid solely to the
physician group for purposes of replacing departing physicians. Generally, due
to low expected physician turnover in the industry and the ability of the
physician group to actively replace departing physicians, there would be no
significant economic loss to either the physician group nor the Company due to
physician departure. The physician groups continually recruit physicians and, as
appropriate and necessary, subsequently add qualified physicians to the group.
This manner of operations allows the physician group to perpetuate itself as
individual physicians retire or are otherwise replaced. The Company believes
that the physician groups with which it has service agreements thus are long-
lived entities with an indeterminable life, and that the physicians, customer
demographics, and various contracts will be continuously replaced. The service
agreement intangible is being amortized on a straight-line method over a
composite average life of 30 years.
F-11
<PAGE> 63
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters relating
to the physician practice management industry, which the Company expects to
include a review of accounting for businesses combinations. The Company is
unable to predict the impact, if any, that this review may have on the Company's
acquisition strategy, allocation of purchase price related to acquisitions, and
amortization life assigned to intangible assets.
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. Among the factors that the Company will continually evaluate are
unfavorable changes in each physician group's relative market share and local
market competitive environment, current period and forecasted operating and cash
flow levels of the physician group and its impact on the management fee earned
by the Company, and legal factors governing the practice of medicine.
Payable to Physician Groups
Amounts payable to 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.
Deferred Purchase Price
Deferred purchase price represents cash consideration due to physician
groups payable in January 1997.
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.
F-12
<PAGE> 64
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. The following pro forma disclosures
are presented to reflect amounts as if the fair value method were applied:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net loss................................................. $(697,342) $(1,023,907)
========= ===========
Net loss per share....................................... $ (0.09) $ (0.13)
========= ===========
</TABLE>
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 year ended December 31, 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 the first day of the
calendar month following the Offering.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 2,360 $ 172,677
Accounts receivable, net.................................... 90,222 3,793,198
Prepaid expenses and other current assets................... 15,649 628,585
Property and equipment...................................... 66,529 2,502,181
Liabilities assumed......................................... (74,097) (4,448,018)
Intangible assets........................................... 987,540 14,124,683
---------- -----------
1,088,203 16,773,306
Less -- fair value of common stock issued and to be
issued.................................................... 991,776 11,368,856
Less -- notes and convertible subordinated notes issued..... -- 2,613,882
Less -- deferred purchase price (payable in cash)........... -- 181,986
---------- -----------
Cash purchase price......................................... $ 96,427 $ 2,608,582
========== ===========
</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
F-13
<PAGE> 65
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS -- (CONTINUED)
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 agreement.
Based upon the estimated Offering price, an additional 521,000 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 the first day of the calendar month following the Offering. The
Company will issue approximately 2,033,333 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Physician Groups revenue, net.............................. $47,808,484 $52,261,857
Less: amounts retained by Physician Groups................. 20,424,715 21,913,815
----------- -----------
Management fee revenue..................................... $27,383,769 $30,348,042
=========== ===========
Net income (loss).......................................... $ 157,149 $ (159,274)
=========== ===========
Net income (loss) per share................................ $ 0.02 $ (0.02)
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
Furniture, fixtures, and equipment................... $32,604 $108,942 $3,145,848
Leasehold improvements............................... -- 10,000 498,746
Less -- accumulated depreciation and amortization.... (1,049) (22,907) (302,819)
------- -------- ----------
Property and equipment, net.......................... $31,555 $ 96,035 $3,341,775
======= ======== ==========
</TABLE>
F-14
<PAGE> 66
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C>
Service agreement rights.................................... $987,540 $15,148,866
Less -- accumulated amortization............................ (11,515) (288,695)
-------- -----------
Intangible assets, net...................................... $976,025 $14,860,171
======== ===========
</TABLE>
6. NOTES PAYABLE, OTHER LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES:
Notes Payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
Notes payable issued to stockholders................. $ -- $261,604 $ --
======= ======== ==========
Note payable issued to a physician group............. $ -- $ -- $ 851,549
Borrowings under Credit Facility..................... -- -- 4,157,027
Other notes payable.................................. 3,075 68,327 47,547
------- -------- ----------
3,075 68,327 5,056,123
Less -- current portion.............................. (1,025) (66,898) (424,874)
------- -------- ----------
Notes payable, net................................... $ 2,050 $ 1,429 $4,631,249
======= ======== ==========
</TABLE>
The maturities of notes payable at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 424,874
1998........................................................ 862,205
1999........................................................ 841,778
2000........................................................ 842,667
2001........................................................ 2,084,599
Thereafter.................................................. --
----------
$5,056,123
==========
</TABLE>
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.
The interest rates on the notes payable ranges from 7.0% to 8.75% 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.
F-15
<PAGE> 67
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE, OTHER LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES -- (CONTINUED)
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 December 31, 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 December 31, 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 0.5%. 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 December 31, 1996, the Company had $1,713,941 million available under the
working capital portion of the Credit Facility and $19,129,032 million was
available for acquisition purposes, subject to certain conditions as defined by
the agreement.
Obligations Under Capital Leases
In connection with an acquisition, the Company assumed the obligation of
various equipment under capital leases. At December 31, 1996, future minimum
lease payments under capital leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 455,256
1998........................................................ 408,457
1999........................................................ 264,662
2000........................................................ 205,236
2001........................................................ 87,501
----------
1,421,112
Less portion attributable to interest....................... (207,623)
----------
Obligations under capital leases............................ $1,213,489
Less -- current portion..................................... (183,318)
----------
$1,030,171
==========
</TABLE>
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK, AND
STOCKHOLDERS' EQUITY:
The Company has authorized the issuance of 70,000,000 shares of stock, of
which (a) 20,000,000 shares, par value $0.01 per share, are to be designated
Preferred Stock (of which 700,000 shares are to be designated Series A
Redeemable Convertible Preferred Stock), (b) 47,400,000 shares, par value $0.01
per share, are to be of a class designated Common Stock and (c) 2,600,000
shares, par value $0.01 per share, are to be of a class designated Class B
Common Stock.
F-16
<PAGE> 68
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK, AND STOCKHOLDERS'
EQUITY -- (CONTINUED)
Series A 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 December 31,
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 shares of Preferred Stock will be
automatically converted into Common Stock upon an offering of Common Stock. 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 47,230 shares of Common
Stock were granted to Preferred Stockholders, of which 7,743 were exercisable at
prices ranging from $6.00 to $10.20 per share as of December 31, 1996.
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
December 31, 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 December 31, 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. The number of common shares to be
issued and the price per share was fixed as of the consummation date of the
acquisition in May 1996.
F-17
<PAGE> 69
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK, AND STOCKHOLDERS'
EQUITY -- (CONTINUED)
Stock Option Plans
The Company has reserved 1,500,000 shares of Common Stock for issuance
under its 1994 Stock Option Plan and 1,600,000 shares of Common Stock for
issuance under its 1996 Employee Stock Option Plan. Options granted under the
Plans 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 December 31, 1996, options to
purchase 68,000 shares remain available for grant under the Plans. There were no
options issued under the 1996 Stock Option Plan.
The following table summarizes the activity in the 1994 Stock Option Plan:
<TABLE>
<CAPTION>
OUTSTANDING PRICE PER SHARE
----------- ----------------
<S> <C> <C>
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.............................................. 805,800 $6.00 - $14.00
Exercised............................................ (23,200) $0.50 - $ 6.00
Canceled............................................. (223,400) $0.50 - $ 9.00
---------
December 31, 1996......................................... 1,064,400 $0.50 - $14.00
=========
</TABLE>
Stock options available for exercise under the 1994 Stock Option Plan as of
December 31, 1994, 1995, and 1996, totaled 0, 8,000, and 170,720, respectively.
Upon completion of the Offering, the vesting period accelerates for options to
purchase approximately 45,000 shares.
8. INCOME TAXES:
At December 31, 1996, the Company had a cumulative net operating loss
carryforward for income tax purposes of approximately $2.3 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 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
F-18
<PAGE> 70
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
amounts used for income tax purposes. Significant components of the Company's
net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating losses................................... $ 295,472 $ 493,153
Other.................................................. 1,429 29,240
--------- ---------
Net deferred tax assets..................................... 296,901 522,393
Valuation allowance......................................... (296,901) (522,393)
--------- ---------
$ -- $ --
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1994 1995 1996
------------- ---------- ----------
<S> <C> <C> <C>
Federal tax at statutory rate............................. $(57,763) $(237,096) $(186,764)
State income tax, net of federal tax effect............... (3,397) (13,947) (10,986)
Increase in valuation allowance........................... 61,160 235,741 225,492
Other..................................................... -- 15,302 (27,742)
-------- --------- ---------
$ -- $ -- $ --
======== ========= =========
</TABLE>
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 and 1996.
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, $122,594,
and $2,083,674 for the period ended December 31, 1994 and the years ended 1995
and 1996, respectively, reflect lease commitments for medical practice office
space, medical practice equipment, corporate office space, and corporate
equipment.
F-19
<PAGE> 71
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1996.
<TABLE>
<S> <C>
1997........................................................ $1,342,262
1998........................................................ 1,137,549
1999........................................................ 849,053
2000........................................................ 697,427
2001........................................................ 474,132
Thereafter.................................................. 1,581,660
----------
$6,082,083
==========
</TABLE>
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 the 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 the physician groups which might have a material impact on the
Company's financial position or results of operations.
11. MERGER:
In November 1996, the Company entered into a definitive agreement 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. The transaction is anticipated to be accounted for
as a pooling of interests, as defined by APB No. 16, "Business Combinations."
In anticipation of the merger, the Company entered into an interim services
agreement with Reno. The Company has also provided Reno with a line of credit of
up to $2.5 million at market terms for working capital purposes. As of December
31, 1996, $775,000 is outstanding from Reno under these arrangements. The note
receivable has been recorded in other assets in the accompanying consolidated
balance sheets.
F-20
<PAGE> 72
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-21
<PAGE> 73
NORTH TEXAS MEDICAL SURGICAL, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 74
NORTH TEXAS MEDICAL SURGICAL, P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------------------- JUNE 30,
1993 1994 1995
---------- ---------- ----------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 75
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-24
<PAGE> 76
NORTH TEXAS MEDICAL SURGICAL, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
----------------------- 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-25
<PAGE> 77
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:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Furniture and fixtures...................................... 7
Equipment................................................... 5
Leasehold improvements...................................... Estimated life of lease
</TABLE>
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.
F-26
<PAGE> 78
NORTH TEXAS MEDICAL SURGICAL, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................ $29,855
1997........................................................ 1,509
</TABLE>
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.
8. SUBSEQUENT EVENT:
Effective June 30, 1995, the Company was acquired by ProMedCo of Denton,
Inc., a wholly owned subsidiary of ProMedCo 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-27
<PAGE> 79
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-28
<PAGE> 80
CULLMAN FAMILY PRACTICE, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 81
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
YEARS ENDED 1995 1996
DECEMBER 31, TO TO
----------------------- 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-30
<PAGE> 82
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- 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-31
<PAGE> 83
CULLMAN FAMILY PRACTICE, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 84
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 is stated at cost, net of accumulated depreciation
and amortization. Property and equipment is depreciated using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Furniture and fixtures...................................... 7
Equipment................................................... 5
Leasehold improvements...................................... Estimated life of lease
</TABLE>
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.
F-33
<PAGE> 85
CULLMAN FAMILY PRACTICE, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................ $140,400
1997........................................................ 140,400
1998........................................................ 140,400
1999........................................................ 105,300
</TABLE>
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.
F-34
<PAGE> 86
CULLMAN FAMILY PRACTICE, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 ProMedCo 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-35
<PAGE> 87
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-36
<PAGE> 88
FAMILY MEDICAL CLINIC, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 89
FAMILY MEDICAL CLINIC, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM PERIOD FROM
JANUARY 1, JANUARY 1,
YEARS ENDED 1995 1996
DECEMBER 31, TO TO
----------------------- 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-38
<PAGE> 90
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-39
<PAGE> 91
FAMILY MEDICAL CLINIC, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 92
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.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Property and equipment is depreciated using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 7
Equipment................................................... 5
</TABLE>
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-41
<PAGE> 93
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................ $ 39,886
1997........................................................ 28,974
1998........................................................ 24,347
1999........................................................ 26,631
2000........................................................ 20,022
--------
$139,860
========
</TABLE>
F-42
<PAGE> 94
FAMILY MEDICAL CLINIC, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<S> <C>
1996........................................................ $ 90,248
1997........................................................ 92,954
1998........................................................ 95,743
1999........................................................ 98,616
2000........................................................ 101,573
Thereafter.................................................. 565,297
</TABLE>
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 ProMedCo 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-43
<PAGE> 95
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-44
<PAGE> 96
MORGAN-HAUGH, P.S.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
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-45
<PAGE> 97
MORGAN-HAUGH, P.S.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 1,
YEARS ENDED 1995 1996
DECEMBER 31, TO TO
------------------------------------ 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-46
<PAGE> 98
MORGAN-HAUGH, P.S.C.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK STOCKHOLDER
----------------- 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-47
<PAGE> 99
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-48
<PAGE> 100
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 payors 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.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed on a straight-line method over the following useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture, fixtures, and equipment.......................... 5-10
Building and improvements................................... 15-30
</TABLE>
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-49
<PAGE> 101
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------
<S> <C> <C>
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
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 --
</TABLE>
F-50
<PAGE> 102
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------
<S> <C> <C>
37,231 --
5.9% note payable to a related party, due in monthly
installments of $442, including interest, through December
2003, unsecured...........................................
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
========== =========
</TABLE>
The maturities of notes payable as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996........................................................ $130,049
1997........................................................ 109,436
1998........................................................ 94,853
1999........................................................ 100,130
2000........................................................ 101,166
Thereafter.................................................. 459,226
--------
$994,860
========
</TABLE>
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:
<TABLE>
<S> <C>
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
========
</TABLE>
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-51
<PAGE> 103
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The following table summarizes the significant components of income tax
expense (benefit):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
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%
== == ==
</TABLE>
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.
F-52
<PAGE> 104
MORGAN-HAUGH, P.S.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 ProMedCo 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-53
<PAGE> 105
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-54
<PAGE> 106
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
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-55
<PAGE> 107
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
YEARS ENDED DECEMBER 31, TO TO
------------------------------------ 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
expenses.................. 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-56
<PAGE> 108
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C>
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
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 109
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-58
<PAGE> 110
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.
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:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Furniture and fixtures...................................... 10
Equipment................................................... 5-10
Leasehold improvements...................................... Remaining life of lease
</TABLE>
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.
F-59
<PAGE> 111
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................ $144,303
1997........................................................ 76,938
1998........................................................ 40,929
--------
Total.................................................. $262,170
========
</TABLE>
F-60
<PAGE> 112
HEALTHFIRST SERVICES, INC. AND TARRANT FAMILY PRACTICE, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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).
Future lease commitments under the operating leases are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 264,342
1997........................................................ 307,854
1998........................................................ 271,285
1999........................................................ 221,088
2000........................................................ 198,848
Thereafter.................................................. 1,260,000
</TABLE>
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 ProMedCo 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-61
<PAGE> 113
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, 1995 and 1996, and
the related combined statements of operations, owners' equity, and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
January 31, 1997
F-62
<PAGE> 114
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 369,717 $ 361,740
Accounts receivable -- net of allowances of $783,991
and $2,623,757, respectively.......................... 1,478,283 1,609,780
Prepaid expenses and other current assets.............. 146,050 143,778
---------- ----------
Total current assets.............................. 1,994,050 2,115,298
Property and equipment, net of accumulated depreciation of
$110,543 and $135,113, respectively....................... 57,224 32,654
Other assets................................................ 50,000 50,000
---------- ----------
Total assets...................................... $2,101,274 $2,197,952
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 583,331 $ 459,941
Management fees payable................................ 113,047 573,715
Notes payable.......................................... 198,163 820,447
Accrued expenses and other current liabilities......... 65,693 48,667
---------- ----------
Total current liabilities......................... 960,234 1,902,770
Notes payable, net of current maturities.................... -- 77,675
---------- ----------
Total liabilities................................. 960,234 1,980,445
Commitments and contingencies
Owners' equity.............................................. 1,141,040 217,507
---------- ----------
Total liabilities and owners' equity.............. $2,101,274 $2,197,952
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 115
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Net revenue............................................ $7,114,567 $9,536,623 $15,790,742
---------- ---------- -----------
Cost of affiliated physician services............. 3,730,554 4,939,683 7,462,546
Clinic salaries and benefits...................... 1,336,463 1,424,891 2,332,584
Clinic rent and lease expense..................... 322,711 477,923 800,711
Clinic pharmaceuticals and supplies............... 335,317 354,161 859,649
Other clinic costs................................ 1,382,539 1,799,974 4,348,486
Management fees................................... -- 113,047 700,896
Depreciation...................................... 31,795 29,190 24,572
Interest expense.................................. 25,963 23,620 13,528
Other (income) expense............................ 4,137 27,221 (8,426)
---------- ---------- -----------
Total costs and expenses..................... 7,169,479 9,189,710 16,534,546
---------- ---------- -----------
Net income (loss)...................................... $ (54,912) $ 346,913 $ (743,804)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 116
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
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
Net loss............................................... (743,804)
Capital contributions.................................. 300,584
Capital distributions.................................. (480,313)
----------
Balance, December 31, 1996.................................. $ 217,507
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 117
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (54,912) $ 346,913 $(743,804)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation..................................... 31,795 29,190 24,572
(Gain) loss on sale of equipment................. (424) -- --
Changes in assets and liabilities --
Accounts receivable, net.................... (116,684) (213,476) (131,497)
Other current assets........................ 5,595 (30,849) 2,272
Other assets................................ -- (50,000) --
Accounts payable............................ (2,631) 407,225 (123,390)
Management fees payable..................... -- 113,047 460,668
Accrued expenses and other current
liabilities............................... 452,145 (743,452) (17,028)
--------- --------- ---------
Net cash provided by (used in)
operating activities................. 314,884 (141,402) (528,207)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment................... (27,490) (64,100) --
Proceeds from sale of property and equipment.......... 140,246 -- --
--------- --------- ---------
Net cash provided by (used in)
investing activities................. 112,756 (64,100) --
--------- --------- ---------
Cash flows from financing activities:
Payments on notes payable............................. (81,518) (72,547) (50,041)
Proceeds from notes payable........................... 750,000
Proceeds from capital contributions .................. -- -- 300,584
Capital owner distributions........................... (39,025) (41,050) (480,313)
--------- --------- ---------
Net cash provided by (used in)
financing activities................. (120,543) (113,597) 520,230
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 307,097 (319,099) (7,977)
Cash and cash equivalents, beginning of year............... 381,719 688,816 369,717
--------- --------- ---------
Cash and cash equivalents, end of year..................... $ 688,816 $ 369,717 $ 361,740
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................ $ 25,963 $ 23,620 $ 13,528
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 118
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
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 ProMedCo 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 ProMedCo Management Company for
certain assets and certain liabilities (excluding, among other things,
requirements under benefit plans) of ADC in exchange for common stock of
ProMedCo 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 ProMedCo Management Company purchase of
ADC. The accompanying financial statements of the Abilene Diagnostic Clinic
Practices ("Combined Entities") have been prepared on a combined basis since the
proposed business combination will be accounted for as a single transaction and
it is more meaningful to present the combined financial position and results of
operations of the acquired entities.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -- Audited Financial Statements
The accompanying combined 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.
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 payors 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 is stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Furniture and fixtures...................................... 10
Equipment................................................... 5-10
Leasehold improvements...................................... Remaining life of lease
</TABLE>
F-67
<PAGE> 119
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- ---------
<S> <C> <C>
Equipment................................................... $167,767 $ 167,767
Less accumulated depreciation............................... (110,543) (135,113)
-------- ---------
Property and equipment, net................................. $ 57,224 $ 32,654
======== =========
</TABLE>
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Note payable to a bank, due in 1998, payable in monthly
installments with the balance due at maturity, bearing
interest at the bank base rate plus 0.5%, unsecured....... $ 198,163 $ 148,122
Note payable to a bank, due in 1997, payable in monthly
installments with the balance due at maturity, bearing
interest at the bank base rate plus 1.0%, secured......... -- 750,000
--------- ---------
Total.................................................. 198,163 898,122
Less current maturities................................ (198,163) (820,447)
--------- ---------
Notes payable, net..................................... $ -- $ 77,675
========= =========
</TABLE>
F-68
<PAGE> 120
ABILENE DIAGNOSTIC CLINIC PRACTICES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
The Combined Entities have operating leases for all of its facilities. Rent
expense totaled $322,711, $477,923, and $800,711 for the years ended December
31, 1994, 1995, and 1996, respectively.
Future lease commitments under the operating leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 456,604
1998........................................................ 397,053
1999........................................................ 170,860
2000........................................................ 30,811
2001........................................................ 11,637
----------
$1,066,965
==========
</TABLE>
6. BENEFIT PLANS:
The Combined Entities have several defined contribution plans.
Contributions were $418,529 and $61,466 for 1994 and 1995, respectively. No
contributions were made in 1996.
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,
1996.
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
ProMedCo 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 ProMedCo Management Company's common stock, excluding, among other
things, requirements under the Combined Entities' benefit plan.
F-69
<PAGE> 121
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.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
August 30, 1996
F-70
<PAGE> 122
KING'S DAUGHTERS CLINIC, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- AUGUST 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
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 assets........................... 1,325,872 3,102,701 3,275,165
Property and equipment, net.............................. 920,931 1,219,271 1,597,639
---------- ---------- ----------
Total assets................................... $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-71
<PAGE> 123
KING'S DAUGHTERS CLINIC, P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
EIGHT MONTHS EIGHT MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
--------------------------------------- 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-72
<PAGE> 124
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-73
<PAGE> 125
KING'S DAUGHTERS CLINIC, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
EIGHT MONTHS EIGHT MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
----------------------------------- 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-74
<PAGE> 126
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.
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:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Leasehold improvements...................................... 5-31.5
Furniture, fixtures, and equipment.......................... 3-7
</TABLE>
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
F-75
<PAGE> 127
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
At December 31, 1994 and 1995, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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:
<TABLE>
<S> <C>
1996........................................................ $ 69,996
1997........................................................ 69,996
1998........................................................ 40,851
1999........................................................ --
2000........................................................ --
Thereafter.................................................. --
--------
$180,843
========
</TABLE>
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.
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.
F-76
<PAGE> 128
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE COMMITMENTS -- CONTINUED
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.
At December 31, 1994 and 1995, the Clinic had the following deferred tax
assets and liabilities recorded:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
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
======== ==========
</TABLE>
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>
F-77
<PAGE> 129
KING'S DAUGHTERS CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- CONTINUED
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.
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 ProMedCo 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-78
<PAGE> 130
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, 1995 and 1996,
and the related statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas,
January 24, 1997
F-79
<PAGE> 131
WESTERN MEDICAL MANAGEMENT CORP., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ -- $ --
Accounts receivable, net of allowances of $1,065,033
and $1,303,472, respectively.......................... 1,480,081 1,955,207
Due from affiliated physician group.................... -- 150,058
Inventory.............................................. 12,948 12,503
Prepaid expenses and other current assets.............. 40,389 138,574
---------- -----------
Total current assets.............................. 1,533,418 2,256,342
Property and equipment, net of accumulated depreciation of
$561,847 and $561,729, respectively....................... 190,465 588,416
Other assets................................................ 28,110 19,681
---------- -----------
Total assets...................................... $1,751,993 $ 2,864,439
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 708,188 $ 854,546
Due to affiliated physician group...................... 6,093 --
Notes payable and current portion of capital lease
obligations........................................... 17,705 375,166
Notes payable to affiliates............................ 52,871 137,085
Note payable to ProMedCo............................... -- 775,000
Line of credit......................................... 225,000 235,000
Accrued expenses and other current liabilities......... 358,451 371,385
Merger reserve......................................... -- 430,937
---------- -----------
Total current liabilities......................... 1,368,308 3,179,119
Notes payable and capital lease obligations, net of current
maturities................................................ 15,929 339,112
---------- -----------
Total liabilities................................. 1,384,237 3,518,231
Commitments and contingencies
Stockholders' equity (deficit):
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
Common stock, $1 par value, 50,000 shares authorized,
9,906 and 10,530 shares issued and outstanding,
respectively.......................................... 9,906 10,530
Paid in capital........................................ 1,570,812 1,601,494
Shareholder notes receivable........................... -- (31,306)
Retained deficit....................................... (1,221,462) (2,243,010)
---------- -----------
Total stockholders' equity (deficit).............. 367,756 (653,792)
---------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $1,751,993 $ 2,864,439
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 132
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Physician group revenue, net........................... $9,542,857 $11,212,067 $12,123,925
Less: costs retained by physician group................ 3,576,330 4,585,175 5,469,387
---------- ----------- -----------
Management fee revenue................................. 5,966,527 6,626,892 6,654,538
Costs and expenses:
Clinic salaries and benefits...................... 3,048,528 3,695,429 4,191,597
Rent expense...................................... 484,508 592,992 656,463
Clinic pharmaceuticals and supplies............... 482,400 512,667 440,959
Other clinic costs................................ 1,802,206 2,297,522 1,776,579
Depreciation and amortization..................... 152,904 169,180 112,814
Interest expense.................................. 15,999 25,988 46,520
Merger costs...................................... -- -- 682,269
---------- ----------- -----------
Total costs and expenses..................... 5,986,545 7,293,778 7,907,201
Other income........................................... -- 58,309 231,115
---------- ----------- -----------
Loss before provision for income taxes................. (20,018) (608,577) (1,021,548)
Provision (benefit) for income taxes................... 12,566 (54,405) --
---------- ----------- -----------
Net loss............................................... $ (32,584) $ (554,172) $(1,021,548)
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 133
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK STOCKHOLDER
--------------- ---------------- PAID IN NOTES RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS TOTAL
------ ------ ------ ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.......... -- -- -- -- -- -- (554,172) (554,172)
----- ------ ------ ------- ---------- -------- ----------- -----------
Balance, December 31,
1995................. 8,500 8,500 9,906 9,906 1,570,812 -- (1,221,462) 367,756
Exercise of stock
options......... -- -- 624 624 30,682 (31,306) -- --
Net loss.......... -- -- -- -- -- -- (1,021,548) (1,021,548)
----- ------ ------ ------- ---------- -------- ----------- -----------
Balance, December 31,
1996................. 8,500 $8,500 10,530 $10,530 $1,601,494 $(31,306) $(2,243,010) $ (653,792)
===== ====== ====== ======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 134
WESTERN MEDICAL MANAGEMENT CORP., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(32,584) $(554,172) $(1,021,548)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities --
Depreciation and amortization................... 152,904 169,180 112,814
(Gain) loss on sale of equipment................ 263 (53,370) (229,251)
Changes in assets and liabilities --
Accounts receivable........................ (33,952) (299,681) (475,126)
Inventory.................................. 2,119 4,343 445
Prepaid expenses and other current
assets................................... 81,945 59,994 (98,185)
Accounts payable........................... 44,971 404,394 146,358
Due to affiliated physician group.......... (11,122) (402) (156,149)
Accrued expenses and other current
liabilities.............................. (31,057) 67,892 12,935
Merger reserve............................. -- -- 430,937
Deferred income taxes...................... (82,812) (56,136) --
-------- --------- -----------
Net cash provided by (used in)
operating activities................ 90,675 (257,958) (1,276,770)
-------- --------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (61,730) (57,839) (78,558)
Proceeds from sale of property and equipment......... 750 218,890 242,175
-------- --------- -----------
Net cash provided by (used in)
investing activities................ (60,980) 161,051 163,617
-------- --------- -----------
Cash flows from financing activities:
Proceeds from line of credit......................... -- 250,000 265,000
Payments on line of credit........................... -- (25,000) (255,000)
Proceeds from note payable to ProMedCo............... -- -- 775,000
Proceeds from notes payable.......................... 23,000 -- 330,000
Payments on notes payable and capital lease
obligations........................................ (91,693) (82,895) (70,132)
Proceeds from notes payable to affiliates............ 113,998 75,920 145,000
Payments on notes payable to affiliates.............. (75,000) (121,118) (76,715)
-------- --------- -----------
Net cash provided by (used in)
financing activities................ (29,695) 96,907 1,113,153
-------- --------- -----------
Net increase in cash...................................... -- -- --
Cash and cash equivalents beginning of year............... -- -- --
-------- --------- -----------
Cash and cash equivalents, end of year.................... $ -- $ -- $ --
======== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year --
Interest........................................ $ 10,850 $ 22,929 $ 46,520
Taxes........................................... $120,886 $ 67,420 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 135
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
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 ProMedCo 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 December 31, 1996, the Company had negative working capital and
stockholder's equity. In addition, the Company incurred net losses of $1,021,548
for the year ended December 31, 1996. As discussed in Note 10, the Company has
borrowed $775,000 from ProMedCo for working capital purposes, and is currently
negotiating amounts due under its loan agreements with other third parties.
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. Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
Management Fee 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 costs retained by
physician group represents amounts paid to the physicians under a management
service agreement. Management fee 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.
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.
F-84
<PAGE> 136
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Leasehold improvements...................................... Estimated life of lease
Furniture, fixtures, and equipment.......................... 5-7
</TABLE>
Due from/to Affiliated Physician Group, net
Amounts included in Due to Affiliated Physician Group represent amounts
payable to the Affiliated Physician Group based on the service agreement.
Amounts included in Due from Affiliated Physician Group represent amounts
receivable from the Affiliated Physician Group for expenses paid on its behalf.
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:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Leasehold improvements...................................... $ 107,147 $ 102,495
Furniture, fixtures, and equipment.......................... 645,165 1,047,650
Less-Accumulated depreciation............................... (561,847) (561,729)
--------- ---------
Property and equipment, net................................. $ 190,465 $ 588,416
========= =========
</TABLE>
F-85
<PAGE> 137
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- --------
<S> <C> <C>
8% unsecured note payable, due in monthly installments of
$5,771, including interest, through February 1996......... $ 11,428 $ --
8% unsecured note payable, due in monthly installments of
$1,177, including interest, through February 1996......... 2,331 --
Note payable to a bank, interest at prime plus 1.5% (9.75%
at December 31, 1996), due in February 1997, personally
guaranteed by affiliated physician group.................. -- 300,000
7% unsecured note payable to a bank, due in monthly
installments of $225, including interest, through June
1997...................................................... -- 1,337
Note payable to an affiliate, due in monthly installments of
$4,167 through December 1995, renegotiated to pay
remaining balance in 1996................................. 15,000 --
Note payable to an affiliate, due in monthly installments of
$498, through August 1999................................. 15,929 9,956
8% unsecured note payable to an affiliate, due in monthly
installments of $1339, through September 1998............. -- 27,129
8% unsecured note payable to an affiliate, interest and
principal due on March 31, 1997........................... -- 100,000
8% unsecured note payable to an affiliate, due in monthly
installments of $4,235, including interest, through
September 1996............................................ 41,817 --
Capital lease obligation, due in monthly installments of
$335, including interest, through February 2000........... -- 10,314
Capital lease obligation, due in monthly installments of
$6,350, including interest, through August 2001........... -- 291,358
Capital lease obligation, due in monthly installments of
$2,530, including interest, through November 2001......... -- 111,269
---------- --------
Total notes payable and capital lease obligations........... $ 86,505 $851,363
Less-current maturities..................................... (70,576) (512,251)
---------- --------
Notes payable and capital lease obligations, net............ $ 15,929 $339,112
========== ========
</TABLE>
The maturities of notes payable as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $512,251
1998........................................................ 81,295
1999........................................................ 89,538
2000........................................................ 95,121
2001........................................................ 73,158
--------
$851,363
========
</TABLE>
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. During 1996, the
line of credit was increased to $250,000 and expires in February 1997.
F-86
<PAGE> 138
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE -- (CONTINUED)
During 1996, the Company borrowed $775,000 from ProMedCo for working
capital purposes. See Note 10.
5. COMMITMENTS:
The Company leases various equipment and office buildings under operating
leases; rent expense charged to operations totaled approximately $485,000,
$593,000 and $656,000 in 1994, 1995, and 1996, respectively.
The Company also leases various equipment under capital leases. Future
minimum lease payments under capital and operating leases as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
1997.............................................. $ 110,577 $ 849,547 $ 960,124
1998.............................................. 110,577 415,077 525,654
1999.............................................. 110,577 304,058 414,635
2000.............................................. 107,231 181,149 288,380
2001.............................................. 76,101 134,259 210,360
Thereafter........................................ -- 5,537 5,537
--------- ---------- ----------
515,063 1,889,627 2,404,690
Less portion attributable to interest............. (102,122) -- (102,122)
--------- ---------- ----------
Net obligations................................... $ 412,941 $1,889,627 $2,302,568
========= ========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets --
Allowance for accounts receivable...................... $ 227,701 $ 346,637
NOL carryforward....................................... -- 123,271
--------- ---------
Total deferred tax assets......................... 227,701 469,908
--------- ---------
Deferred tax liabilities --
Section 481 adjustment................................. (103,419) --
--------- ---------
Total deferred tax liabilities.................... (103,419) --
--------- ---------
124,282 469,908
--------- ---------
Valuation allowance......................................... (124,282) (469,908)
--------- ---------
Net deferred tax asset (liability).......................... $ -- $ --
========= =========
</TABLE>
F-87
<PAGE> 139
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
The following table summarizes the significant components of income tax
expense (benefit):
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Current tax provision................................ $ 95,378 $ 1,731 $ --
Deferred tax benefit................................. (82,812) (56,136) --
--------- -------- --------
Provision (benefit) for income taxes................. $ 12,566 $(54,405) $ --
========= ======== ========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Federal tax at statutory rate........................ $(6,806) $(128,345) $(347,326)
Increase in valuation allowance...................... -- 124,282 345,626
Other................................................ 19,372 (50,342) 1,700
------- --------- ---------
$12,566 $ (54,405) $ --
======= ========= =========
</TABLE>
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, 1994,
1995, and 1996, aggregated approximately $173,794, $190,797 and $27,000,
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,
1996.
9. STOCK OPTIONS:
In 1994, an employee was granted options to receive 5% of the stock of the
Company. The options were granted at net book value, which approximated fair
market value, and were exercised in 1996.
In 1995, an employee was granted options to purchase 1% of the stock of the
Company. The options were granted at net book value, which approximated fair
market value, and were exercised in 1996.
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 Company. The exercise
price for the options will be determined based on the average selling price of
the first 10% of the
F-88
<PAGE> 140
WESTERN MEDICAL MANAGEMENT CORP., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTIONS -- CONTINUED
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. MERGER WITH PROMEDCO:
On November 7, 1996, the Company entered into a definitive agreement to
merge with ProMedCo in a combination accounted for as a pooling-of-interests.
The combination is to be consummated upon the closing of the initial public
offering of ProMedCo's common stock.
As part of the agreement, the Company has entered into an interim services
agreement whereby ProMedCo will provide management services to the Company. In
addition, ProMedCo has provided the Company with a line of credit of up to $2.5
million at market terms for working capital purposes. As of December 31, 1996,
the Company has borrowed $775,000. Concurrent with the funding of the loan, the
Company has also entered into a new service agreement with the Affiliated
Physician Group.
Included in the net loss for the year ended December 31, 1996, are merger
costs totaling $682,269 related to the merger with ProMedCo. The major
components of these costs are as follows:
<TABLE>
<S> <C>
Restructuring of operations................................. $103,990
Severance and other personnel costs......................... 377,901
Professional fees........................................... 200,378
--------
$682,269
========
</TABLE>
F-89
<PAGE> 141
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 5
Use of Proceeds.......................... 10
Dividend Policy.......................... 10
Dilution................................. 11
Capitalization........................... 12
Pro Forma Consolidated Financial
Information............................ 13
Selected Financial Data.................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 21
Business................................. 26
Management............................... 34
Principal and Selling Stockholders....... 41
Description of Capital Stock............. 42
Shares Eligible for Future Sale.......... 47
Underwriting............................. 48
Legal Matters............................ 49
Experts.................................. 49
Additional Information................... 50
Index to Financial Statements............ F-1
</TABLE>
------------------------
UNTIL , 1997 (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.
4,000,000 SHARES
[ProMedCo logo]
COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
PIPER JAFFRAY INC.
ROBERTSON, STEPHENS &
COMPANY
COWEN & COMPANY
, 1997
<PAGE> 142
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.
<TABLE>
<CAPTION>
TO BE PAID BY
REGISTRANT
-------------
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,423
Nasdaq listing fee.......................................... 43,500
National Association of Securities Dealers filing fee....... 5,500
Printing and engraving expenses............................. 75,000
Legal fees and expenses..................................... 175,000
Accounting fees and expenses................................ 850,000
Blue sky filing fees........................................ 10,000
Miscellaneous............................................... 123,577
----------
Total.................................................. $1,300,000
==========
</TABLE>
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 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 by-law, agreement, or otherwise.
II-1
<PAGE> 143
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 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 $8.00 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.
II-2
<PAGE> 144
(18) In October 1996, in connection with the acquisition of a physician
group, the Registrant issued 42,593 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:
<TABLE>
<S> <C>
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.
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.
2.2 Agreement for Statutory Merger dated as of November 7, 1996
by and between ProMedCo, Inc., ProMedCo of Northern Nevada,
Inc. and Western Medical Management Corporation, Inc.
3.1 Form of Restated Certificate of Incorporation of ProMedCo
Management Company.
3.2 By-laws of ProMedCo Management Company.
4 Form of 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 1996 Stock Option Plan
10.9 Employee Stock Purchase Plan
10.12+ Employment Agreement with H. Wayne Posey
10.13+ Employment Agreement with Richard R. D'Antoni
10.14 Amended and Restated Employment Agreement with Dale K.
Edwards
10.15+ Employment Agreement with R. Alan Gleghorn
10.16+ Employment Agreement with Rick E. Weymier
</TABLE>
II-3
<PAGE> 145
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.
10.19 Employment Agreement with Robert D. Smith
10.20 Form of Service Agreement by and between ProMedCo of
Northern Nevada, Inc. and Knutzen Goring Medical Group, Ltd.
DBA The Northern Nevada Medical Group
10.21 1994 Stock Option Plan
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
- ---------------
+ Previously Filed
# Confidential Treatment Requested
II-4
<PAGE> 146
(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 years ended December 31,
1995 and 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.
(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.
II-5
<PAGE> 147
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 12th day of February, 1997.
PROMEDCO 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive February 12, 1997
- --------------------------------------------- Officer, and Director (Principal
H. WAYNE POSEY Executive, Financial and
Accounting Officer)
* Chairman February 12, 1997
- ---------------------------------------------
RICHARD E. RAGSDALE
* Director February 12, 1997
- ---------------------------------------------
E. THOMAS CHANEY
* Director February 12, 1997
- ---------------------------------------------
DAVID T. BAILEY, M.D.
* Director February 12, 1997
- ---------------------------------------------
RICHARD R. D'ANTONI
* Director February 12, 1997
- ---------------------------------------------
JAMES F. HERD, M.D.
* Director February 12, 1997
- ---------------------------------------------
JACK W. MCCASLIN
By: /s/ MICHAEL JOSEPH
----------------------------------------
MICHAEL JOSEPH
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 148
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ProMedCo 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 February 10, 1997. 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
February 10, 1997
S-1
<PAGE> 149
SCHEDULE II
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1994) TO
DECEMBER 31, 1994, AND FOR THE YEARS ENDED DECEMBER 31, 1995, AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS ADDITIONS BALANCE AT
BEGINNING CHARGED TO CHARGED TO END OF
OF PERIOD INCOME/ EXPENSE OTHER ACCOUNTS WRITE-OFFS PERIOD
---------- --------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Accounts receivable
allowances............ $ -- $ -- $ -- $ -- $ --
======== ========== ========== =========== ==========
December 31, 1995:
Accounts receivable
allowances............ $ -- $ 156,000 $ 49,000(a) $ (70,000) $ 135,000
======== ========== ========== =========== ==========
December 31, 1996:
Accounts receivable
allowances............ $135,000 $1,989,000 $3,913,000(a) $(3,305,000) $2,732,000
======== ========== ========== =========== ==========
</TABLE>
- ---------------
(a) Allowances against accounts receivable acquired in acquisitions and
established in purchase accounting.
S-2
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<S> <C>
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.
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.
2.2 Agreement for Statutory Merger dated as of November 7, 1996
by and between ProMedCo, Inc., ProMedCo of Northern Nevada,
Inc. and Western Medical Management Corporation, Inc.
3.1 Form of Restated Certificate of Incorporation of ProMedCo
Management Company.
3.2 By-laws of ProMedCo Management Company.
4 Form of 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 1996 Stock Option Plan
10.9 Employee Stock Purchase Plan
10.12+ Employment Agreement with H. Wayne Posey
10.13+ Employment Agreement with Richard R. D'Antoni
10.14 Amended and Restated 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.
10.19 Employment Agreement with Robert D. Smith
10.20 Form of Service Agreement by and between ProMedCo of
Northern Nevada, Inc. and Knutzen Goring Medical Group, Ltd.
DBA The Northern Nevada Medical Group
</TABLE>
<PAGE> 151
10.21 1994 Stock Option Plan
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
- ---------------
+ Previously Filed
# Confidential Treatment Requested
<PAGE> 1
Exhibit 1
__________ SHARES(1)
PROMEDCO MANAGEMENT COMPANY
COMMON STOCK
PURCHASE AGREEMENT
_____________________, 1997
PIPER JAFFRAY INC.
ROBERTSON STEPHENS & CO., LLP
COWEN & COMPANY
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
ProMedCo Management Company, a Delaware corporation (the "Company"),
proposes to sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of _____ shares (the "Firm Shares") of Common
Stock, $__________ par value per share (the "Common Stock"), of the Company. The
Firm Shares consist of _____ authorized but unissued shares of Common Stock to
be issued and sold by the Company. The Company and H. Wayne Posey (the "Selling
Stockholder") have also granted to the several Underwriters an option to
purchase up to __________ and 150,000 additional shares of Common Stock,
respectively, on the terms and for the purposes set forth in Section 3 hereof
(the "Option Shares"). The Firm Shares and any Option Shares purchased pursuant
to this Purchase Agreement are herein collectively called the "Securities."
The Company and the Selling Stockholders hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for whom
you are acting as Representatives (the "Representatives").
1. Registration Statement and Prospectus. A registration statement on Form S-1
(File No. 333-10557) with respect to the Securities, including a preliminary
form of prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the Commission;
one or more amendments to such registration statement have also been so prepared
and have been, or will
- ----------
(1) Plus an option to purchase up to _____ additional shares to cover
over-allotments.
<PAGE> 2
be, so filed; and, if the Company has elected to rely upon Rule 462(b) of the
Rules and Regulations to increase the size of the offering registered under the
Act, the Company will prepare and file with the Commission a registration
statement with respect to such increase pursuant to Rule 462(b). Copies of such
registration statement(s) and amendments and each related preliminary prospectus
have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
Rule 434 of the Rules and Regulations.
2. Representations and Warranties of the Company and the Selling
Stockholder.
(a) The Company and the Selling Stockholder jointly and severally
represent and warrant to, and agree with, the several Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and no proceedings for such
purpose are pending before or, to the Company's knowledge, threatened by the
Commission, and each Preliminary Prospectus, at the time of filing thereof, did
not contain an untrue statement of a material fact or omit to state a material
fact
-2-
<PAGE> 3
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
except that the foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any post-effective
amendment thereto, including a registration statement (if any) filed pursuant to
Rule 462(b) of the Rules and Regulations increasing the size of the offering
registered under the Act) is or was declared effective by the Commission, upon
the filing or first delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus (including any term sheet meeting the requirements
of Rule 434 of the Rules and Regulations)) and at the First Closing Date and
Second Closing Date (as hereinafter defined), (A) the Registration Statement and
Prospectus (in each case, as so amended and/or supplemented) conformed or will
conform in all material respects to the requirements of the Act and the Rules
and Regulations, (B) the Registration Statement (as so amended) did not or will
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (C) the Prospectus (as so supplemented) did not or will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are or were made, not misleading;
except that the foregoing shall not apply to statements in or omissions from any
such document in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you, specifically
for use in the preparation thereof. If the Registration Statement has been
declared effective by the Commission, no stop order suspending the effectiveness
of the Registration Statement has been issued, and no proceeding for that
purpose has been initiated or, to the Company's knowledge, threatened by the
Commission.
(iii) The Company manages the business operations of each 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. (collectively, the
"Acquired Companies") but does not manage the business operations of any other
professional association or other business.
(iv) The financial statements of the Company, together with the notes
thereto, set forth in the Registration Statement and Prospectus comply in all
material respects with the requirements of the Act and fairly present the
financial condition of the Company as of the dates indicated and the results of
operations and changes in cash flows for the periods therein specified in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise stated therein); and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. The financial statements of each of
the Acquired Companies, together with the notes thereto, set forth in the
Registration Statement and Prospectus comply in all material respects with the
requirements of the Act and fairly present the financial condition of each
Acquired Company as of the dates indicated and the results of operations and
changes in cash flows for the periods therein specified in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise stated therein). No other financial
statements or schedules are required to be
-3-
<PAGE> 4
included in the Registration Statement or Prospectus. Arthur Andersen LLP, which
have expressed their opinion with respect to the financial statements and
schedules of the Company filed as a part of the Registration Statement and
included in the Registration Statement and Prospectus, are independent public
accountants as required by the Act and the Rules and Regulations.
(v) Each of the Company, its subsidiaries and the Acquired Companies
has been duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company, its subsidiaries and the Acquired Companies has full corporate power
and authority to own, lease and operate its properties and conduct its business
as currently being carried on and as described in the Registration Statement and
Prospectus, and is duly qualified to do business as a foreign corporation in
good standing in each jurisdiction in which it owns or leases real property or
in which the conduct of its business makes such qualification necessary and in
which the failure to so qualify would have a material adverse effect upon its
business, condition (financial or otherwise) or properties, taken as a whole.
Prior to the Closing, the merger of ProMedCo., Inc., a Texas corporation, with
and into the Company became effective under the laws of the States of Texas and
Delaware.
(vi) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries nor any of
the Acquired Companies has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital stock (other
than a change in the number of outstanding shares of Common Stock due to the
issuance of shares upon the exercise of outstanding options or warrants), or any
material change in the short-term or long-term debt, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock,
of the Company, any of its subsidiaries or any of the Acquired Companies, or any
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, condition (financial or otherwise),
business, key personnel, property, prospects, net worth or results of operations
of the Company, its subsidiaries and the Acquired Companies, taken as a whole.
(vii) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company, any of its subsidiaries or any of the Acquired
Companies is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material adverse change in
the condition (financial or otherwise), business, prospects, net worth or
results of operations of the Company and its subsidiaries and the Acquired
Companies, taken as a whole.
(viii) There are no contracts or documents of the Company, any of its
subsidiaries or any of the Acquired Companies that are required to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations that have not been so filed.
(ix) This Agreement has been duly authorized, executed and delivered by
the Company, and constitutes a valid, legal and binding obligation of the
Company, enforceable in accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity.
-4-
<PAGE> 5
The execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, any
statute, any agreement or instrument to which the Company, any subsidiary of the
Company or any of the Acquired Companies is a party or by which it or any such
subsidiary or any such Acquired Company is bound or to which any of its or any
such subsidiary's or any such Acquired Company's property is subject, the
Company's charter or by-laws, or any order, rule, regulation or decree of any
court or governmental agency or body having jurisdiction over the Company or any
such subsidiary or any such Acquired Company or any of its or any such
subsidiary's or any such Acquired Company's properties; no consent, approval,
authorization or order of, or filing with, any court or governmental agency or
body is required for the execution, delivery and performance of this Agreement
or for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company or the Selling Stockholder,
except such as may be required under the Act or state securities or blue sky
laws; and the Company has full power and authority to enter into this Agreement
and to authorize, issue and sell the Securities as contemplated by this
Agreement.
(x) All of the issued and outstanding shares of capital stock of the
Company, including the outstanding shares of Common Stock, are duly authorized
and validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the holders thereof are not subject to personal liability by
reason of being such holders; the Securities which may be sold hereunder by the
Company have been duly authorized and, when issued, delivered and paid for in
accordance with the terms hereof, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders; and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in the
Registration Statement and Prospectus. Except as otherwise stated in the
Registration Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's charter,
by-laws or any agreement or other instrument to which the Company is a party or
by which the Company is bound. Neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any shares of
Common Stock or other securities of the Company other than such rights as have
been duly waived. All of the issued and outstanding shares of capital stock of
each of the Company's subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise described
in the Registration Statement and Prospectus and except for any directors'
qualifying shares, the Company owns of record and beneficially, free and clear
of any security interests, claims, liens, proxies, equities or other
encumbrances, all of the issued and outstanding shares of such stock. Except as
described in the Registration Statement and the Prospectus, there are no
options, warrants, agreements, contracts or other rights in existence to
purchase or acquire from the Company or any subsidiary of the Company any shares
of the capital stock of the Company or any subsidiary of the Company. The
Company has an authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus.
(xi) Each of the Company, its subsidiaries and the Acquired Companies
holds, and is operating in compliance in all material respects with, all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates (including, without limitation, certificates of need) and
-5-
<PAGE> 6
orders of any governmental or self-regulatory body required for the conduct of
its business and all such franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders are valid and in full force and
effect; and each of the Company, its subsidiaries and the Acquired Companies are
in compliance in all material respects with all applicable federal, state, local
and foreign laws, regulations, orders and decrees.
(xii) The Company, its subsidiaries and the Acquired Companies have
good and marketable title to all property described in the Registration
Statement and Prospectus as being owned by them, in each case free and clear of
all liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus; the property held
under lease by the Company, its subsidiaries and the Acquired Companies is held
by them under valid, subsisting and enforceable leases with only such exceptions
with respect to any particular lease as do not interfere in any material respect
with the conduct of the business of the Company, its subsidiaries or the
Acquired Companies; each of the Company, its subsidiaries and the Acquired
Companies owns or possesses all patents, patent applications, trademarks,
service marks, tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and rights necessary for the
conduct of the business of the Company, its subsidiaries and the Acquired
Companies as currently carried on and as described in the Registration Statement
and Prospectus; except as stated in the Registration Statement and Prospectus,
no name which the Company, any of its subsidiaries or any of the Acquired
Companies uses and no other aspect of the business of the Company, any of its
subsidiaries or any of the Acquired Companies will involve or give rise to any
infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others material to the business or prospects of the
Company, its subsidiaries and the Acquired Companies, taken as a whole, and
neither the Company nor any of its subsidiaries nor any of the Acquired
Companies has received any notice alleging any such infringement or fee.
(xiii) Neither the Company nor any of its subsidiaries nor any of the
Acquired Companies is in violation of its respective charter or by-laws or in
breach of or otherwise in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note, indenture, loan
agreement or any other material contract, lease or other instrument to which it
is subject or by which any of them may be bound, or to which any of the material
property or assets of the Company, any of its subsidiaries or any of the
Acquired Companies are subject.
(xiv) The Company, its subsidiaries and the Acquired Companies have
filed all federal, state, local and foreign income and franchise tax returns
required to be filed and are not in default in the payment of any taxes which
were payable pursuant to said returns or any assessments with respect thereto,
other than any which the Company, any of its subsidiaries or any of the Acquired
Companies is contesting in good faith.
(xv) Each of the Company, its subsidiaries and the Acquired Companies
has timely filed all reports required to be filed in connection with federal
Medicare and applicable state Medicaid programs and due on or before the date
hereof, and all such required reports are true and complete in all material
respects; there are no claims, actions or appeals pending (and the Company, its
subsidiaries and the Acquired Companies have not filed anything that would
result in any claims, actions or appeals) before any commission, board or agency
with respect to any state or federal
-6-
<PAGE> 7
Medicare or Medicaid cost reports or claim filed by the Company, any of its
subsidiaries or any of the Acquired Companies on or before the date hereof, or
with respect to any disallowances by any intermediary, carrier, other insurer,
commission, board or agency in connection with any audit of any cost reports
that, if adversely determined, would have a material adverse effect on the
Company, its subsidiaries and the Acquired Companies, taken as a whole; no
validation review or program integrity review related to the Company, any of its
subsidiaries or the Acquired Companies has been conducted by any commission,
board or agency in connection with federal Medicare or state Medicaid programs,
and no such reviews are scheduled, pending or, to the Company's knowledge,
threatened against or affecting the Company, any of its subsidiaries or any of
the Acquired Companies; each of the Company, its subsidiaries and the Acquired
Companies has timely filed all material reports, data and other information
required by any other regulatory agency with authority to regulate the Company,
its subsidiaries, the Acquired Companies or the business of any of them in any
manner; and except as disclosed in the Registration Statement and Prospectus,
(i) each of the Company, its subsidiaries and the Acquired Companies is in
compliance in all material respects with all rules, regulations and requirements
of all regulatory agencies, except where such noncompliance would not have a
material adverse effect on the Company, its subsidiaries and the Acquired
Companies taken as a whole and (ii) the conduct of the business of each of the
Company, its subsidiaries and the Acquired Companies does not violate 42 U.S.C.
Section 1320a-7b (commonly known as the "Anti-Kickback Statute") or 42 U.S.C.
Section 1395nn (commonly known as the "Stark Amendments"), including all
amendments thereto to the extent effective on the date hereof, unless any
noncompliance would not have a material adverse effect on the Company, its
subsidiaries and the Acquired Companies, taken as a whole.
(xvi) Each of the Company, its subsidiaries and the Acquired Companies
maintain reasonably adequate insurance.
(xvii) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Securities other than any Preliminary Prospectus or the Prospectus or
other materials permitted by the Act to be distributed by the Company.
(xviii) The Securities have been conditionally approved for listing on
the Nasdaq National Market and, on the date the Registration Statement became or
becomes effective, the Company's Registration Statement on Form 8-A or other
applicable form under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), became or will become effective.
(xix) Other than the subsidiaries of the Company listed in Exhibit 21
to the Registration Statement, the Company owns no capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, trust or other entity.
(xx) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management's general or specific authorization; (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (c) access to assets is permitted only in
accordance with management's general or specific authorization; and (d) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
-7-
<PAGE> 8
(xxi) Other than as contemplated by this Agreement, the Company has not
incurred any liability for any finder's or broker's fee or agent's commission in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(xxii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xxiii) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
(b) The Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters as follows:
(i) The Selling Stockholder is the record and beneficial owner of, and
has, and on the Second Closing Date will have, valid and marketable title to the
Securities to be sold by the Selling Stockholder, free and clear of all security
interests, claims, liens, restrictions on transferability, legends, proxies,
equities or other encumbrances; and upon delivery of and payment for such
Securities hereunder, the several Underwriters will acquire valid and marketable
title thereto, free and clear of any security interests, claims, liens,
restrictions on transferability, legends, proxies, equities or other
encumbrances. The Selling Stockholder is selling the Securities to be sold by
the Selling Stockholder for the Selling Stockholder's own account and is not
selling such Securities, directly or indirectly, for the benefit of the Company,
and no part of the proceeds of such sale received by such Selling Stockholder
will inure, either directly or indirectly, to the benefit of the Company other
than as described in the Registration Statement and Prospectus.
(ii) The Selling Stockholder has the power and authority to enter into
this Agreement and to sell, transfer and deliver the Securities to be sold by
the Selling Stockholder.
(iii) This Agreement has been duly authorized, executed and delivered
by the Selling Stockholder and constitutes a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnity hereunder or thereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or laws affecting the rights of creditors generally
and subject to general principles of equity. The execution and delivery of this
Agreement and the performance of the terms hereof and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any agreement or
instrument to which the Selling Stockholder is a party or by which the Selling
Stockholder is bound, or any law, regulation, order or decree applicable to the
Selling Stockholder; no consent, approval, authorization or order of, or filing
with, any court or governmental agency or body is required for the execution,
delivery and performance of this Agreement or for the consummation of the
transactions contemplated hereby, including the sale of the Securities being
sold by the Selling Stockholder, except such as may be required under the Act or
state securities laws or blue sky laws.
(iv) The Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Selling Stockholder.
-8-
<PAGE> 9
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of the Selling Stockholder as such
and delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Stockholder to each Underwriter as
to the matters covered thereby.
-9-
<PAGE> 10
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell _____Firm Shares to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto. The purchase price for each Firm Share shall
be $_____ per share. The obligation of each Underwriter to the Company shall be
to purchase from the Company that number of Firm Shares (to be adjusted by the
Representatives to avoid fractional shares) which represents the same proportion
of the number of Firm Shares to be sold by the Company pursuant to this
Agreement as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto represents to the total number of Firm Shares
to be purchased by all Underwriters pursuant to this Agreement. In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraph (c) of this Section 3 and in Section 8 hereof, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified in Schedule I.
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor in immediately available funds to the Company and the Custodian, as
appropriate, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable, at 9:00 a.m. Central time on the third (or if the
Securities are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act,
after 4:30 p.m. Eastern time, the fourth) full business day following the date
hereof, or at such other time and date as you and the Company determine pursuant
to Rule 15c6-1(a) under the Exchange Act, such time and date of delivery being
herein referred to as the "First Closing Date." If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
Certificates representing the Firm Shares, in definitive form and in such
denominations and registered in such names as you may request upon at least two
business days' prior notice to the Company, will be made available for checking
and packaging not later than 10:30 a.m., Central time, on the business day next
preceding the First Closing Date at the offices of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable.
(b) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company, with respect to ________ of the Option Shares, and the Selling
Stockholder, with respect to 150,000 of the Option Shares, hereby grant to the
several Underwriters an option to purchase all or any portion of the Option
Shares at the same purchase price as the Firm Shares, for use solely in covering
any over-allotments made by the Underwriters in the sale and distribution of the
Firm Shares. The option granted hereunder may be exercised at any time (but not
more than once) within 30 days after the effective date of this Agreement upon
notice (confirmed in writing) by the Representatives to the Company and to the
Selling Stockholder setting forth the aggregate number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option Shares
are to be delivered, such time and date being herein referred to as the "Second
Closing" and "Second Closing Date," respectively; provided, however, that the
Second Closing Date shall not be
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earlier than the First Closing Date nor earlier than the second business day
after the date on which the option shall have been exercised. If the
Underwriters exercise the option, the first 150,000 Option Shares will be
purchased from the Selling Stockholder and the remainder of the Option Shares,
if any are to be purchased, will be purchased from the Company. If the option is
exercised, each Underwriter shall purchase from the Selling Stockholder that
number of Option Shares (to be adjusted by the Representatives to avoid
fractional shares) which represents the same proportion to the number of Option
Shares to be purchased from the Selling Stockholder as the number of Firm Shares
to be purchased by each Underwriter represents to the total number of Firm
Shares to be purchased by all of the Underwriters pursuant to this Agreement,
and, to the extent that the Underwriters exercise the option to purchase more
than 150,000 Option Shares, each Underwriter shall purchase from the Company
that number of Option Shares (to be adjusted by the Representatives to avoid
fractional shares) which represents the same proportion to the number of Option
Shares to be purchased from the Company as the number of Firm Shares to be
purchased by each Underwriter represents to the total number of Firm Shares to
be purchased by all of the Underwriters pursuant to this Agreement. No Option
Shares shall be sold and delivered unless the Firm Shares previously have been,
or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Selling Stockholder and
the Company, as appropriate, to you for the accounts of the several Underwriters
against payment of the purchase price therefor in immediately available funds to
the Selling Stockholder or the Company, as appropriate, at the offices of Piper
Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable at 9:00 a.m.,
Central time, on the Second Closing Date. If the Representatives so elect,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts at The Depository Trust Company designated by the
Representatives. Certificates representing the Option Shares in definitive form
and in such denominations and registered in such names as you have set forth in
your notice of option exercise, will be made available for checking and
packaging not later than 10:30 a.m., Central time, on the business day next
preceding the Second Closing Date at the office of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable.
(c) It is understood that you, individually and not as Representatives of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or the Selling Stockholder.
4. Covenants.
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause the
Registration Statement and any post-effective amendments thereto to become
effective as promptly as possible; the Company will notify you promptly of the
time when the Registration Statement or any post-effective amendment to the
Registration Statement has become effective or any supplement to the Prospectus
(including
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any term sheet within the meaning of Rule 434 of the Rules and Regulations) has
been filed and of any request by the Commission for any amendment or supplement
to the Registration Statement or Prospectus or additional information; if the
Company has elected to rely on Rule 430A of the Rules and Regulations, the
Company will prepare and file a Prospectus (or term sheet within the meaning of
Rule 434 of the Rules and Regulations) containing the information omitted
therefrom pursuant to Rule 430A of the Rules and Regulations with the Commission
within the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable, of the Rules and
Regulations; if the Company has elected to rely upon Rule 462(b) of the Rules
and Regulations to increase the size of the offering registered under the Act,
the Company will prepare and file a registration statement with respect to such
increase with the Commission within the time period required by, and otherwise
in accordance with the provisions of, Rule 462(b); the Company will prepare and
file with the Commission, promptly upon your request, any amendments or
supplements to the Registration Statement or Prospectus (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations) that, in your
opinion, may be necessary or advisable in connection with the distribution of
the Securities by the Underwriters; and the Company will not file any amendment
or supplement to the Registration Statement or Prospectus (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations) to which you
shall reasonably object by notice to the Company after having been furnished a
copy a reasonable time prior to the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and the Company will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a stop order
should be issued.
(iii) Within the time during which a prospectus (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations) relating to
the Securities is required to be delivered under the Act, the Company will
comply with all requirements imposed upon it by the Act, as now and hereafter
amended, and by the Rules and Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Securities
as contemplated by the provisions hereof and the Prospectus. If during such
period any event occurs as a result of which the Prospectus would include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act, the
Company will promptly notify you and will amend the Registration Statement or
supplement the Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
(iv) The Company will use its best efforts to qualify the Securities
for sale under the securities laws of such jurisdictions as you reasonably
designate and to continue such qualifications in effect so long as required for
the distribution of the Securities, except that the Company shall not be
required in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement
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(five of which will be signed and will include all exhibits), each Preliminary
Prospectus, the Prospectus, and all amendments and supplements (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations) to such
documents, in each case as soon as available and in such quantities as you may
from time to time reasonably request.
(vi) During a period of five years commencing with the date hereof,
the Company will (i) mail as soon as reasonably practicable after the end of
each fiscal year to the record holders of its Common Stock a financial report of
the Company and its subsidiaries on a consolidated basis, all such financial
reports to include a consolidated balance sheet, a consolidated statement of
operations, a consolidated statement of cash flows and a consolidated statement
of stockholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
independent certified public accountants, and (ii) mail and make generally
available as soon as practicable after the end of the first three quarters of
each fiscal year (beginning with the quarter ending September 30, 1997) to the
record holders of its Common Stock, unaudited consolidated summary financial
information of the Company and its subsidiaries for each such quarter in
reasonable detail.
(vii) During a period of five years commencing with the date hereof,
the Company will furnish to the Representatives, and to each Underwriter who may
so request in writing, copies of all periodic and special reports furnished to
the stockholders of the Company and all information, documents and reports filed
with the Commission, the National Association of Securities Dealers, Inc., the
Nasdaq National Market or any securities exchange.
(viii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15 months after
the end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) covering a 12-month period beginning after the effective
date of the Registration Statement that shall satisfy the provisions of Section
11(a) of the Act and Rule 158 of the Rules and Regulations.
(ix) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
under the provisions of Section 9(a) hereof or is terminated, will pay or cause
to be paid (A) all expenses (including transfer taxes allocated to the
respective transferees) incurred in connection with the delivery to the
Underwriters of the Securities, (B) all expenses and fees (including, without
limitation, fees and expenses of the Company's accountants and counsel but,
except as otherwise provided below, not including fees of the Underwriters'
counsel) in connection with the preparation, printing, filing, delivery, and
shipping of the Registration Statement (including the financial statements
therein and all amendments, schedules, and exhibits thereto), the Securities,
each Preliminary Prospectus, the Prospectus, and any amendment thereof or
supplement thereto, and the printing, delivery, and shipping of this Agreement
and other underwriting documents, including blue sky memoranda, (C) all filing
fees and fees and disbursements of the Underwriters' counsel incurred in
connection with the qualification of the Securities for offering and sale by the
Underwriters or by dealers under the securities or blue sky laws of the states
and other jurisdictions which you shall designate in accordance with Section
4(a)(iv) hereof, (D) the fees and expenses of any transfer agent or registrar,
(E) the filing fees incident to any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the Securities, (F)
listing fees, if any, and (G) all other costs and expenses incident to the
performance of its obligations hereunder that are not otherwise specifically
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provided for herein. If the sale of the Securities provided for herein is not
consummated by reason of action by the Company pursuant to Section 9(a) hereof
which prevents this Agreement from becoming effective, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Stockholder to perform any agreement on its or his part to be performed, or
because any other condition of the Underwriters' obligations hereunder required
to be fulfilled by the Company or the Selling Stockholder is not fulfilled, the
Company will reimburse the several Underwriters for all out-of-pocket
disbursements (including fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market and
marketing the Securities or in contemplation of performing their obligations
hereunder. The Company shall not in any event be liable to any of the
Underwriters for loss of anticipated profits from the transactions covered by
this Agreement.
(x) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to the
sale of the Securities and the application of the proceeds therefrom as may be
required in accordance with Rule 463 of the Rules and Regulations.
(xi) The Company will not, without the prior written consent of Piper
Jaffray Inc., offer for sale, sell, contract to sell, grant any option for the
sale of or otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase or
acquire, Common Stock, except to the Underwriters pursuant to this Agreement and
under the Company's stock option plans that are described in the Prospectus, for
a period of 180 days after the commencement of the public offering of the
Securities by the Underwriters.
(xii) The Company has caused to be delivered to you a letter from
each of the Company's directors, officers and stockholders stating that such
person agrees that such person will not, without the prior written consent of
Piper Jaffray Inc., offer for sale, sell, contract to sell or otherwise dispose
of any shares of Common Stock or rights to purchase Common Stock, except to the
Underwriters pursuant to this Agreement, for a period of 180 days after
commencement of the public offering of the Securities by the Underwriters.
(xiii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities, and has not effected any sales of Common Stock which are
required to be disclosed in response to Item 701 of Regulation S-K under the Act
which have not been so disclosed in the Registration Statement.
(xiv) The Company will not incur any liability for any finder's or
broker's fee or agent's commission in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
(xv) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the
Securities by the Underwriters if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
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<PAGE> 15
(xvi) The Company will use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by
the Company prior to the First Closing Date or the Second Closing Date, as the
case may be, and to satisfy all conditions precedent to the delivery of the
Securities.
(b) The Selling Stockholder covenants and agrees with the several
Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the Selling
Stockholder, the Selling Stockholder will pay all taxes, if any, on the transfer
and sale, respectively, of the Securities being sold by the Selling Stockholder,
the fees of the Selling Stockholder's counsel and the Selling Stockholder's
proportionate share (based upon the number of Securities being offered by such
Selling Stockholder pursuant to the Registration Statement) of all costs and
expenses (except for legal and accounting expenses and fees of the registrar and
transfer agent) incurred by the Company pursuant to the provisions of Section
4(a)(ix) of this Agreement; provided, however, that the Selling Stockholder
severally agrees to reimburse the Company for any reimbursement made by the
Company to the Underwriters pursuant to Section 4(a)(ix) hereof to the extent
such reimbursement resulted from the failure or refusal on the part of the
Selling Stockholder to comply under the terms or fulfill any of the conditions
of this Agreement.
(ii) If this Agreement shall be terminated by the Underwriters
because of any failure, refusal or inability on the part of the Selling
Stockholder to perform any agreement on the Selling Stockholder's part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Selling Stockholder is not fulfilled,
the Selling Stockholder agrees to reimburse the several Underwriters for the
Selling Stockholder's proportionate share of out-of-pocket disbursements
(including fees and disbursements of counsel for the Underwriters) incurred by
the Underwriters in connection with their investigation, preparing to market and
marketing the Securities or in contemplation of performing their obligations
hereunder. The Selling Stockholder shall not in any event be liable to any of
the Underwriters for loss of anticipated profits from the transactions covered
by this Agreement.
(iii) The Securities to be sold by the Selling Stockholder are
subject to the interest of the several Underwriters; and the obligations of the
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement, by any act of the Selling Stockholder, by operation of law, by
the death of the Selling Stockholder, or by the occurrence of any other event.
(iv) The Selling Stockholder will not, without your prior written
consent, offer for sale, sell, contract to sell, grant any option for the sale
of or otherwise dispose of any Common Stock or any securities convertible into
or exchangeable for, or any options or rights to purchase or acquire, Common
Stock, except to the Underwriters pursuant to this Agreement, for a period of
180 days after the commencement of the public offering of the Securities by the
Underwriters.
(v) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities, and
has not effected any sales of Common Stock which, if effected by the Company,
would be required to be disclosed in response to Item 701 of Regulation S-K.
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<PAGE> 16
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<PAGE> 17
(vi) The Selling Stockholder shall immediately notify you if any
event occurs, or of any change in information relating to the Selling
Stockholder or the Company or any new information relating to the Company or
relating to any matter stated in the Prospectus or any supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), which results in the Prospectus (as supplemented) including an
untrue statement of a material fact or omitting to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters hereunder are subject to the accuracy, as of the date hereof and at
each of the First Closing Date and the Second Closing Date (as if made at such
Closing Date), of and compliance with all representations, warranties and
agreements of the Company and the Selling Stockholder contained herein, to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 p.m., Central time, on the date of this Agreement, or such later time and
date as you, as Representatives of the several Underwriters, shall approve and
all filings required by Rules 424, 430A and 434 of the Rules and Regulations
shall have been timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall have been initiated or
threatened; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) No Underwriter shall have advised the Company that the Registration
Statement or the Prospectus, or any amendment thereof or supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of shares upon
the exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
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(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Dyer Ellis & Joseph,
counsel for the Company and the Selling Stockholder, dated such Closing Date and
addressed to you, to the effect that:
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its subsidiaries has full
corporate power and authority to own its properties and conduct its business as
currently being carried on and as described in the Registration Statement and
Prospectus, and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which it owns or leases real property
or in which the conduct of its business makes such qualification necessary and
in which the failure to so qualify would have a material adverse effect upon the
business, condition (financial or otherwise) or properties of the Company and
its subsidiaries, taken as a whole.
(ii) The merger of ProMedCo, Inc., a Texas corporation, with and into
the Company, with the Company as the surviving corporation, has become effective
under the laws of the States of Texas and Delaware.
(iii) The capital stock of the Company conforms as to legal matters
to the description thereof contained in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and the holders thereof are not subject to
personal liability by reason of being such holders. The Securities to be issued
and sold by the Company hereunder have been duly authorized and, when issued,
delivered and paid for in accordance with the terms of this Agreement, will have
been validly issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being such
holders. Except as otherwise stated in the Registration Statement and
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's charter, by-laws or any agreement or
other instrument known to such counsel to which the Company is a party or by
which the Company is bound. To the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Securities
as contemplated by this Agreement gives rise to any rights for or relating to
the registration of any shares of Common Stock or other securities of the
Company other than such rights as have been duly waived.
(iv) All of the issued and outstanding shares of capital stock of
each of the Company's subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, to the best of such counsel's
knowledge, except as otherwise described in the Registration Statement and
Prospectus, the Company owns of record and beneficially, free and clear of any
security interests, claims, liens, proxies, equities or other encumbrances, all
of the issued and outstanding shares of such stock. To the best of such
counsel's knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company or any subsidiary
any shares of the capital stock of the Company or any subsidiary of the Company.
(v) The Registration Statement has become effective under the Act
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement
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has been issued and no proceeding for that purpose has been instituted or, to
the knowledge of such counsel, threatened by the Commission.
(vi) The descriptions in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings, contracts and other documents are
accurate and fairly present the information required to be shown; and such
counsel does not know of any statutes or legal or governmental proceedings
required to be described in the Prospectus that are not described as required,
or of any contracts or documents of a character required to be described in the
Registration Statement or Prospectus or included as exhibits to the Registration
Statement that are not described or included as required.
(vii) The Company has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid, legal and binding obligation
of the Company enforceable in accordance with its terms (except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity); the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule or regulation,
any agreement or instrument known to such counsel to which the Company or any
subsidiary of the Company is a party or by which it or such subsidiary is bound
or to which any of its or such subsidiary's property is subject, the Company's
charter or by-laws, or any order or decree known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or such
subsidiary or any of its or such subsidiary's respective properties; and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities by the
Company, except such as may be required under the Act or state securities laws.
(viii) To the best of such counsel's knowledge, each of the Company
and its subsidiaries holds, and is operating in compliance in all material
respects with, all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates (including, without limitation, certificates
of need) and orders of any governmental or self-regulatory body required for the
conduct of its business and all such franchises, grants, authorizations,
licenses, permits, easements, consents, certifications and orders are valid and
in full force and effect.
(ix) To the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries is in violation of its respective charter or by-laws. To
the best of such counsel's knowledge, neither the Company nor any of its
subsidiaries is in breach of or otherwise in default in the performance of any
material obligation, agreement or condition contained in any bond, debenture,
note, indenture, loan agreement or any other material contract, lease or other
instrument to which it is subject or by which it may be bound, or to which any
of the material property or assets of the Company or any of its subsidiaries are
subject.
(x) After due inquiry, such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to
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<PAGE> 20
which any of their respective property or assets are subject which is required
to be described in the Registration Statement or Prospectus and is not so
described;
(xi) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(xii) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations), comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; and on the basis of conferences with officers of the Company,
examination of documents referred to in the Registration Statement and
Prospectus and such other procedures as such counsel deems appropriate, nothing
has come to the attention of such counsel that causes such counsel to believe
that the Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date (including
any Registration Statement filed under Rule 462(b) of the Rules and
Regulations), contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (as of its date and as
of such Closing Date), as amended or supplemented, includes any untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; it being understood that such counsel need express no opinion as
to the financial statements or other financial data included in any of the
documents mentioned in this clause.
(xiii) The Selling Stockholder is the sole record and beneficial
owner of the Securities to be sold by the Selling Stockholder and delivery of
the certificates for the Securities to be sold by the Selling Stockholder
pursuant to this Agreement, upon payment therefor by the Underwriters, will pass
marketable title to such Securities to the Underwriters and the Underwriters
will acquire all the rights of the Selling Stockholder in the Securities
(assuming the Underwriters have no knowledge of an adverse claim), free and
clear of any security interests, claims, liens or other encumbrances.
(xiv) The Selling Stockholder has the power and authority to enter
into this Agreement and to perform and discharge his obligations hereunder; and
this Agreement has been duly and validly authorized, executed and delivered by
the Selling Stockholder and is a valid and binding agreement of the Selling
Stockholder, enforceable in accordance with its terms (except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and subject
to general principles of equity).
(xv) The execution and delivery of this Agreement and the performance
of the terms hereof and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, rule or regulation, or any agreement
or instrument known to such counsel to which the Selling Stockholder is a party
or by which the Selling Stockholder is bound or to which any of his property is
subject or any order or decree known to such counsel of any court or government
agency or body having jurisdiction over the Selling Stockholder or any of his
properties; and no consent, approval, authorization or order of, or filing with,
any court or governmental agency or body is required for the execution, delivery
and performance of this Agreement or for the consummation of the
-20-
<PAGE> 21
transactions contemplated hereby, including the sale of the Securities being
sold by the Selling Stockholder, except such as may be required under the Act or
state securities laws or blue sky laws.
(xvi) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters
of law other than Delaware and federal law, upon the opinion or opinions of
local counsel reasonably satisfactory to the Representatives, and as to the
matters covered by clauses (i) and (ii), upon the opinion of Boult Cummings
Conners & Berry PLC, provided that the extent of such reliance is specified in
such opinion and that such counsel shall state that such opinion or opinions are
satisfactory to them and that they believe they and you are justified in relying
thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries and
of the Selling Stockholder provided that the extent of such reliance is
specified in such opinion.
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Vinson & Elkins L.L.P., counsel for the several Underwriters, dated such Closing
Date and addressed to you, with respect to the formation of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as you reasonably may request, and such counsel shall have
received such papers and information as they request to enable them to pass upon
such matters.
(f) On each Closing Date, you, as Representatives of the several
Underwriters, shall have received a letter of Arthur Andersen LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of such
letter), the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
(g) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company (or such other officers as are acceptable to
you), to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made at and as of such Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such Closing
Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the qualification of the
Securities for offering or sale has been issued, and no proceeding for that
purpose has been instituted or, to the best of their knowledge,
-21-
<PAGE> 22
is contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations), and (A) such documents contain all statements and
information required to be included therein, the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor any of its subsidiaries has incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions,
not in the ordinary course of business, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock, and except
as disclosed in the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock, of the Company, or any of its subsidiaries, or any
material adverse change or any development involving a prospective material
adverse change (whether or not arising in the ordinary course of business), in
the general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party before or
by any court or governmental agency, authority or body, or any arbitrator, which
might result in any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company and its
subsidiaries, taken as a whole.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by the Selling Stockholder
or the Selling Stockholder's Attorney-in-Fact to the effect that the
representations and warranties of the Selling Stockholder contained in this
Agreement are true and correct as if made at and as of such Closing Date, and
that the Selling Stockholder has complied with all the agreements and satisfied
all the conditions on the Selling Stockholder's part to be performed or
satisfied at or prior to such Closing Date.
(i) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
(j) The Common Stock shall have been approved for listing or
quotation on the Nasdaq National Market.
-22-
<PAGE> 23
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you and counsel for the Underwriters. The Company will
furnish you with such number of conformed copies of such opinions, certificates,
letters and other documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including the information deemed to be a part of the Registration Statement at
the time of effectiveness pursuant to Rules 430A and 434(d) of the Rules and
Regulations, if applicable, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against such loss,
claim, damage, liability or action; provided, however, that neither the Company
nor the Selling Stockholder shall be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by you, or by any Underwriter
through you, specifically for use in the preparation thereof; and further
provided, however, that in no event shall the Selling Stockholder be liable
under the provisions of this Section 6 for any amount in excess of the aggregate
amount of proceeds that the Selling Stockholder received from the sale of the
Securities pursuant to this Agreement.
In addition to their other obligations under this Section 6(a),
the Company and the Selling Stockholder, jointly and severally, agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 6(a),
they will reimburse each Underwriter on a monthly basis for all reasonable legal
fees or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's and/or the Selling Stockholder's obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Underwriter that received such payment shall
promptly return it to the party or parties that made such payment, together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by NationsBank of Texas, N.A. (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate
-23-
<PAGE> 24
from the date of such request. This indemnity agreement shall be in addition to
any liabilities which the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company and
the Selling Stockholder against any losses, claims, damages or liabilities to
which the Company and the Selling Stockholder may become subject, under the Act
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by you, or by such Underwriter
through you, specifically for use in the preparation thereof, and will reimburse
the Company and the Selling Stockholder for any legal or other expenses
reasonably incurred by the Company or the Selling Stockholder in connection with
investigating or defending against any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above). An indemnifying
party shall not be obligated under any settlement agreement relating to any
action under this Section 6 to which it has not agreed in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims,
-24-
<PAGE> 25
damages or liabilities referred to in subsection (a) or (b) above, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholder on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and Selling Stockholder bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholder or the
Underwriters and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholder and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this subsection (d) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the first sentence
of this subsection (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholder under
this Section 6 shall be in addition to any liability which the Company and the
Selling Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company or the Selling Stockholder within
the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company and the Selling
Stockholder herein or in certificates delivered pursuant
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<PAGE> 26
hereto, and the agreements of the several Underwriters, the Company and the
Selling Stockholder contained in Section 6 hereof, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person thereof, or the Company or any of its
officers, directors, or controlling persons, or the Selling Stockholder, and
shall survive delivery of, and payment for, the Securities to and by the
Underwriters hereunder.
8. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall fail to take up and pay for
the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule I hereto,
the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule I hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay for
the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule I hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination neither the Company nor the Selling
Stockholder shall be under any liability to any Underwriter (except to the
extent provided in Section 4(a)(ix), Section 4(b)(ii) and Section 6 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
amount of Firm Shares agreed by such Underwriter to be purchased hereunder) be
under any liability to the Company or the Selling Stockholder (except to the
extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m., Central time, on
the first full business day following the effective date of the Registration
Statement, or at such earlier time after the effective time of the Registration
Statement as you in your discretion shall first release the Securities for sale
to the public; provided, that if the Registration Statement is effective at the
time this Agreement is executed, this Agreement shall become effective at such
time as you in your discretion shall first release the Securities for sale to
the public. For the purpose of this Section, the Securities shall be deemed to
have been released for sale to the public upon release by you of the publication
of a newspaper advertisement relating thereto or upon release by you of telexes
offering
-26-
<PAGE> 27
the Securities for sale to securities dealers, whichever shall first occur. By
giving notice as hereinafter specified before the time this Agreement becomes
effective, you, as Representatives of the several Underwriters, or the Company
may prevent this Agreement from becoming effective without liability of any
party to any other party, except that the provisions of Section 4(a)(ix),
Section 4(b)(ii) and Section 6 hereof shall at all times be effective.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange or the
American Stock Exchange shall have been wholly suspended, (iv) minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York Stock Exchange or the
American Stock Exchange, by such Exchange or by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal, New York or Texas authorities, or (vi) there has
occurred any material adverse change in the financial markets in the United
States or an outbreak of major hostilities (or an escalation thereof) in which
the United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(ix), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company and the
Selling Stockholder shall be notified promptly by you by telephone or telegram,
confirmed by letter. If the Company elects to prevent this Agreement from
becoming effective, you and the Selling Stockholder shall be notified by the
Company by telephone or telegram, confirmed by letter.
10. Information Furnished by Underwriters. The statements set forth in
the last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
11. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402,
except that notices given to an Underwriter pursuant to Section 6 hereof shall
be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering; if
to the Company or the Selling Stockholder, shall be mailed, telegraphed or
delivered to it at ProMedCo Management Company, 801 Cherry Street, Suite 1450,
Fort Worth, Texas 76102, Attention: Mr. H. Wayne Posey; or in each case to such
other address as the person to be notified may have requested in writing. All
notices given by telegram shall be promptly confirmed by letter. Any party to
this Agreement may change such address for
-27-
<PAGE> 28
notices by sending to the parties to this Agreement written notice of a new
address for such purpose.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
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<PAGE> 29
Please sign and return to the Company the enclosed duplicates
of this letter whereupon this letter will become a binding agreement between the
Company, the Selling Stockholder and the several Underwriters in accordance with
its terms.
Very truly yours,
PROMEDCO MANAGEMENT COMPANY
By___________________________________________
**[Title]
_____________________________________________
H. WAYNE POSEY
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
PIPER JAFFRAY INC.
By_____________________________________
Managing Director
ROBERTSON STEPHENS & CO., LLP
By_____________________________________
Managing Director
COWEN & COMPANY
By_____________________________________
Managing Director
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Firm Shares (1)
- ----------- -------------------------
<S> <C>
Piper Jaffray Inc.
Robertson Stephens & Co., LLP
Cowen & Company
---------------
Total. . . . . . . . . . . . . . . . . . .
===============
</TABLE>
- ----------
(1) The Underwriters may purchase up to an additional ______ Option Shares,
to the extent the option described in Section 3(b) of the Agreement is
exercised, in the proportions and in the manner described in the
Agreement.
<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
PROMEDCO, INC.,
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
January 19, 1996
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
Page
ARTICLE I. PURCHASE OF CERTAIN ASSETS................................. 1
1.1 Purchase of Certain Assets................................. 1
1.2 Financial Books and Records................................ 2
1.3 Assumption of Certain Liabilities.......................... 2
1.4 Liabilities Not Assumed.................................... 2
1.5 Service Agreement.......................................... 3
1.6 Collection of Accounts Receivable.......................... 3
1.7 Right of Offset............................................ 3
1.8 Occasional Sale............................................ 4
ARTICLE II.PURCHASE PRICE............................................. 4
2.1 Purchase Price............................................. 4
2.2 Adjustment to Purchase Price............................... 5
2.3 Stockholders Agreement..................................... 5
2.4 Tax........................................................ 5
2.5 Allocation of Purchase Price............................... 5
RTICLE III. CLOSING................................................... 6
ARTICLE IV. ITEMS TO BE DELIVERED AT OR PRIOR
TO CLOSING/CONDITIONS TO CLOSING...................................... 6
4.1 By ADC.................................................. 6
4.2 By Purchaser............................................ 6
4.3 Conditions to Purchaser's Obligations................... 7
4.4 Conditions to ADC's Obligations......................... 8
ARTICLE V. ITEMS TO BE DELIVERED AT OR PRIOR TO EXECUTION............. 9
5.1 Employment Agreements..................................... 9
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ADC.................... 9
6.1 Organization and Authority to Enter into Agreements......... 9
6.2 Material Contracts...................................... 9
6.3 Insurance; Malpractice............................... 10
6.4 No Changes Prior to Closing Date..................... 10
6.5 Title; Condition....................................... 10
6.6 Litigation, Court Orders and Decrees................. 11
6.7 Permits and Licenses................................. 11
6.8 Authority............................................ 11
6.9 Tax Matters............................................ 11
6.10 Employee Benefit Plans.................................... 12
6.11 Third Party Relations..................................... 13
6.12 Leased Property........................................... 13
6.13 Compliance with Applicable Laws........................... 14
6.15 Environmental Matters..................................... 14
6.16 Healthcare Compliance..................................... 14
6.17 Fraud and Abuse........................................... 14
6.18 Facility Compliance....................................... 15
6.19 Rates and Reimbursement Policies.......................... 15
6.20 Accounts Receivable....................................... 15
6.21 Trade Relations........................................... 16
6.22 [Reserved]................................................ 16
6.23 Full Disclosure........................................... 16
6.24 Liabilities............................................... 16
6.25 Investment Representation and Access...................... 16
6.26 Membership Interest....................................... 17
6.27 Financial Statements..................................... 18
<PAGE> 3
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER............ 18
7.1 Organization......................................... 18
7.2 Authority............................................ 18
7.3 Absence of Litigation................................ 19
7.4 Shares............................................... 19
7.5 Financial Statements................................. 19
7.6 Trade Relations...................................... 19
7.7 ProMedCo Stock Options and Warrants.................. 19
7.8 Fraud and Abuse...................................... 19
7.9 Full Disclosure...................................... 20
ARTICLE VIII. CONDUCT OF BUSINESS: REVIEW........................... 20
8.1 Conduct of Business of ADC.............................. 20
8.2 Review of ADC by ProMedCo................................ 20
ARTICLE IX. TRANSFERS AND FURTHER ASSURANCES........................ 21
ARTICLE X. INDEMNIFICATION.......................................... 21
10.1 Indemnification.......................................... 21
10.2 Rules Regarding Indemnification.......................... 22
10.3 Survival................................................. 23
10.4 Notice to ADC: Opportunity to Defend..................... 23
10.5 Notice to Purchaser: Opportunity to Defend............... 23
10.6 Security for Indemnity................................... 23
10.7 Indemnification Deductible............................... 23
ARTICLE XI. EXPENSES................................................ 24
ARTICLE XII. COSTS................................................... 24
ARTICLE XIII. TERMINATION............................................ 24
ARTICLE XIV. NOTICES................................................ 25
ARTICLE XV. AMENDMENT AND WAIVER.................................... 25
ARTICLE XVI. EMPLOYEES - EMPLOYEE BENEFITS.......................... 26
16.1 Affected Employees...................................... 26
16.2 Responsibilities........................................ 26
16.3 Payroll and Payoll Taxes................................ 26
16.4 Termination Benefits.................................... 26
16.5 Employee Benefit Plans................................... 27
ARTICLE XVII. DEFINITIONS........................................... 27
ARTICLE XVIII. MISCELLANEOUS........................................ 28
18.1 Press Release......................................... 28
18.2 Binding Effect........................................ 28
18.3 Entire Agreement...................................... 28
18.4 Governing Law; Venue.................................. 28
18.5 Counterparts.......................................... 28
18.6 Headings.............................................. 28
18.7 Finders............................................... 28
18.8 No Third Party Benefit................................ 28
18.9 Materiality........................................... 28
18.10 Arbitration........................................... 29
18.11 Assignment and Delegation............................. 29
18.12 Knowledge............................................. 29
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into this the
19th day of January, 1996, by and among ABILENE DIAGNOSTIC CLINIC, P.L.L.C., a
professional limited liability company organized under the laws of the State of
Texas (hereinafter referred to as "ADC"), PROMEDCO, INC., a corporation
organized under the laws of the State of Texas (hereinafter referred to as
"ProMedCo") and PROMEDCO OF ABILENE, INC., a corporation organized under the
laws of the State of Texas (hereinafter referred to as "POA").
WITNESSETH:
WHEREAS, ADC is the owner and operator of a group medical practice in
Taylor County, Texas ("Practice") and is engaged in the practice of providing
medical care to patients;
WHEREAS, ProMedCo, through its 100% owned subsidiary POA, is engaged in
the business of providing medical practice facilities, nonmedical personnel, and
medical practice management and administrative services (ProMedCo and POA being
herein collectively referred to as "Purchaser");
WHEREAS, ADC wishes to transfer certain of the Practice Assets to POA in
exchange for voting shares of ProMedCo; and
WHEREAS, the parties desire to set forth in writing the terms and
conditions under which said exchange will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
ARTICLE I.
PURCHASE OF CERTAIN ASSETS
1.1 Purchase of Certain Assets. On the Closing Date (as hereafter
defined) ProMedCo and POA shall acquire from ADC certain of the Practice assets
(the "Practice Assets") of ADC. The Practice Assets shall be more particularly
described on Exhibit 1. 1.
The Practice Assets shall include, but not be limited to ADC's certain
accounts receivable, furnishings and equipment that are currently covered under
the Hospital Agreements referenced in Section 1.5. The furnishings and equipment
subject to the Hospital Agreements shall become the property of POA upon the
reimbursement of ADC by POA for the cost of the furnishings and equipment as
specified in the purchase option detailed in the Hospital Agreements. The
reimbursement of ADC by POA, in the event that the Hospital Agreements complete
their initial terms, shall be the reacquisition price incurred by ADC according
to the Hospital Agreements for furnishings, equipment and replacements thereof
purchased by the hospitals prior to January 17, 1996, plus any furnishings,
equipment and replacements thereof that were
<PAGE> 5
purchased pursuant to the Hospital Agreements after January 17, 1996, that were
approved by the Policy Council, as defined in that Interim Services Agreement
between the parties dated January 19, 1996 (the "Interim Services Agreement").
In the event that the Hospital Agreements are terminated, with or without cause
by ADC prior to the initial term of the Hospital Agreements, then the
reimbursement of ADC by POA shall be limited to ten percent (10%) of the
original acquisition price of such furnishings, equipment and replacements
thereof that were purchased pursuant to such Hospital Agreements prior to
January 17, 1996, plus the reacquisition price, according to the terms of such
Hospital Agreements, of any furnishings, equipment and replacements thereof that
were purchased pursuant to such Hospital Agreements after January 17, 1996, and
that were approved by the Policy Council, as defined in the Interim Services
Agreement.
In either case above, the reimbursement of ADC by POA shall be reduced
by the reacquisition price of any assets associated with any physicians who
became members of ADC concurrent with the formation of ADC on January 17, 1996,
and who sold their assets to either local hospital according to the Hospital
Agroctnents, subsequent to January 17, 1996.
ADC agrees that upon the termination of the Hospital Agreements, ADC will
exercise its option to repurchase the equipment owned by the hospital under the
Hospital Agreements.
1.2 Financial Books and Records. At Closing, all right, title and
interest in and possession of the financial books and records of ADC shall be
delivered to POA. POA shall grant to ADC the right, at reasonable times, to
inspect and copy (at ADC's own expense) said records for the purposes of
preparing for federal, state and local tax audits, any governmental enforcement
procedures or preparing for the defenses of any claims, causes of action or
other similar matters; provided however, POA shall provide one copy of such
financial books and records to ADC as are sufficient for ADC to maintain its own
books and records at Closing at no cost.
1.3 Assumption of Certain Liabilities. At the Closing, POA shall assume,
pay, perform and discharge only the liabilities of ADC set forth on Exhibit 1.3.
To the extent POA assumes any liabilities, ADC must pay cash equal to the
liabilities assumed.
1.4 Liabilities Not Assumed. It is expressly acknowledged and agreed
that Purchaser will not assume and shall not be liable, either expressly or
impuey, for any of the obligations Or liabilities Of ADC of any kind and nature
other than those specifically assumed in Section 1.3; without limiting the
foregoing, Purchaser shall not assume or become liable (expressly or impliedly)
with respect to any of the following liabilities that accrue prior to the
Closing Date:
(a) any liability of ADC, either directly or indirectly, for
either principal or interest, with respect to advances or loans made to or owed
by ADC;
(b) any liability or claim arising out of or related to the operation
and use of the Practice Assets prior to and including the Closing Date,
including, without limitations any obligations or abilities of ADC with respect
to inedical malpractice, Medicare or Medicaid fraud
<PAGE> 6
or abuse, overpayments under any Third Party Payor Programs, negligence, strict
liability in tort, product liability or breach of warranty claims;
(c) liabilities and obligations that may arise out of or relate to any
noncompliance with the provisions of the Bulk Sales law under the Uniform
Commercial Code as adopted by any applicable state in connection with the
transaction herein contemplated;
(d) any liability arising out of any employee benefit plans maintained
by ADC for the benefit of any employees of ADC or any other liability of ADC
with respect to any employees including but not limited to incentive
compensation plans, severance pay, accrued salaries, wages, bonuses, payroll
taxes, hospitalization and medical insurance, deferred compensation and vacation
and sick pay;
(e) any liability attributable to personal property tax assessed by any
governmental entity, federal, state, or local, against any of the assets to be
conveyed or leased hereunder, such taxes to remain the responsibility of ADC;
and
(f) any liability for any other tax assessed by any goverrunental.
entity, federal, state, or local, attributable to the business of ADC relating
to the period on or before the Closing Date, including but not limited to, any
income, franchise, excise, sales, or use taxes.
ADC covenants and agrees to satisfy or pay when due, any and all
liabilities of ADC not expressly assumed by POA and that POA shall have a right
of offset as set forth in Section 1.7.
1.5 Service Agreement. At the time of the Closing, ADC and POA shall
have entered into a Service Agreement ("Service Agreement") to be effective the
later date of (a) February 16, 1997 or (b) the first day of the month following
the date of the Initial Public Offering ("IPO") of ProMedCo, in the form
attached as Exhibit 1.5 (the "Effective Date"). This Agreement is different
from, and shall not effect the terms of, that certain Practice Management
Agreement by and between Southwestern Health Development Corporation and Abilene
Diagnostic Clinic Associates, P.A. ("PA"), a Texas professional association,
dated as of October 13, 1993, and that certain Practice Management Agreement by
and between Abilene Medical Management Services, Inc. and PA dated as of the
June 20, 1994, (collectively the "Hospital Agreements").
1.6 Collection of Accounts Receivable. ADC agrees to cooperate with
POA in the collection of the Accounts Receivable transferred pursuant to
Section 1.1.
1.7 Right of Offset. In addition to all other rights and remedies
available to POA at law or in equity, and notwithstanding any other provision of
this Agreement to the contrary, POA may offset against any amounts it owes ADC
under this Agreement, the Services Agreement, or any other agreement any amounts
due POA due to a failure of ADC to perform any indemnity pursuant to Section 10,
or created by POA's payment of any ADC liability. In the event that POA
determines that an amount is to be so offset, as a condition precedent to such
right of offset, POA shall give ADC written notice of the amount of such
proposed offset and the basis therefore within thirty (30) days after the date
on which such amount is finally determined. If POA shall not have received
written notice from ADC contesting such offset within thirty (30) days of their
receipt of such
<PAGE> 7
written notice from POA, the offset shall be deemed to have been consented to by
ADC and POA shall be entitled to deduct the entire amount claimed as an offset
from the agreements referenced within this Section 1.7. In the event that ADC
shall object to the proposed offset by written notice received by POA during
such thirty (30) day period, the entitlement of POA to the claimed offset shall
be determined by arbitration as described in Section 18.10.
In the event that any offset is determined to be due POA, and POA elects
to offset that amount against any stock due ADC pursuant to this Agreement, then
the basis of value for that stock shall be its fair market value on the date of
offset for purposes of satisfying the amount of the offset.
1.8 Occasional Sale. ADC and Purchaser believe that the transactions
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 Section 151.304(b)(2) of the Texas Tax Code and Section 3.316(d)
of Title 34 of the Texas Administrative Code, and, therefore, the sale of any
and all items of tangible personal property to POA 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 sales or use
tax under the Texas Tax Code, Purchaser shall be liable and responsible for any
such tax. ADC agrees to cooperate with Purchaser in connection with any audit of
this transaction regarding the application of the sales tax law thereto.
ARTICLE II.
PURCHASE PRICE
2.1 Purchase Price. ProMedCo shall pay ADC a Purchase Price of one (i)
times annual Net Revenue of ADC. Annual Net Revenue is defined as the
historical net revenue for the prior twelve (12) months ended December 31, 1995,
for all physicians that are members and/or employees of ADC as of January
19, 1996 (the "Execution Date"). A list of these physicians is attached
as Exhibit 2.1. In addition, Annual Net Revenue shall include 100% of the first
year net revenue for Dr. Harper, not to exceed $400,000, and 50% of the first
year net revenue for Dr. Hendris.
Annual net Revenue shall be determined according to generally accepted
accounting principles ("GAAP"), excluding any Non-recurring Revenues, and
excluding revenues unrelated to clinical operations.
The Purchase Price shall be determined during the period preceding the Closing
Date of this Agreement. The Purchase Price shall be adjusted as set forth in
Section 2.2 below. The Purchase Price shall consist of ProMedCo Common Stock,
the number of shares of which shall be rounded to the nearest whole number,
obtained by dividing the Purchase Price by $6 (the value per share). The
shares are payable as follows:
a. 70 % of the total shares to be distributed at the Closing Date,
28.57 % of which shall be registered, subject to limitations from underwriters.
Any remaining unregistered stock shall have piggyback registration rights for up
to 20% of the shares extending to any secondary offerings for five (5) years.
The piggyback rights are subject to limitations from underwriters, and any
restrictions would be shared pro rata with others that have similar rights.
Should any limitations from underwriters apply, then the total shares to
<PAGE> 8
be distributed at the Closing Date shall be adjusted downward. The rate of
adjustment shall be a reduction of 3.57 Shares (rounded to the nearest whole
number) for every 1 share affecting ADC that is limited by underwriters.
b. The remaining shares and any shares not delivered at the Closing
Date as the result of underwriter-required reductions under Section 21(a) at the
earliest of any secondary offering following the date of ProMedCo's IPO or two
years from the Closing Date.
2.2 Adjustment to Purchase Price. Not later than one hundred and five
(105) days after the Closing, ADC and Purchaser shall prepare a balance sheet of
the Practice as of the Closing Date ("Closing Date Balance Sheet") which balance
sheet shall be prepared in accordance with GAAP, except for the absence of
certain note information. The Purchase Price shall be adjusted as follows:
a. decreased, dollar for dollar for each dollar the amount of accounts
receivable is less than One Million Dollars ($1,000,000) as stated on the
Effective Date Balance Sheet. Attached hereto as Exhibit 2.2 is a
summary aging report of ADC's accounts receivable as of the Execution Date.
2.3 Stockholders Agreement. The Shares shall be issued subject to the
Stockholders Agreement datedas of the Closing Date ("Stockholders Agreement") a
copyofwhich is attachedas Exhibit 2.3 and which shall be executed by ADC and
ProMedCo. ADC understands that ADC only will be allowed to transfer the Shares
in accordance with the Stockholders Agreement. ADC also understands that any
document evidencing the Shares will bear a restrictive legend prohibiting
transfer other than in accordance with the Stockholders Agreement.
2.4 Tax. All transfer and similar taxes, fees and assessments incurred as a
result of the transactions contemplated by this Agreement shall be paid by ADC.
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
to the Assets and shall be reported for tax purposes by each party, consistent
with a method mutually agreed upon by representatives of ADC, ProMedCo and POA.
If ADC, ProMedCo and POA are unable to agree, a "Big Six" accounting firm shall
be engaged to allocate the Purchase Price equitably.
ARTICLE III.
CLOSING
The purchase of the Practice Assets as contemplated hereby shall close
("Closing") by the later of: (a) February 16, 1997; or (b) the first day of the
month following the date of the Initial Public Offering ("IPO") of ProMedCo (the
"Effective Date"). At Closing, all assignments, bills of sale and other
documents required to be delivered hereunder shall be delivered to Purchaser.
Also at Closing, Purchaser shall issue the consideration described in Section
2.1 hereof. ADC and Purchaser covenant and agree to use their best efforts to
satisfy the conditions to Closing described in Article IV of this Agreement. The
date on which the Closing occurs is referred to as the Closing Date.
ARTICLE IV.
ITEMS TO BE DELIVERED AT OR PRIOR
<PAGE> 9
TO CLOSING/CONDITIONS TO CLOSING
4.1 By ADC. ADC shall deliver to Purchaser, on the Closing Date:
(a) A Bill of Sale for the Practice Assets duly executed by ADC for the
Practice Assets set forth on Exhibit 1.1. Such Bill of Sale shall be in the form
attached as Exhibit 4.1(a).
(b) The Stockholders Agreement duly executed by ADC which shall be in the
form attached as Exhibit 2.3.
(c) All assignments and third-party consents for any contracts or leases
being assigned by ADC to POA and such estoppel certificates that POA may
request.
(d) Member Assurance Agreements duly executed by each of ADC's Members,
in the form attached as Exhibit 4. 1 (d).
(e) Employment Agreements between each of the physician Members and
physician employees of ADC duly executed by the parties thereto, in the form
attached as Exhibit 5. 1.
(f) Such other instruments as may be reasonably requested by
Purchaser in order to give effect to or carry out the intent of this Agreement.
4.2 By Purchaser. Purchaser shall deliver to ADC, on the Closing Date:
(a) Stock certificates representing ownership of the number of Shares set
forth under Section 2.1.
(b) An Assumption Agreement with respect to the contact
obligations assumed as let forth on Exhibit 1.3. Such Assumption Agreement shall
be in the form attached as Exhibit 4.2(b).
(c) Copies of duly filed articles of incorporation, bylaws and
organizational minutes, proMly executed, for ProMedCo of Abilene, Inc.
(d) Such other instruments as may be reasonably requested by
ADC in order to give effect to or carry out the intent of this Agrement.
4.3 Conditions to Purchaser's Obligations. Purchaser's obligation to
acquire the assets of ADC as provided in this Agreement shall be Conditioned
upon the satisfaction of the following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.1 hereof shall have been executed and delivered to Purchaser.
(b) No Material Adverse Change. From and after the Execution Date and prior
to the Closing Date, (i) there shall have been no Material Adverse Change, as
hereinafter defined, in ADC or the assets or liabilities of ADC; (ii) the
<PAGE> 10
updated information contained in the certificate submitted pursuant to Section
4.3(c) shall not reflect a Material Adverse Change; and (iii)ADC shall have
delivered to Purchaser a certificate, dated as of the Closing Date, to such
effect-
(c) Truth of Representation and Warranties. The representations and
warranties of ADC contained in this Agreement, or in any Exhibit hereto, shall
be in all material respects true and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, and ADC shall have delivered to Purchaser a certificate,
dated as of the Closing Date, to such effect. ADC shall have the express
obligation to update all infomiation contained in the Exhibits hereto so that
such Exhibits shall be true, correct and complete as of the Closing Date.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or to ADC's knowledge threatened before a court or other government
body or by any public authority to restrain or prohibit any of the transactions
contemplated hereby, and ADC shall have delivered to Purchaser a certificate,
dated as of the Closing Date, to such effect.
(e) Opinions of Counsel. Purchaser shall have received all of the
necessary opinions of its corporate and health care counsel and an opinion from
ADC's counsel in the form attached as Exhihit 4.3(e).
(f) Securities Law Compliance. The issuance of the Shares to ADC will
not violate the securities laws of the State of Texas or of the United States.
(g) Third Party Consents. POA shall have received copies of all
third-party consents for any contracts or leases which POA agrees to assume
pursuant to Section 1.3.
(h) Licenses, Permits, Qualification. POA and ADC shall have obtained
or applied for all licenses and permits necessary to operate their respective
businesses after the Closing Date. As to licenses that have not been obtained,
POA shall have reasonable assurances that the licenses will be issued upon
notice of Closing without any further conditions.
(i) Medical Malpractice Insurance. All physicians, health care
providers, and employees of ADC and POA must be properly covered by medical
malpractice insurance and medical malpractice tail insurance to cover prior
occurrences or continuation of ADC's existing malpractice coverage with the
addition of POA as a named insured.
(j) Due Diligence. Purchaser shall have verified to its reasonable
satisfaction the accuracy of the representations and warranties of ADC.
4.4 Conditions to ADC's Obligations. ADC's obligations to sell its
assets as provided in this Agreement shall be conditioned upon the satisfaction
of the following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.2 hereof shall have been executed and delivered by Purchaser.
(b) Truth of Representations and Warranties. The representations and
warranties of Purchaser contained in this Agreement, or in any Exhibit hereto,
<PAGE> 11
shall be in all material respects true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been made
as of such date, and Purchaser shall have delivered to ADC an officer's
certificate, dated as of the Closing Date, to such effect.
(c) No Material Change. From and after the Execution Date and Prior to
the Closing Date, (i) there shall have been no Material Adverse Change in the
assets or liabilities of POA or ProMedCo; (ii) the updated information contained
in the Exhibits submitted pursuant to Section 4.4(b) shall. not reflect a
Material Adverse Change; and (iii) POA or ProMedCo shall have delivered to
Purchaser a certificate, dated as of the Closing Date, to such effect.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby, and Purchaser shall have delivered to ADC an officer's certificate,
dated as of the Closing Date, to such effect.
(e) No Investigation. No action, proceeding or investigation shall have
been instituted by HCFA or any other governmental entity against ProMedCo, and
Purchaser shall have delivered to ADC an officer's certificate, drafted as of
the Closing Date, to such effect.
(f) ProMedCo of Abilene, Inc. ProMedCo shall have caused to be formed
ProMedCo of Abilene, Inc., a 100% owned subsidiary of ProMedCo, as a Texas
for-profit corporation, for the purpose of acquiring the Practice Assets and
assuming the contruct obligations set forth in this Agreement.
(g) Opinions of Counsel. ADC shall have received an opinion from
Purchaser's counsel in the form attached hereto as Exhibit 4.4(g).
(h) Due Diligence. ADC shall have verified to its reasonable
satisfaction the accuracy of the representations and warranties of ProMedCo and
POA.
ARTICLE V.
ITEMS TO BE DELIVERED AT OR PRIOR TO EXECUTION
5.1 Employment Agreements. Employment Agreements between each of the
physician employees of ADC and ADC, duly executed by the parties thereto, in the
form attached as Exhibit 5.1.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF ADC
ADC represents, warrants, covenants and agrees with Purchaser that:
6.1 Organization and Authority to Enter into Agreements. ADC is a
professional limited liability company duly organized, validly existing and in
good standing under the laws of the State of Texas. ADC has the full authority
to own its property, to carry on the Practice as presently conducted, to enter
into this Agreement and to consummate the transactions contemplated hereby. ADC
has no direct or indirect interest in, by way of stock ownership or otherwise,
any corporation, partnership, joint venture, association or business enterprise.
<PAGE> 12
6.2. Material Contracts. Except as set forth on Exhibit 6.2, or on
another Exhibit to this Agreement, ADC is not bound by (a) any material
agreement, contract, or commitment relating to the employment of any person by
ADC, or any loans, deferred compensation, incentive compensation, pension,
profit sharing, retirement, or other Employee Benefit Plan, (b) any loan or
advance to, or investment in, any other person or entity, or any agreement,
contract, or commitment relating to the making of any such loan, advance, or
investment, (c) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any other person or entity, (d) any agreement,
contract, or commitment materially limiting the freedom of ADC or any associated
entity or individual to provide health care services in any location or to
compete with any other person or entity, or (e) any other agreement, contract,
or commitment which is material to the Practice. Except as set forth in Exhibit
6.2 each contract or agreement set forth in Exhibit 6.2 is in full force and
effect, and there exists no default or event of default or event, occurrence,
condition, or act, which with the giving of notice, the lapse of time, or both,
or the happening of any other event or condition, would become a default or
event of default thereunder.
6.3 Insurance; Malpractice. Exhibit 6.3(a) is a list and brief
description of all policies or binders of fire, liability, product liability,
workers compensation, health and other forms of insurance policies or binders
currently in force insuring against risks which will remain in full force and
effect at least through the Closing Date. Exhibit 6.3(b) contains a description
of all malpractice liability insurance policies of ADC since January 1, 1988.
Except as set forth on Exhibit 6.3(c), (a) ADC has not in the last seven (7)
years filed a written application for any insurance coverage which has been
denied by an insurance agency or carrier, and (b) ADC has been continuously
insured for professional malpractice claims. Exhibit 6.3(c) also sets forth a
list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence, filed by ADC during the three (3) year period
immediately preceding the date hereof, including, but not limited to, workers
compensation, general liability, environmental liability and professional
malpractice liability claims. ADC 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.
6.4 No Changes Prior to Closing Date. During the period from the
Balance Sheet Date through the date hereof, ADC has not, and from the date
hereof to the Closing Date, ADC shall not have (i) incurred any material
liability or obligation of any nature (whether accrued, absolute, contingent, or
otherwise), except in the ordinary course of business, or except with the prior
written consent of ProMedCo, such consent not to be unreasonably withheld, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material to ADC, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the ordinary course of business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the ordinary course of business (such as
normal year-end bonuses), (viii) increased compensation except in the ordinary
course,
<PAGE> 13
(ix) suffered any damage, destruction or loss to any of the Practice Assets, (x)
canceled or failed to continue any insurance, or (xi) agreed, whether or not in
writing, to do any of the foregoing.
6.5 Title; Condition. Exhibit 1.1 contains a complete, true and correct
list of ADC's Practice Assets. ADC has good and marketable title to certain of
the Practice Assets. Except as disclosed on Exhibit 1.3 or Exhibit 6.5 hereto,
none of such assets is subject to a contract or other agreement of sale or
subject to security interests, mortgages, encumbrances, liens (including income,
personal property and other tax liens) or charges of any kind or character. The
Practice Assets shall be conveyed to Purchaser free and clear of all liens and
encumbrances other than those granted in connection with the contract
obligations to be assumed by Purchaser as set forth in Exhibit 1.3.
6.6 Litigation, Court Orders and Decrees. There are no outstanding or to
ADC's knowledge threatened suits, actions, proceedings at law or in equity,
orders, writs, administrative proceedings, injunctions or decrees of any court,
governmental agency or entity or arbitration tribunal against or affecting the
Practice, ADC, the Practice Assets or any other healthcare professional
associated with or employed by ADC. To ADC's knowledge, ADC is in compliance
with all applicable federal, state and local laws, regulations and
administrative orders which are applicable to the operation of ADC, including,
without limitation, matters relating to antitrust and anti-competitive
practices, discrimination, employment, and health and safety, and ADC has not
received any notices of alleged violations thereof. No governmental authorities
are presently conducting proceedings against ADC and to ADC's knowledge no such
investigation or proceeding is pending or being threatened.
6.7 Permits and Licenses. To ADC's knowledge, ADC and all other
healthcare professionals associated with or employed by ADC have all permits and
licenses required by all applicable laws; have made all regulatory filings
necessary for the conduct of ADC's business; and are not in violation of any of
said permitting or licensing requirements. A list of such permits and licenses
is attached as Exhibit 6.7.
6.8 Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby has been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of ADC enforceable
in accordance with its terms, except (a) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditor's rights and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. Attached as Exhibit 6.8 is a listing of
all third-party consents which must be obtained prior to Closing. To ADC's
knowledge, neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance by ADC with
any of the provisions hereof, will:
(a) violate or conflict with, or result in a material breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of, any lien, security interest, charge or encumbrance upon any of the
assets to be conveyed hereunder of any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, agreement or other
instrument or obligation to which ADC is a party, or by which either ADC or any
of the
<PAGE> 14
assets to be conveyed hereunder is bound which would cause a Material Adverse
Change to ADC or ADC's assets; or
(b) violate any order, writ, injunction, decree, statute, rule
or regulation applicable either to ADC or any of the assets to be conveyed
hereunder which would cause a Material Adverse Change to ADC or ADC's assets.
6.9 Tax Matters. All taxes, including without limitation income,
property, sales, franchise, employees' withholdings and social security taxes
imposed by the United States or by any state, municipality or subdivision of any
state or by any other taxing authority which are due and payable by ADC and all
interest or penalties thereon have been paid in full and all federal, state and
other tax returns of ADC required by law to be filed have been timely filed, and
ADC has paid or adequately 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, the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which ADC has set aside on its books adequate reserves. There are no tax liens
on any of the assets of ADC except those with respect to taxes not yet due and
payable. There are no pending tax examinations of ADC's tax returns nor has ADC
received a revenue agent's report asserting a tax deficiency in the last twelve
(12) months. There are not and will not be at the Closing Date, any claims
pending or asserted against the assets of ADC for unpaid taxes by any federal,
state or other governmental body. Except as set forth in Exhibit 6.9, ADC has
withheld from each payment made to employees of ADC the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
6.10 Employee Benefit Plans.
(a) List of Plans. Set forth on Exhibit 6.10 is an accurate
and complete list of all employee benefit plans ("Employee Benefit Plans")
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not any Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by ADC, including all employers (whether or not incorporated)
which by reason of common control are treated together with ADC as a single
employer within the meaning of Section 414 of the Code since September 2, 1974.
(b) Status of Plans. ADC has never maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which is
not in substantial compliance with ERISA, or which has incurred any accumulated
funding deficiency within the meaning of Section 412 or 418B of ERISA, or which
has applied for or obtained a waiver from the Internal Revenue Service of any
minimum funding requirement under Section 412 of the Code or which is subject to
Title IV of ERISA. ADC has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit Plan
covering any employees of ADC or ceased operations at any facility or withdrawn
from any such Plan in a manner which could subject it to liability under Section
4062(f), 4063 or 4064 of ERISA, and knows of no facts or circumstances which
might give rise to any liability of ADC to the PBGC under Tide IV of ERISA which
could reasonably be anticipated to result in any claim being made against
Purchaser by the PBGC. ADC has not incurred any withdrawal liability (including
<PAGE> 15
any contingent or secondary withdrawal liability) within the meaning of Sections
4201 and 4202 of ERISA, to any Employee Benefit Plan which is a Multiemployer
Plan (as defined in Section 4001 of ERISA), and no event has occurred, and there
exists no condition or set of circumstances, which represents a material risk of
the occurrence of any withdrawaL-from or the partition, termination,
reorganization or insolvency of any Multiemployer Plan which would result in any
liability to a Multiemployer Plan.
(c) Contributions. Full payment has been made of an amounts
which ADC is required, under applicable law or under any Employee Benefit Plan
or any agreement relating to any Employee Benefit Plan to which ADC is a party,
to have paid as contributions thereto as of the last day of the most recent
fiscal year such Employee Benefit Plan ended prior to the date hereof. ADC has
made adequate provision for reserves to meet contributions that have not been
made because they are not yet due under the terms of any Employee Benefit Plan
or related agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of which
documents have been provided.
(d) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401 (a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since the
date of the last such deten-nination which resulted or is likely to result in
the revocation of such determination.
(e) Transactions. ADC has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code. Neither ADC
nor any of its employees, to the extent they or any of them are fiduciaries with
respect to such plans, have breached any of the responsibilities or obligations
imposed upon fiduciaries under Title I of ERISA, nor have they taken any actions
which would result in any claim being made under or by or on behalf of any such
plans by any party with standing to make such claim.
(f) Other Plans. ADC presently does not maintain any employee
benefit plans or any other foreign pension, welfare or retirement benefit
plans other than those listed on Exhibit 6.10.
(g) Documents. ADC has delivered or caused to be delivered to
ProMedCo and its counsel true and complete copies of (i) all Employee Benefit
Plans as in effect, together with all amendments thereto which will become
effective at a later date, as well as the latest Internal Revenue Service
determination letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) Form 5500 for the most
recent completed fiscal year for each Employee Benefit Plan required to file
such form.
6.11 Third Party Relations. ADC is not aware of any material problems or
material disagreements with any third parties with which it does business, and
ADC will use its best efforts from the date of this Agreement until the Closing
Date to operate its business in such a manner so as not to adversely affect the
goodwill of its patients, suppliers, employees, associated physicians and other
such persons or third parties with which the ADC does business.
6.12 Leased Property. Except as set forth on Exhibit 6.12, no material
adverse claim against, or defect in, the interest purportedly leased or given
under or by any such instrument exists, and neither the lessor (to the ADC's
best knowledge) nor
<PAGE> 16
ADC is in default under any of such leases, and ADC is not aware of any fact
which, with notice and/or the passage of time, would constitute such a default.
6.13 Compliance with Applicable Laws. Except as set forth in Exhibit
6.13, to ADC's knowledge, ADC has operated in compliance with all federal,
state, county and municipal laws, ordinances and regulations applicable thereto.
No item disclosed on Exhibit 6.13 wW cause a Material Adverse Change to ADC's
Assets.
6.14 Employees: Employee Compensation. Exhibit 6.14 is a list of all
current physician employees, physician independent contractors, nonphysician
employees, officers and consultants of ADC. Exhibit 6.14 shall include for all
Affected Employees, as such term is defined in Section 16.1 of this Agreement,
their date of hire, rate of compensation, position and social security number.
ADC has paid or discharged or will pay, discharge or assume all liabilities for
compensation and benefits to which all employees are entitled through the
Closing Date, other than those individuals who are employed by POA, pursuant to
that certain Interim Service Agreement dated January 19, 1996 between ADC and
POA including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, defer-red
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of any of ADC's employees.
6.15 Enviromnental Matters. To the best of ADC's knowledge, ADC is in
compliance in all material respects with all federal, state and local
environmental laws, rules, regulations, standards and requirements, including,
without limitation those respecting chemical, radiographic, or biomedical wastes
or any other hazardous substances or materials, as defined in any applicable
federal or state law or regulation ("Hazardous Wastes"). Any storage, holding,
release, emission, discharge, generation, processing, disposition, handling or
transportation of any Hazardous Wastes from, into or on any portion of the
clinic premises is and has been at all times in full compliance in all material
respects with all federal, state and local environmental laws, rules,
regulations, standards and requirements.
<PAGE> 17
6.16 Healthcare Compliance. ADC is or will be within two months of the
Execution Date 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 ADC'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
ADC's knowledge, ADC is in full compliance with the requirements of all such
Third Party Payor Programs applicable thereto.
6.17 Fraud and Abuse. ADC and, to ADC's knowledge, each employee of ADC
providing professional services for ADC have not engaged in any activities which
are prohibited under 42 U.S. C. ss. 1320a-7b or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
but not limited to the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
knowledge by a claimant of'the occurrence of any event affecting the initial or
continued right to any benefit or payment on its own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; and (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or Q in return for purchasing, leasing, or
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 by Medicare or Medicaid.
6.18 Facility Compliance. To ADC's best knowledge, ADC's 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 ADC issued by any governmental authority or
Third Party Payor Program 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, ADC 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.
6.19 Rates and Reimbursement Policies. To ADC's knowledge, the
jurisdiction in which ADC is located does not currently impose any restrictions
or limitations on rates which may be charged to private-pay patients receiving
services provided by ADC. ADC does not have any rate appeal currently pending
before any govenuriental authority or any administrator of any Third Party Payor
Program. ADC has no knowledge of any applicable law, which has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement or any such legal requirement proposed or currently pending in the
jurisdiction in which ADC is located, which could have a material adverse effect
on ADC or may result in the imposition of additional Medicaid, Medicare,
charity,
<PAGE> 18
free care, welfare, or other discounted or government assisted patients at ADC
or require ADC to obtain any necessary authorization which ADC does not
currently possess.
6.20 Accounts Receivable. To the best of ADC's knowledge, the amount of
all accounts receivable, unbilled invoices and other debts due or recorded in
the respective records and books of account of ADC, as being due to ADC, as of
the Closing Date, will be due and collectible in full in the ordinary course of
business, except to the extent of reasonable Adjustments thereon. "Adjustments"
shall mean any Adjustments to ADC's gross billings for uncollectible accounts,
discounts, Medicare and Medicaid allowances, worker's compensation discount,
employee/dependent health care benefit programs, professional courtesies, and
other activities that do not generate a collectible fee. Any Adjustments-made
shall be made on a reasonable historical basis, or on a reasonable prospective
basis should a new payor agreement apply.
None of such accounts receivable (except ADC's accounts receivable currently
subject to the Hospital Agreements) or other amounts'are or will at the Closing
Date be subject to any counterclaim or set-off except to the extent of any such
provision or Adjustment. ADC will furnish POA at Closing with a summary aging
report of ADC's accounts receivable as of the Closing Date.
6.21 Trade Relations. To ADC's best knowledge, there exists no actual or
threatened limitation of the business relationship of ADC with any material
customer, supplier or landlord or with any person whose contracts or projected
contracts with ADC would be material to the operations of ADC taken ' as a
whole. There exists no condition or state of facts or circumstances which could
result in the occurrence of a material adverse effect with respect to ADC or
prevent Purchaser from conducting its business after the consummation of the
transactions contemplated by this Agreement as such business is conducted or
proposed to be conducted.
6.22 [Reserved].
6.23 Full Disclosure. When considered in the context of all information
contained herein, no representation or warranty made by ADC in this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit or fail to state a material fact necessary to make the statements
contained herein or therein not materially misleading; provided, 'however, that
this warranty is not intended to obligate ADC to a higher disclosure obligation
than is set out in each of the separate representations and warranties contained
herein.
6.24 Liabilities. Attached as Exhibit 6.24 is a list of ADC's existing
liabilities associated with ADC's Practice. ADC has no other liabilities
(whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, and whether due or to become due).
6.25 Investment Representation and Access.
(a) ADC confirms that ProMedCo has made available to ADC, or to
ADC's representatives), all information requested concerning ProMedCo, the
opportunity to ask questions of its officers and directors and to acquire such
additional information about the Shares and the business and financial condition
of ProMedCo as ADC has requested, which additional information has been
satisfactorily received.
<PAGE> 19
(b) In deciding to acquire the Shares, ADC has relied upon
consultations with ADC's legal, financial and tax advisers with respect to this
transaction and the nature of the investment together with the additional
information concerning ProMedCo provided under subsection (a) above.
(c) The financial condition of ADC is such that ADC can bear the
risk of this investment indefinitely. ADC, either alone or with ADC's
representatives has such knowledge and experience in financial and business
matters that ADC is capable of evaluating the merits and risks of an investment
in ProMedCo.
(d) ADC wil-I not transfer or otherwise dispose of the Shares or
any interest therein, except in accordance with the Stockholder Agreement and in
such manner as to not violate any registration provision of the Securities Act
of 1933, as amended (the "Securities Act"), or of any applicable state
securities law regulating the disposition thereof. Except for the shares to be
registered under Section 2.1(a) of this Agreement, ADC is aware that the Shares
have not been registered under the Securities Act or any state securities laws
or any other applicable securities legislation and that the Shares must be held
indefinitely unless they are subsequently registered or an exemption from such
registration is available. ProMedCo will permit transfer of the Shares by ADC
only when such securities have been registered under the Securities Act, any
applicable state securities law and any other applicable securities legislation
or when the request is accompanied by an opinion of counsel, acceptable to
ProMedCo, to the effect that the sale or proposed transfer does not require
registration under the Securities Act, any state securities law or any other
applicable securities legislation, or when presented with evidence otherwise
satisfactory to ProMedCo. ADC agrees that the following legend to such effect
and any other legends required by applicable state securities law will be placed
on the unregistered Shares and a stop transfer order shall be placed with
respect thereto, for as long as ProMedCo deems it necessary:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933 as amended, or any state securities laws (Acts). The
shares have been acquired for investment and may not be sold or offered for sale
in the absence of an effective registration statement for the shares under the
Acts or an opinion of counsel or other evidence satisfactory to ProMedCo that
such registration is not required."
(e) ADC acknowledges that ADC 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. ADC further acknowledges
that the prior experience of ProMedCo or any other person is not in any way a
prediction of the results which ADC may obtain as a result of its investment in
the Shares. ADC further acknowledges that ADC is familiar with the business to
be conducted by the ProMedCo and has had full access to the business plan
formulated by the ProMedCo.
(f) The representations, warranties and covenants of ADC
contained herein shall survive the execution and delivery of this Agreement and
the issuance of the Shares.
6.26 Membership Interest. The membership interests of ADC arr, owned in the
manner set forth in Exhibit 6.26 and, except as set forth on such exhibit, there
are no outstanding membership interests of any nature whatsoever in ADC. Except
for the transactions contemplated by this Agreement, insofar as is known
<PAGE> 20
to ADC, there are not any agreements or understandings by ADC with respect to
ADC or any agreements by ADC relating to the practice or operation of the ADC on
any matter.
6.27 Financial Statements. ADC will furnish ProMedCo with an unaudited
balance sheet dated January 19, 1996, a copy of which is attached hereto as
Exhibit 6.27. Such financial statements, including the notes thereto, eicept as
indicated therein, are accurate and complete, were prepared from ADC's books and
records, were prepared on a basis consistent with past accounting practices of
ADC and accurately reflect the results of operations for the periods noted
therein. The balance sheet of ADC heretofore delivered (or to be delivered) by
ADC to ProMedCo fairly present the financial condition of ADC at the date
thereof, and except as indicated therein, reflect all claims against and all
debts and liabilities of ADC, fixed or contingent, as of the date thereof. Since
January 19, 1996 (the "Balance Sheet Date"), there has been (i) no material
adverse change in the assets or liabilities, or in the business condition,
financial or otherwise, or in the results of operations of ADC, and (ii) no fact
or condition known to ADC which exists or is contemplated or threatened which
might cause such a change in the future.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
ProMedCo represents, warrants, covenants and agrees with ADC as follows:
7.1 Organization. ProMedCo is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. ProMedCo has
the full power to own its property, to carry on its business as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby. Upon its formation, POA shall be a corporation duly
organized, validly existing and in good standing of the laws of the State of
Texas and shall have the full power to own its property, to carry on its
business as contemplated by this Agreement, to accept the assignment of this
Agreement and to consummate the transactions contemplated hereby.
7.2 Authority. ProMedCo has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby, and at Closing, ProMedCo
shall deliver an officer's certificate to such effect. This Agreement is a valid
and binding agreement of the Purchaser, enforceable in accordance with its
terms, except (a) as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (b) as the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, violate any
provisions of the charter or the bylaws of ProMedCo or POA or any indenture,
mortgage, deed of trust, lien, lease, agreement, arrangement, contract,
instrument, license, order, judgment or decree or result in the acceleration of
any obligation thcrconder to which ProMedCo is a party or by which it is bound.
7.3 Absence of Litigation. No action or proceeding by or before any Court
or other governmental body has been instituted or is, to the best of ProMedCo's
<PAGE> 21
knowledge, threatened with respect to the transactions contemplated by this
Agreement.
7.4 Shares. Upon delivery of the certificates represenfing ownership of
the Shares, such Shares will be duly authorized, validly issued, fully paid and
nonamessable.
7.5 Financial Statements. Attached hereto as Exhibit 7.5 are: (a) the
unaudited consolidated statements of income and of cash flows of ploMedCo for
the fiscal year ending on September 30, 1995 (the 'Interim Financials'); (b) the
unaudited consolidated balance sheet of the Company as of September 30, 1995 and
the unaudited consolidated statements of income and of cash flows for the
Company for the three months then ended (the 'Unaudited Financials,'
collectively with the Interim Financials, the "Financials'). The Financials; (i)
are complete and correct in all material respects; (ii) have been prepared in
accordance with generally accepted accounting principles, consistently applied;
and (iii) fairly present, in all material respects, the financial position of
ProMedCo as of each such date and the results of operations for each such period
then ended; provided, however, that the Financials may not contain all footnotes
required under generally accepted accounting principles, consisterdy applied.
7.6 Trade Relations. To ProMedCo's and POA's best knowledge, there
exists no actual or threatened termination of the business relationship of
ProMcdCo or POA with any material customer, supplier or landlord or with any
person whose contracts with ProMedCo or POA taken as a whole would be material
to the operations of ProMedCo or POA. There exists no condition or state of
facts or circumstances which could result in the occurrence of a material
adverse effect with respect to ProMedCo or POA taken as a whole, or prevent ADC
from conducting its business after the consummation of the transactions
contemplated by this Agreement as such business is conducted or proposed to be
conducted.
7.7 ProMedCo Stock Options and Warrants. Prior to the Initial Public
Offering(IPO) by ProMcdCo, ProMedCo and each Subsidiary will not issue any
additional stock options or warrants to anyone listed on Exhibit 7.7.
7.8 Fraud and Abuse. Purchaser and, to Purchaser's knowledge, each
employee of Purchaser providing services for Purchaser have not engaged in any
activities that are prohibited under 42 U.S.C. ss. 1320a-7b, 42 U.S.C. ss.
1395an, or the regulations promulgated thereunder pm=t to such statutes, or
related state or local statutes or rcguLations, or that are prohibited by rules
of professional conduct, including but not limited to the following: (a)
knowingly and willMy making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) kwwingly and willfully making or causing to be made any falsc statement or
representation of a material fact for use in determining rights to any benefit
or payment, (c) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; and (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (i) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (H) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any
<PAGE> 22
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
7.9 Full Disclosure. When considered in the context of all information
contained herein, no representation or warranty made by Purchaser in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit or fail to state a material fact necessary to make the
statements contained herein or therein not materially misleading. Provided,
however, that this warranty is not intended to delegate Purchaser to a higher
disclosure obligation than is set out in each of the separate representations
and warranties contained herein.
ARTICLE VIII.
CONDUCT OF BUSINESS: REVIEW
8.1 Conduct of Business of ADC. During the period from the date of this
Agreement to the Closing Date, ADC shall conduct its business only in the
ordinary and usual course of business, and shall use its best efforts to
preserve intact its business organization, keep available the services of its
employees and maintain satisfactory relationships with patients and others
having business, medical or professional relationships with ADC. ADC shall
immediately notify POA or ProMedCo of any unexpected emergency or other change
in the normal course of its business or in the operation of its properties and
of any governmental complaints, investigations, or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings
involving the business or practice of ADC or any other healthcare professional
associated with or employed
<PAGE> 23
by ADC and shall keep POA or ProMedCo fully informed of such events and permit
its representatives prompt access to all materials prepared in connection
therewith.
8.2 Review of ADC by ProMedCo. ADC has given ProMedCo and shall continue
to give ProMedCo prior to the Closing Date, through its representatives,
reasonable access to the assets, books, and records of ADC, as well as its
financial and legal condition to familiarize itself with such assets and other
matters; such review shall not, however, affect the representations and
warranties made by ADC herein and in the Exhibits attached hereto. ADC shall
permit ProMedCo and its representatives, advisors, lenders, and their advisors,
accountants and counsel to have full access to the premises and to all books and
records of ADC during normal business hours and to cause its employees to
furnish ProMedCo with such financial and operational data and other information
with respect to the business and assets of ADC as ProMedCo shall from time to
time reasonably request.
ARTICLE IX.
TRANSFERS AND FURTHER ASSURANCES
From time to time after the date hereof, at the request of ProMedCo, ADC
shall, without further consideration, execute, acknowledge and deliver such
further instruments of transfer and other assurances and shall take such other
action as ProMedCo reasonably may request in order to assign and/or transfer mom
effectively any of the assets to be transferred under this Agreement. ADC shall
take all action reasonably requested by ProMedCo to enable POA to succeed to the
workers compensation and unemployment insurance ratings, insurance policies,
deposits and other interests of ADC and other ratings for insurance or other
purposes established by ADC. POA shall not be obligated to succeed to any such
rating, insurance policy, deposit or other interest, except as it may elect to
do so. ADC does not warrant that POA will be successful in succeeding to any
such rating, insurance policy, deposit or other interest.
ARTICLE X.
INDEMNIFICATION
10.1 Indemnification. Each party agrees to and shall defend, indemnify
and hold harmless the other party, its employees, officers, directors,
shareholders, subsidiaries, affiliates, agents, successors and assigns
("Indemnified Parties"), against the following:
(a) Any and all direct or indirect damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of action,
encumbrances and costs and expenses suffered, sustained, incurred or paid by any
Indemnified Parties because of:
<PAGE> 24
(i) the claims of any broker or finder engaged by ADC or Purchaser;
(ii) the untruth, inaccuracy, nonfulfillment or breach of any
representation, warranty, agreement or covenant of either party contained in or
made in connection with this Agreement;
(iii) in the case of ADC:
(A) Any federal, state or local tax liability of the ADC which
is in excess of the provision for taxes reflected on the Balance Sheet and any
tax liability arising from the transactions contemplated hereby and any
penalties and interest on any of the foregoing,
(B) Purchaser's payment of any of ADC's liabilities not
expressly assumed hereunder,
(C) any liabilities arising as a result of the operation of
ADC's business prior to the Closing, and
(D) the noncompliance by the parties with the Bulk Sales law of
the Uniform Commercial Code as adopted by any applicable state.
(b) All reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees, interest and penalties) incurred by any
Indemnified Parties in connection with any action, proceeding, demand,
assessment or judgment incident to any of the matters for which indemnity is
provided in this Section 10.1.
10.2 Rules Regarding Indemnification. The obligations and
liabilities of Purchaser or ADC, as applicable, to indemnify (the "Indemnifying
Party') the Indemnified Parties shall be subject to the following terms and
conditions:
(a) The Indemnified Parties shall give written notice to the
Indemnifying Party of any claim which gives rise to a claim by the Indemnified
Parties against the Indemnifying Party based on the indemnity agreement
contained in Section 10.1 hereof, stating the nature and basis of said claims
and the amounts thereof, to the extent known.
(b) In the event any claims, action, suit or proceeding is
brought against the Indemnified Parties with respect to which the Indemnifying
Party may have liability under the indemnity contained in Section 10.1 hereof
the Indemnified Parties shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from such claim, provided
that the Indemnified Parties 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 the business of the Indemnified Parties or any part
thereof. Failure by the Indemnifying Party to notify the Indemnified Parties of
the Indemnifying Party's election to defend any such claim or action by a third
party within 30 days after notice thereof shall have been given by the
Indemnified Parties, 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
<PAGE> 25
therefrom, including the retention of counsel satisfactory to the Indemnified
Parties, and holding the Indemnified Parties han-riless fi-om 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 Parties nor enter into any settlement (except
with the written consent of the Indemnified Parties) which does not include as
an unconditional term thereof the giving by the claimant or the..Plaintiff to
the Indemnified Parties a release from all liability in respect to such claim or
litigation. If the Indemnifying Party shall not assume the defense of any such
claim by a third party or litigation resulting therefrom, the Indemnified
Parties may defend against such claim or litigation in such manner as they deem
appropriate. The Indemnifying Party shall, in accordance with the provisions
hereof, promptly reimburse th6 Indemnified Parties for the amount of any
settlement reasonably entered into by the Indemnified Parties and for all damage
incurred by the Indemnifying Party in connection with the defense against or
settlement of such claim or litigation.
10.3 Survival. The representations and warranties of ADC and Purchaser
contained in this Agreement, the right of offset set forth in this Agreement,
and the indemnifications contained in this Article shall survive Closing. Any
matter to which an indemnification pertains and with respect to which a claim
has been asserted or threatened following the Closing Date shall continue to be
subject to the indemnifications under this Article until finally terminated,
settled, resolved, or adjudicated; and all terms, conditions and stipulations of
this Article shall likewise continue to apply.
10.4 Notice to ADC: Opportunity to Defend. Purchaser agrees to give
prompt notice to ADC of the assertion of any claim, or the commencement of any
suit, action or proceeding, in respect of which indemnity may be sought under
Section 10.1. ADC may participate in and at its election or, at the request of
Purchaser, assume the defense of any such suit, action or proceeding at ADC's
expense. ADC shall not be Eable under Section 10.1 for any settlement effected
without its consent of any claim, litigation or proceeding in respect of which
indemnity may be sought under Section 10.1, which consent shall not be
unreasonably withheld.
10.5 Notice to Purchaser: OppQrtunity to Defend. ADC agrees to give
prompt notice to Purchaser of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 10.1. Purchaser may participate in and at its election or, at the
request of ADC, assume the defense of any such suit, action or proceeding at
Purchaser's expense. Purchaser shall not be liable under Section 10.1 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder, which consent shall not
be unreasonably withheld.
10.6 Security for Indemnity. ADC hereby agrees that in the event
Purchaser is entitled to indemnification pursuant to the provisions of this
Article X and ADC does not pay to Purchaser the amount due hereunder, then
Purchaser shall be entitled to offset such amount against monies collected by
Purchaser on behalf of ADC pursuant to the Service Agreement or any other monies
due from Purchaser to ADC. Such right of offset shall be exercised in the manner
set forth in Section 1.7 hereof.
<PAGE> 26
10.7 Indemnification Deductible. No party hereto shall be required to
indemnify any other party hereto unless the amount of the loss or claim for
which indemnification is sought, when aggregated with all other losses and
claims for which indemnification is sought by such party, exceeds $5,000, at
which time rights to indemnification for losses and claims may be asserted for
any amounts in excess of $5,000.
ARTICLE XI.
EXPENSES
Except as otherwise provided herein, each of the parties shall pay their
own costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
ARTICLE XII.
COSTS
Should any legal proceeding arising out of this Agreement be instituted
by any party to this Agreement against another party, the party prevailing in
such suit shall be entitled, in addition to such other darnages and relief as
the court shall award, to reimbursement of reasonable attorneys' fees, costs,
expenses and court costs incurred in the prosecution or defense of such suit.
ARTICLE XIII.
TERMINATION
Notwithstanding any of the foregoing provisions, this Agreement may be
terminated at any time prior to the Closing Date:
(a) By mutual written consent of the parties hereto;
(b) By written notice from ProMedCo to ADC if any of the
representations and warranties made by the ADC in this Agreement or in the
Exhibits annexed hereto are reasonably determined by ProMedCo to be untrue or
inaccurate in any material respect;
(c) By written notice from ADC to ProMedCo if any of the
representations and warranties made by ProMedCo in this Agreement are reasonably
determined by the ADC to be untrue or inaccurate in any material respect;
(d) By written notice from ProMedCo to the ADC, or from ADC to
PrWedCo, if this transaction shall not have closed by January 19, 2002,
provided, however, if a party has intentionally frustrated the Closing, then
that party shall not have the authority to terminate this Agreement pursuant to
this Article; or .
(e) By written notice from ProMedCo to ADC, or from ADC to
ProMedCo upon termination of the Interim Service Agreement, provided the Service
Agreement does not then become effective.
<PAGE> 27
ARTICLE XIV.
NOTICES
Any notices hereunder shall be in waiting and shall be deemed to have
been given (i) when received if given in person, (ii) on the date of
acknowledgment of receipt if sent by telex, facsimile or other wire
transmission, (iii) one (1) business day after being sent by overnight delivery
service, or (iv) three (3) days after being deposited in the United States mail,
certified or registered mail, postage prepaid, addressed as follows:
If to ProMedCo: ProMedCo, Inc.
801 Cherry Street, Suite 1050
Fort Worth, TX 76102
Attention: Mr. Dale Edwards
with a copy to: James H. Johnson, Esq.
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200 Dallas,
Texas 75202
If to ADC: Abilene Diagnostic Clinic, P.L.L.C.
1665 Antilley Road, Suite 200
Abilene, Texas 79606
Attention: President
with a copy to: David W. Hilgers, Esq.
Hilgers & Watkins
98 San Jacinto Blvd., Suite 1300
San Jacinto Center
Austin, Texas 78701
or to such other address as the party addressed shall have previously designated
by notice to the serving party, given in accordance with this Article.
ARTICLE XV.
AMENDMENT AND WAIVER
The parties hereto may by mutual agreement amend this Agreement in any
respect. Either party hereto may extend the time for the performance of any of
the obligations of the other, waive any inaccuracies in representations by the
other contained in this Agreement or in any document delivered pursuant hereto,
which inaccuracies would constitute a breach of this Agreement, waive compliance
by the other with any of the covenants contained in this Agreement and
performance of any obligations by the other and waive the fulfillment of any
condition that is precedent to the performance by the party so waiving of any of
its obligations under this Agreement. Any agreement on the part of any party for
any such amendment, extension or waiver must be in writing and signed by the
party agreeing to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
ARTICLE XVI.
EMPLOYEES - EMPLOYEE BENEFITS
<PAGE> 28
16.1 Affected Employees. "Affected Employees" shall mean nonmedical
employees, a Est of which is included in Exhibit 6.14 of ADC on the Effective
Date of the Interim Services Agreement. Effective at 12:01 a.m. Central time as
of the Effective Date of the Interim Services Agreement, all Affected Employees
shall be terminated by ADC and, if they so desire, shall become employees of POA
on terms comparable to those employed by ADC.
16.2 Responsibilities. ADC agrees to use its best efforts to 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
ADC's employee benefit plans brought by, or in respect of, Affected Employees
and former employees of ADC 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 POA
of any such employees after the Closing Date.
<PAGE> 29
16.3 Payroll and Payroll Taxes. ADC agrees to 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 Effective
Date of the Interim Service Agreement. ADC also agrees to issue, by the date
prescribed by IRS Regulations, Forms W-2 for wages paid to the Effective Date of
the Interim Service Agreement. POA shall be responsible for all payroll and
payroll tax obligations accruing on and after the Effective Date of the Interim
Service Agreement for Affected Employees.
16.4 Termination Benefits. ADC 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 ADC prior to the Closing or the purchase by POA of the
Practice Assets of ADC 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 ADC, and ADC shall
indemnify and hold harmless Purchaser for any losses resulting directly or
indirectly from such liability or claim. POA 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 P0A 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 by virtue of any state, federal or local law, such liability or claim
of liability shall be the sole responsibility of POA, and POA shal.1 indemnify
and hold harmless ADC for any losses resulting directly or indirectly from such
liability or claim.
16.5 Employee Benefit Plans. At Closing, Purchaser shall not assume
anyresponsibility under any employee benefit plans maintained by ADC.
ARTICLE XVII.
DEFINITIONS
17.1 Adjustments is as defined in Section 6,20.
17.2 Affected Employees means those employees defined in Section
16.1.
17.3 Effective Date means the later of (a) February 16, 1997 or (b) the
first day of the month following the date of the Initial Public Offering of
ProMedCo.
17.4 Execution Date means the date this Asset Purchase Agreement is signed
by allparties.
17.5 Closing Date means the date all requirements set out in Article II
have been fulfilled.
17.6 Initial Public Offering (IPO) means an underwritten public offering
on a firm commitment basis pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of ProMed.Co (other than a registration on Form S-8
relating solely to the sale of securities to participants in a ProMedCo stock
<PAGE> 30
plan or a registration on Forms S-3 or S-4 or any successor form.
17.7 HCFA means the Health Care Financing Agency of the United States
Government.
17.8 Material Adverse Change means, with respect to ADC, ProMedCo or
POA, any change in the business, results of operations, financial condition or
liabilities thereof as a result of an event or occurrence, including but not
limited to any legislative or regulatory change, revocation of license or rights
to do business or revocation of professional licenses or right to practice
medicine of physician partners or employees of ADC, loss of physicians, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God or other public force that is, or may reasonably be
expected to be, material and adverse to POA and ProMedCo, taken as a whole, or
ADC, as the case may be; provided, however, that as regards the ADC, any
prospective change or changes that result directly or indirectly from any
default of POA or ProMedCo in their roles as described in the Interim Services
Agreement shall not constitute a Material Adverse Change.
17.9 Non-recurring Revenues means revenues that are not in the ordinary
course of business, or revenues that occurred during the period preceding
December 31, 1995 that are not expected to occur in the future, and excluding
any income guarantees to physicians or other recruitment incentives.
ARTICLE XVIII.
MISCELLANEOUS
18.1 Press Release. Except as required by law, ADC 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.
18.2 Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto, their successors and assigns.
18.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any
prior agreements and understandings of the parties in connection therewith.
18.4 Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ANY LITIGATION
BROUGHT WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN A COURT OF COMPETENT
JURISDICTION IN THE STATE OF TEXAS.
18.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
18.6 Headings. The subject headings of the Articles, Sections and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
18.7 Finders. Each party warrants to the other that no finder or broker
has been engaged by it in this transaction and that no finder's or brokerage
fees are due to any person as a result of this Agreement.
<PAGE> 31
18.8 No Third Party Benefit. Except as otherwise expressly provided,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this Agreement or
any provision thereof.
18.9 Materiality. For purposes of this Agreement, any reference to
"material," Of materially," or similar phrase shall mean any material adverse
effect upon the business, financial condition or the results of operations of
the ADC taken as a whole.
18.10 Arbitration. Any controversy or claim arising out-pf 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 Taylor, State of Texas, unless the
parties mutually agree to have such proceedings in sorn6 other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
18.11 Assigment and Delegation. ProMedCo and POA shall have the right
to assign their riahts hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo or POA and to any lending
institution, for security purposes or as collateral, from which ProMedCo or POA
obtains financing for itself and as agent. Except as set forth above, ProMedCo
and POA shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall not have the right to assign its
rights and obligations hereunder without the written consent of ProMedCo. ADC
may not delegate any of ADC's duties hereunder, except as expressly contemplated
herein; however, ProMedCo may delegate some of all of ProMedCo's duties
hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
18.12 Knowledge. Any representation, warranty or covenant qualifiled by
the phrase "to ADC's knowledge," "known" or other similar phrase implying a
limitation on the basis of knowledge is intended to indicate that none of the
present members, officers, or administrators of ADC, or any
<PAGE> 32
of them has information which would give him or her actual knowledge contrary to
the existence or non-existence of such facts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year hereinabove first set forth.
PURCHASER:
PROMEDCO, INC.
By:_______________________
Name:____________________
Title:_____________________
PROMEDCO OF ABILENE, INC.
By:_______________________
Name:____________________
Title:_____________________
ADC:
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
By:________________________
Name:______________________
Title:_______________________
HLTHHOU:6431.8/29270-1
<PAGE> 33
LIST OF EXHIBITS
1.1 Practice Assets
1.1.1 Excluded Assets
1.3 Liabilities Assumed
1.5 Form of Service Agreement
2.1 List of Physicians
2.2 Execution Date Summary Aging Report
2.3 Form of Stockholders Agreement
4. 1 (a) Form of Bill of Sale
4. 1 (d) Member Assurance Agreement
4.2(b) Form of Assumption Agreement
4.3(e) Form of Opinion of ADC's Counsel
4.4(g) Form of Opinion of Purchaser's Counsel
5.1 Employment Agreements
6.2 Material Contracts
6.3(a) Insurance - Property, Fire, Liability, Etc.
6.3(b) Insurance - Malpractice Policies
6.3(c) Insurance Coverage Denied and Malpractice Claims
6.5 Contracts of Sale, Security Interests, Etc.
6.7 Permits and Licenses
6.8 Third Party Consent--ADC
6.9 Tax Matters
6.10 List of Employee Benefit Plans
6.12 Property and Adverse Claims
6.13 Compliance with Applicable Laws
6.14 Employees; Employee Compensation
6.24 Liabilities
6.26 Membership Interest
<PAGE> 34
6.27 Financial Statements
7.5 ProMedCo's Financial Statements
7.7 Stock Option Recipients
<PAGE> 1
EXHIBIT 2.2
- --------------------------------------------------------------------------------
AGREEMENT FOR STATUTORY MERGER
- --------------------------------------------------------------------------------
PROMEDCO, INC.
PROMEDCO OF NORTHERN NEVADA, INC.
AND
WESTERN MEDICAL MANAGEMENT CORPORATION, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOVEMBER 7, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
DRAMATIS PERSONAE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Player Office Address Home Address
- -----------------------------------------------------------------------------------------------------------------------------
ProMedCo, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Pager: 1-800-759-7243
Pin #5733551
- -----------------------------------------------------------------------------------------------------------------------------
ProMedCo Counsel
- -----------------------------------------------------------------------------------------------------------------------------
John E. Gillmor Boult, Cummings, Conners & Berry (Gillmor) 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]
- -----------------------------------------------------------------------------------------------------------------------------
WMM/TMG
- -----------------------------------------------------------------------------------------------------------------------------
John P. ("Pat") Billingsley Western Medical Management
CEO Corporation, Inc.
702-686-4846 75 Pringle Way
Fax 702-688-5626 Suite 712
Reno, NV 89502
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
- --------------------------------------------------------------------------------
WMM/TMG Counsel
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Kenneth W. Johnson Stoel Rives, LLP
206-386-7629 600 University Street
Fax 206-386-7500 Suite 3600
Seattle, WA 98101-3197
Barbara L. Nay Stoel Rives, LLP
503-224-3380 900 SW 5th Ave.
Fax 503-220-2480 Suite 2300
Portland, OR 97205
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Balance of the ProMedCo Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Clinic Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Definitive Closing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Escrow Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Escrow Break Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exhibit Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Final Closing Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Hypothetical ProMedCo Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Inducement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Initial Portion of the ProMedCo Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Professional Medical Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ProMedCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ProMedCo IPO Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ProMedCo IPO Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ProMedCo-Northern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ProMedCo-Northern Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ProMedCo Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shareholder Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TMG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
WMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
WMM Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 5
-ii-
<TABLE>
<S> <C> <C>
ARTICLE 2. MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Merger of WMM into ProMedCo-Northern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Exchange of Shares for Cash and/or Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Rights of WMM's Stockholders Pending and Upon Surrender of Certificates. . . . . . . . . . . . . . . . . 5
2.4 Exchange Formula. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Escrow Closing; Closing; Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Dissenting Stockholders of WMM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Nature of Transaction; Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Transactions and Deliveries at the Escrow Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Consideration Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF WMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Organization, Corporate Power and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Capitalization of WMM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Subsidiaries, Affiliates, Affiliated Companies and Joint Venture. . . . . . . . . . . . . . . . . . . . 12
3.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Absence of Certain Recent Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.9 Burdensome Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Absence of Related Party Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.12 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.13 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.14 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.15 Permits and Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Court Orders, Decrees and Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Immigration Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.20 Program Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.21 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.22 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.23 Pension, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.24 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.25 Insurance and Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.26 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.27 Healthcare Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.28 Facility Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.29 Improper Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.30 Books of Account; Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.31 No Finders or Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.32 Stockholder Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.33 Review of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.34 Authority; Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.35 Consents and Approvals of Governmental Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.36 No Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.37 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND PROMEDCO-NORTHERN . . . . . . . . . . . . . . . . . . . . . 24
4.1 Organization and Standing of ProMedCo and ProMedCo-Northern. . . . . . . . . . . . . . . . . . . . . . 24
4.2 Capitalization of ProMedCo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.3 ProMedCo Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.4 Authority; Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.5 No Finders or Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.6 Consents and Approvals of Governmental Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.7 Pending Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.8 Compliance with other Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-NORTHERN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Best Efforts to Secure Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Handling of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 Non-Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6 COVENANTS OF WMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Access and Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Best Efforts to Secure Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 Unusual Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Interim Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Departmental Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.8 Insurance Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 Maintain Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 Exclusive Dealings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1 Representations and Warranties True. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4 No Obstructive Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 Delivery of Certain Certified Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 No Agency Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7 Closing Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Proceedings and Documents Satisfactory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PROMEDCO AND PROMEDCO-NORTHERN . . . . . . . . . . . . . . . . 32
8.1 Representations and Warranties True. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 No Obstructive Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 Opinion of WMM Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.4 Dissenters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.5 Service Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.6 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.7 Pooling Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Stockholder Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.9 Inducement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.11 Proceedings and Documents Satisfactory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.12 No Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.13 Delivery of Certain Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Closing Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Optional Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2 Notice of Abandonment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Indemnification by Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Indemnification by ProMedCo and ProMedCo-Northern. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Representation, Cooperation and Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.4 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Restrictions and Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.6 Shareholder Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.4 Alternative Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.6 Legal Fees and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.7 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.8 Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.10 Nature and Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.11 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.12 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.13 Binding on Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.14 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.15 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.16 Drafting Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.17 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.18 Reproduction of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.19 Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
APPENDIX 2.9A FORM OF SERVICE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
APPENDIX 2.9B-1 FORMS OF EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
APPENDIX 2.9B-2 LIST OF PROVIDERS' GROSS INCOMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
APPENDIX 2.9C FORM OF INTERIM SERVICE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
APPENDIX 2.9D FORM OF INTERIM MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
APPENDIX 2.9E FORM OF CREDIT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
APPENDIX 2.9F FORM OF ESCROW SERVICE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
APPENDIX 7.2 OPINION OF COUNSEL TO PROMEDCO-NORTHERN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
APPENDIX 8.3 OPINION OF COUNSEL TO WMM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
APPENDIX 8.8 FORM OF STOCKHOLDER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
APPENDIX 8.9 FORM OF INDUCEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
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AGREEMENT FOR STATUTORY MERGER
AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), dated as of
November 7, 1996, among ProMedCo, Inc., a Texas corporation ("ProMedCo"),
ProMedCo of Northern Nevada, Inc., a Nevada corporation and a wholly-owned
subsidiary of ProMedCo ("ProMedCo-Northern") and Western Medical Management
Corporation, Inc., a Nevada corporation ("WMM").
RECITAL:
WMM provides medical practice facilities, non-medical personnel and
medical practice management and administrative services to Knutzen Goring
Medical Group, Ltd., a Nevada corporation dba Northern Nevada Medical Group
("TMG") which in turn operates a multi-specialty medical practice in Reno,
Nevada and other communities in northern Nevada. ProMedCo, through its
subsidiaries, including ProMedCo-Northern, is engaged in the business of
providing medical practice facilities, nonmedical personnel and medical
practice management and administrative services.
WMM desires to merge with ProMedCo-Northern in exchange for voting
shares of Common Stock ProMedCo in a transaction intended to qualify as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code.
ProMedCo is in the process of attempting to make an initial public offering of
its common stock, and in connection therewith intends to reincorporate as a
Delaware corporation named Professional Medical Management Company by merging
with a subsidiary having that name. If that reincorporation occurs prior to
the Effective Date of the merger contemplated hereby, all references to
ProMedCo hereunder will be deemed to be references to Professional Medical
Management Company.
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 Person which controls, is controlled by,
or is under common control with such Person.
"BALANCE OF THE PROMEDCO SHARES" is defined in Section 2.4.
"CONSIDERATION" means $_______ as adjusted pursuant to Section 2.10.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, 26 U.S.C. Section 162 et seq.
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"CLINIC FACILITY" means the clinic facilities located at 75 Pringle Way, Reno,
NV 89502 (Suites 301,302, 303, 801, 803 and 804); 2005 Sierra
Highlands Suite 101, Reno, NV 89523; 236 W. Sixth St., Suite 201,
Reno, NV 89503; 343 Elm Street, (Suites 407 and 407), Reno, NV 89503;
730 Willow Avenue, Reno, NV 89502; and Incline Medical 889 Alder,
Suite 201, Incline Village, NV 89451.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CPA FIRM" is defined in Section 2.10(a).
"CREDIT AGREEMENT" is defined in Section 2.9(e).
"DEFINITIVE CLOSING STATEMENTS" is defined in Section 2.10(a).
"EFFECTIVE DATE" is defined in Section 2.6.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ESCROW AGREEMENT" means the Escrow Agreement to be dated the Escrow Closing
Date among WMM, ProMedCo-Northern and the Escrow Agent in the form
attached hereto as Appendix 2.9F.
"ESCROW AGENT" means John E. Gillmor.
"ESCROW CLOSING" and "ESCROW CLOSING DATE" are defined in Section 2.6.
"ESCROW BREAK DATE" is defined in the Escrow Agreement
"EXHIBIT VOLUME" means the volume of Exhibits referred to in this Agreement
prepared and delivered by WMM.
"FINAL CLOSING STATEMENT" is defined in Section 2.10 (a).
"GAAP" means generally accepted accounting principles.
"HYPOTHETICAL PROMEDCO STOCK PRICE" means the hypothetical price per share
ProMedCo stock would have been worth on October 9, 1996 as a publicly
traded company on NASDAQ as determined by an investment banker
mutually acceptable to ProMedCo and WMM and
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assuming the merger contemplated hereby and a similar transaction with
King's Daughters Clinics had been consummated by ProMedCo as of that
date.
"INDUCEMENT AGREEMENT" is defined in Section 8.9.
"INITIAL PORTION OF THE PROMEDCO SHARES" is defined in Section 2.4.
"INTERIM MANAGEMENT AGREEMENT" is defined in Section 2.9(d).
"INTERIM SERVICE AGREEMENT" is defined in Section 2.9(c).
"INVENTORY" means the inventory of WMM.
"IRS" means the Internal Revenue Service.
"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.
"PROFESSIONAL MEDICAL MANAGEMENT COMPANY" means Professional Medical Management
Company, a Delaware corporation, with which ProMedCo intends to merge
in connection with its initial public offering.
"PROMEDCO" means ProMedCo, Inc., a Texas corporation which is the sole
shareholder of ProMedCo-Northern; if ProMedCo merges with Professional
Medical Management Company prior to the Effective Date, "ProMedCo"
shall mean Professional Medical Management Company.
"PROMEDCO IPO DATE" means the date on which ProMedCo first sells stock to the
public pursuant to its initial public offering.
"PROMEDCO IPO PRICE" means the price per share at which ProMedCo offers
ProMedCo Stock to the public at its initial public offering.
"PROMEDCO-NORTHERN" means ProMedCo of Northern Nevada, Inc., a Nevada
corporation.
<PAGE> 12
-4-
"PROMEDCO-NORTHERN DISTRIBUTION" shall have the meaning ascribed thereto in the
Service Agreement.
"PROMEDCO STOCK" is defined in Section 2.3; if the ProMedCo merger with
Professional Medical Management Company occurs prior to the Effective
Date, "ProMedCo Stock shall mean the Common Stock, with a par value
$.01 per share of Professional Medical Management Company.
"SERVICE AGREEMENT" means the undated Services Agreement between
ProMedCo-Northern and TMG in the form attached hereto as Appendix
2.9A.
"SHAREHOLDERS" mean the following individuals who are shareholders of WMM:
Victor K. Knutzen, M.D., Catherine Goring, M.D., Craig Klose, M.D.,
Ricardo Garcia, M.D., Terrence McGaw, M.D., Brad Graves, M.D., John P.
Billingsley, Lester Ho, M.D., Michael E. Gallagher, and Elaine
Gajewski.
"SHAREHOLDER REPRESENTATIVE" is defined in Section 10.6.
"TMG" means Knutzen Goring Medical Group, Ltd., a Nevada corporation dba The
Northern Nevada Medical Group.
"WMM" means Western Medical Management Corporation, Inc., a Nevada corporation.
"WMM FINANCIAL STATEMENTS" is defined in Section 3.4.
ARTICLE 2. MERGER
2.1 MERGER OF WMM INTO PROMEDCO-NORTHERN. WMM shall be merged with
and into ProMedCo-Northern on the Effective Date in accordance with the
applicable laws of the States of Nevada and Delaware as provided in a Plan of
Merger to be set forth in the Articles of Merger which shall be prepared by
ProMedCo's counsel and agreed to by WMM's Counsel, certain provisions of which
shall be as follows:
(a) SURVIVING CORPORATION. ProMedCo-Northern shall be the
surviving corporation (the "Surviving Corporation") from and
after the Effective Date, and the name of the Surviving
Corporation shall be ProMedCo of Northern Nevada, Inc." On the
Effective Date, the separate existence of WMM shall cease, and
the Surviving Corporation shall without other transfer succeed
to all the rights and property, subject to all debts
<PAGE> 13
-5-
and liabilities, of WMM and ProMedCo-Northern in the same
manner as if the Surviving Corporation itself had incurred
them.
(b) ARTICLES OF INCORPORATION. From and after the Effective Date,
the Articles of Incorporation of ProMedCo-Northern shall be
the Articles of Incorporation of the Surviving Corporation.
(c) BY-LAWS. From and after the Effective Date, the by-laws of
ProMedCo-Northern as they exist on the date hereof shall be
the by-laws of the Surviving Corporation.
(d) DIRECTORS AND OFFICERS. The directors and officers of
ProMedCo-Northern immediately prior to the Effective Date
shall be the officers and directors, respectively, of the
Surviving Corporation, to serve, in both cases, until their
successors shall have been elected and shall qualify or until
otherwise provided by law and the Articles of Incorporation
and by-laws of the Surviving Corporation.
2.2 EXCHANGE OF SHARES FOR CASH AND/OR SECURITIES. The manner and
basis of exchanging and converting the shares of common stock of the
ProMedCo-Northern and WMM on the Effective Date shall be as follows:
(a) COMMON STOCK OF PROMEDCO. By virtue of the Merger and without
any action of the holder thereof each share of common stock of
ProMedCo-Northern outstanding on the Effective Date shall
remain outstanding and unchanged as a share of the common
stock of the Surviving Corporation.
(b) COMMON STOCK OF WMM. By virtue of the merger and without
any action of the holders thereof each share of no par value
Series A Preferred Stock of WMM ("WMM Preferred Stock") and
each share common stock of WMM ("WMM Common Stock")
outstanding at the Effective Date shall be deemed canceled and
reclassified into the number of shares of the no par value
common shares of ProMedCo ("ProMedCo Common Stock") determined
in accordance with the formula set forth in Section 2.4
hereof, except that any share of WMM Common Stock then owned
by WMM shall be canceled. The Surviving Corporation shall not
deliver any fraction of a share of ProMedCo Common Stock in
exchange for WMM Common Stock but will deliver a whole number
of shares of ProMedCo Common Stock rounded up to the next
whole number.
2.3 RIGHTS OF WMM'S STOCKHOLDERS PENDING AND UPON SURRENDER OF
CERTIFICATES. From and after the Effective Date, except as provided in the
Nevada Business Corporation Act with
<PAGE> 14
-6-
respect to rights of dissenting stockholders, each holder of a certificate
representing shares of WMM Common Stock shall be entitled, upon surrender
thereof to the Surviving Corporation, to receive in exchange therefor the
consideration to which such holder would otherwise be entitled on the basis
provided for in Section 2.4 of this Agreement.
2.4 EXCHANGE FORMULA. The WMM Preferred Stock and Common Stock shall
be converted in to the number of shares of ProMedCo Stock resulting from
application of the following formulas:
(a) WMM PREFERRED STOCK:
Y = Pref/Price
(b) COMMON STOCK
Z = [Shares-(Y x PS)]/WMMS
where
Pref = $5.00 (the WMM Preferred Stock Liquidation Preference).
PS = 8,500 (the number of shares of WMM Preferred Stock per
Section 3.2)
Z = the number of shares of ProMedCo Stock to be exchanged for
each share of WMM Common Stock;
Shares = Consideration/Price;
Consideration has the meaning set forth in Article 1;
Price = ProMedCo IPO Price if the ProMedCo IPO Date occurs on or
prior to January 31, 1997 or if not, the Hypothetical
ProMedCo Stock Price.
WMMS = 11,577 (number of share of WMM Common Stock shares outstanding
per Section 3.2)(1)
- --------------------
(1) Thus if Price = $14.00 and Consideration = $4,000,000, ProMedCo
would issue 0.3571 of a share of its Common Stock for each share of WMM
Preferred stock as follows:
Y =Pref/Price
Y = $5.00/$14.00 = 0.3571
and 24.417 shares of its Common Stock for each share of WMM Common Stock as
follows:
Shares = Consideration/Price = $4,000,000/$14.00 = 285,714
Z = (Shares-(Y x PS))/WMMS = (285,714-(0.3571 x 8,500))/11,577 = 24.417
<TABLE>
<CAPTION>
ProMedCo
Shares
--------
<S> <C> <C>
Recap: Total Preferred Shares = 8,500 x 0.3571 = 3,035
Total Common Shares = 24.417 x 11,577 = 282,676
-------
Total ProMedCo Shares 285,710
=======
</TABLE>
<PAGE> 15
-7-
Immediately after the Effective Date, ProMedCo will issue the number of shares
of ProMedCo Stock representing 90% of the number of shares into which the WMM
Common Stock is to be converted (the "Initial Portion of the ProMedCo Shares")
to the WMM Shareholders and on the first anniversary of the Effective Date,
ProMedCo shall issue the remaining 10% of the number of shares into which the
WMM Common Stock is to be converted (the "Balance of the ProMedCo Shares"),
net of all adjustments pursuant to this Agreement, shall be issued to the
former WMM Shareholders.
2.5 LEGEND. The certificates representing ProMedCo Stock issued to
WMM 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 SECURITIES ACT."
2.6 ESCROW CLOSING; CLOSING; EFFECTIVE DATE. The deliveries
described in Section 2.9 (the "Escrow Closing") shall take place on November
7, 1996 (the "Escrow Closing Date"), at the offices
<PAGE> 16
-8-
of WMM or such other site as may be designated by WMM and ProMedCo-Northern,
and WMM and ProMedCo-Northern shall enter into the Escrow Agreement with the
Escrow Agent on the Escrow Closing Date. In case the Escrow Closing does not
take place on November 7, 1996, the Escrow Closing Date shall be set by mutual
agreement between ProMedCo-Northern and WMM; provided, however, that in no
event shall the Escrow Closing take place later than November 12, 1996 unless
extended by ProMedCo-Northern. The closing of merger and the legal consummation
of other transactions contemplated hereby shall take place on the Escrow Break
Date, as such term is defined in the Escrow Agreement. Upon receipt of the
Articles of Merger from the Escrow Agent, ProMedCo-Northern shall cause the
Articles of Merger to be filed with the appropriate offices in Nevada and the
stock then held by the Escrow Agent shall be distributed to the former WMM
Shareholders. The date on which the Articles of Merger are filed with the
Secretary of State of Nevada shall be the "Effective Date" hereunder. If, as a
result of the adjustment provisions of Section 2.10 the former WMM
Shareholders are entitled to more or fewer shares than they receive pursuant to
the previous sentence of this Section 2.6, ProMedCo-Northern shall cause the
issuance of such additional shares or obtain them from the former WMM
shareholders, as the case may be.
2.7 DISSENTING STOCKHOLDERS OF WMM. Each stockholder of WMM, if any,
who becomes entitled, pursuant to Section 92A.300 of the Nevada Revised
Statues, to payment of the fair value of his WMM Common Stock (a "Dissenting
Stockholder") shall receive payment therefor from the Surviving Corporation but
only after the value thereof shall have been agreed upon or finally determined
pursuant to such provisions. WMM shall not, except with the prior written
consent of ProMedCo, voluntarily make any payment with respect to or settle or
offer to settle any demand for such payment. Shares of WMM Common Stock
acquired by WMM or the Surviving Corporation from Dissenting Stockholders shall
be canceled.
2.8 NATURE OF TRANSACTION; FURTHER ASSURANCES. The parties intend
that the transactions contemplated hereby shall constitute a tax free
reorganization pursuant to Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended, (the "Code") and shall use their best efforts to avoid any
actions not contemplated hereby which are inconsistent with such intention.
ProMedCo, ProMedCo-Northern and WMM, respectively, shall take all such action
as may be necessary or appropriate to effectuate the transactions contemplated
hereby.
2.9 TRANSACTIONS AND DELIVERIES AT THE ESCROW CLOSING. The following
additional transactions shall occur at the Escrow Closing:
(a) TMG and ProMedCo-Northern shall enter into an undated Service
Agreement in the form attached hereto as Appendix 2.9A which
shall be guaranteed by ProMedCo.
<PAGE> 17
-9-
(b) TMG shall enter into employment agreements in the form
attached as Appendix 2.9B-1 hereto (the "Provider Employment
Agreements") with each of its Providers, as such term is
defined in the Service Agreement; provided however, Providers,
as a group, representing an aggregate annualized gross income
of less than $375,000 as set forth in Appendix 2.9B-2 need not
enter into such employment agreements.
(c) WMM and TMG shall enter into an Interim Service Agreement in
the form attached hereto as Appendix 2.9C.
(d) ProMedCo-Northern and WMM shall enter into an Interim
Management Agreement in the form attached hereto as Appendix
2.9D.
(e) ProMedCo-Northern and WMM shall enter into a Credit Agreement
in the form attached hereto as Appendix 2.9E and WMM shall
execute and deliver to ProMedCo-Northern the UCC-1 financing
statement contemplated thereby.
(f) ProMedCo-Northern, WMM and the Escrow Agent shall enter into
the Escrow Agreement in the form attached hereto as Appendix
2.9F.
(g) WMM shall deliver the "WMM Instruments" as such term is
defined in the Escrow Agreement.
(h) ProMedCo-Northern shall deliver the remainder of the "ProMedCo
Deliveries", as such term is defined in the Escrow Agreement.
(i) TMG and ProMedCo-Northern shall enter into the Inducement
Agreement in the form attached hereto as Appendix 8.9.
2.10 CONSIDERATION ADJUSTMENTS
(a) DEFINITIVE CLOSING STATEMENTS. Within 120 days after the
Escrow Closing or by such time as is reasonable under the
circumstances, ProMedCo-Northern shall prepare and deliver to
the Shareholders and the Shareholder Representative a final
balance sheet of WMM as of the Escrow Closing Date ("Final
Closing Statement"). ProMedCo-Northern covenants that the
Final Closing Statement shall be true, complete and accurate
and will present fairly the assets and liabilities of WMM as
at the Escrow Closing Date, calculated in a manner consistent
with the WMM Financial Statements (as defined in Section
3.4), and the requirements of this Agreement. The Shareholders
and the Shareholder Representative and their representatives
shall be
<PAGE> 18
-10-
provided access to the books and records of ProMedCo-Northern
as necessary to verify the accuracy of such calculations. If
within 30 business days of receipt of the Final Closing
Statement, the Shareholder Representative fails to deliver to
ProMedCo-Northern 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 the Shareholder
Representative 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
mutually acceptable to ProMedCo-Northern and the Shareholder
Representative (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 WMM 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 ProMedCo, ProMedCo- Northern and the Shareholders.
If the total amount payable by ProMedCo-Northern pursuant to
clause (b) below increases from that shown on the Final
Closing Statement, ProMedCo-Northern shall pay the fees and
expenses of the CPA Firm, otherwise such fees and expenses
shall be borne by the Shareholders.
(b) BALANCE SHEET ADJUSTMENT. To the extent that the Definitive
Closing Statement shows assets at Escrow Closing net of
liabilities to be different from the same assets net of the
same liabilities on the WMM Financial Statements as of
September 30, 1996 (excluding the effects of any adjustments
related to the receivable from TMG), and as adjusted in
accordance with GAAP, the Consideration shall be increased or
reduced, as the case may be, on a dollar for dollar basis.
(c) DISTRIBUTION FUNDS ADJUSTMENTS. If Distribution Funds for the
annualized eight months ended August 31, 1996 (based on the
assumption that the Service Agreement had been in place during
such period) are more or less than $4,977,180 ("Targeted
Distribution Funds") the Consideration shall be increased, or
decreased, as the case may be, on the basis of $1.10 for each
$1.00 of excess or deficiency in the Targeted Distribution
Funds.
(d) PROVIDER DEFICIENCY ADJUSTMENT. To the extent that Providers
listed in Appendix 2.9B-3 representing in excess of $375,000
of annualized gross revenues (such excess if referred to
herein as the "Gross Revenue short Fall") fail to execute
Shareholder
<PAGE> 19
-11-
Physician Employment Agreements and/or Non-Shareholder
Employment Agreements as contemplated by Sections 2.9(b) and
(c) hereof, the Consideration shall be reduced at the rate of
$0.43 for each $1.00 of the Gross Revenue Short Fall.
Any reduction in the Consideration resulting from this Section 2.10 shall be
accomplished by first reducing the Balance of the ProMedCo Shares and if such
reductions exhaust the Balance of the ProMedCo Shares, then the Shareholder
shall return within 10 days after a demand therefor by ProMedCo-Northern,
sufficient additional shares of ProMedCo Stock from the Initial Portion of the
ProMedCo Shares to fully satisfy the reduction in Consideration.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF WMM
WMM hereby represents and warrants to ProMedCo and ProMedCo-Northern as
follows:
3.1 ORGANIZATION, CORPORATE POWER AND QUALIFICATION. WMM is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada 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. WMM is not qualified to do business in any other
jurisdiction, and owns or leases no assets and has no employees regularly
providing services in any other states or other jurisdiction. No jurisdiction
where WMM 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 WMM certified by the Secretary of State of Nevada and a copy of its
by-laws, as amended to the date hereof (both certified by the Secretary of
WMM), are included as Exhibit 3.1 of the Exhibit Volume and are true, accurate
and complete as of the date hereof. WMM is not currently in default under or
in violation of any provision of its Articles of Incorporation or bylaws.
3.2 CAPITALIZATION OF WMM. The authorized capital stock of WMM
consists of 25,000 shares Series A Preferred Stock without par value common
stock, of which as of the date hereof, 8,500 shares have been duly authorized
by all necessary corporate action on the part of WMM , are validly issued and
outstanding, fully paid and non-assessable, 25,000 shares of Class A Voting
Common Stock without par value of which 11,577 shares have been duly authorized
by all necessary corporate action on the part of WMM , are validly issued and
outstanding, fully paid and non-assessable, and 25,000 shares of Class B
Non-voting Common Stock, without par value, none of which are outstanding. No
assessments have been made with respect to such stock which have not been fully
satisfied. There are no other authorized or outstanding or authorized equity
securities of WMM of any class, kind or character, and there are no outstanding
rights, contracts, rights to
<PAGE> 20
-12-
subscribe, conversion rights, exchange rights, warrants, options, calls puts or
other agreements or commitments of any character relating to the capital stock
of WMM or any securities convertible or exchangeable or exercisable for any
shares of stock of any class of capital stock of WMM. Except for the
transactions contemplated by this Agreement, there are not any agreements or
understandings among WMM's stockholders with respect to the voting of shares of
the WMM Stock on any matter. No shares of the capital stock of WMM are
reserved for any purpose; there are no preemptive or similar rights with
respect to the issuance, sale or other transfer (whether present, past or
future) of the capital stock of WMM and there are no agreements or other
obligations (contingent or otherwise) which may require WMM to issue,
repurchase or otherwise acquire any shares of its capital stock or any other
securities. There are no outstanding or authorized stock appreciation/phantom
stock or similar rights with respect to WMM. There are no voting trusts,
proxies, or any other agreements or understandings with respect to the voting
stock of WMM There are no accrued, but unpaid dividends on the Series A
Preferred Stock..
3.3 SUBSIDIARIES, AFFILIATES, AFFILIATED COMPANIES AND JOINT VENTURE.
WMM 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 WMM: (i) balance sheet of WMM at December 31, 1995
and the related statement of operations, stockholders' equity and cash flow for
the three years then ended, together with the audit opinion report thereon of
Arthur Andersen & Company, LLP, certified public accountants and (ii)
unaudited balance sheet of WMM at September 30, 1996 and the related statement
of operation for the nine months then ended (such financial statements and the
related notes being herein called "WMM Financial Statements").
The WMM Financial Statements are true, complete and accurate, have
been based upon the information contained in the books and records of WMM and
present fairly the assets, liabilities and financial condition of WMM as of the
dates thereof and the results of its operations for the periods then ended,
prepared in conformity with generally accepted accounting principles, it being
understood that the unaudited portions thereof are subject to normal
adjustments which might arise for audits of its current year, and are without
financial notes. The WMM 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 WMM Financial Statements and except for
commitments and obligations incurred in the ordinary course of business
accruing after September 30, 1996, WMM as of September 30, 1996, had, or will
have at the Escrow Closing Date, no liabilities, claims or obligations (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not known
to WMM or any directors,
<PAGE> 21
-13-
officers or employees of WMM, whether due to become payable and regardless of
when or by whom asserted) of a nature customarily reflected on a corporate
balance sheet prepared in accordance with generally accepted accounting
principles as applied on a basis consistent with prior periods..
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 September 30, 1996, and
through the Escrow Closing Date, WMM 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 liabilities
(whether accrued, absolute, contingent or otherwise),
guaranteed any indebtedness 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 WMM, or the loss of or other
termination of a business relationship with any material
customers or suppliers of WMM'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 individually
or in the aggregate has or might reasonably have a material
adverse effect on WMM, it being understood that WMM has
operated at a loss;
(g) experienced any labor organizational efforts, strikes or
complaints other than grievance procedures in the ordinary
course of business or entered into any collective bargaining
agreements with any union;
<PAGE> 22
-14-
(h) made any single capital expenditure which exceeded $5,000 or
made aggregate capital expenditures which exceeded $10,000;
(i) except with respect to liens or encumbrances arising by
operation of law, permitted or allowed any of the assets of
WMM to be subjected to any pledge, lien, security interest,
encumbrance, restriction or charge of any kind;
(j) written down the value of any of the assets of WMM, 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;
(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 agreement or
arrangement with, any stockholder of WMM or any of the
officers or directors of WMM or of any "Affiliate" of any of
its officers or directors, except for reimbursement of
ordinary and reasonable business expenses related to the
business of WMM and compensation to officers at rates not
exceeding the rates of compensation at September 30, 1996;
(n) amended, terminated or otherwise altered (whether by action or
inaction) any contract, agreement or license of significant
value to which WMM 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 Section 3.6.
3.7 TITLE TO ASSETS. The assets of WMM consisting of owned personal
property are subject to no liens or encumbrances except the security interests
of record set forth on Exhibit 3.7 of the
<PAGE> 23
-15-
Exhibit Volume, which Exhibit is a copy of a Uniform Commercial Code ("UCC")
search as of a recent date duly obtained by WMM and which search shows security
interests of record relating to such assets in every place where such security
interests are properly filed and includes copies of all such financing
statements.
3.8 CONTRACTS. Exhibit 3.8 of the Exhibit Volume lists each
contract, lease, agreement and other instrument to which WMM is a party or is
bound which involves an unperformed commitment or obligation (contingent or
otherwise) within the next 12 months of more than $10,000. 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 transactions contemplated hereby.
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), WMM 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) covenant not to compete binding on WMM;
(d) lease or similar agreement under which WMM is a lessor or
sublessor of any material real property owned or leased by WMM
or any portion of premises otherwise occupied by WMM;
(e) (i) lease or similar agreement under which (A) WMM is lessee
of, or holds or uses, any machinery, equipment, vehicle or
other tangible personal property owned by a third party or
(B)WMM is a lessee or sublessee 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 within the next 12 months in excess of $10,000, and
which is not terminable by WMM for a cost of less than
$10,000;
<PAGE> 24
-16-
(f) license or other agreement relating in whole or in part to,
trademarks (including, but not limited to, any license or
other agreement under which WMM has the right to use any of
the same owned or held by a third party);
(g) agreement or contract under which WMM 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 WMM in the ordinary course
of business);
(h) mortgage, pledge, security agreement, deed of trust or other
document granting a lien against the assets of WMM (including
liens upon properties acquired under conditional sales,
capital leases or other title retention or security devices
but excluding operating leases);
(i) other agreement, contract, lease, license, commitment or
instrument to which WMM is a party or by or to which WMM or
any of it assets or businesses are bound or subject, which has
an aggregate future liability within the next 12 months in
excess of $10,000 and is not terminable by WMM for a cost of
less than $10,000; or
(j) 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, WMM is not a party to, nor are any of its 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 materially adversely affects the operations, earnings, assets,
properties, liabilities, business or prospects of WMM or its condition,
financial or otherwise.
3.10 ABSENCE OF RELATED PARTY TRANSACTIONS. Except as disclosed on
Exhibit 3.10, neither WMM, nor any officer, director or Affiliate of WMM, has
any material direct or indirect financial or economic interest in any
competitor or supplier of WMM. WMM 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 WMM's service
business) or the furnishing of its services (except as employees of the WMM),
to any Affiliate of WMM, including (without limitation) any family member of a
shareholder of WMM; and WMM has not directly or indirectly
<PAGE> 25
-17-
entered into any agreement or commitment which could result in WMM's 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 or as
reflected in the WMM Financial Statements, there are no debts owing to WMM by,
or any contractual agreements or understandings between WMM and, any
shareholder, director or officer of WMM, any member of their respective
families, or any Affiliate of any of the foregoing individuals, and none of the
foregoing individuals or any Affiliate of them owns any property or rights,
tangible or intangible (other than an equitable interest), used in or related
to WMM's business. WMM is not indebted to any shareholder, officer, director
or employee of WMM, or to any member of their respective families, or to any
Affiliate of any of the foregoing individuals, in any amount whatsoever, other
than for payment of salaries and compensation for services actually rendered to
WMM in the ordinary course of their businesses.
3.11 DEFAULTS. Except as disclosed in Exhibit 3.11, WMM 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 WMM is a party
or by which WMM may be bound or under any provision of the Articles of
Incorporation or by-laws of WMM. Except as disclosed on Exhibit 3.11, 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 WMM, 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 WMM or any contract, commitment, indenture, lease, instrument or
other agreement, or any other restriction of any kind to which WMM 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 WMM 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 WMM 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 latest balance sheet
included in the WMM Financial Statements to net realizable market value or for
which adequate reserves have been provided in the latest balance sheet included
in the WMM Financial Statements. The present quantity of the Inventory of WMM
is reasonable and warranted in the present circumstances of the business
conducted by WMM. The only transactions related thereto since September 30,
1996 have been additions or sales in the ordinary course of business.
3.13 EQUIPMENT. All assets of WMM consisting of equipment are well
maintained and in good operating condition, except for reasonable wear and tear
and except for items which have been
<PAGE> 26
-18-
written down in the WMM Financial Statements to a realizable market value or
for which adequate reserves have been provided in the WMM Financial Statements.
The present quantity of all such equipment of WMM is reasonable and warranted
in the present course of the business conducted by WMM. The only transactions
related thereto since September 30, 1996, have been additions thereto in the
ordinary course of business or as disclosed in Exhibit 3.6.
3.14 RECEIVABLES. All notes and accounts receivable of WMM shown on
the latest balance sheet contained in the WMM Financial Statements and all
those arising since the date of such balance sheet have arisen in the ordinary
course of business and have been or are collectible in the ordinary course of
business in the book amounts thereof after provision for losses consistent with
WMM's historical practices.
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 WMM together
with the designation of the respective expiration dates of each, and also
listing and briefly describing each association in which WMM is a member and
each association or governmental authority by which WMM is accredited or
otherwise recognized. WMM 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, the failure of which to obtain will have a material
adverse effect on the operations and business of WMM.
3.16 LITIGATION, ETC. Except as set forth in Exhibit 3.16 of the
Exhibit Volume: (i) there is no litigation, arbitration, governmental claim,
investigation or proceeding pending or to the knowledge of WMM, threatened
against WMM at law or in equity, before any court, arbitration tribunal or
governmental agency; (ii) there are no facts based on which material claims may
be hereafter made against WMM; and (iii) all claims and litigations against WMM
are fully covered by insurance.
3.17 COURT ORDERS, DECREES AND LAWS. There is not outstanding or
threatened any order, writ, injunction or decree of any court, governmental
agency or arbitration tribunal against or affecting WMM or its assets. WMM is
in compliance in all material respects with all applicable federal, state and
local laws, regulations and administrative orders which are material to the
business of WMM and WMM has received no notices of alleged violations thereof.
To the best knowledge of WMM, no governmental authorities are presently
conducting proceedings against WMM and no such investigation or proceeding is
pending or being threatened.
<PAGE> 27
-19-
3.18 TAXES. All federal, state and other tax returns of WMM required
by law to be filed have been timely filed, and WMM 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 WMM 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
material respects. The amounts set up as provisions for taxes (including
provision for deferred income taxes) on the WMM 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 September 30, 1996. There are no tax liens on any of WMM's 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 WMM has set aside on its books adequate reserves. There are
no pending tax examinations nor has WMM received a revenue agent's report
asserting a tax deficiency. WMM 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 WMM does not file tax
returns that WMM is or may be subject to taxes assessed by such jurisdiction.
3.19 IMMIGRATION ACT. WMM is in compliance with the terms and
provisions of the Immigration and Nationality Act, as amended (the "Immigration
Act") in all material respects. For each employee (as defined in 8 C.F.R.
Section 274a.1(f)(1996)) of WMM for whom compliance with the Immigration Act by
WMM is required, WMM has obtained and retained a complete and true copy of each
such employee's Form I-9 (Employment Eligibility Verification Form) as required
by 8 C.F.R. Section 274a2(b)(2)(1996). WMM has not been cited, fined, served
with a Notice of Intent to Fine or with a Cease and Desist Order, nor, to WMM's
knowledge, has any action or administrative proceeding been initiated or
threatened against WMM, by reason of any actual or alleged failure to comply
with the Immigration Act.
3.20 PROGRAM COMPLIANCE. Neither WMM nor, to its knowledge, 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.
<PAGE> 28
-20-
3.21 ENVIRONMENTAL MATTERS. Except as disclosed on Exhibit 3.21:
(a) There are no outstanding violations of any consent decrees
entered against WMM 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 known 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 by WMM 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 WMM have been and are in
compliance in all material respects 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 WMM 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,WMM
has delivered to ProMedCo-Northern true and exact copies of
(i) all plan documents embodying the provisions of such plans,
together with all amendments thereto, (ii) all summary plan
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 WMM 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
<PAGE> 29
-21-
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 WMM 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
WMM.
(c) Neither any of the Pension Plans nor any related trusts have
incurred any "accumulated 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.
(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-Northern 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.
3.24 EMPLOYEE MATTERS. Included as Exhibit 3.24A of the Exhibit
Volume is a list of all employees of WMM together with their annual rates of
compensation and a list of all people who were paid bonuses in the last 12
months plus the amount thereof. Except as set forth in Exhibit 3.24A, no
written employment agreement to which WMM is a party requires longer than
<PAGE> 30
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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 WMM.
3.25 INSURANCE AND BONDS. Exhibit 3.25A contains a description of
all fire, liability and other insurance coverage maintained by WMM currently in
force, including the amounts and losses and risks covered; all such policies
are fully paid as to all premiums heretofore due. Exhibit 3.25B contains a
description of all malpractice liability insurance policies of WMM since
January 1, 1994. Except as set forth on Exhibit 3.25C, WMM 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 3.25D sets forth a
list of all claims for any insured loss in excess of $5,000 per occurrence,
filed by WMM during the three year period immediately preceding the date
hereof, including, but not limited to, workers compensation, general liability
and environmental liability. WMM 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 WMM is a party or by which WMM is bound, and it
is not currently negotiating with a labor union. No employees of WMM have ever
petitioned for a representation election. WMM is in compliance in all material
respects 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 WMM 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 WMM. No grievance which might have
a material adverse effect on WMM 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. WMM has not experienced any employee
strikes during the last three years. WMM will advise ProMedCo-Northern of any
such labor dispute, petition for representative election or negotiations with
any labor union which shall arise before the Escrow Closing Date. Except as may
be required by COBRA Code or applicable state health care continuation coverage
statutes, WMM has no liability under any plan or arrangement which provides
welfare benefits, including medical and life insurance, to any current retiree
or terminated employee.
3.27 HEALTHCARE COMPLIANCE. WMM 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 WMM's knowledge, no condition exists or event has occurred which
in itself or with the giving of notice or the lapse of time
<PAGE> 31
-23-
or both would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such Third Party Payor Program. To WMM's knowledge, WMM is
in full compliance in all material respects with the requirements of all such
Third Party Payor Programs applicable thereto.
3.28 FACILITY COMPLIANCE. Each Clinic Facility is duly licensed and
is lawfully operated in accordance with the requirements of all applicable law
in all material respects 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 WMM issued by any governmental authority or
Third Party Payor Program requiring conformity or compliance with any
applicable law or condition for participation of such governmental authority or
Third Party Payor program, and WMM 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 WMM nor, to its knowledge, any
officer or employee of WMM have made any bribes, kickbacks or other improper
payments on behalf of WMM or received any such payments from vendors, suppliers
or other persons contracting with WMM.
3.30 BOOKS OF ACCOUNT; REPORTS. The books of account of WMM in
reasonable detail, accurately and fairly reflect its transactions and the
disposition of its assets.
3.31 NO FINDERS OR BROKERS. Neither WMM nor any officer or director
of WMM has engaged any finder or broker in connection with the transactions
contemplated hereunder.
3.32 STOCKHOLDER AGREEMENTS. WMM intends to request each of its
non-dissenting stockholders to execute and deliver Stockholder Agreements as
contemplated by Section 8.8 hereof. WMM has no reason to believe that any of
the statements, representations and warranties made forth in such Stockholder
Agreements by its shareholders are not true and correct.
3.33 REVIEW OF INFORMATION. WMM has been afforded access to all
material information concerning ProMedCo 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 AUTHORITY; BINDING EFFECT. WMM has full power and authority to
enter into this Agreement and, subject to the approval of stockholders as
required by Nevada law, to carry out the transactions contemplated hereby. The
Board of Directors of WMM has taken all action required by law and by WMM's
Articles of Incorporation and by-laws, or otherwise, to authorize the execution
and delivery of this Agreement and the transactions contemplated hereby.
Subject to the foregoing, the execution, delivery, and performance of this
Agreement constitutes the valid and
<PAGE> 32
-24-
binding agreement of WMM enforceable in accordance with its terms (except as
the same may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally and except as to the remedy of
specific performance which may not be available under the laws of various
jurisdictions) assuming that this Agreement has been duly authorized, delivered
and executed by ProMedCo and ProMedCo-Northern and constitutes the valid and
binding obligation, enforceable against ProMedCo and ProMedCo-Northern in
accordance with its terms (except as enforceability against ProMedCo and
ProMedCo-Northern may be restricted, limited or delayed to the same extent as
referred to in parenthetical phrase immediately above).
3.35 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
characteristic of WMM 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 by WMM and the consummation by WMM
of the transactions contemplated hereby other than the filing of the Articles
of Merger with the Secretary of State of Nevada.
3.36 NO ADVERSE EFFECT. There is no event or condition of any kind
or character pertaining to the business, assets or prospects of WMM that may
adversely affect such business, assets or prospects other than general economic
conditions affecting the United States or Reno, Nevada or which may affect the
industry in which WMM participates as a whole.
3.37 DISCLOSURE. The representations and warranties by WMM in this
Agreement and the statements of WMM in this Agreement and the documents and
certificates furnished or to be furnished by WMM to ProMedCo and
ProMedCo-Northern pursuant hereto do not contain and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein in the
circumstances, under which they were made, not misleading. WMM has disclosed to
ProMedCo and ProMedCo-Northern all facts known to WMM material to the assets,
liabilities, business, operation and property of WMM. There are no facts known
to WMM not yet disclosed which would materially adversely affect the future
operations of WMM.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND PROMEDCO-NORTHERN
ProMedCo and ProMedCo-Northern hereby represent and warrant as
follows:
4.1 ORGANIZATION AND STANDING OF PROMEDCO AND PROMEDCO-NORTHERN.
ProMedCo and ProMedCo-Northern are each corporations duly organized, validly
existing and in good standing under the laws of the state of Texas and Nevada,
respectively; each has full corporate power and
<PAGE> 33
-25-
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 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, 4,789,250 shares of
Common Stock and 1,226,150 shares of Series B Common Stock are validly issued
and outstanding, fully paid and non-assessable. In the event ProMedCo merges
with Professional Medical Management Company prior to the Effective Date, the
outstanding capital structure of Professional Medical Management Company will
be substantially identical to that of ProMedCo set forth in this Section 4.2
except for the conversion of the Series A Convertible Preferred Stock and Class
B Common Stock into Common Stock and the issuance of Common Stock to the public
at the ProMedCo IPO Price; the authorized number of shares of Common Stock may
be greater and there may be authorization for a "blank check" preferred stock.
4.3 PROMEDCO STOCK. The ProMedCo Stock to be issued in connection
with the transactions contemplated hereby will be, upon issuance thereof, duly
authorized, validly issued, fully paid and non-assessable.
4.4 AUTHORITY; BINDING EFFECT. Each of ProMedCo and
ProMedCo-Northern has corporate power to execute and deliver this Agreement and
consummate the transactions contemplated hereby and has taken (or by the Escrow
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-Northern enforceable in accordance
with its terms (except as the same may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors' rights generally and
except as to the remedy of specific performance which may not be available
under the laws of various jurisdictions) assuming that this Agreement has been
duly authorized, delivered and executed by WMM and constitutes the valid and
binding obligation, enforceable against WMM in accordance with its terms
(except as enforceability against WMM 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-Northern nor
any officer or director of either has engaged any finder or broker in
connection with the transactions contemplated hereunder.
<PAGE> 34
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4.6 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No
characteristic of ProMedCo or ProMedCo-Northern 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 consummation of the transactions contemplated hereby other than the filing
of the Articles of Merger with the Secretary of State of Nevada.
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.
4.8 COMPLIANCE WITH OTHER INSTRUMENTS. ProMedCo is not in violation
or default in any material respect of any provision of its Articles of
Incorporation or by-laws, or of any instrument, judgment, order, writ, decree
or contract to which it is a party or by which it is bound that could
reasonably be expected to have a material adverse effect on ProMedCo's
business, or, to the best of its knowledge, of any provision of any federal or
state statute, rule or regulation applicable to ProMedCo that could reasonably
be expected to have a material adverse effect on ProMedCo's business. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) result in any such material
violation or default, (ii) result in any material violation or material breach
of, or permit any third party to rescind any term or provision of, or
constitute a material default under, any material loan, note, indenture,
mortgage, deed of trust, security agreement, lease, contract. license or other
agreement to which ProMedCo is a party or by which ProMedCo or its assets is
bound, or (iii) to the best of ProMedCo's knowledge, violates any laws,
statutes, rule or regulation or order, writ, judgment, injunction or decree of
any court, administrative agency or government body such that such violation
could reasonably be expected to have a material adverse effect on ProMedCo's
business.
4.9 DISCLOSURE. ProMedCo has provided WMM with true and complete
copies of its audited financial statements for the period July 1, 1994 to
December 31, 1994, its fiscal year ended December 31, 1995 and its unaudited
quarterly reports for the fiscal quarters ended March 31, 1996, June 30, 1996
and September 30, 1996. The Financial Statements and all other information
delivered to WMM in connection herewith do not contain and will not contain any
untrue statement of a material fact or omit to state a material fact or
necessary in order to make the statements made herein or therein, in the
circumstances in which they were made, not misleading. The Financial
Statements comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Securities and Exchange Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles and fairly present the
financial position of ProMedCo and its consolidated subsidiaries at the dates
thereof and
<PAGE> 35
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the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal, recurring
audit adjustments). Since September 30, 1996, there has been no material in
ProMedCo's accounting policies.
4.10 ABSENCE OF CERTAIN CHANGES. Since September 30, 1996, ProMedCo
has conducted its business in the ordinary course and, except for the
execution, delivery and performance of this Agreement or as required hereby,
there has not occurred: (a) any material adverse change in the business,
financial condition, results of operations, prospects or assets of ProMedCo;
(b) other than the transactions contemplated hereby, any entry into any
material commitment or transaction by ProMedCo;(c) any damage destruction or
loss, whether or not covered by insurance, materially and adversely effecting
the business, financial condition, results of operation, prospects or assets of
ProMedCo; or (d) any acquisition or disposition of a material amount of
property or assets of ProMedCo outside of the ordinary course of business.
ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-NORTHERN
ProMedCo and ProMedCo-Northern hereby covenant and agree as follows:
5.1 BEST EFFORTS TO SECURE CONSENTS. ProMedCo and ProMedCo-Northern
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 the parties hereunder.
5.2 CORPORATE ACTION. ProMedCo and ProMedCo-Northern will take all
necessary corporate and other action and use its best efforts to obtain all
consents, approvals and amendments of agreements required of them 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
WMM pursuant to this Agreement prior to the Closing, ProMedCo and
ProMedCo-Northern 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-Northern, (ii) was known by
ProMedCo or ProMedCo-Northern on a non-confidential basis prior to disclosure
to ProMedCo or ProMedCo-Northern by WMM pursuant to this Agreement or (iii)
becomes available to ProMedCo or ProMedCo-Northern on a non-confidential basis
from a source (other than WMMor TMG ) 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.
<PAGE> 36
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5.4 NON-DISCLOSURE. ProMedCo and ProMedCo-Northern will keep
confidential and not disclose to any third party any information relating to
the business of WMM, whether acquired by ProMedCo or ProMedCo-Northern before
or after the Escrow Closing Date, which WMM has not made generally available to
the public.
ARTICLE 6 COVENANTS OF WMM
WMM hereby covenants and agrees as follows:
6.1 ACCESS AND INFORMATION. Between the date of this Agreement and
the Escrow Closing Date; WMM will: (i) provide to ProMedCo-Northern and its
officers, attorneys, accountants and other representatives, during normal
business hours, or otherwise if ProMedCo-Northern deems reasonably necessary,
free and full access to all of the properties, assets, agreements, commitments,
books, records, accounts, tax returns, and documents of WMM and permit them to
make copies thereof; (ii) furnish ProMedCo-Northern and its representatives
with all information concerning the business, properties and affairs of WMM as
ProMedCo-Northern reasonably requests and certified by the officers, if
requested; (iii) cause the independent public accountants of WMM to make
available to ProMedCo-Northern and its representatives all financial
information relating to WMM requested, including all working papers pertaining
to audits and reviews made heretofore by such auditors; (iv) furnish
ProMedCo-Northern true and complete copies of all financial and operating
statements of WMM; (v) permit access to customers and suppliers for
consultation or verification of any information obtained by ProMedCo-Northern
and use their best efforts to cause such customers and suppliers to cooperate
with ProMedCo-Northern 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 WMM and to cooperate fully with any audit, review, investigation
or examination made by ProMedCo-Northern and its representatives, including,
without limitation, with respect to:
(a) The books and records of WMM;
(b) The reports of state and federal regulatory examinations;
(c) Leases, contracts and commitments between the WMM and any
other person;
(d) Physical examination of the Clinic Facility; and
(e) Physical examination of the equipment and furnishings within
the Clinic Facility.
<PAGE> 37
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6.2 CONDUCT OF BUSINESS. Between the date hereof and the Escrow
Closing Date, except as otherwise expressly approved in writing by
ProMedCo-Northern, WMM 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 Escrow Closing Date (except for changes
contemplated, permitted or required by this Agreement) in all material respects
and so that the conditions to be satisfied by WMM at the Closing shall have
been satisfied. WMM will, consistent with conducting its business in
accordance with reasonable business judgment, preserve the business of the WMM
intact; use its reasonable best efforts to keep available to ProMedCo-Northern
the services of the present employees of the WMM (except those dismissed for
cause, those who voluntarily discontinue their employment and those whose
termination is consented to by ProMedCo-Northern) and preserve for
ProMedCo-Northern the goodwill of the suppliers, patients and others having
business relations with the WMM.
6.3 COMPLIANCE WITH AGREEMENT. WMM 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. WMM shall give
ProMedCo-Northern 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-Northern's rights under Section 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. WMM shall take the necessary
corporate and other action and shall use its reasonable best efforts to secure
before the Escrow 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-Northern
and WMM.
6.5 UNUSUAL EVENTS. Until the Escrow Closing Date, WMM 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 described
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 have been disclosed as of the date WMM delivers to
ProMedCo-Northern such supplemental disclosures or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant, unless agreed to
in writing by ProMedCo-Northern; provided further, that if, subsequent to such
disclosures, the merger between ProMedCo-Northern and WMM contemplated hereby
is consummated, then such disclosures shall be effective for purposes of the
indemnification provisions contained in Article 10 of this Agreement.
<PAGE> 38
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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
Escrow Closing Date, WMM shall deliver to ProMedCo-Northern an unaudited
balance sheet of WMM 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 ordinances, 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 WMM shall be complied with prior to the Escrow Closing Date unless
contested in good faith by appropriate proceedings. All such notes or notices,
after the date hereof and prior to the Escrow Closing Date, shall be complied
with by WMM prior to the Escrow Closing Date unless contested in good faith by
appropriate proceedings. Upon written request, WMM shall furnish
ProMedCo-Northern with an authorization to make the necessary searches for such
notes or notices.
6.8 INSURANCE RATINGS. WMM shall take all action reasonably requested
by ProMedCo-Northern to enable it to succeed to the Workers' Compensation and
Unemployment Insurance ratings, insurance policies, deposits and other
interests of WMM and other ratings for insurance or other purposes established
by WMM. ProMedCo-Northern shall not be obligated to succeed to any such
rating, insurance policy, deposit or other interest, except as it may elect to
do so.
6.9 MAINTAIN INSURANCE COVERAGE. From the date hereof until the
Escrow Closing Date, WMM shall maintain and cause to be maintained in full
force and effect the existing insurance on its assets and the operations of WMM
and shall provide, upon request by ProMedCo-Northern, evidence satisfactory to
ProMedCo-Northern that such insurance continues to be in effect and that all
premiums due have been paid.
6.10 EXCLUSIVE DEALINGS. During the period from the date of this
Agreement to the Escrow Closing Date, or until the earlier termination of this
Agreement pursuant to Article 9, WMM 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
<PAGE> 39
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entity or group, other than ProMedCo and ProMedCo-Northern, concerning the
purchase of WMM or its assets, or any merger, joint venture or similar
transaction involving WMM and will not enter into any such transaction.
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WMM
All obligations of WMM which are to be discharged under this Agreement
at the Escrow 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-Northern at or prior to the Escrow Closing
and to the fulfillment at, or prior to, the Escrow Closing, of each of the
following conditions (unless expressly waived in writing by WMM at any time at
or prior to the Escrow Closing):
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations
and warranties made by ProMedCo and ProMedCo-Northern 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 Escrow Closing, and shall be
true at and as of the date of Closing in all material respects; ProMedCo and
ProMedCo-Northern 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 them prior to or at the Escrow Closing; and WMM shall have
been furnished with a certificate of the President or any Vice President of
ProMedCo and of ProMedCo-Northern, dated the Escrow 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. WMM shall have been furnished with an opinion
dated the Escrow Closing Date of Boult, Cummings, Conners & Berry, PLC, counsel
to ProMedCo and ProMedCo-Northern, in form and substance satisfactory to WMM,
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-Northern to authorize the execution, delivery and
performance of this Agreement by ProMedCo and ProMedCo-Northern and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by the Boards of Directors of ProMedCo and ProMedCo-Northern and
by the shareholder of ProMedCo-Northern.
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 authority shall be subsisting against WMM, or the
officers or directors of WMM, which seeks to, or would, render it unlawful as
of the Escrow Closing Date to effect the transactions contemplated
<PAGE> 40
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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 Escrow Closing,
ProMedCo-Northern shall deliver to WMM accurate copies of the Articles of
Incorporation of each of ProMedCo-Northern and ProMedCo certified (not more
than 30 days prior to the Escrow Closing Date) by the appropriate governmental
authorities, copies of resolutions of the Board of Directors and of the
shareholder of ProMedCo-Northern, certified by the secretary or assistant
secretary of ProMedCo- Northern approving and authorizing the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, including execution and delivery of the various agreements
and instruments 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 and various instruments contemplated hereby.
7.6 NO AGENCY PROCEEDINGS. There shall not be pending or, to the
knowledge of ProMedCo or ProMedCo-Northern, 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.
7.7 CLOSING TRANSACTIONS. All the transactions described in Section
2.9 shall have been consummated simultaneously with the Escrow Closing.
7.8 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated hereby and all certificates and
documents delivered to WMM pursuant to this Agreement shall be satisfactory in
form and substance to WMM and its counsel acting reasonably and in good faith.
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PROMEDCO AND
PROMEDCO-NORTHERN
All obligations of ProMedCo and ProMedCo-Northern 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 WMM 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-Northern at any
time at or prior to the Closing):
<PAGE> 41
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8.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations
and warranties of WMM contained in Article 3 of this Agreement and all of the
representations and warranties of TMG in the Inducement Agreement shall be true
as of the date of this Agreement, shall be deemed to have been made again at
and as of the Escrow Closing, and shall be true at and as of the date of Escrow
Closing in all material respects (without taking into account any disclosures
made by WMM to ProMedCo and ProMedCo-Northern pursuant to Section 6.5 hereof);
WMM 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 Escrow Closing; and ProMedCo and
ProMedCo-Northern shall be furnished with a certificate of the President or any
Vice President of WMM, dated the Escrow Closing Date, in such person's
corporate capacity, certifying to the truth of such representations and
warranties as of the time of the Escrow 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-Northern or the officers or directors of ProMedCo or ProMedCo-Northern
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 WMM COUNSEL. WMM shall have delivered to ProMedCo and
ProMedCo-Northern at the Closing an opinion of Stoel Rives LLP, counsel to WMM,
dated the Escrow Closing Date, in form and substance satisfactory to ProMedCo
and ProMedCo-Northern, to the effect set forth as Appendix 8.3 attached hereto.
8.4 DISSENTERS. Holders of not more than 10% of the outstanding
capital stock of WMM shall have elected to assert their dissenter's rights
under Section 92A.300 of the Nevada Revised Statues.
8.5 SERVICE AGREEMENT. TMG shall have entered into the Service
Agreement with ProMedCo-Northern.
8.6 EMPLOYMENT AGREEMENTS. Holders of at least 90% of the
outstanding capital stock of WMM and all Providers, as such term is defined
in the Service Agreement, shall have entered into employment agreements as
contemplated by Section 2.9 hereof except for Providers representing an
aggregate annualized gross income of less than $375,000 as set forth in
Appendix 2.9B-2.
<PAGE> 42
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8.7 POOLING LETTERS. At or prior to the Closing, ProMedCo shall have
received letters from Arthur Andersen & 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.
8.8 STOCKHOLDER AGREEMENTS. All of the non-dissenting Shareholders
of WMM shall have executed and delivered a stockholder agreement in the form
attached hereto as Appendix 8.8 (the "Stockholder Agreements").
8.9 INDUCEMENT AGREEMENT. At or prior to the Closing, TMG shall
enter into an Inducement Agreement in the form attached hereto as Appendix 8.9.
8.10 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 material 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 material 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-Northern shall have received releases, waivers of
default and consents to assignment in form satisfactory to it from all parties
to material contracts and agreements to be assumed by ProMedCo-Northern
hereunder if so required thereby. In addition, ProMedCo-Northern and ProMedCo
shall have received approval of the transactions contemplated hereby from
ProMedCo's lenders.
8.11 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated hereby and all certificates and
documents delivered to ProMedCo-Northern pursuant to this Agreement shall be
satisfactory in form and substance to ProMedCo and ProMedCo-Northern and its
counsel acting reasonably and in good faith.
8.12 NO ADVERSE CHANGE. From the date of this Agreement until the
Closing, the operations of WMM shall have been conducted in the ordinary course
of business consistent with past practice and from the date of the WMM
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
WMM; and WMM shall have not sustained any loss or damage to their assets,
whether or not insured, that affects materially and adversely its ability to
conduct its business.
8.13 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, WMM shall have
delivered to ProMedCo-Northern copies of the Articles of Incorporation of WMM
certified (not more than 30
<PAGE> 43
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days prior to the Escrow Closing Date) by the appropriate governmental
authorities and copies of resolutions of the stockholders of WMM and of the
Board of Directors of WMM, certified by the secretary of WMM, approving and
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
8.14 CLOSING TRANSACTIONS. All the transactions described in Section
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 Escrow
Closing Date, notwithstanding stockholder approval as follows:
(a) By the mutual consent of ProMedCo, ProMedCo-Northern and WMM;
or
(b) By WMM, if any of the conditions set forth in Article 7 shall
not have met by November 15, 1996; provided that WMM shall not
be entitled to terminate this Agreement pursuant to this
Section 9.1(b) if WMM's willful breach of this Agreement has
prevented the consummation of the transactions contemplated
hereby; or
(c) By ProMedCo-Northern, if any of the conditions provided in
Article 8 hereof have not been met by November 15, 1996;
provided that ProMedCo-Northern shall not be entitled to
terminate this Agreement pursuant to this Section 9.1(c) if
ProMedCo's or ProMedCo-Northern's willful breach of this
Agreement has prevented the consummation of the transactions
contemplated hereby.
9.2 NOTICE OF ABANDONMENT. In the event of such termination by
either ProMedCo and ProMedCo-Northern or WMM pursuant to Section 9.1 above,
written notice shall forthwith be given to the other party hereto.
9.3 TERMINATION. In the event this Agreement is terminated as
provided above, ProMedCo and ProMedCo-Northern shall deliver to WMM all
documents (and copies thereof in their possession) concerning WMM, TMG and
their respective Affiliates previously delivered by WMM and TMG to ProMedCo and
ProMedCo-Northern; 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.
<PAGE> 44
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ARTICLE 10 INDEMNIFICATION
10.1 INDEMNIFICATION BY SHAREHOLDERS. The Shareholders by their
execution of this Agreement, agree severally to indemnify, defend and hold
ProMedCo and ProMedCo-Northern and their Affiliates, and subsidiaries, and its
and their respective employees, representatives, 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-Northern as a result of a breach of any obligation,
representation, warranty, covenant or agreement made by WMM in this Agreement
or any agreement referred to herein or because any representation or warranty
by WMM contained herein, in any document furnished or required to be furnished
pursuant to this Agreement by WMM to ProMedCo or ProMedCo-Northern or any of
their representatives, or any documents furnished to ProMedCo and
ProMedCo-Northern in connection with the Escrow Closing hereunder, shall be
false.
10.2 INDEMNIFICATION BY PROMEDCO AND PROMEDCO-NORTHERN. ProMedCo and
ProMedCo-Northern agree to indemnify, defend and hold the Shareholders and
their Affiliates, and its and their respective employees, representatives,
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 the Shareholders as a result of a breach of any
obligation, representation, warranty, covenant or agreement made by ProMedCo or
ProMedCo-Northern in this Agreement or any agreement referred to herein or
because any representation or warranty by ProMedCo or ProMedCo-Northern
contained herein, in any document furnished or required to be furnished
pursuant to this Agreement by ProMedCo or ProMedCo-Northern to WMM or the
Shareholders or any of their representatives, or any documents furnished to WMM
or the Shareholders in connection with the Escrow Closing hereunder, shall be
false.
10.3 REPRESENTATION, COOPERATION AND SETTLEMENT. With respect to
claims made by third parties, if a party or person named in Sections 10.1 or
10.2 as being entitled to indemnification hereunder (an "Indemnitee") is
threatened with any claim, or any claim is presented to or any action or
proceeding commenced against such party or person, which my give rise to the
right of indemnification hereunder, the Indemnitee will give written notice
thereof promptly (and in no event later than the last survival date of the
representation and warranty for the breach of which indemnification is sought)
to the party or parties bearing the indemnification obligation (the
"Indemnifying Party"). The Indemnifying Party shall have the right to
participate in the defense of such caim, action or proceeding, and, to the
extent the Indemnifying Party so desires, jointly with any other Indemnifying
<PAGE> 45
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Party similarly notified, to assume the defense. thereof with counsel mutually
satisfactory to such parties and the Indemnitee. If the Indemnifying Party and
the Indemnitee agree upon mutually satisfactory counsel to assume the defense,
the Indemnifying Party shall assume the expense of such counsel's fees and
shall no longer assume the expense of the Indemnitee's attorneys' fees. In the
event the Indemnifying Party undertakes to compromise or defend any such
liability, the Indemnifying Party shall so notify the Indemnitee in writing
promptly of its intention to do so, and the Indemnitee shall cooperate with the
Indemnifying Party and its counsel in the compromising of or the defending
against any such liabilities or claims, at the expense of the Indemnifying
Party. Such cooperation shall include, but shall not be limited to, the
provision to the Indemnifying Party of reasonable access to the Indemnitee's
business records, research, documents and employees as they relate to the
defense of any indemnified claim. In response to a bona fide settlement offer,
the Indemnifying Party may settle the monetary portion of an indemnifiable
matter which it has duly elected to contest without the consent of the
Indemnitee unless such settlement has an adverse effect upon the Indemnitee, in
which case such matters shall be settled only with the consent of the
Indemnitee; provided, however, that the Indemnifying Party shall not have the
right to agree to a settlement involving injunctive or other equitable relief
without obtaining the prior written consent of the Indemnitee. In the event the
Indemnitee declines to consent to the monetary settlement described in the
preceding sentence (other than a settlement that has an adverse effect on the
Indemnitee), then the Indemnitee shall have no right to indemnification beyond,
and the Indemnifying Party shall have no obligation to pay damages and
attorneys' fees hereunder in excess of, the amount of the proposed settlement.
10.4 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude either WMM or the Shareholders, on the one
hand, or ProMedCo and ProMedCo-Northern, on the other, from asserting any other
rights or seeking any other remedies against the other parties to which they
are entitled by law, including without limitation the right of set-off with
respect to obligations of ProMedCo-Northern under this or any other agreement
to which the Shareholders as a group or individually may be parties.
10.5 RESTRICTIONS AND LIMITATIONS.
(a) LIMITS.
(i) Each Shareholder's liability for indemnification
hereunder shall be limited to the portion of the
Consideration received by or otherwise due to such
Shareholder;
<PAGE> 46
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(ii) The liability for any breach of an Employment
Agreement, including the non-competition provisions,
shall be only that of the breaching party and shall
not be satisfied pursuant to the terms of this
Article 10.
(b) TIME PERIODS. No claims for indemnification hereunder shall
be made at any time later than December 31, 1998; provided
however, that the representations and warranties contained in
Sections 3.7, 3.18 and 3.22 shall survive for the period of
the applicable statute of limitations.
10.6 SHAREHOLDER REPRESENTATIVE.
(a) APPOINTMENT. By their execution of this Agreement, the
Shareholders of WMM irrevocably constitute and appoint Dr.
Catherine Goring and John P. Billingsley and each of them, as
the agents and attorneys-in-fact of the Shareholders (the
"Shareholder's Representative") to act for and on behalf of
each of the Shareholders with respect to all matters arising
in connection with the Escrow Agreement described in Section
2.9(f) hereof (the "Escrow Agreement"), including but not
limited to, the power and authority, in the Shareholder's
Representative's sole discretion, to:
(i) take any action contemplated to be taken by,
and receive any notices contemplated to be
given to, the Shareholder's Representative
under the Escrow Agreement;
(ii) negotiate, determine, defend and settle any
dispute which my arise under the Escrow
Agreement between the Shareholder's
Representative and the other parties thereto
and to accept service of process in
connection therewith; and
(iii) make, execute, acknowledge and deliver any
release, assurance, receipt, request,
instruction, notice, agreement, certificate
or other instrument, and to generally do any
and all things and to take any and all
actions which my be requisite, proper or
advisable in connection with the Escrow
Agreement.
(b) INDEMNIFICATION OF SHAREHOLDER'S REPRESENTATIVE. Each
Shareholder shall indemnify and hold the Shareholder's
Representative harmless with respect to anything done by the
Shareholder's Representative in good faith in connection with
their responsibilities hereunder and to reimburse the
Shareholder's Representative, in proportion to their
respective interests in the Balance of the ProMedCo Shares for
<PAGE> 47
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any costs or expenses, including attorneys' fees, incurred by
the Shareholder's Representative in the satisfaction of their
responsibilities hereunder.
(c) SELECTION OF SUCCESSOR. If any Shareholder Representative or
any successor Shareholder Representative shall die, become
disabled, or otherwise be unable to continue to act as a
Shareholder Representative hereunder, the Shareholders who
formerly held a majority of the shares of Common Stock of WMM,
within fifteen (15) days of such occurrence, shall appoint a
successor Shareholder Representative and shall promptly notify
the other parties hereto in writing of the identify of such
successor.
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.
11.2 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):
<TABLE>
<S> <C>
To WMM: Western Medical Management Corporation, Inc.
75 Pringle Way
Suite 712
Reno, NV 89502
Attention: CEO
with a copy to: Kenneth W. Johnson
Stoel Rives, LLP
600 University St.
Suite 3600
Seattle, WA 98101-3197
</TABLE>
<PAGE> 48
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<TABLE>
<S> <C>
To ProMedCo and
ProMedCo-Northern: 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
</TABLE>
or to such other address as either WMM or ProMedCo may designate by notice to
the other.
11.3 ENTIRE AGREEMENT. This Agreement and the Appendices, Exhibits,
schedules and documents delivered pursuant hereto constitute the entire
contract between the parties hereto pertaining to the subject matter hereof and
supersede 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. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the parties to be bound thereby.
11.4 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 Washoe
County, Nevada, 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.
11.5 GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEVADA.
11.6 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
<PAGE> 49
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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.
11.7 TIME. Time is of the essence for purposes of each and every
provision of this Agreement.
11.8 SECTION HEADINGS. The Section headings are for reference only
and shall not limit or control the meaning of any provision of this Agreement.
11.9 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.
11.10 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-Northern.
11.11 EXHIBITS. All Exhibits, Appendices, schedules and documents
referred to in or attached 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.
11.12 ASSIGNMENT. No party hereto shall assign this Agreement
without first obtaining the written consent of the other party, except ProMedCo
and ProMedCo-Northern shall have the right to assign this Agreement to an
Affiliate or any institutional lender providing financing to ProMedCo and its
subsidiaries.
11.13 BINDING ON SUCCESSORS AND ASSIGNS. Subject to Section 11.12,
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.
<PAGE> 50
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11.14 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.
11.15 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 WMM, 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.
11.16 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.
11.17 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.
11.18 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-Northern may be
reproduced by ProMedCo-Northern by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and
ProMedCo-Northern may destroy any original documents so reproduced. WMM 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-Northern in the regular course of business) and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
<PAGE> 51
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11.19 PRESS RELEASES. Except as required by law, no party 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 the others.
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 NORTHERN NEVADA, INC.
By
--------------------------------
Its
-------------------------------
Name
------------------------------
WESTERN MEDICAL MANAGEMENT CORPORATION, INC.
By
--------------------------------
Its
-------------------------------
Name
------------------------------
JOINDER BY SHAREHOLDERS
The undersigned shareholders of Western Medical Management
Corporation, Inc., a Nevada corporation (the "Company"), hereby join the above
Agreement for Statutory Merger for the purpose of being bound thereby.
<PAGE> 52
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- ---------------------------------- ----------------------------------
Victor K. Knutzen, M.D. Catherine Goring, M.D.
- ---------------------------------- ----------------------------------
Craig Klose, M.D. Ricardo Garcia, M.D.
- ---------------------------------- ----------------------------------
Terrence McGaw, M.D. Brad Graves, M.D.
- ---------------------------------- ----------------------------------
John P. Billingsley Lester Ho, M.D.
- ---------------------------------- ----------------------------------
Michael E. Gallagher Elaine Gajewski
<PAGE> 53
LIST OF APPENDICES
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<S> <C>
2.9A Form of Service Agreement
2.9B-1 Forms of Employment Agreement
2.9B-2 List of Providers' Gross Incomes
2.9C Form of Interim Service Agreement
2.9D Form of Interim Management Agreement
2.9E Form of Credit Agreement
2.9F Form of Escrow Agreement
7.2 Opinion of Counsel to ProMedCo-Northern
8.3 Opinion of Counsel to WMM
8.8 Form of Stockholder Agreement
8.9 Form of Inducement Agreement
</TABLE>
<PAGE> 54
LIST OF EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<S> <C>
3.1 Copies of WMM's Articles of Incorporation and Bylaws
3.4 WMM Financial Statements
3.6 Exceptions to Absence of Recent Changes Representation
3.7 Recent UCC report on WMM's assets
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 under Section
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 List of Malpractice Coverages
3.25C Description of denials of coverage
3.25D Claims History
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PROMEDCO MANAGEMENT COMPANY
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
ProMedCo Management Company, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The name of the Corporation is ProMedCo Management Company.
The Corporation was originally incorporated under the same name, and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on August 8, 1996.
2. This Restated Certificate of Incorporation of the Corporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation and was duly authorized by the stockholders of
the Corporation pursuant to Section 228 of the General Corporation Law of the
State of Delaware, after first having been declared advisable by the Board of
Directors of the Corporation, all in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
3. The capital of the Corporation will not be reduced under, or
by reason of, the amendments set forth herein to the Certificate of
Incorporation of the Corporation.
4. The text of the Certificate of Incorporation of the
Corporation is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of the Corporation is ProMedCo Management Company.
ARTICLE II
The period of its duration is perpetual.
<PAGE> 2
ARTICLE III
The purpose for which the Corporation is organized is to engage in the
transaction of any or all lawful business for which corporations may be
incorporated under the Delaware General Corporation Law.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 70,000,000, of which (a)
20,000,000 shares, par value $0.01 per share, are to be designated "Preferred
Stock" (the "Preferred Stock") and (b) 50,000,000 shares, par value $0.01 per
share, are to be of a class designated "Common Stock" (the "Common Stock").
The designations, powers, preferences and rights and the
qualifications, limitations or restrictions of the Preferred Stock and the
Common Stock are as follows:
A. PREFERRED STOCK
The Board of Directors is authorized and empowered to designate the
rights, preferences and restrictions of shares of Preferred Stock from time to
time in accordance with the following:
(1) The Board of Directors is hereby authorized to issue the
Preferred Stock from time to time in one or more series, which
Preferred Stock shall be preferred to the Common Stock as to dividends
and distribution of assets of the corporation on dissolution, as
hereinafter provided, and shall have such distinctive designations as
may be stated in the Certificate of Designation providing for the
issue of such stock adopted by the Board of Directors pursuant to
Section 151(g) of the Delaware General Corporation Law. In such
Certificate of Designation providing for the issue of shares of each
particular series, the Board of Directors is hereby expressly
authorized and empowered to fix the number of shares constituting such
series and to fix the relative rights and preferences of the shares of
the series so established to the full extent allowable by law except
as otherwise provided herein and except insofar as such rights and
preferences are fixed herein. Such authorization in the Board of
Directors shall expressly include the authority to fix and determine
the relative rights and preferences of such shares in the following
respects:
(a) The rate of dividend;
(b) Whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of
redemption or call;
(c) The amount payable upon shares in the event of voluntary and
involuntary liquidation;
<PAGE> 3
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(d) The purchase, retirement or sinking fund provisions, if any,
for the call, redemption or purchase of shares;
(e) The terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
(f) Whether or not shares have voting rights, and the extent of
such voting rights, if any, including the number of votes per
share; and
(g) Whether or not shares shall be cumulative, non-cumulative or
partially cumulative as to dividends and the dates from which
any cumulative dividends are to accumulate.
All shares of the Preferred Stock shall be of equal rank and shall be
identical, except in respect to the particulars that may be fixed by the Board
of Directors as hereinabove provided in this Article IV and which may vary
among the series.
(2) The holders of Preferred Stock are entitled to receive, when
and as declared by the Board of Directors, but only from funds legally
available for the payment of dividends, cash dividends at the annual
rate for each particular series as theretofore fixed and determined by
the Board of Directors as hereinabove authorized, and no more; such
dividends to be payable before any dividend on Common Stock shall be
paid or set apart for payment.
(3) In the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, after payment or provision for payment
of the debts and other liabilities of the Corporation, the holders of
each series of Preferred Stock shall be entitled to receive, out of
the net assets of the Corporation, an amount in cash for each share
equal to the amount fixed and determined by the Board of Directors in
any Certificate of Designation providing for the issue of any
particular series of Preferred Stock, plus an amount equal to any
dividends payable to such holder which are then unpaid, either under
the provisions of the Certificate of Designation adopted by the Board
of Directors providing for the issue of such series of Preferred Stock
or by declaration of the Board of Directors, on each such share up to
the date fixed for distribution, and no more, before any distribution
shall be made to the holders of Common Stock. Neither the merger or
consolidation of the Corporation, nor the sale, lease or conveyance of
all or a part of its assets, shall be deemed to be a dissolution,
liquidation or winding up of the affairs of the Corporation unless
otherwise stated by the Board of Directors with respect to such
series.
B. COMMON STOCK
(1) Whenever dividends upon the Preferred Stock at the time
outstanding shall have been paid in full for all past dividend periods
or declared and set apart for payment, the holders of the Common Stock
shall be entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor.
<PAGE> 4
-4-
(2) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(a) if any Preferred Stock is then outstanding and if payment has been
made to the holders of the such Preferred Stock of the full amount to
which they shall be entitled then the holders of the Common Stock
shall be entitled to share in all remaining assets of the Corporation
available for distribution to its stockholders on a share for share
basis.
(3) Each holder of Common Stock shall be entitled to vote on all
matters and shall be entitled to one vote for each share of Common
Stock standing in such holder's name on the books of the Corporation.
ARTICLE V
Except as provided elsewhere in this Certificate of Incorporation, the
preemptive right of any shareholder of the corporation to acquire additional,
unissued or treasury shares of the Corporation, or securities of the
Corporation convertible into or carrying a right to subscribe to or acquire
shares of the Corporation, is hereby denied; provided, however, that nothing
herein shall preclude the Corporation from granting preemptive rights by
contract or agreement to any person, corporation or other entity.
ARTICLE VI
Cumulative voting by the shareholders of the Corporation at any
election of directors of the Corporation is hereby prohibited.
ARTICLE VII
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000), consisting of money, labor done or property actually
received.
ARTICLE VIII
The street address of the Corporation's registered office is 1209
Orange Street, Wilmington, County of New Castle, Delaware, and the name of its
initial registered agent at such address is The Corporation Trust Company.
<PAGE> 5
-5-
ARTICLE IX
1. Number. The number of directors of the Corporation may be fixed by the
Bylaws.
2. Classes. The Board of Directors shall be divided into three
classes, as nearly equal in numbers as the then total number of directors
constituting the entire board permits, with the term of office in one class
expiring each year. Directors of the first class shall be elected to hold
office for a term expiring at the next annual meeting of shareholders,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring the third succeeding
annual meeting.
Notwithstanding the foregoing, and except as otherwise required by law
or provided by the Certificate of Incorporation of this Corporation as then in
effect, whenever the holders of any one or more class or series of stock other
than the Common Stock shall have the right, voting separately as a class, to
elect one or more directors of the Corporation, the terms of the director or
directors elected by such holders shall expire at the next annual meeting of
shareholders. Subject to the foregoing, at each annual meeting of shareholders
the successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
3. Powers. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
(a) To make, alter or repeal the Bylaws of the Corporation;
(b) To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation;
(c) To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which
it was created;
(d) By a majority of the whole Board of Directors, to designate
one or more committees, each committee to office for a term
expiring at the annual meeting of stockholders held in the
third year following the year of their election.
4. Created Directorships and Vacancies. Newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until
such director's successor shall have been elected
<PAGE> 6
-6-
and qualified. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
5. Removal. Any director may be removed from office for cause by the
affirmative vote of the holders of seventy-five percent of the combined voting
power of the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
6. Amendment or Repeal. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least seventy-five percent of the voting power of all shares of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with or repeal Sections 2, 4, 5 or 6 of this Article IX.
ARTICLE X
1. Location of Meetings; Books and Records; Use of Ballots in the
Elections of Directors. Meetings of stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to applicable law) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Corporation. Elections of Directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.
2. Actions by Shareholders; Special Meetings; Amendment. Any action
required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of such holders and may
not be effected by any consent in writing by such holders. Special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
seventy-five percent of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Section 2 of this Article X.
ARTICLE XI
To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director.
<PAGE> 7
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ARTICLE XII
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding and any inquiry
or investigation that could lead to such an action, suit or proceeding (whether
or not by or in the right of the Corporation), by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another corporation, partnership, joint venture, sole proprietorship, trust,
nonprofit entity, employee benefit plan or other enterprise, against all
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including attorneys' fees and court costs) actually
and reasonably incurred by him in connection with such action, suit or
proceeding to the fullest extent permitted by any applicable law, and such
indemnity shall inure to the benefit of the heirs, executors and administrators
of any such person so indemnified pursuant to this Article. The right to
indemnification under this Article shall be a contract right and shall not be
deemed exclusive of any other right to which those seeking indemnification may
be entitled under any law, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
ARTICLE XIII
1. Business Combinations. The provisions of this Article XIII shall
apply to any of the following transactions (hereinafter referred to as
"Business Combinations"):
(a) any merger or consolidation of the Corporation with
or into any other corporation, person, or other
entity which is the beneficial owner, directly or
indirectly, of ten percent or more of the outstanding
Voting Securities (as hereinafter defined) of the
Corporation;
(b) any sale, lease, exchange, pledge, transfer, or other
disposition (in one transaction or in a series of
transactions) of all or substantially all of the
assets of the Corporation to any other corporation,
person or other entity which is the beneficial owner,
directly or indirectly, of ten percent or more of the
outstanding Voting Securities of the Corporation;
(c) any sale, lease, exchange, or other disposition (in
one transaction or a series of related transactions)
to the Corporation or any subsidiary of the
Corporation of any assets in exchange for Voting
Securities (or securities convertible into or
exchangeable for Voting Securities) of the
Corporation or any subsidiary of the Corporation by
any other corporation, person, or entity which is the
beneficial owner, directly or indirectly, of ten
percent or more of the outstanding Voting Securities
of the Corporation, if the
<PAGE> 8
-8-
effect of such transaction is to increase by more
than ten percent the total number of Voting
Securities held by such entity; or
(d) any reclassification of securities (including any
reverse stock split), recapitalization, or other
transaction of the Corporation which has the effect,
directly or indirectly, of decreasing the number of
holders of the Corporation's Voting Securities
remaining after any other corporation, person, or
entity has become the beneficial owner, directly or
indirectly, of ten percent or more of the outstanding
Voting Securities of the Corporation.
A corporation, person or other entity which is the beneficial owner,
directly or indirectly, of ten percent or more of the Corporation's outstanding
Voting Securities (taken together as a single class) is herein referred to as
the "Acquiring Entity."
2. Board Action. If the Board of Directors unanimously approves a
Business Combination with seventy-five percent of the members of the entire
Board of Directors voting in favor of such Business Combination, then regular
rules governing said Business Combination shall apply, and the provisions of
this Article XIII hereinafter set forth shall be disregarded.
3. Vote Required. Notwithstanding the provisions of Section 216 of
the General Corporation Laws of the State of Delaware, and any other provisions
of this Certificate of Incorporation or the Bylaws, the affirmative vote of
seventy-five percent of the voting power of the issued and outstanding capital
stock of the Corporation present, in person, or by proxy at such meeting,
excluding all Voting Securities owned beneficially, directly or indirectly, by
the Acquiring Entity, shall be required for approval of any such Business
Combination.
4. Voting Securities. The term "Voting Securities" shall mean the
voting power represented by all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, and each
reference to a proportion of shares of Voting Securities shall refer to the
voting power represented by shares having such proportion to the voting power
of shares entitled to be cast.
5. Beneficial Ownership. For the purposes of this Article XIII, any
corporation, person, or entity will be deemed to be the beneficial owner of any
Voting Securities of the Corporation:
(a) which it owns directly, whether or not of record, or
(b) which it has the right to acquire pursuant to any
agreement or arrangement or understanding or upon
exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or
(c) which are beneficially owned, directly or indirectly
(including shares deemed to be owned through
application of Section 5(b) above), by an
<PAGE> 9
-9-
"affiliate" or "associate" as those terms are defined
in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in
effect on June 1, 1990, or
(d) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of
Section 5(b) above), by any other corporation,
person, or entity with which it or any of its
"affiliates" or "associates" (as those terms are
defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934
as in effect on June 1, 1990) has any agreement or
arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of Voting
Securities of the Corporation.
For the purposes only of determining whether a corporation, person, or
other entity owns beneficially, directly or indirectly, ten percent or more of
the outstanding Voting Securities of the Corporation, the outstanding Voting
Securities of the Corporation will be deemed to include any Voting Securities
that may be issuable pursuant to any agreement, arrangement, or understanding
or upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise which are deemed to be beneficially owned by such corporation,
person, or other entity pursuant to the foregoing provisions of this Section 5.
6. Exemptions. The provisions of this Article XIII shall not apply to
a Business Combination which (i) does not change any Voting Security holder's
percentage ownership of Voting Securities in any successor to the Corporation
from the percentage of Voting Securities beneficially owned by such holder in
the Corporation, (ii) provides for the provisions of this Article XIII, without
any amendment, change, alteration, or deletion, to apply to any successor to
the Corporation, and (iii) does not transfer all or substantially all of the
Corporation's assets, other than to a wholly-owned subsidiary of the
Corporation.
7. Additional Voting Requirements. The affirmative vote required by
this Article XIII will be in addition to the vote of the holders of any class
or series of stock of the Corporation otherwise required by law or this
Certificate of Incorporation, or a resolution providing for the issuance of a
class or series of stock which has been adopted by the Board of Directors, or
any agreement between the Corporation and any national securities exchange.
8. Amendment. No amendment, alteration, change, or repeal of any
provision of this Article XIII may be effected unless it is approved at a
meeting of the Corporation's stockholders called for that purpose.
Notwithstanding any other provision of this Certificate of Incorporation, there
shall be required to amend, alter, change or repeal, directly or indirectly,
any provision of this Article XIII the affirmative vote of seventy-five percent
of the voting power of the issued and outstanding capital stock of the
Corporation present, in person or by proxy, at such meeting, excluding all
Voting Securities owned beneficially, directly or indirectly, by any Acquiring
Entity.
<PAGE> 10
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ARTICLE XIV
The election of directors need not be by written ballot.
ARTICLE XV
The Board of Directors shall have power to adopt, amend and repeal the
Bylaws of the Corporation. Any Bylaws adopted by the directors under the
powers conferred hereby may be amended or repealed by the directors or by the
stockholders. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, provisions of the Bylaws of the
Corporation regulating the number, qualification and election of directors,
newly created directorships and vacancies, removal of directors and election of
directors shall not be amended or repealed and no provision inconsistent with
provisions regulating such matters in the then existing Bylaws shall be adopted
without the affirmative vote of the holders of at least seventy-five percent of
the voting power of all the shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least seventy-five percent
of the voting power of all the shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required to alter, amend, adopt any provision inconsistent with or
repeal this Article XV.
ARTICLE XVI
This Certificate of Incorporation may be amended from time to time as
provided in the Delaware General Corporation Law, as amended from time to time.
IN WITNESS WHEREOF, ProMedCo Management Company has caused this
certificate to be signed by _____________, its President, who hereby
acknowledges under penalties of perjury that the facts herein stated are true
and that this certificate is the act and deed of the Corporation, this ____ day
of _________, 199_.
PROMEDCO MANAGEMENT COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PROMEDCO MANAGEMENT COMPANY
ARTICLE 1
OFFICES
SECTION 1.1 Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle, and the name of its registered agent shall be The Corporation
Trust Company.
SECTION 1.2 Places of Business. The corporation may have offices at
such places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meeting. All meetings of stockholders for the
election of directors shall be held at the principal business office of the
corporation or at such other place, either within or without the State of
Delaware, as shall be designated from time to time by the caller of the meeting
and stated in the notice of the meeting.
SECTION 2.2 Annual Meeting. The annual meeting of stockholders shall
be held at such date and time as shall be designated by the Board of Directors
and stated in the notice of the meeting.
SECTION 2.3 Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of such meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Failure to comply with this Section shall not
affect the validity of any action taken at such meeting.
SECTION 2.4 Special Meetings. Special meetings of stockholders of the
Corporation may be called only by (i) the Chairman, (ii) the President or (iii)
the Board of Directors pursuant to a
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resolution approved by a majority of the entire Board of Directors.
SECTION 2.5 Notice of Meeting. Written or printed notice of the
annual, and each special meeting of stockholders, stating the time, place and
purpose or purposes thereof, shall be given to each stockholder entitled to
vote thereat, not less than ten (10) nor more than fifty (50) days before the
meeting. Such further or earlier notice shall be given as may be required by
law. A stockholder's attendance at a meeting shall constitute a waiver of
notice by such stockholder, unless such attendance is for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, or called or
convened as herein required. In addition, a stockholder may waive notice of a
meeting in writing signed by him as provided in Section 5.2 hereof.
SECTION 2.6 Notice of Stockholder Business. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice
(other than a request for inclusion of a proposal in the Corporation's proxy
statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934) must
be delivered to or mailed and received at the principal executive offices of
the Corporation, not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and record address of the stockholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section. The Chairman of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was
not properly brought before the meeting and in accordance with the provisions
of this Section, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted. At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
SECTION 2.7 Quorum. The holders of a majority of the voting power of
the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders for the transaction of business except as
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otherwise provided by statute or by the Certificate of Incorporation.
Notwithstanding the other provisions of the Certificate of Incorporation or
these bylaws, the holders of a majority of the voting power of the shares of
capital stock entitled to vote thereat, present in person or represented by
proxy, whether or not a quorum is present, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 2.8 Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the voting power of the
stock having voting rights present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one
upon which, by express provision of the statutes, of the Certificate of
Incorporation or of these bylaws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Every stockholder having the right to vote shall be entitled to vote in person,
or by proxy appointed by an instrument in writing subscribed by such
stockholder, bearing a date not more than three years prior to voting, unless
such instrument provides for a longer period, and filed with the Secretary of
the corporation before, or at the time of, the meeting. If such instrument
shall designate two (2) or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at
any meeting at which their powers thereunder are to be exercised shall have and
may exercise all the powers of voting or giving consents thereby conferred, or
if only one (1) be present, then such powers may be exercised by that one (1);
or, if any even number attend and a majority do not agree on any particular
issue, each proxy so attending shall be entitled to exercise such powers in
respect of the same portion of the shares as he is of the proxies representing
such shares.
SECTION 2.9 Voting of Stock of Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the bylaws of such corporation may prescribe, or in the
absence of such provision, as the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by
the executor or administrator of such deceased person, either in person or by
proxy. Shares standing in the name of a guardian, conservator or trustee may
be voted by such fiduciary, either in person or by proxy, but no such fiduciary
shall be entitled to vote shares held in such fiduciary capacity without a
transfer of such shares into the name of such fiduciary. Shares standing in
the name of a receiver may be voted by such receiver. A stockholder whose
shares are pledged shall be entitled to vote such shares, unless in the
transfer by the pledgor on the books of the corporation, he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee, on his
proxy, may represent the stock and vote thereon.
SECTION 2.10 Treasury Stock. The corporation shall not vote, directly
or indirectly, shares of its own stock owned by it; and such shares shall not
be counted in determining the total number of outstanding shares.
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SECTION 2.11 Fixing Record Date. The Board of Directors may fix in
advance a date, not exceeding sixty (60) days preceding the date of any meeting
of stockholders, or the date for payment of any dividend or distribution, or
the date for the allotment of rights, or the date when any change, or
conversion or exchange of capital stock shall go into effect, as a record date
for the determination of the stockholders entitled to notice of, and to vote
at, any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect of any such change, conversion
or exchange of capital stock, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, any such meeting and any
adjournment thereof, or to receive payment of such dividend or distribution, or
to receive such allotment of rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
SECTION 2.12 Balloting. Upon the demand of any stockholder, the vote
upon any question before the meeting shall be by ballot. At each meeting
inspectors of election may be appointed by the presiding officer of the
meeting, and at any meeting for the election of directors, inspectors shall be
so appointed on the demand of any stockholder present or represented by proxy
and entitled to vote at the election of Directors. No director or candidate
for the office of director shall be appointed as such inspector. The number of
votes cast by shares in the election of directors shall be recorded in the
minutes.
SECTION 2.13 Record of Stockholders. The Corporation shall keep at its
principal business office, or the office of its transfer agents or registrars,
a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.1 Powers. The business and affairs of the corporation shall
be managed by the Corporation's board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
SECTION 3.2 Number, Qualification and Term. The number of directors
which shall constitute the whole Board Shall be fixed and determined from time
to time by the Board of Directors and shall be set forth in the notice of any
meeting of stockholders held for the purpose of electing directors. The
Directors shall be divided into three classes, designated Class I, Class II and
Class III which expire in successive years. All classes shall be as nearly
equal in number as possible. At each annual meeting of stockholders, Directors
to replace those whose terms expire at such annual meeting shall be elected to
hold office until the third succeeding annual meeting. Each Director shall
hold office until the expiration of his or her term and until his-or her
successor is elected and qualified or until his or her earlier death,
resignation or removal. The number of directors may be decreased from time to
time; however, no such decrease shall have the effect of shortening the term of
any incumbent director. If the number of Directors is changed, any newly
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created directorships or any decrease in directorships shall be so apportioned
among the classes as to make all classes as nearly equal as possible.
SECTION 3.3 Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section shall be
eligible for election as Directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
by or at the direction of the Board of Directors by any nominating committee or
person appointed by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such person's written consent to
being named in the proxy statement as a nominee and to serving as a Director if
elected; and (b) as to the Stockholder giving the notice (i) the name and
record address of such stockholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such stockholder. No person
shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
SECTION 3.4 Vacancies, Additional Directors and Removal From Office.
If any vacancy occurs in any position on the Board of Directors caused by the
death, resignation, retirement, disqualification or removal from office of such
director, or otherwise, or if any new directorship is created, a majority of
the directors then in office, though less than a quorum, or a sole remaining
director, may chose a successor to fill the newly created directorship; and a
director so chosen shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until his successor shall be duly elected and shall qualify,
unless sooner displaced. Any director may be removed for cause at any duly
constituted special meeting of stockholders duly called and held for such
purpose by the affirmative vote of seventy-five percent (75%) of the voting
power of the issued and outstanding capital stock of the Corporation. This
section may not be amended except upon the affirmative vote of stockholders
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holding at least (i) seventy-five percent (75%) of the voting power of the
issued and outstanding capital stock of the Corporation.
SECTION 3.5 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such times and places as may be
designated from time to time as may be determined by the Board of Directors.
SECTION 3.6 Special Meeting. A special meeting of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
The Chairman or President so calling, or the directors so requesting, any such
meeting shall fix the time and any place, either within or without the State of
Delaware, as the place for holding such meeting.
SECTION 3.7 Notice of Special Meetings. Written notice of special
meetings of the Board of Directors shall be given to each director at least
twenty-four (24) hours prior to the time of such meeting. Any director may
waive notice of any meeting. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the purpose of objecting to the transaction or any business
because the meeting is not lawfully called or convened. Except as may be
otherwise provided by law, the Certificate of Incorporation or these bylaws
neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting, except that notice shall be given of any proposed
amendment to the bylaws if it is to be adopted at any special meeting.
SECTION 3.8 Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by law, the Certificate of
Incorporation or these bylaws. If a quorum shall not be present at any meeting
of the Board of Directors, the directors present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.9 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof as provided in Article IV of these bylaws, may be taken without a
meeting, if a written consent thereto is signed by all members of the Board or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
SECTION 3.10 Telephonic Meetings. Unless otherwise restricted by law,
the Certificate of Incorporation, or these Bylaws, members of the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
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SECTION 3.11 Compensation of Directors. The Board of Directors shall
have authority to determine, from time to time, the amount of compensation, if
any, which shall be paid to its members for their services as Directors and as
members of committees of the Board of Directors. The Board of Directors shall
also have power in its discretion to provide for and to pay to Directors
rendering services to the corporation not ordinarily rendered by Directors as
such, special compensation appropriate to the value of such services as
determined by the Board of Directors from time to time. Nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 3.12 Conflict of Interest. The Corporation shall not enter
into any transaction in which a director has, directly or indirectly, a
material financial interest potentially or actually in conflict with the
interests of the Corporation without the prior approval of (a) a majority of
the members of the Board of Directors who have no direct or indirect material
financial interest in the transaction, based upon their finding that the
transaction is on terms no less favorable to the Corporation than would be
available to the Corporation in a transaction with an unrelated party, or (b)
by the holders of a majority of such outstanding shares of the Corporation's
common stock as are neither (i) held by or voted under the control of a
director or officer with a direct or indirect financial interest in the
transaction in question nor (ii) held by or voted under the control of any
entity in which a director or officer has a material financial interest or is a
general partner. For purposes of this Section 3.12, a director or officer has
an indirect interest in a transaction if he is a director, officer, general
partner or trustee of, or has a material financial interest in, an entity which
is a party to the transaction.
ARTICLE 4
COMMITTEE OF DIRECTORS
SECTION 4.1 Designation, Powers and Name. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one (1) or
more committees, including, if they shall so determine, an Executive Committee,
each such committee to consist of two (2) or more of the directors of the
corporation. The committee shall have and may exercise such of the powers of
the Board of Directors in the management of the business and affairs of the
corporation as may be provided in such resolution. The committee may authorize
the seal of the corporation to be affixed to all papers which may require it;
provided, however, that in no event shall any such committee have any power or
authority in reference to (i) amending the Certificate of Incorporation, (ii)
adopting an agreement of merger or consolidation, (iii) recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
corporation's property and assets, (iv) recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, (v) amending
the bylaws of the corporation, or (vi) unless specifically so authorized by
resolution passed by a majority of the whole Board of Directors, declaring a
dividend or authorizing the issuance of stock. The Board of Directors may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of such committee.
In the absence or disqualification of any member of such committee or
committees,
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any other member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Such committee or committees
shall have such name or names and such limitations of authority as may be
determined from time to time by resolution adopted by the Board of Directors.
SECTION 4.2 Minutes. Each committee of the Board of Directors shall
keep regular minutes of its proceedings and report the same to the Board of
Directors when required except that the minutes of the Executive Committee
shall be reported to the Board of Directors on a regular basis.
SECTION 4.3 Compensation. Members of special or standing committees
may be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
ARTICLE 5
NOTICE
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions
of the statutes, the Certificate of Incorporation or these bylaws, notice is
required to be given to any director, member of any committee or stockholder,
such notice shall be in writing and delivered personally or mailed to such
director, member or stockholder; provided that in the case of a director or a
member of any committee such notice may be given orally or by telephone or
telegram. If mailed, notice to a director, member of a committee or
stockholder shall be deemed to be given when deposited in the United States
mail first class in a sealed envelope, with postage thereon prepaid, addressed,
in the case of a stockholder, to the stockholder at the stockholder's address
as it appears on the records of the corporation or, in the case of a director
or a member of a committee, to such person at his business address. If sent by
telegram, notice to a director or member of a committee shall be deemed to be
given when the telegram, so addressed, is delivered to the telegraph company.
SECTION 5.2 Written Waiver. Whenever any notice is required to be
given under the provisions of the statutes, the Certificate of Incorporation or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE 6
OFFICERS
SECTION 6.1 Officers. The corporation shall have a President and a
Secretary and such other officers and assistant officers as the board may deem
desirable to conduct the affairs of the corporation. In the event there is a
Chairman of the Board, that person shall ipso facto be President of the
corporation until and unless a person is elected President. Any two or more
offices may be held by the same person. No officer need be a Stockholder or a
Director.
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SECTION 6.2 Powers and Duties of Officers. The officers of the
corporation shall have the powers and duties generally ascribed to the
respective offices, and such additional authority or duty as may from time to
time be established by the Board of Directors.
SECTION 6.3 Removal and Resignation. Any officer appointed by the
Board of Directors may be removed by the Board of Directors whenever, in the
judgment of the Board of Directors, the best interests of the corporation will
be served thereby. Any officer may resign at any time by giving written notice
to the corporation. Any such resignation shall take effect at the date of
receipt of such notice or at a later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 6.4 Term and Vacancies. The officers of the corporation shall
hold office until their successors are elected or appointed, or until their
death, resignation, or removal from office. Any vacancy occurring in any
office of the corporation by death, resignation, removal, or otherwise, may be
filled by the Board of Directors.
SECTION 6.5 Compensation. The salaries of all officers of the
corporation shall be fixed by the Board of Directors. The Board of Directors
shall have the power to enter into contracts for the employment and
compensation of officers on such terms as the Board of Directors deems
advisable. No officer shall be disqualified from receiving a salary or other
compensation by reason of the fact that he or she is also a Director of the
corporation.
ARTICLE 7
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.1 Contracts. The Board of Directors may authorize any
officer, officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 7.2 Checks, Etc. All checks, demands, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers or
such agent or agents of the corporation, and in such manner, as shall be
determined by the Board of Directors.
SECTION 7.3 Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE 8
CERTIFICATES OF STOCK
SECTION 8.1 Issuance. Each stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificates shall
be in such form or forms as comply with the requirements
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of law and the Certificate of Incorporation and as the Board of Directors shall
approve. The certificates shall be issued in numerical order and shall be
entered in the books of the corporation as they are issued. Such certificates
shall exhibit the holder's name and number of shares and shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary.
If any certificate is countersigned (1) by a transfer agent other than the
corporation or any employee of the corporation, or (2) by a registrar other
than the corporation or any employee of the corporation, any other signature on
the certificate may be a facsimile. In the event any officer or officers who
have signed or whose facsimile signature or signatures have been placed upon
such certificate shall have ceased to be such officer or officers before such
certificate is issued, it may be adopted and issued by the Corporation with the
same effect as if he or they had not ceased to be such officer or officers as
of the date of its issuance, and issuance and delivery thereof by the
corporation shall constitute adoption thereof by the corporation. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designations, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and rights shall be set forth in full or summarized on the face or
back of the certificate which the corporation shall issue to represent such
class of stock; provided that, except as otherwise provided by statute, in lieu
of the foregoing requirements there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or Series
of stock, a statement that the corporation will furnish to each stockholder who
so requests the designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights.
All certificates surrendered to the corporation for transfer shall be canceled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, stolen, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and with such indemnity, if any, to the
corporation as the Board of Directors may prescribe. Certificates shall not be
issued representing fractional shares of stock.
SECTION 8.2 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed, or both.
SECTION 8.3 Transfers. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the
books of the corporation by the registered
<PAGE> 11
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holder thereof, or by his attorney thereunto authorized by power of attorney
and filed with the Secretary of the corporation or the Transfer Agent.
SECTION 8.4 Registered Stockholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
SECTION 8.5 Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all stock certificates to bear the signature of a transfer agent or
registrar or both.
ARTICLE 9
DIVIDENDS
SECTION 9.1 Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 9.2 Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 Seal. The corporate seal, if any, shall have inscribed
thereon the name of the corporation, and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
SECTION 10.2 Books. The books of the corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at
the Chief Executive Office of the corporation, or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 10.3 Endorsement of Stock Certificates. Subject to the
specific directions of the Board, any share or shares of stock issued by any
other corporation and owned by the corporation (including reacquired shares of
the corporation) may, for sale or transfer, be endorsed in the name
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of the corporation by the President or any Vice-President, and attested or
witnessed by the Secretary or any Assistant Secretary either with or without
affixing the corporation seal.
SECTION 10.4 Voting of Shares Owned By the Corporation. Unless
otherwise ordered by the Board of Directors, the President, the Secretary or
the Treasurer, or any of them, shall have full power and authority on behalf of
the corporation to attend, to vote and to grant proxies to be used at any
meeting of stockholders of such other corporation in which the corporation may
hold stock. The Board of Directors may confer like powers upon. any other
person or persons.
SECTION 10.5 Fiscal Year; Accounting Election. The fiscal year of and
the method of accounting for the corporation shall be as the Board of Directors
shall at any time determine.
SECTION 10.6 Indemnification of Officers, Directors and Agents.
(a) Third Party Actions. The Corporation shall indemnify any person
who was or is a party or is or was threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or not taken by such person
while acting in any such capacity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
(whether with or without court approval) actually and reasonably
incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) Actions By or In the Right of the Corporation. The Corporation
shall indemnify any person who was or is a party or is or was
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken
or not taken by him while acting in any such capacity, against
expenses (including attorneys' fees) actually and reasonably
<PAGE> 13
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incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation. The termination of any such threatened or
actual action or suit by a settlement or by an adverse judgment
or order shall not of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best
interests of the Corporation. Nevertheless, there shall be no
indemnification with respect to expenses incurred in connection
with any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the Corporation unless, and only
to the extent that, the Court of Chancery or the court in which
such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) Absolute Right. To the extent that a director, officer, employee
or agent of the Corporation, or a person serving in any other
enterprises at the request of the Corporation, shall have been
successful on the merits or otherwise in defending against any
threatened or actual action, suit or proceeding referred to in
clause (a) of this Section 10.6 or any threatened or actual
action or suit referred to in clause (b) of this Section 10.6, or
in defense of any claim, issue or matter therein, he shall be
indemnified against all expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Determination of Conduct. Any indemnification under clause (a)
or (b) of this Section 10.6 (unless ordered by a court), shall be
made by the Corporation only as authorized in the specific cases
upon a determination that indemnification is proper in the
circumstances because the person claiming indemnification has met
the applicable standard of conduct set forth in such sections.
Such determination shall be made (1) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, or (2) if such
quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel
in a written opinion, or (3) by the stockholders.
(e) Payment of Expenses in Advance. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of a
director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Section
10.6.
<PAGE> 14
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(f) Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under the provisions of this Section 10.6.
(g) Definition. For purposes of this Section 10.6, references to
"the Corporation" shall include, in addition to the resulting
Corporation, any constituent corporation (including nay
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or who was a
director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the
provisions of this Section 10.6, with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
In addition, "the Corporation" shall also include all subsidiary
corporations owned by the Corporation.
(h) Indemnity Not Exclusive. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any other Bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation or engaged in any other
enterprise at the request of the Corporation and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
Section 10.7 Invalid Provisions. If any provision of these bylaws is
held to be illegal, invalid, or unenforceable under present or future laws,
such provision shall be fully severable; these bylaws shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision there shall be added
automatically as a part of these bylaws a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid, and enforceable.
Section 10.8 Headings. The headings used in these bylaws are for
reference purposes only and do not affect in any way the meaning or
interpretation of these bylaws.
<PAGE> 15
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ARTICLE 11
AMENDMENT
Except as otherwise provided herein, these Bylaws may be altered,
amended or repealed at any regular meeting of the Board of Directors without
prior notice or at any special meeting of the Board of Directors if notice of
such alteration, amendment or repeal be contained in the notice of such special
meeting, or by the affirmative vote of 75% of the voting power of the issued
and outstanding capital stock voting as a single class.
<PAGE> 1
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080020-005
RIGHTS AGREEMENT
Agreement, dated as of ______________, 1997
, between Professional Medical Management Company, a Delaware corporation (the
"Company"), and Harris Trust Company (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on the close of business on
the date the Company completes its initial public offering of Common Stock, and
to persons who were contractually obligated on such date to receive Common
Shares after such date (the "Record Date"), each Right representing the right to
purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
15% or more of the Common Shares of the Company then outstanding, but
shall not include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan. Notwithstanding
the foregoing, no Person shall become an "Acquiring Person" as the
result of an acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of
the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 15% or more of
the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional Common
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Shares of the Company, then such Person shall be deemed to be an
"Acquiring Person." Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer
be an Acquiring Person, as defined pursuant to the foregoing provisions
of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and
as in effect on the date of this Agreement (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has
"beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange
Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other
than the Rights subject hereto), warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote
pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the
Beneficial owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor
report or schedule); or
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<PAGE> 3
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any
of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used
with reference to a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
p.m., New York Time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 p.m., New York Time, on the
next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock, par value $0.01 per share, of
the Company. "Common Shares" when used with reference to any Person
other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth
in Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.
(i) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise)
of such entity.
(j) "Preferred Shares" shall mean shares of Series B Junior
Participating Preferred Stock, par value $0.01 per share, of the
Company having the rights, preferences and limitations set forth in
Article IV of the Certificate of Incorporation of the Company, as
amended by the Certificate of Designations attached to this Agreement
as Exhibit A.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
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<PAGE> 4
(l) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall
include, without limitation, a report or schedule filed pursuant to
Section 13(d) under the Exchange Act) by the Company or an Acquiring
Person that an Acquiring Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date (or, if the tenth date after the
Share Acquisition Date occurs before the Record Date, the Record Date), or (ii)
the tenth business day (or such later date as may be determined by action of the
Board of Directors prior to such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) of, or of the first public announcement of the
intention of any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding Common Shares for or pursuant to the terms of any such plan)
to commence, a tender or exchange offer the consummation of which would result
in any Person becoming the Beneficial Owner of Common Shares aggregating 15% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date") (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) Each record holder of Common Shares as of the close of business on
the Record Date, at the address of such holder shown on the records of the
Company, will receive an Information
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Statement that contains a summary of the Rights substantially identical to the
Summary of Rights to Purchase Preferred Shares in the form of Exhibit C hereto
(the "Summary of Rights"). Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby.
(c) Certificates for Common Shares which become outstanding prior to
the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement, between
Professional Medical Management Company and Harris Trust
Company, dated as of _____, 1996 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive office
of Professional Medical Management Company. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Professional Medical
Management Company will mail to the holder of this certificate
a copy of the Rights Agreement without charge after receipt of
a written request therefor. Under certain circumstances, as
set forth in the Rights Agreement, Rights issued to any Person
who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares prior to the
Distribution Date, any Rights associated with such Common Shares shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform
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<PAGE> 6
to usage. Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of one one-thousandths
of a Preferred Share as shall be set forth therein at the price per one
one-thousandth of a Preferred Share set forth therein (the "Purchase Price"),
but the number of such one one-thousandths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that
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<PAGE> 7
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-thousandth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on _____________, 2006 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $_______, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i)(A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a Preferred Share as are to
be purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated
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by such holder and (iv) when appropriate, after receipt, deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall he issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any Preferred
Shares held in its treasury, the number of Preferred Shares that will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the Preferred Shares (and, following the Distribution
Date, Common Shares and/or other securities) issuable and deliverable upon the
exercise of the Rights are listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the Distribution Date on which the
consideration to be delivered by the Company upon exercise of the Rights has
been determined in accordance with Section 11(a)(iii) hereof, a registration
statement under the securities Act of 1933 (the "Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the Final Expiration Date. The Company
will also take such action as may be appropriate under, or to ensure compliance
with, the securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. The Company may temporarily suspend, for a
period of time not to exceed 90 days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the
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exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not have
been obtained, or the exercise thereof shall not be permitted under applicable
law, or a registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares delivered upon exercise
of Rights shall, at the time of delivery of the certificates for such Preferred
Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions, or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
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(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-thousandths of a Preferred Share
for which a Right is then exercisable and dividing the product thereof by (y)
50% of the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be canceled.
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(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("Equivalent Preferred
Shares")) or securities convertible into Preferred Shares or Equivalent
Preferred Shares at a price per Preferred Share or Equivalent Preferred Share
(or having a conversion price per share, if a security convertible into
Preferred Shares or Equivalent Preferred Shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or Equivalent Preferred Shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or Equivalent Preferred Shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purposes of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of
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<PAGE> 12
evidences of indebtedness or assets (other than a regular quarterly cash
dividend or a dividend payable in Preferred Shares) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price of the
Preferred Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), or such
other system then in use, or, if on any such date the Security is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
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<PAGE> 13
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one thousand. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
Share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in paragraphs (a) through (c), inclusive, of this
Section 11, and the provisions of Sections 7, 9, 10 and 13 hereof with respect
to the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by
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(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thous andths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thous andths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one one-millionth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-thousandths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-thousandth of the then par value, if any, of
the Preferred Shares issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
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(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-thousandths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-thousandths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.
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Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time on or after the
date that any Person shall become an Acquiring Person, (a) the Company shall
consolidate with, or merge with and into, any other Person, (b) any Person shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (i) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (A) multiplying the then current Purchase Price by the
number of one one-thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such other Person (determined pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation, merger,
sale or transfer; (ii) the issuer of such Common Shares shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company," as used in this Agreement, shall thereafter
be deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in
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<PAGE> 17
cash equal to the same fraction of the current market value of a whole Right.
For the purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-thousandth of a Preferred
Share may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided in this Section 14).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, except the rights of action given to the Rights Agent under Section
18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders
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<PAGE> 18
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by
any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company shall
use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
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<PAGE> 19
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, and its
officers, agents and directors for, and to hold each of them harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent or such indemnified party in connection with the acceptance
or administration of this Agreement or the exercise or performance of its duties
hereunder, including the costs and expenses of defending against any claim of
liability in the premises.
The Rights Agent shall be protected by the Company and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement or the exercise or
performance of its duties hereunder in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Rights Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Rights Agent has been advised of the likelihood of such loss or damage
and regardless of the form of the action.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the
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<PAGE> 20
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, that such corporation would he eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations shall be read into this Agreement against the Rights
Agent) upon the following terms and conditions, by all of which the Company and
the holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company) and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person, Affiliate or Associate and the determination of
current per share market price) be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by
a certificate signed by any person believed in good faith by the Rights
Agent to be one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the
Secretary or any Assistant Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full authorization to
the Rights Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate.
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<PAGE> 21
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for consequential damages arising from its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only.
(e) The Rights Agent is serving as an administrative agent
and, accordingly, shall not be under any responsibility in respect of
the validity of any provision of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent)
or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for
any breach by the Company of any covenant or condition contained in
this Agreement or in any Right Certificate; nor shall it be responsible
for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Section 3, 11, 13, 23 or 24 hereof, or
the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice to the Rights Agent
that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued
pursuant to this Agreement or any Right Certificate or as to whether
any Preferred Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of
this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any person believed in good faith by the Rights Agent to
be one of the Chief Executive Officer, the President, any Vice
President, the Secretary, any Assistant Secretary, or the Treasurer of
the Company, and to apply to such officers for advice or instructions
in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while
waiting for those instructions.
Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in
writing any action proposed to be taken or omitted by the Rights Agent
under this Agreement and the date on or after which such action
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<PAGE> 22
shall be taken or such omission shall be effective. The Rights Agent
shall not be liable for any action taken by, or omission of, the Rights
Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not
be less than ten Business Days after the date any officer of the
Company actually receives such application, unless any such officer
shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an
omission), the Rights Agent shall have received written instructions in
response to such application subject to the proposed action or omission
and/or specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights
or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract
with or lend money to the Company or otherwise act as fully and freely
as though it were not Rights Agent under this Agreement. Nothing herein
shall preclude the Rights Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, (a) shall be
a corporation organized and doing business under the laws of the United States
or of the State of New York (or of any other state of the United States so long
as such corporation is authorized to do business as a banking institution in the
State of New York), in good standing, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or
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<PAGE> 23
examination by federal or state authority and (b) which, together with its
parent company, has at the time of its appointment as Rights Agent a combined
capital and surplus of at least $50 million. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company may,
at its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price"). The redemption of the Rights by the Board of Directors
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or
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<PAGE> 24
in Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common share that would otherwise be issuable upon exchange of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
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<PAGE> 25
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
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<PAGE> 26
[Agent]
=========================
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Professional Medical Management Company
801 Cherry Street
Suite 1450
Fort Worth, TX 76102
Attention: Corporate Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights (other than an Acquiring
Person or an Affiliate or Associate of such person). Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds in Sections
1(a) and 3 hereof to not less than the greater of (i) the sum of .001% and the
largest percentage of the outstanding Common Shares then known by the Company to
be beneficially owned by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of any
such plan) and (ii) 10%. Notwithstanding anything in this Agreement to the
contrary, no supplement or amendment that changes the rights and duties of the
Rights Agent under this Agreement shall be effective without the consent of the
Rights Agent.
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Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
Attest: PROFESSIONAL MEDICAL MANAGEMENT
COMPANY
By: By:
Title: Title:
HARRIS TRUST COMPANY
By:
Title:
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Exhibit A
CERTIFICATE OF DESIGNATIONS
OF
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Professional Medical Management Company, a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on
____________, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes
the relative rights, preferences and limitations thereof as follows:
Series B Junior Participating Preferred Stock:
Section (a) Designation of Amount. The shares of such series shall be
designated as "Series B Junior Participating Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be ________. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series B Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants, or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
Section 1 Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
B Preferred Stock with respect to dividends, the holders of shares of Series B
Preferred Stock, in preference to the holders of Common Stock of the Corporation
(the "Common Stock"), and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the
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purpose, quarterly dividends payable in cash on the last day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series B Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series B Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series B Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided, that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series B Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series B Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series B Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series B Preferred Stock entitled to receive payment of
a dividend or distribution
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declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 2 Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of voting Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of voting Common
Stock, then in each such case the number of votes per share to which holders of
shares of Series B Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of voting Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of voting
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series B Preferred Stock and the holders of shares
of voting Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of voting Common Stock as set forth herein) for taking any
corporate action.
Section 3 Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series B Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred
Stock;
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(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except dividends paid ratably on the Series B
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
B Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series B Preferred Stock, or any shares of stock ranking
on a parity with the Series B Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 4 Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 5 Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock unless,
prior thereto, the holders of shares of Series B Preferred Stock shall have
received $1,000 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series B Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to
be
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distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except distributions made ratably on the Series B Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series B Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6 Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7 No Redemption. The shares of Series B Preferred
Stock shall not be redeemable.
Section 8 Rank. The Series B Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 9 Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series B Preferred Stock
so as to affect them adversely without the affirmative vote of
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the holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock, voting together as a single class.
Section 10 Fractional Shares. Series B Preferred Stock may be issued in
fractions of a share, which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series B Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its President and attested by its Secretary this
____ day of _________, 1996.
(SEAL) H. Wayne Posey, President
Attest:
Jack C. McCaslin, Secretary
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Exhibit B
FORM OF RIGHT CERTIFICATE
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER ___________, 2006 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
This certifies that ______________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ________, 1996 (the "Rights Agreement"),
between Professional Medical Management Company, a Delaware corporation (the
"Company"), and Harris Trust Company (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 p.m, New York Time, on _____________, 2006
at the principal office of the Rights Agent, or at the office of its successor
as Rights Agent, one one-thousandth of a fully paid nonassessable share of
Series B Junior Participating Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), of the Company, at a purchase price of $_______ per one
one-thousandth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of ___________, 1996, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-thousandths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive office of the
Company and the above-mentioned office of the Rights Agent.
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This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
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WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of ____________, 19___.
PROFESSIONAL MEDICAL MANAGEMENT
COMPANY
[SEAL]
By:
President
ATTEST:
Secretary
Countersigned:
- ------------------------------
By:
Authorized Signature
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Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THE RIGHT CERTIFICATE)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _____________, 19___
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
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The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
Signature
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Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO EXERCISE RIGHTS REPRESENTED BY THE
RIGHT CERTIFICATE)
To Professional Medical Management Company
The undersigned hereby irrevocably elects to exercise
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
Dated, ____________, 19___
Signature
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Signature Guaranteed:
Signature must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
Signature
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Form of Reverse Side of Right Certificate -- continued
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
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Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
The Board of Directors of Professional Medical Management Company (the
"Company") has declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock, par value $0.01 per share
(the "Common Shares"), of the Company outstanding on the close of business on
____________, 1996 (the "Record Date"). Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series B
Junior Participating Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of the Company at a price of $_______ per one one-thousandth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and Harris Trust Company, as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date") the Rights will
be evidenced, with respect to any of the Common Share certificates outstanding
as of the Record Date, by such Common Share certificate with a copy of this
Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. 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 Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
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The Rights are not exercisable until the Distribution Date. The Rights
will expire on ______________, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares (as defined in the Rights
Agreement) or (iii) upon the distribution to holders of the Preferred Shares of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred to
above).
The number of outstanding Rights and the number of one one-thousandths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or a subdivision,
consolidation or combination of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of common stock of the
Company. In the event of liquidation, the holders of the Preferred Shares will
be entitled to a minimum preferential liquidation payment of $1,000 per share
but will be entitled to an aggregate payment of 1,000 times the payment made per
share of common stock of the Company. Each Preferred Share will have 1,000
votes, voting together with the common stock of the Company. Finally, in the
event of any merger, consolidation or other transaction in which shares of
common stock of the Company are exchanged, each Preferred Share will be entitled
to receive 1,000 times the amount received per share of common stock of the
Company. These rights are protected by customary anti-dilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-thousandth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that any person or group of affiliated persons becomes an
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person (which will thereafter be void), will thereafter have
the right to receive upon exercise that number of Common Shares having a market
value of two times the Purchase Price. In the event that, at any time on or
after the
0364621.04
080020-005 02/07/97(1)
C-2
<PAGE> 45
date that any person shall become an Acquiring Person, the Company is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price, that number of shares of
common stock of the acquiring company which at the time of such transaction will
have a market value of two times the Purchase Price.
At any time after any person becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one Common Share, or one one-thousandth of a
Preferred Share (or of a share of a class or series of the Company's preferred
stock having equivalent rights, preferences and privileges), per Right (subject
to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of the 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.
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
0364621.04
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C-3
<PAGE> 1
EXHIBIT 5
February 11, 1997
ProMedCo Management Company
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
Ladies and Gentleman:
We have acted as counsel for ProMedCo Management Company, a Delaware
corporation (the "Company"), in connection with the issuance and sale pursuant
to the Company's registration statement on Form S-1, File No. 333-10557, (the
"Registration Statement") of up to 4,600,000 shares of its Common Stock, par
value $0.01 per share (the "Shares"). Based upon our examination of such
corporate records and other documents and such questions of law as we have
deemed necessary and appropriate, we are of the opinion that the Shares have
been duly authorized and, when sold as provided in the Purchase Agreement
described in the Registration Statement, will be validly issued, fully paid,
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Dyer Ellis & Joseph PC
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[.]."
INTERIM SERVICE AGREEMENT
By and Between
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
<PAGE> 2
Table of Contents
Page No.
INTERIM SERVICE AGREEMENT................................ 1
RECITALS................................................. 1
1 - RESPONSIBILITIES OF THE PARTIES...................... 1
1.1 General Responsibilities of the Parties............. 1
1.2 ADC's Matters....................................... 2
1.3 Patient Referrals................................... 2
2. POLICY COUNCIL........................................ 2
2.1 Formation and Operation of the Policy Council....... 2
2.2 Duties and Responsibilities of the Policy Council... 2
3. OBLIGATIONS OF PROMEDCO............................... 4
3.1 Management and Administration....................... 4
3.2 Administrator....................................... 7
3.3 Expansion of Clinic................................. 8
3.4 Events Excusing Performance......................... 8
3.5 Compliance With Applicable Laws..................... 8
4. OBLIGATIONS OF ADC................................... 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..................... 9
4.9 Restrictions on Use of Clinic Facility.............. 10
4.10 ADC Employee Benefit Plans.......................... 10
4.11 Physician Powers of Attorney........................ 10
4.12 Spokesperson........................................ 10
4.13 Delegation of ADC Responsibilities.................. 10
5. RECORDS............................................... 10
5.1 Patient Records..................................... 10
5.2 Other Records....................................... 11
5.3 Access to Records................................... 11
6. FACILITIES TO BE PROVIDED BY PROMEDCO................ 11
6.1 Facilities.......................................... 11
6.2 Use of Facilities................................... 11
7. FINANCIAL ARRANGEMENTS................................ 11
7.1 Payments to ProMedCo................................ 11
7.2 Clinic Expenses..................................... 11
7.3 Accounts Receivables................................ 12
<PAGE> 3
8. INSURANCE AND INDEMNITY.............................. 12
8.1 Insurance to Be Maintained by ProMedCo.............. 12
8.2 Insurance to be Maintained by ADC................... 12
8.3 Taff Insurance Coverage............................. 12
8.4 Additional Insured.................................. 12
8.5 Indemnification..................................... 13
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.......... 13
9.1 Restrictive Covenants by ADC........................ 13
9.2 Restrictive Covenants By Current Physician Members
and Physician Employees............................ 13
9.3 Restrictive Covenants By Future Physician
Employees.......................................... 14
9.4 Physician Shareholder and Physician Employee
Liquidated Damages................................. 14
9.5 Enforcement......................................... 14
9.6 Temination of Restrictive Covenants................. 15
10. TERM; RENEWAL; TERMINATION.......................... 15
10.1 Effect of Execution................................ 15
10.2 Term and Renewal................................... 15
10.3 Extension Period................................... 15
10.4 Termination by ADC................................. 15
10.5 Termination by ProMedCo............................ 16
10.6 Actions After Termination.......................... 16
I I - DEFINITIONS
11.1 Net Clinic Revenues................................ 17
11.2 Dignbution Funds................................... 17
11.3 ProMedCo Distribution.............................. 17
11.4 Clinic............................................. 17
11.5 Clinic Facility.................................... 17
11.6 Clinic Expenses.................................... 17
11.7 Clinic Expenses shall not include.................. 18
11.8 Risk Pool Surpluses................................ 19
11.9 Risk Pool Cost of Care............................. 19
11-10 Opening Balance Sheet.............................. 19
11-11 Technical Employees................................ 19
11.12 Physician Members.................................. 19
11.13 Physician Employees................................ 19
11.15 ADC Employees...................................... 19
11-16 Adjustments........................................ 19
12. GENERAL PROVISIONS.................................. 20
12.1 Independent Contractor............................. 20
12.2 Other Contractual Arrangement...................... 20
12.3 Proprietary property............................... 20
12.4 Cooperation........................................ 21
<PAGE> 4
12.5 Licenses, Permits and Certificates................. 21
12.6 Compliance with Rules, Regulations and Laws........ 21
12.7 Generally Accepted Accounting Principles (GAAP).... 21
12.8 Notices............................................ 21
12.9 Attorneys' Fees.................................... 21
12.10 Severability....................................... 22
12.11 Arbitration........................................ 22
12.12 Construction of Agreement.......................... 22
12.13 Assignment and Delegation.......................... 22
12.14 Confidentiality.................................... 22
12.15 Waiver............................................. 22
12.16 Headings........................................... 23
12.17 No Third Party Beneficiaries....................... 23
12.18 Time is of the Essence............................. 23
12.19 Modifications of Agreement for
Prospective Legal Events........................ 23
12.20 Whole Agreement; Modification...................... 23
<PAGE> 5
INTERIM SERVICE AGREEMENT
This Interim Service Agreement ("Agreement") dated as of January 19,
1996, between ProMedCo of Abilene, Inc., a Texas corporation ("ProMedCo") which
is an affiliate of ProMedCo, Inc., a Texas corporation ("Parent") and Abilene
Diagnostic Clinic, P.L.L.C., a Texas professional limited liability company
("ADC").
RECITALS:
WHEREAS, ADC is a multi-specialty group medical practice in Abilene,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, Abilene Diagnostic Clinic Associates, P.A. ("PA"), a Texas
professional association, has previously entered into that certain Practice
Management Agreement dated as of October 13, 1993, with Southwestern Health
Development Corporation (" SHDC ") and that certain Practice Management
Agreement dated the 20th day of June, 1994, with Abilene Medical Management
Services ("AMMS") (collectively the "Hospital Agreements") whereby SHDC and AMMS
provide certain clerical, medical records, billing and collection, receptionist,
transcription, and switchboard services to PA;
WHEREAS, ADC desires and intends to assume the Hospital Agreements and
to be bound by the terms of the Hospital Agreements and that ProMedCo intends to
enter into this Agreement subject to the Hospital Agreements and not to
interfere with the Hospital Agreements; and
WHEREAS, subject to the terms and conditions hereof, ADC desires to
engage ProMedCo to provide to ADC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, ADC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide ADC with
offices, facilities, equipment, supplies, non-professional support personnel,
and management and financial advisory services. ADC shall be responsible for the
recruitment and hiring of physicians, Technical Employees and all issues related
to patient care and documentation thereof.
<PAGE> 6
ProMedCo shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of ADC and their patients.
1.2 ADC's Matters. ADC shall maintain sole discretion and authority
over the financial matters relative to it's own professional limited liability
company. It shall set compensation levels for ADC Employees. ADC will also be
responsible for all other matters pertaining to the operation of ADC.
1.3 Patient Referrals. The parties agree that the benefits to ADC 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 to any of ADC's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
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 "Clinic"). The Policy
Council shall consist of eight (8) members. ProMedCo shall designate, at it's
sole discretion, four (4) members of the Policy Council. ADC at it's sole
discretion shall designate four (4) members. Members of the Policy Council shall
be entitled to attend and vote by proxy at any meetings of the Policy Council so
long as at least one such representative from each party is present in person.
Except as may otherwise be provided, the act of a majority of the members of the
Policy Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. Subject to the
terms of the Hospital Agreements, the Policy Council shall have the following
duties and responsibilities:
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
and Physician Extenders required for the efficient operation of the Clinic and
ADC shall determine the individual physicians to be hired to fill such
positions. The approval of the Policy Council shall be required for any
variations to the restrictive covenants in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget,
in consultation with ADC and ProMedCo, the Policy Council shall review
and adopt the fee schedule for all physician and ancillary services
rendered by the Clinic.
2.2.3 Administrator. The selection, retention, and termination of the
Administrator pursuant to Section 3.1 shall be the responsibility of the Policy
Council. If either party is dissatisfied with the services provided by the
Administrator, it shall refer the matter to the Policy Council. The 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. The Policy
Council shall be responsible for approving and
<PAGE> 7
amending the Employment Agreement of the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality
of such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility 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 and ADC shall 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 ADC.
2.2.6 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. Final authorization of
capital expenditures shall require the approval of ADC.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance
of ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, including any medical director fees,
whether now or in the future, shall be subject to the approval of the Policy
Council.
2.2.10 Advertising. All advertising and marketing of the services
performed at the Clinic 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.
2.2.11 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 ADC or ProMedCo.
2.2.12 Amendment of Hospital Agreements. The Policy Council shall
approve any amendments to either of the Hospital Agreements.
3. OBLIGATIONS OF PROMEDCO
<PAGE> 8
Subject to the terms of the Hospital Agreements, during the term of
this Agreement, ProMedCo 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 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. ADC will not act in a
manner which would prevent ProMedCo from efficiently managing the Clinic
Facility operations in accordance with the terms of this Agreement and the
policies of the Policy Council. ADC, through its ADC Employees, will provide all
medical services. ProMedCo will have no authority, directly or indirectly, to
perform, and will not perform any medical function. ProMedCo may, however,
advise ADC 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. Subject to the terms of the Hospital
Agreements, ADC hereby appoints ProMedCo as the sole and exclusive manager and
administrator of all non-medical functions and services related to ADC's
services at the Clinic. ADC shall perform all medical services, and ProMedCo
shall have no authority, directly or indirectly, to perform, and will not
perform any medical function. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with ADC's services at the Clinic.
ProMedCo shall hire and supervise an Administrator, subject to the approval of
the Policy Council, to manage and administer all of the day-to-day business
functions of ProMedCo subject to the terms of the Hospital Agreements, including
without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to ADC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of ADC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo 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 ADC 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 in
connection with the audit of the financial statements of Parent. If ADC desires
an audit in addition to the audit provided by ProMedCo, such an audit would be
at ADC's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo 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, with those personnel performing
patient care
<PAGE> 9
services subject to the professional supervision of ADC. If ADC is dissatisfied
with the services of any person, ADC shall consult with ProMedCo. ProMedCo 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's obligations regarding staff
shall be governed by the overriding principle and goal of providing high quality
medical care.
3.1.4 Quality and Utilization Management. ProMedCo will assist ADC in
fulfilling its obligation to its patients to maintain high quality and efficient
medical and professional services, including patient satisfaction programs,
employee education, outcomes analysis, utilization programs, clinical protocol
development and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo 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 shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are reasonably necessary to deliver quality Clinic
services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for
marketing, negotiation, and administering all managed care contracts, subject to
the provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without ADC's
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. ADC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in ADC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in ADC's name and on its behalf, (iii) to
receive payments from Blue Shield, Medicare, Medicaid, payments from health
plans, and all other third party payors; (iv) to receive the cash proceeds of
any accounts receivable subject to the Hospital Agreements; (v) to take
possession of and endorse in the name of ADC (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 ADC to collect any accounts and monies owed to the Clinic, to
enforce the rights of ADC 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.
3.1.9 Deposit of Net Clinic Revenues. During the term of
this
<PAGE> 10
Agreement, all Net Clinic Revenues collected resulting from the operations of
the Clinic shall be deposited directly into a bank account of which ADC shall be
the owner ("Account"). ProMedCo and ADC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo or ADC. ADC hereby appoints ProMedCo as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected. ADC
covenants, and shall cause all ADC Employees to covenant, to forward any
payments received with respect to Net Clinic Revenues for services provided by
ADC and ADC Employees to ProMedCo for deposit. ADC and ProMedCo 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.
3.1.10 Management information Systems/Computer Systems. ProMedCo shall
supervise and provide for information systems that are necessary and appropriate
for the operation of the Clinic as determined by the Policy Council.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or
render to ADC such business, legal and financial management consultation and
advice as may be reasonably required or requested by ADC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to ADC or any
employee or agent of ADC.
3.1.12 Insurance Products. ProMedCo shall negotiate for and cause
premiums to be paid with respect to the insurance which is necessary and
appropriate for the operation of the Clinic as determined by the Policy Council.
Premiums and deductibles with respect to such policies shall be a Clinic
Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist ADC 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, ADC 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 and
accepted by ADC shall be the sole employees of ADC 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 shall operate
and supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with
and implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. ProMedCo shall
implement all advertising and public relations activities which are
approved by the Policy Council.
<PAGE> 11
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
of an 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 ADC 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 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.
3.1.18 Payments. ProMedCo shall make the payments required under
Section 7 "Financial Arrangements" of this Agreement.
3.2 Administrator. ProMedCo shall hire and employ the Administrator,
pursuant to the instructions of the Policy Council as described in Section
2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting ADC 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 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, ProMedCo
may acquire other physician practices for integration into ADC as approved by
the Policy Council. ADC will cooperate with ProMedCo in such efforts and use its
best efforts to assist ProMedCo with respect thereto. Without limiting the
generality of the foregoing, ADC will not enter into any agreements with respect
to any such matter without the prior consent of ProMedCo. ProMedCo shall not
establish, operate, manage, or in any way own or operate any medical facility,
clinic, or other health care facility providing services within a radius of
twenty-five (25) miles of the Taylor County Courthouse in Abilene, Texas, or
within a radius of twenty-five (25) miles of any current or future medical
office, clinic, or other health care facility from which ADC provides medical
services, without the consent of ADC.
3.4 Events Excusing Performance. ProMedCo shall not be liable to ADC
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 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 shall comply with
all applicable federal, state and local laws, regulations and
restrictions in the conduct of its obligations under this Agreement.
4. OBLIGATIONS OF ADC
4.1 Professional Services. ADC shall provide professional
<PAGE> 12
services to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. ADC shall also ensure that each
physician associated with ADC is licensed by the State of Texas. In the event
that any disciplinary actions or medical malpractice actions are initiated
against any such physician, ADC shall immediately inform the Administrator of
such action and the underlying facts and circumstances. ADC shall carry out a
program to monitor the quality of medical care practiced, with ProMedCo's
assistance. ADC will cooperate with ProMedCo in taking steps to resolve any
utilization or quality management issues which may arise in connection with the
Clinic. The costs of any such utilization or quality management programs shall
be a Clinic Expense.
4.2 Employment Of Physician Employees. ADC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Members and Physician Employees, although at the
request of ADC, ProMedCo shall consult with ADC regarding such matters. ADC
shall enforce formal employee agreements from each of its Physician Members and
Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. Non-Clinic Expenses shall include salaries and
benefits; retirement plan contributions; health, disability and life insurance
premiums; and payroll taxes of Physician Members, Physician Employees,'and those
Physician Extenders who are not under the direct supervision of a Physician
Member or Physician Employee.
4.4 Medical Practice. ADC 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 ADC, 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. ADC shall cooperate in
the obtaining and retaining of professional liability insurance by
assuring that its Physician Members 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 ADC. These Technical
Employees will remain in the employ of ADC. As provided in Section 3.1.3.,
ProMedCo win provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. ADC shall not be liable to ProMedCo
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 ADC has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. ADC shall comply with all
applicable federal, state and local laws, regulations and restrictions
<PAGE> 13
in the conduct of its obligations under this Agreement.
4.9 Restrictions on Use of Clinic Facility. ADC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6 herein.
4.10 ADC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, ADC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) 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 "D" to this Agreement.
(b) ADC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, ADC shall not materially amend,
freeze, terminate or merge any ADC Plan without the express written consent of
ProMedCo. ADC agrees to make such changes to ADC's Plan, including the freeze,
termination, or merger of such ADC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any ADC Plan or other employee
benefit plan maintained by ADC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician Members
and Physician Employees shall be an expense of ADC. ProMedCo shall make
contributions or payments with respect to any ADC Plan, as a Clinic Expense, on
behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. ADC shall require all ADC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and ADC, appointing ProMedCo 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. ADC shall serve as spokesperson for ProMedCo, Parent
and Clinic regarding sales and development activities. The parties agree that
Drs. Arthur, Bailey, and Headstream, or such other Physician Members as the
Policy Council shall appoint, shall serve in this capacity on behalf of ADC.
4.13 Delegation of ADC Responsibilities. ADC shall delegate to
ProMedCo all duties and responsibilities it may have for the management
and administration of the Hospital Agreements, including, but not limited
to, those duties, powers, and responsibilities vested in ADC pursuant to
<PAGE> 14
the Hospital Agreements. ADC shall inform the Hospitals of this
delegation of responsibilities to ProMedCo and shall fully cooperate with
ProMedCo in effecting such delegation.
5.RECORDS
5.1 Patient Records. Upon termination of this Agreement, ADC shall
retain all patient medical records maintained by ADC or ProMedCo in the name of
ADC. ADC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by ADC.
5.2 Other Records. All records relating in any way to the
operation of the Clinic shall at all times be the property of ADC. ProMedCo
shall be authorized to obtain copies of all records, other than patient records,
relating to the operation of ADC at any reasonable time during business hours.
5.3 Access to Records. During the term of this Agreement, and
thereafter, ADC or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to ADC's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and ADC may copy any or all such records.
6. FACILITIES TO BE PROVEDED BY PROMEDCO
6.1 Facilities. ProMedCo 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
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and ADC agree that ADC, 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 Member
or a Physician Employee performs abortion procedures in any facility, ProMedCo
shall not receive any ProMedCo Distribution from the revenue generated from such
procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to ProMedCo. ADC and ProMedCo agree that the compensation
set forth herein is being paid to ProMedCo in consideration of a substantial
commitment made by ProMedCo hereunder and that such fees are fair and
reasonable. Upon execution of this Agreement, but in no event not later than the
Effective Date of this Agreement, ADC will pay ProMedCo an estimate of the
monthly amount of all Clinic Expenses paid
<PAGE> 15
in the first month of this Agreement. As payment for its services rendered to
ADC, each month beginning on the 15th day of the month following the Effective
Date of this Agreement ProMedCo shall be paid the amount of all Clinic Expenses
and the ProMedCo Distribution.
7.2 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of ADC, 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 hereby agrees to indemnify
and hold ADC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of ADC resulting from the contest of
any Clinic Expenses. Any Clinic Expenses incurred and not paid by ADC prior to
the effective date of this Agreement, and not specifically included in the
estimate pursuant to Section 7.1 above and paid by ProMedCo, shall be reimbursed
to ProMedCo by ADC within 30 days of payment by ProMedCo.
7.3 Accounts Receivables. ADC shall pledge its accounts
receivable to ProMedCo as security for payment of the amounts due to
ProMedCo from ADC.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, all necessary insurance, including, but not limited to,
comprehensive professional liability insurance for all professional employees of
ProMedCo and ADC with limits as determined reasonable by ProMedCo in its
national program, comprehensive general liability insurance and property
insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by ADC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, ADC shall maintain comprehensive
professional liability insurance with limits of not less than $300,000 per claim
and with aggregate policy limits of not less than $600,000 per physician and a
separate limit for ADC. ADC shall be responsible for all liabilities (including
without limitation deductibles and excess liabilities) not paid within the
limits of such policies. ProMedCo shall have the option, with Policy Council
approval, 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.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, ADC will cause each individual physician associated with the
Clinic to enter into an agreement with ADC that upon termination of such
physician's relationship with ADC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by ADC and the individual physicians, and ADC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such
<PAGE> 16
cover-age at the expense of ADC.
8.4 Additional Insured. ADC and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's
expense.
8.5 Indemnification. ADC shall indemnify, hold harmless and defend
ProMedCo, 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 (i)
the performance of medical services or any other acts or omissions by ADC and/or
its members, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an ADC Employee,
which claim arises out of such ADC Employees' employment relationship with ADC
or as a result of services performed by such ADC Employee, and which claim would
typically be covered by worker's compensation and (ii) any claims made by
Hospitals against ProMedCo because of ProMedCo's entering into and its
performance of the terms and conditions of this Agreement, including, but not
limited to, any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees) for alleged breach of or
tortious interference with the Hospital Agreements. ProMedCo shall indemnify,
hold harmless and defend ADC, 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 and/or its members, agents, employees and/or
subcontractors (other than ADC) during the term of this Agreement, except for
any liability, loss, damage, claim, causes of action, and expenses which might
arise in connection with the Hospital Agreements.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if ADC operates an active medical practice to which the
physicians associated with ADC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by ADC. During the term of this Agreement,
ADC shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by ADC pursuant to this Agreement anywhere within a
radius of twenty-five (25) miles of the Taylor County Courthouse in Abilene,
Texas, or within a radius of twenty-five (25) miles of any current or future
medical office, clinic or other health care facility from which ADC provides
medical services.
9.2 Restrictive Covenants By Current Physician Members and
Physician Employees. ADC shall enforce the employment agreements with its
current Physician Members and Physician Employees in a form satisfactory
to ProMedCo, pursuant to which the Physician Members and Physician
<PAGE> 17
Employees agree not to 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 ADC
pursuant to this Agreement within a radius of twenty-five (25) miles of the
Taylor County Courthouse in Abilene, Texas, or within a radius of twenty-five
(25) miles of any current or future medical office, clinic or other health care
facility from which ADC provides medical services, and for a period of
thirty-six (36) months after the first date of such Physician Shareholder's or
such Physician Employee's employment with ADC. ProMedCo shall have third-party
rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. ADC shall
obtain and enforce formal employment agreements from each of its future
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which such physicians agree not to 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 ADC pursuant to this Agreement within a radius of twenty-five
(25) miles of the Taylor County Courthouse in Abilene, Texas, or within a radius
of twenty-five (25) miles of any current or future medical office, clinic or
other health care facility from which ADC provides medical services during the
term of said Physician Employee's employment with ADC and for a period of
thirty-six (36) months after the date of their first employment with ADC.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
shall provide that the Physician Members and Physician Employees (existing or
future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of Two Hundred Thousand Dollars ($200,000.00) or such
physician's income from the practice of medicine, as reported to the Internal
Revenue Service for the previous twelve (12) months, whichever is less. The
accounting treatment of such funds shall be consistently applied and approved by
ProMedCo's independent certified public accountants and the Policy Council.
9.5 Enforcement. ProMedCo and ADC 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 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
<PAGE> 18
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.
9.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated, the rights of
ProMedCo under these restrictive covenants contained in this Section 9 shall be
null and void and of no force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Effect of Execution. By executing this Agreement, the parties
agree that the effective date of that certain Service Agreement (the "Service
Agreement") between ProMedCo and ADC executed on January 19, 1996, shall be the
later date of: (a) one year from the first day of the month following January
19, 1996; or (b) the first day of the month following the date of the initial
public offering ("IPO") of ProMedCo.
10.2 Term and Renewal. The term of this Agreement shall commence on
January 19, 1996 (the "Effective Date"), and shall continue until February 1,
1997. ProMedCo shall have the option, in its sole discretion, to extend this
Agreement for five (5) additional one (1) year periods. Upon the effective date
of that certain Service Agreement by and between ProMedCo and ADC, dated January
19, 1996 (the "Service Agreement") this Agreement shall terminate.
10.3 Extension Period. Upon the first extension of this Agreement,
ProMedCo shall be required to pay in cash the amount set forth on Exhibit E
extending this Agreement and the Effective Date of the Service Agreement, as
defined therein, shall be concurrently extended to the earlier of (i) the first
day of the month following the date of the initial public offering of Parent, or
(ii) four (4) years from the second anniversary of this Agreement. ADC shall
have the option to receive stock valued at $7 per share in lieu of the cash
amount set forth on Exhibit E, if any. Upon the second extension of this
Agreement, ProMedCo shall be required to pay in cash the amount set forth in
Exhibit E upon extending this Agreement and the Effective Date of the Service
Agreement, as defined therein, shall be concurrently extended to the earlier of
(i) the first day of the month following the date of the initial public offering
of Parent, or (ii) four (4) years from the second anniversary of this Agreement.
ADC shall have the option to receive stock valued at $7 per share in lieu of the
cash amount set forth on Exhibit E, if any.
10.4 Termination by ADC. ADC may terminate this Agreement as
follows:
10.4.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, ADC may give notice of the
<PAGE> 19
immediate termination of this Agreement.
10.4.2 In the event ProMedCo shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by ADC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of 15 days after written notice thereof, ADC may terminate this
Agreement. Termination of this Agreement pursuant to this subsection (2) by ADC
shall require the affirmative vote of 75 % of the Physician Members.
10.4.3 In the event any person or persons (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of ProMedCo,
Inc. then issued and outstanding Common Stock, or securities representing fifty
percent (50 %) or more of the combined voting power of ProMedCo, Inc. then
issued and outstanding securities, then ADC shall have the option to terminate
this Agreement, provided however, that ADC must exercise this option within
thirty (30) days following this change in ownership. Termination of this
Agreement pursuant to this Section by ADC shall require the affirmative vote of
75 % of ADC's Physician Members.
10.4.4 In the event ProMedCo shall default on any of its payments due
under any agreement between ADC and ProMedCo, and such failure to remit shall
continue 15 days after notice thereof.
10.5 Termination by ProMedCo. ProMedCo may terminate this
Agreement as follows:
10.5.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ADC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by ADC, except for the filing of a petition in
involuntary bankruptcy against ADC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.5.2 In the event ADC 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 Physician Members shall materially default in the performance of
any duty or obligation imposed upon them by this Agreement or by their
employment agreements with ADC, and such default shall continue for a period of
90 days after written notice thereof has been given to ADC and such Physician
Members by ProMedCo, ProMedCo may terminate this Agreement.
10.6 Actions After Termination. In the event that this Agreement shall
be terminated, the ProMedCo 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
<PAGE> 20
the aggrieved party to exercise any other right or remedy, at law.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean ADC's gross billings, including
ancillaries and any other revenues that have historically been recorded by ADC,
less Adjustments and less any Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean 15% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related health care services
provided by ADC and the ADC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 1665
Antilley Road, Suite 200, Abilene, Texas and 1150 N. 18th, Suite 300, Abilene,
Texas, and any substitute facility or additional facility location, whether
within or without Taylor County, as approved by the
Policy Council.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all Technical Employees, Physician
Extenders who are under the direct supervision of Physician Members or Physician
Employees and all employees of ProMedCo and Technical Employees attributable to
ADC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with ADC 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 Parent that is
allocable to Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness incurred by ProMedCo or
Parent to finance or refinance any of its obligations hereunder or
services provided hereunder;
<PAGE> 21
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses for ProMedCo's operations
and for the ADC Employees, as well as any deductibles and non-insured
expenses relating to malpractice claims;
11.6.7 AR management fees paid under the Hospital Agreements;
11.6.8 AU expenses of providing equipment and supplies or performing
all management or other services listed in Section 3 "Obligations of ProMedCo, "
as well as any other expenses which are described as "Clinic Expenses" elsewhere
in this Agreement;
11.6.9 All professional fees, including, but not limited to, legal and
accounting fees attributable to the business of ADC.
11.6.10 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement; including all usual and customary business
expenses of ADC, other than those defined in Section 4.3 above.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Those expenses defined in Section 4.3 of this Agreement;
11.7.4 Any liabilities, judgments, or settlements assessed
against ADC or Physician Members in excess of any insurance policy
limits; and
11.7.5 Expenses incurred specifically for the management of risk
pools.
11.8 Risk Pool Surpluses shall mean all hospital risk funds, specialist
risk funds, and funds from risk pools under any risk bearing or risk sharing
arrangement, after deduction of Risk Pool Cost of Care, and after making any
deductions for capitation or other risk pools that are in a deficit position.
11.9 Risk Pool Cost Of Care shall mean all claims, capitation payments,
and Incurred But Not Reported (IBNR) calculations charged against any risk pool
(defined as any hospital risk fund, specialist risk fund, and funds from risk
pools under any risk bearing or risk sharing arrangement). Risk Pool Cost Of
Care shall also include the expenses incurred specifically for the management of
risk pools.
11.10 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date prepared in accordance with GAAP
<PAGE> 22
(except for the absence of certain note information), and substantially in the
form of the attached Exhibit B.
11.11 Technical Employees shall mean technicians who provide services
in the diagnostic areas of ADC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians.
AU Technical Employees shall be ADC employees.
11.12 Physician Members shall mean any physician who is a member of
ADC, both as of the, date of this Agreement and at any future point in time.
11.13 Physician Employees shall mean any physician employed by ADC and
providing medical services to patients on behalf of ADC, who are not Physician
Members.
11.14 Physician Extenders shall mean all nonphysician professional
employees who provide direct patient care for which a billed charge is
generated.
11.15 ADC Employees shall mean all Physician Members, Physician
Employees and Technical Employees at the relevant date.
11.16 Adjustments "adjustments" shall mean any Adjustments to ADC's
gross billings for uncollectible accounts, discounts, 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 made 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 the actual
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.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that ADC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which ADC or the ADC Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of ADC unless otherwise
specifically provided for under the terms of this Agreement. ADC shall not, by
entering into and performing its obligations under this Agreement, become liable
for any of the existing obligations, liabilities, or debts of ProMedCo unless
otherwise specifically provided for under the terms of this Agreement. ProMedCo
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.
<PAGE> 23
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. The parties acknowledge and agree
that they have been advised and consent to the fact that ProMedCo, or it's
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 ADC Employees to provide consulting, medical
direction, advisory or similar services relating to activities of ProMedCo or
its affiliates in clinical areas. The parties agree that such agreement, 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, on the one hand, and such ADC Employees,
on the other hand, shall not constitute Net Clinic Revenues, or ADC
Compensation, and shall otherwise not be subject to the provisions of this
Agreement.
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 shall be the sole owner and holder of all right, title
and interest, to all intellectual property furnished by it under this Agreement,
including all computer software, copyright, services mark and trademark right to
any material or documents acquired, prepared, purchased or furnished by ProMedCo
pursuant to this Agreement. ADC 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, provided, however, that the
foregoing shall not restrict ADC fi-om distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein.
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 and ADC 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 and ADC
<PAGE> 24
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 and ADC 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 Attomeys' Fees. ProMedCo and ADC 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 the County of Taylor, 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.
12.12 Construction of Agreement. This Agreement shall be
<PAGE> 25
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 shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controller by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
ProMedCo shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall have the obligation hereunder to
assign this Agreement to a successor entity, provided ProMedCo shall have given
its prior written consent to such assignment. Except as forth above, ADC shall
not have the right to assign its rights and obligations hereunder without the
written consent of ProMedCo. ADC may not delegate any of ADC's duties hereunder,
except as expressly contemplated herein; however, ProMedCo may delegate some of
all of ProMedCo'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.
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
<PAGE> 26
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 ADC to
practice medicine in the State of Texas, ADC and ProMedCo shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between ADC and
ProMedCo. In the event it is not possible to amend this Agreement to preserve in
all material respects the underlying economic and financial arrangements between
ADC and ProMedCo, 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
ADC shall require the affirmative vote of a majority of Physician Members.
12.20 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 part'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 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. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WBEREOF, the parties hereto have executed this Agreement as of the
date and year first above written,
PROMEEDCO OF ABILENE, INC.,
Address: 801 Cherry Street - Suite 1050 Fort Worth, Texas 76102
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
By:
Name:
Title:
Address:
<PAGE> 27
1665 Antilley Road - Suite 200
Abilene, Texas 79606
<PAGE> 28
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses, or
shall be responsible for a percentage of any deficits if the Risk Pool Surpluses
are in a deficit position pursuant to Section 11.9. ProMedCo's percentage shall
be based on the cumulative risk pool savings that have occurred during the
entire term of this Agreement, including any renewals. The percentage shall be
based on the graduated scale as shown below:
Cumulative Risk Pool Surplus ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for
an additional 6 months to pay for any unanticipated claims. At the end of
that 6 months, any funds remaining from the [*]% reserved shall be distributed.
CERFTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
<PAGE> 29
Qpening Balance Sheet
Current Assets
Cash
Accounts Receivable
Prepaid
Other Current Assets
Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment
Equipment
Capitalized Lease Equipment
Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Current Maturities- Leases
Current Maturities - Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Limited Liability Company
Deferred Credits
Total Other Liabilities
<PAGE> 30
Long Term Payables Mortgages
Notes Payable
Lease Obligations
Total Long Term Payables
Members Capital Account
Contributed Capital
Accumulated Income or Deficit
Total Members Equity
TOTAL LIABILITIES AND CAPITAL ACCOUNT
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[*]."
SERVICE AGREEMENT
By and Between
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
<PAGE> 2
Table of Contents
Page No.
SERVICE AGREEMENT.................................................. 1
RECITALS........................................................... 1
1. RESPONSIBILITIES OF THE PARTIES................................. 1
1.1 General Responsibilities of the Parties..................... 1
1.2 ADC's Matters............................................... 2
1.3 Patient Referrals........................................... 2
2. POLICY COUNCIL.................................................. 2
2.1 Formation and Operation of the Policy Council............... 2
2.2 Duties and Responsibilities of the Policy Council........... 2
3. OBLIGATIONS OF PROMEDCO......................................... 4
3.1 Management and Administration............................... 4
3.2 Administrator............................................... 4
3.3 Expansion of Clinic......................................... 8
3.4 Events Excusing Performance................................. 8
3.5 Compliance With Applicable Laws............................. 8
4. OBLIGATIONS OF ADC.............................................. 9
4.1 Professional Services....................................... 9
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................................. 10
4.8 Compliance With Applicable Laws............................. 10
4.9 Restrictions on Use of Clinic Facility...................... 10
4.10 ADC Employee Benefit Plans.................................. 10
4.11 Physician Powers of Attorney................................ 10
4.12 Spokesperson................................................ 10
4.13 Delegation of ADC Responsibilities.......................... 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........................... 11
6.1 Facilities.................................................. 11
6.2 Use of Facilities........................................... 11
7. FINANCIAL ARRANGEMENTS.......................................... 12
7.1 Payments to ADC and ProMedCo................................ 12
7.2 Calculation of Payments..................................... 12
7.3 Clinic Expenses............................................. 12
7.4 Accounts Receivables........................................ 12
8. INSURANCE AND INDEMNITY......................................... 13
8.1 Insurance to Be Maintained by ProMedCo...................... 13
8.2 Insurance to be Maintained by ADC........................... 13
8.3 Tail Insurance Coverage..................................... 13
8.4 Additional Insured.......................................... 13
8.5 Indemnification............................................. 13
<PAGE> 3
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.................... 14
9.1 Restrictive Covenants by ADC................................ 14
9.2 Restrictive Covenants By Current Physician Members and
Physician Employees..................................... 14
9.3 Restrictive Covenants By Future Physician Employees......... 14
9.4 Physician Shareholder and Physician Employee Liquidated
Damages................................................. 15
9.5 Enforcement................................................. 15
9.6 Termination of Restrictive Covenants........................ 15
10. TERM; RENEWAL; TERMINATION..................................... 15
10.1 Term and Renewal............................................ 15
10.2 Termination by ADC or Its Assignees......................... 16
10.3 Termination by ProMedCo..................................... 16
10.4 Actions After Termination................................... 17
11. DEFINITIONS.................................................... 17
11.1 Net Clinic Revenues......................................... 17
11.2 Distribution Funds.......................................... 17
11.3 ProMedCo Distribution....................................... 17
11.4 Clinic...................................................... 17
11.5 Clinic Facility............................................. 17
11.6 Clinic Expenses............................................. 17
11.7 Clinic Expenses shall not include........................... 18
11.8 Risk Pool Surpluses......................................... 19
11.9 Risk Pool Cost Of Care...................................... 19
11.10 Opening Balance Sheet....................................... 19
11.11 Technical Employees......................................... 19
11.12 Physician Members........................................... 19
11.13 Physician Employees......................................... 19
11.14 Physician Extenders......................................... 20
11.15 ADC Employees............................................... 20
11.16 Effective Date.............................................. 20
11.17 Adjustments................................................. 20
12. GENERAL PROVISIONS............................................. 20
12.1 Independent Contractor...................................... 20
12.2 Other Contractual Arrangement............................... 20
12.3 Proprietary Property........................................ 21
12.4 Cooperation................................................. 21
12.5 Licenses, Permits and Certificates.......................... 21
12.6 Compliance with Rules, Regulations and Laws................. 21
12.7 Generally Accepted Accounting Principles (GAAP)............. 22
12.8 Notices..................................................... 22
12.9 Attorneys' Fees............................................. 22
12.10 Severability................................................ 22
12.11 Arbitration................................................. 22
12.12 Construction of Agreement................................... 22
12.13 Assignment and Delegation................................... 22
12.14 Confidentiality............................................. 23
12.15 Waiver...................................................... 23
12.16 Headings.................................................... 23
12.17 No Third Party Beneficiaries................................ 23
12.18 Time is of the Essence...................................... 23
12.19 Modifications of Agreement for Prospective Legal Events..... 23
12.20 Whole Agreement; Modification............................... 24
<PAGE> 4
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated as of January 19, 1996,
between ProMedCo of Abilene, Inc., a Texas corporation ("ProMedCo") which is an
affiliate of ProMedCo, Inc., a Texas corporation ("Parent") and Abilene'
Diagnostic Clinic, P.L.L.C., a professional limited liability company ("ADC").
RECITALS:
WHEREAS, ADC is a multi-specialty group medical practice in Abilene,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff,
WHEREAS, Abilene Diagnostic Clinic Associates, P.A. ("PA"), a Texas
professional association, has previously entered into that certain Practice
Management Agreement dated as of October 13, 1993, with Southwestern Health
Development Corporation ("SHDC") and that certain Practice Management Agreement
dated the 20th day of June, 1994, with Abilene Medical Management Services
("AMMS") (collectively the "Hospital Agreements") whereby SHDC and AMMS provide
certain clerical, medical records, billing and collection, receptionist,
transcription, and switchboard services to PA;
WHEREAS, ADC desires and intends to assume the Hospital Agreements and
to be bound by the terms of the Hospital Agreements and that ProMedCo intends to
enter into this Agreement subject to the Hospital Agreements and not to
interfere with the Hospital Agreements;
WHEREAS, subject to the terms and conditions hereof, ADC desires to
engage ProMedCo to provide to ADC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement; and
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
ADC, such revenues having been documented by ADC and delivered to ProMedCo prior
to the formulation and agreement of such aforementioned financial
considerations;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, ADC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide ADC
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. ADC shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of ADC
and their patients.
1.2 ADC's Matters. ADC shall maintain sole discretion and authority
over the financial matters relative to its own professional limited liability
company. It shall set compensation levels for ADC Employees. ADC will also be
responsible for all other matters pertaining to the operation of ADC.
1.3 Patient Referrals. The parties agree that the benefits to ADC 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 to any of ADC's patients in any facility or
<PAGE> 5
laboratory controlled, managed or operated by ProMedCo.
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 eight (8) members. ProMedCo shall designate, at its sole discretion,
four (4) members of the Policy Council. ADC, at its sole discretion, shall
designate four (4) members. Members of the Policy Council shall be entitled to
attend and vote by proxy at any meetings of the Policy Council so long as at
least one such representative from each party is present in person. Except as
may otherwise be provided, the act of a majority of the members of the Policy
Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. Subject to the
terms of the Hospital Agreements, the Policy Council shall have the following
duties and responsibilities.
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
and Physician Extenders required for the efficient operation of the Clinic and
ADC shall determine the individual physicians to be hired to fill such
positions. The approval of the Policy Council shall be required for any
variations to the restrictive covenants in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget, in
consultation with ADC and ProMedCo, the Policy Council shall review and adopt
the fee schedule for all physician and ancillary services rendered by the
Clinic.
2.2.3 Administrator. The selection, retention and termination of the
Administrator pursuant to Section 3.1 shall be the responsibility of the Policy
Council. If either party is dissatisfied with the services provided by the
Administrator, it shall refer the matter to the Policy Council. The 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. The Policy
Council shall be responsible for approving and amending the Employment Agreement
of the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility 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 and ADC shall 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 by ADC.
2.2.6 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 $10,000 shall require the approval of the Policy Council.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
<PAGE> 6
2.2.8 Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, including any medical director fees,
whether now or in the future, shall be subject to the approval of the Policy
Council.
2.2.10 Advertising. All advertising and marketing of the services
performed at the Clinic 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.
2.2.11 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 ADC or ProMedCo.
2.2.12 Amendment of Hospital Agreements. The Policy Council shall
approve any amendments to either of the Hospital Agreements.
3. OBLIGATIONS OF PROMEDCO
Subject to the terms of the Hospital Agreements, during the term of
this Agreement, ProMedCo 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 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. ADC will not act in a
manner which would prevent ProMedCo from efficiently managing the Clinic
Facility operations in accordance with the terms of this Agreement and the
policies of the Policy Council. ADC, through its ADC Employees, will provide all
medical services. ProMedCo will have no authority, directly or indirectly, to
perform, and will not perform any medical function. ProMedCo may, however,
advise ADC 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. Subject to the terms of the Hospital
Agreements, ADC hereby appoints ProMedCo as the sole and exclusive manager and
administrator of all non-medical functions and services related to ADC's
services at the Clinic. ADC shall perform all medical services, and ProMedCo
shall have no authority, directly or indirectly, to perform, and will not
perform any medical function. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with ADC's services at the Clinic.
ProMedCo shall hire and supervise an Administrator, subject to the approval of
the Policy Council pursuant to Section 2.2.3, to manage and administer all of
the day-to-day business functions of ProMedCo subject to the terms of the
Hospital Agreements, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to ADC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of ADC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo 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 ADC 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 in
connection with the audit of the financial statements of Parent. If ADC desires
<PAGE> 7
an audit in addition to the audit provided by ProMedCo, such an audit would be
at ADC's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo 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, with those personnel performing
patient care services subject to the professional supervision of ADC. If ADC is
dissatisfied with the services of any person, ADC shall consult with ProMedCo.
ProMedCo 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's obligations regarding
staff shall be governed by the overriding principle and goal of providing high
quality medical care.
3.1.4 Quality and Utilization Management. ProMedCo will assist ADC in
fulfilling its obligation to its patients to maintain high quality medical and
professional services, including patient satisfaction programs, employee
education, outcomes analysis, utilization programs, clinical protocol
development and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo 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 shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are reasonably necessary to deliver quality Clinic
services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for
marketing, negotiation, and administering all managed care contracts, subject to
the provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without ADC's
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. ADC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in ADC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in ADC's name and on its behalf, (iii) to
receive payments from Blue Shield, Medicare, Medicaid, payments from health
plans, and all other third party payors; (iv) to receive the cash proceeds of
any accounts receivable subject to the Hospital Agreements; (v) to take
possession of and endorse in the name of ADC (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 ADC to collect any accounts and monies owed to the Clinic, to
enforce the rights of ADC 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.
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 ADC shall be
the owner ("Account"). ProMedCo and ADC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo
<PAGE> 8
or ADC. ADC hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. ADC covenants, and shall cause
all ADC Employees to covenant, to forward any payments received with respect to
Net Clinic Revenues for services provided by ADC and ADC Employees to ProMedCo
for deposit. ProMedCo 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 ("ProMedCo Account"). ADC and ProMedCo 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 ADC that interferes with the operation of this
Section, including, but not limited to, any failure to deposit or have ProMedCo
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, 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 ADC and its ADC 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 ADC and its ADC 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 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 shall arrange for or
render to ADC such business, legal and financial management consultation and
advice as may be reasonably required or requested by ADC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to ADC or any
employee or agent of ADC.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By ADC. ProMedCo shall negotiate for and cause premiums to be paid with
respect to the insurance, which is necessary and appropriate for the operation
of the Clinic. Premiums and deductibles with respect to such policies shall be
Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist ADC 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, ADC 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 and
accepted by ADC shall be the sole employees of ADC 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 shall operate and
supervise such ancillary services as approved by the Policy Council.
<PAGE> 9
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. ProMedCo shall implement all
advertising and public relations activities that are approved by the Policy
Council.
3.1.17 Files and Records. ProMedCo 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 ADC 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, 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.
3.1.18 Payments. ProMedCo shall make the payments required under
Section 7 "Financial Arrangements" of this Agreement.
3.2 Administrator. ProMedCo shall hire and employ the Administrator,
pursuant to the instructions of the Policy Council as described in Section
2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting ADC 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 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, ProMedCo
may acquire other physician practices for integration into ADC as approved by
the Policy Council. ADC will cooperate with ProMedCo in such efforts and use its
best efforts to assist ProMedCo with respect thereto. Without limiting the
generality of the foregoing, ADC will not enter into any agreements with respect
to any such matter without the prior consent of ProMedCo. ProMedCo shall not
purchase the assets of, establish, operate, manage, or in any way own or operate
any medical facility, clinic, or other health care facility providing services
within a radius of twenty-five (25) miles of the Taylor County Courthouse in
Abilene, Texas, or within a radius of twenty-five (25) miles of any current or
future medical office, clinic, or other health care facility from which ADC
provides medical services, without the consent of ADC.
3.4 Events Excusing Performance. ProMedCo shall not be liable to ADC
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 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 shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF ADC
4.1 Professional Services. ADC shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. ADC shall also ensure that each physician
associated with ADC is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, ADC shall immediately inform the Administrator of such action
and the underlying facts and circumstances. ADC shall carry out a program to
monitor the quality of medical care practiced, with ProMedCo's assistance. ADC
will
<PAGE> 10
cooperate with ProMedCo in taking steps to resolve any utilization review or
quality management issues which may arise in connection with the Clinic. The
costs of any such utilization review or quality management programs shall be a
Clinic Expense.
4.2 Employment Of Physician Employees. ADC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Members and Physician Employees, although at the
request of ADC, ProMedCo shall consult with ADC regarding such matters. ADC
shall enforce formal employee agreements from each of its Physician Members and
Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. ADC shall be solely responsible for the
payment of all costs and expenses incurred in connection with ADC's 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; and
licensing and board certification fees of Physician Members, Physician Employees
and those Physician Extenders who are not under the direct supervision of a
Physician Member or Physician Employee.
4.4 Medical Practice. ADC 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 ADC,
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. ADC shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Members 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 ADC. These Technical
Employees will remain in the employ of ADC. As provided in Section 3.1.3.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. ADC shall not be liable to ProMedCo
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 ADC has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. ADC 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. ADC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6 herein.
4.10 ADC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, ADC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) 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 "D" to this Agreement.
<PAGE> 11
(b) ADC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, ADC shall not materially amend,
freeze, terminate or merge any ADC Plan without the express written consent of
ProMedCo. ADC agrees to make such changes to ADC's Plan, including the freeze,
termination, or merger of such ADC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any ADC Plan or other employee
benefit plan maintained by ADC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician Members
and Physician Employees shall be an expense of ADC. ProMedCo shall make
contributions or payments with respect to any ADC Plan, as a Clinic Expense, on
behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. ADC shall require all ADC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and ADC, appointing ProMedCo as attorney-in-fact for each
for the purposes set forth in Section 3.1.8 and 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. ADC shall serve as spokesperson for ProMedCo, Parent
and Clinic regarding sales and development activities. The parties agree that
Drs. Arthur, Bailey, and Headstream, or such other Physician Members as the
Policy Council shall appoint, shall serve in this capacity on behalf of ADC.
4.13 Delegation of ADC Responsibilities. ADC shall delegate to ProMedCo
all duties and responsibilities it may have for the management and
administration of the Hospital Agreements, including, but not limited to, those
duties, powers, and responsibilities vested in ADC pursuant to the Hospital
Agreements. ADC shall inform the Hospitals of the delegation of responsibilities
to ProMedCo and shall fully cooperate with ProMedCo in effecting such
delegation.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, ADC shall
retain all patient medical records maintained by ADC or ProMedCo in the name of
ADC. ADC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by ADC.
5.2 Other Records. All records relating in any way to the operation of
the Clinic which are not the property of ADC under the provisions of Section 5.1
above, shall at all times be the property of ProMedCo. ADC shall be authorized
to obtain copies of all records relating to the operation of the Clinic at any
reasonable time during business hours.
5.3 Access to Records. During the term of this Agreement, and
thereafter, ADC or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to ADC's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and ADC may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo 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
<PAGE> 12
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
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and ADC agree that ADC, 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 Member
or a Physician Employee performs abortion procedures in any facility, ProMedCo
shall not receive any ProMedCo Distribution from the revenue generated from such
procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to ADC and ProMedCo. ADC and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to ADC, each month ProMedCo
shall be paid the amount of all Clinic Expenses and the ProMedCo Distribution.
All Net Clinic Revenues after deduction of Clinic Expenses, and the ProMedCo
Distribution, shall be referred to as the "ADC Distribution. "
7.2 Calculation of Payments. ProMedCo shall pay to ADC in accordance
with the provisions of Section 7.4 the ADC 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 shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of ADC, 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 hereby agrees to indemnify
and hold ADC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of ADC 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 shall purchase the
accounts receivable of ADC arising during the previous month, by payment of
cash, or other readily available funds into an account of ADC. The consideration
for the purchase shall be an amount equal to actual charges of ADC for the
previous month, less Adjustments. The Purchase Amount shall be further reduced
by the amount due to ProMedCo for the previous month's Clinic Expenses and
ProMedCo Distribution and such reduction shall serve as payment for such month's
Clinic Expenses and ProMedCo Distribution as provided for in Section 7.1 above.
Although it is the intention of the parties that ProMedCo purchase and thereby
become owner of the accounts receivable of ADC, in case such purchase shall be
ineffective for any reason, ADC, as of the Effective Date of this Agreement,
grants and shall cause each ADC Employee to grant to ProMedCo a first priority
lien on and security interest in and to any and all interest of ADC and such ADC
Employees in any accounts receivable generated by the medical practice of ADC
and the ADC Employees or otherwise generated through the operations of the
Clinic, and all proceeds with respect thereto, to secure the payment to ProMedCo
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, ADC shall cooperate with ProMedCo and execute and deliver, and cause
each ADC Employee to execute and deliver, all necessary documents in connection
with the pledge of such accounts receivable to ProMedCo or at ProMedCo'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. To the extent ADC
<PAGE> 13
or any ADC Employee comes into possession of any payments in respect of such
accounts receivable, ADC or such ADC Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, all necessary insurance, including, but not limited to
comprehensive professional liability insurance for all professional employees of
ProMedCo and ADC with limits as determined reasonable by ProMedCo in its
national program, comprehensive general liability insurance and property
insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by ADC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, ADC shall maintain comprehensive
professional liability insurance with limits of not less than $300,000 per claim
and with aggregate policy limits of not less than $600,000 per physician and a
separate limit for ADC. ADC shall be responsible for all liabilities (including
without limitation deductibles and excess liabilities) not paid within the
limits of such policies. ProMedCo shall have the option, with Policy Council
approval, 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.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, ADC will cause each individual physician associated with the
Clinic to enter into an agreement with ADC that upon termination of such
physician's relationship with ADC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by ADC and the individual physicians, and ADC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such coverage at the expense of ADC.
8.4 Additional Insured. ADC and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. ADC shall indemnify, hold harmless and defend
ProMedCo, 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 (i)
the performance of medical services or any other acts or omissions by ADC and/or
its Members, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an ADC Employee,
which claim arises out of such ADC Employees' employment relationship with ADC
or as a result of services performed by such ADC Employee, and which claim would
typically be covered by worker's compensation and (ii) any claims made by
Hospitals against ProMedCo because of ProMedCo's entering into and its
performance of the terms and conditions of this Agreement, including, but not
limited to, any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees) for alleged breach of or
tortious interference with the Hospital Agreements. ProMedCo shall indemnify,
hold harmless and defend ADC, 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 and/or its Members, agents, employees and/or
subcontractors (other than ADC) during the term of this Agreement, except for
any liability, loss, damage, claim, causes of action, and expenses which might
arise in connection with the
<PAGE> 14
Hospital Agreements.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if ADC operates an active medical practice to which the
physicians associated with ADC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by ADC. During the term of this Agreement,
ADC shall not, outside the Clinic, establish, operate or provide physician
services at any medical office, clinic or other health care facility providing
services substantially similar to those provided by ADC pursuant to this
Agreement anywhere within a radius of twenty-five (25) miles of the Taylor
County Courthouse in Abilene, Texas, or within a radius of twenty-five (25)
miles of any current or future medical office, clinic or other health care
facility from which ADC provides medical services.
9.2 Restrictive Covenants By Current Physician Members and Physician
Employees. ADC shall enforce the employment agreements with its current
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which the Physician Members and Physician Employees agree not to
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 ADC pursuant to this
Agreement within a radius of twenty-five (25) miles of the Taylor County
Courthouse in Abilene, Texas, or within a radius of twenty-five (25) miles of
any current or future medical office, clinic or other health care facility from
which ADC provides medical services, and for a period of thirty-six (36) months
after the first date of such Physician Shareholder's or such Physician
Employee's employment with ADC. ProMedCo shall have third-party rights to
enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. ADC shall
obtain and enforce formal employment agreements from each of its future
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which such physicians agree not to 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 ADC pursuant to this Agreement within a radius of twenty-five
(25) miles of the Taylor County Courthouse in Abilene, Texas, or within a radius
of twenty-five (25) miles of any current or future medical office, clinic or
other health care facility from which ADC provides medical services during the
term of said Physician Employee's employment with ADC and for a period of
thirty-six (36) months after the date of their first employment with ADC.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
will provide that the Physician Members and Physician Employees (existing or
future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of Two Hundred Thousand Dollars ($200,000.00) or such
physician's income from the practice of medicine, as reported to the Internal
Revenue Service for the previous twelve (12) months, whichever is less. Such
payment shall be made to ProMedCo by ADC simultaneously with the payment by the
physician to ADC. Such payment shall be first applied to all costs incurred by
ProMedCo in the enforcement of the restrictive covenant for that departing
physician and in recruiting a replacement physician for that departing
physician. The remainder, if any, shall become an additional service fee to be
paid to ProMedCo pursuant to Section 7. The accounting treatment of such funds
shall be consistently applied and approved by ProMedCo's independent certified
public accountants and the Policy Council.
9.5 Enforcement. ProMedCo and ADC 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
<PAGE> 15
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 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.
9.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the restrictive covenants 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, as hereinafter defined, and shall continue for forty (40) years,
after which it shall automatically renew for 5-year terms unless either party
provides the other party with at least twelve (12) months but not more than
thirteen (13) months written notice prior to any renewal date.
10.2 Termination by ADC or Its Assignees. ADC or its assignees may
terminate this Agreement as follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, ADC may give notice of the immediate termination of this Agreement.
10.2.2 In the event ProMedCo shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by ADC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of 15 days after written notice thereof, ADC may terminate this
Agreement. Termination of this Agreement pursuant to this subsection (2) by ADC
shall require the affirmative vote of 75 % of the Physician Members.
10.2.3 In the event any person or persons (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of ProMedCo,
Inc. then issued and outstanding Common Stock, or securities representing fifty
percent (50%) or more of the combined voting power of ProMedCo, Inc. then issued
and outstanding securities, then ADC or its assignees shall have the option to
terminate this Agreement, provided however, that ADC must exercise this option
within thirty (30) days following this change in ownership. Termination of this
Agreement pursuant to this Section by ADC or its assignees shall require the
affirmative vote of 75 % of ADC's Physician Members or the Physician Members of
ADC's assignees.
10.2.4 In the event ProMedCo shall default on any of its payments due
under any agreement between ProMedCo and ADC, and such failure to remit shall
<PAGE> 16
continue for fifteen (15) days after written notice thereof.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement
as follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ADC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by ADC, except for the filing of a petition in
involuntary bankruptcy against ADC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.3.2 In the event ADC 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 Members shall materially default in the performance
of any duty or obligation imposed upon them by this Agreement or by their
employment agreements with ADC, and such default shall continue for a period of
90 days after written notice thereof has been given to ADC and such Physician
Members by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the ADC Distribution and the ProMedCo 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.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean ADC's gross billings, including
ancillaries and any other revenues that have historically been recorded by ADC,
less Adjustments and less any Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean 15% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by ADC and the ADC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 1665
Antilley Road, Suite 200, Abilene, Texas, and 1150 North 28th, Suite 300,
Abilene, Texas, and any substitute facility or additional facility location,
whether within or without Taylor County, as approved by the Policy Council.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all Technical Employees, Physician
Extenders who are under the direct supervision of Physician Members or Physician
Employees and all employees of ProMedCo attributable to ADC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with ADC required for improved
performance, such as work management, purchasing, information systems, charge
and coding
<PAGE> 17
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 Parent that is allocable to
Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness incurred by ProMedCo or Parent
to finance or refinance any of its obligations hereunder or services provided
hereunder.
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses for ProMedCo's operations and for
the ADC Employees, as well as any deductibles and non-insured expenses relating
to malpractice claims;
11.6.7 All management fees paid under the Hospital Agreements;
11.6.8 All expenses of providing equipment and supplies or performing
all management or other services listed in Section 3, "Obligations of ProMedCo,
" as well as any other expenses that are described as "Clinic Expenses"
elsewhere in this Agreement.
11.6.9 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Any expenses which are expressly designated herein as expenses
or responsibilities of ADC and/or ADC Employees;
11.7.4 Any amortization 'expense resulting from the amortization of
expenses incurred as shown on Parent's financial statements, in connection with
the acquisition pursuant to the Asset Purchase Agreement and the execution of
this Agreement;
11.7.5 Interest expense or indebtedness incurred by ProMedCo or Parent
to finance the consideration paid under the Asset Purchase Agreement;
11.7.6 Any liabilities, judgments or settlements assessed against ADC
or Physician Members in excess of any insurance policy limited; and
11.7.7 Expenses incurred specifically for the management of risk
pools.
11.8 Risk Pool Surpluses shall mean all hospital risk funds, specialist
risk funds, and funds from risk pools under any risk bearing or risk sharing
arrangement, after deduction of Risk Pool Cost Of Care, and after making any
deductions for capitation or other risk pools that are in a deficit position.
11.9 Risk Pool Cost Of Care shall mean all claims, capitation payments,
and Incurred But Not Reported (IBNR) calculations charged against any risk pool
(defined as any hospital risk fund, specialist risk fund, and funds from risk
pools under any risk bearing or risk sharing arrangement). Risk Pool Cost Of
Care shall also include expenses incurred specifically for the management of
risk pools.
<PAGE> 18
11.10 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date 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 Asset
Purchase Agreement).
11.11 Technical Employees shall mean technicians who provide services
in the diagnostic areas of ADC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. AU Technical
Employees shall be ADC employees.
11.12 Physician Members shall mean any physician who is a shareholder
of ADC, both as of the date of this Agreement (which said Physician Members are
parties to this Agreement) and at any future point in time.
11.13 Physician Employees shall mean any physician employed by ADC and
providing medical services to patients on behalf of ADC, who are not Physician
Members.
11.14 Physician Extenders shall mean all nonphysician professional
employees who provide direct patient care for which a billed charged is
generated.
11.15 ADC Employees shall mean all Physician Members, Physician
Employees and Technical Employees at the relevant date.
11.16 Effective Date shall mean the later date of: (a) one year from
the first day of the month following January 19, 1996; or (b) the first day of
the month following the date of the initial public offering ("IPO") of ProMedCo.
11.17 Adjustments "Adjustments" shall mean any Adjustments to ADC's
gross billings for uncollectible accounts, discounts, 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 made 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 the actual
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.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that ADC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which ADC or the ADC Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of ADC unless otherwise
specifically provided for under the terms of this Agreement. ADC shall not, by
entering into and performing its obligations under this Agreement, become liable
for any of the existing obligations, liabilities, or debts of ProMedCo, unless
otherwise specifically provided for under the terms of this Agreement. ProMedCo
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. The parties acknowledge and agree
<PAGE> 19
that they have been advised and consent to the fact that ProMedCo, 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 ADC Employees to provide consulting, medical
direction, advisory or similar services relating to activities of ProMedCo or
its affiliates in clinical areas. The parties agree that such agreement, 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, on the one hand, and such ADC Employees,
on the other hand, shall not constitute Net Clinic Revenues, or ADC
Compensation, and shall otherwise not be subject to the provisions of this
Agreement.
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 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 "Abilene Diagnostic Clinic,
P.L.L.C.," all computer software, copyright, services mark and trademark right
to any material or documents acquired, prepared, purchased or furnished by
ProMedCo pursuant to this Agreement. ADC 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, provided, however, that the
foregoing shall not restrict ADC from distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein. Notwithstanding the
preceding, however, ProMedCo agrees that ADC shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement the name
"Abilene Diagnostic Clinic, P.L.L.C.," as may be necessary or appropriate in the
performance of ADC'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 and ADC 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 and ADC
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 and ADC 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
<PAGE> 20
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 and ADC 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 arbitrators
may be entered in any court having jurisdiction thereof. Such arbitration shall
occur within the County of Taylor, 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.
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 shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
ProMedCo shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall have the obligation to assign its
right and obligations hereunder to a successor entity, provided ProMedCo shall
have given its prior written consent to such assignment. Except as set forth
above, ADC shall not have the right to assign its rights and obligations
hereunder without the written consent of ProMedCo. ADC may not delegate any of
ADC's duties hereunder, except as expressly contemplated herein; however,
ProMedCo may delegate some or all of ProMedCo'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.
<PAGE> 21
1.2.16 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 ADC to practice medicine in the State of Texas, ADC
and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between ADC and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between ADC and ProMedCo, 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 ADC shall require the affirmative
vote of a majority of Physician Members.
12.20 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 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. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO OF ABILENE, INC.,
WAYNE POSEY
Address: 801 Cherry Street - Suite 1050 Fort Worth, Texas 76102
------------------------------
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
Name:
Title:
Address:
<PAGE> 22
Allocation of Risk Pool SuMiuses
ProMedCo shall receive a percentage of the Risk Pool Surpluses, or
shall be responsible for a percentage of any deficits if the Risk Pool Surpluses
are in a deficit position pursuant to Section 11.9. ProMedCo's percentage shall
be based on the cumulative risk pool savings that have occurred during the
entire term of this Agreement, including any renewals. The percentage shall be
based on the graduated scale as shown below:
Cumulative Risk Pool Sug2ju ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual basis no
later than 90 days after the conclusion of each contract year of this Agreement,
and after a full analysis of an Incurred But Not Reported (IBNR) liabilities.
Once the final balance of Risk Pool Surpluses has been calculated, [*]% of that
amount shall be distributed, with the final [*]% held for an additional 6 months
to pay for any unanticipated claims. At the end of that 6 months, any funds
remaining from the [*]% reserved shall be distributed.
A-1
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
<PAGE> 23
Qpening Balance Sheet
Current Assets
Cash
Accounts Receivable Prepaid
Other Current Assets Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment Equipment
Capitalized Lease Equipment Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Cur-rent Maturities- Leases
Current Maturities - Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Limited Liability Company
Deferred Credits
Total Other Liabilities
Long Term Payables Mortgages
Notes Payable Lease Obligations Total Long Term Payables
<PAGE> 24
Members Capital Account
Contributed Capital
Accumulated Income or Deficit
Total Members Equity
TOTAL LIABILITIES AND CAPITAL ACCOUNT
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WTIH THE SECURITIES
AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT WHERE
INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[*]."
SERVICE AGREEMENT
By and Between
PROMEDCO OF CULLMAN, INC.
and
CULLMAN PRIMARY CARE, P.C.
Effective March 6, 1996
<PAGE> 2
Table of Contents
Page No.
RECITALS.......................................................... 1
1. RESPONSIBILITIES OF THE PARTIES................................ 2
1.1 General Responsibilities of the Parties..................... 2
1.2 CPC's Matters............................................... 2
1.3 Patient Referrals........................................... 2
2. POLICY COUNCIL................................................. 2
2.1 Formation and Operation of the Policy Council............... 2
2.2 Duties and Responsibilities of the Policy Council........... 2
3. OBLIGATIONS OF PROMEDCO........................................ 4
3.1 Management and Administration............................... 4
3.2 Expansion of Clinic......................................... 6
3.3 Events Excusing Performance................................. 8
3.4 Compliance With Applicable Laws.............................. 8
3.5 Guaranty.................................................... 8
3.6 Minimum Net Worth........................................... 8
4. OBLIGATIONS OF CDC............................................. 9
4.1 Professional Services....................................... 9
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 CPC Employee Benefit Plans.................................. 10
4.11 Physician Powers of Attorney................................ 10
4.12 Spokesperson................................................ 10
4.13 Physician Guarantees........................................ 10
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.......................... 12
6.1 Facilities.................................................. 12
6.2 Use of Facilities........................................... 12
7. FINANCIAL ARRANGEMENTS......................................... 12
7.1 Payments to CPC............................................. 12
7.2 Distribution................................................ 12
7.3 Clinic Expenses............................................. 12
7.4 Accounts Receivable......................................... 12
8. INSURANCE AND INDEMNITY........................................ 13
8.1 Insurance to Be Maintained by ProMedCo...................... 13
8.2 Insurance to Be Maintained by CPC........................... 13
8.3 Tail Insurance Coverage..................................... 13
8.4 Additional Insured.......................................... 14
8.5 Indemnification............................................. 14
<PAGE> 3
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES................... 14
9.1 Restrictive Covenants by CPC................................ 14
9.2 Restrictive Covenants By Current Physician
Shareholders and Physician Employees.................... 14
9.3 Restrictive Covenants By Future Physician Employees......... 15
9.4 Physician Shareholder and Physician Employee Liquidated
Damages................................................. 16
9.5 Restrictive Covenants of ProMedCo........................... 16
9.6 Enforcement................................................. 16
9.7 Termination of Restrictive Covenants........................ 17
10. TERM; RENEWAL; TERMINATION................................... 17
10.1 Term and Renewal............................................ 17
10.2 Termination by CPC.......................................... 17
10.3 Termination by ProMedCo..................................... 19
10.4 Actions After Termination................................... 19
11. DEFINITIONS
11.1 Net Clinic Revenues......................................... 22
11.2 Distribution Funds.......................................... 22
11.3 ProMedCo Distribution....................................... 22
11.4 Clinic...................................................... 22
11.5 Clinic Facility............................................. 22
11.6 Clinic Expenses............................................. 22
11.7 Clinic Expenses shall not include........................... 23
11.8 Risk Pool Surpluses......................................... 23
11.9 Opening Balance Sheet....................................... 24
11.10 Technical Employees......................................... 24
11.11 Physician Shareholders...................................... 24
11.12 Physician Employees......................................... 24
11.13 CPC Employees............................................... 24
11.14 Effective Date.............................................. 24
11.15 Physician Extenders......................................... 24
11.16 Adjustments................................................. 24
12. GENERAL PROVISIONS............................................ 24
12.1 Independent Contractor...................................... 24
12.2 Proprietary Property........................................ 25
12.3 Cooperation................................................. 25
12.4 Licenses, Permits and Certificates.......................... 25
12.5 Compliance with Rules, Regulations and Laws................. 25
12.6 Generally Accepted Accounting Principles (GAAP)............. 26
12.7 Notices..................................................... 26
12.8 Attorneys' Fees............................................. 26
12.9 Severability................................................ 27
12.10 Arbitration................................................. 27
12.11 Construction of Agreement................................... 27
12.12 Assignment and Delegation................................... 27
12.13 Confidentiality............................................. 27
12.14 Waiver...................................................... 27
12.15 Headings.................................................... 27
12.16 No Third Party Beneficiaries................................ 27
12.17 Time is of the Essence...................................... 27
12.18 Modifications of Agreement for Prospective Legal Events..... 27
12.19 Whole Agreement; Modification............................... 28
<PAGE> 4
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated March 12, 1996, among
ProMedCo of Cullman, Inc., an Alabama corporation ("ProMedCo") which is an
affiliate of ProMedCo, Inc., a Texas corporation ("Parent"), Parent and Cullman
Primary Care, P.C., an Alabama Professional Corporation (`CPC`).
RECITALS:
WHEREAS, CPC is a primary care group medical practice in Cullman,
Alabama, which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, pursuant to a Stock Purchase Agreement dated of even date
hereof, to which ProMedCo, Inc. and Cullman Family Practice, P.C. are parties
(the "CFP Stock Purchase Agreement"), ProMedCo agreed to purchase all of the
shares of capital stock of Cullman Family Practice, P.C.("UP");
WHEREAS, pursuant to a Stock Purchase Agreement dated of even date
hereof, to which ProMedCo, Inc. and Family Medical Clinic P.C., an Alabama
corporation, are parties (the `FMC Stock Purchase Agreement"), ProMedCo agreed
to purchase all of the shares of capital stock of Family Medical Clinic, P.C.
("FMC");
WHEREAS, subject to the terms and conditions hereof, CPC desires to
engage ProMedCo to provide to CPC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement;
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
CPC, such revenues having been documented by CPC and delivered to ProMedCo prior
to the formulation and agreement of such aforementioned financial
considerations; and
WHEREAS, Parent desires to enter into this Agreement for purposes of
guaranteeing the obligations of ProMedCo hereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, CPC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide CPC
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. CPC shall be
responsible, with ProMedCo's assistance, for the recruitment and hiring of
physicians, Technical Employees and all issues related to patient care and
documentation thereof. ProMedCo shall neither exercise control over nor
interfere with the physician-patient relationship, which shall be maintained
strictly between the physicians of CPC and their patients.
1.2 CPC's Matters. CPC shall maintain sole discretion and authority
over the financial matters relative to its own professional corporation. It
shall set compensation levels for CPC Employees. CPC will also be responsible
for all other matters pertaining to the operation of CPC, including, but not
limited to, accounting, tax planning, and tax preparation which shall remain the
sole responsibility of CPC and the individual physician shareholders.
1.3 Patient Referrals. The parties agree that the benefits to CPC do
not require, are not payment for, and are not in any way contingent upon the
<PAGE> 5
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo to any of CPC's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
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 eight (8) members. ProMedCo shall designate, at its sole discretion,
four (4) members of the Policy Council. Members of the Policy Council designated
by either party shall be entitled to attend and vote by proxy at any meetings of
the Policy Council so long as at least two (2) representatives of such party is
present in person. CPC at its sole discretion shall designate four (4) members.
Except as may otherwise be provided, the act of a majority of the 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.
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
required for the efficient operation of the Clinic; provided, however, that CPC
shall make the final determination as to the individual physicians to be hired
to fill such positions. The approval of ProMedCo shall be required for any
variations to the restrictive covenants in any physician employment contract.
The Policy Council shall approve all physician recruiting.
2.2.2 Patient Fees. in consultation with. CPC and ProMedCo, the
Policy Council shall review and adopt the fee schedule for all physician and
ancillary services rendered by the Clinic.
2.2.3 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 CPC is dissatisfied with the services provided by the
Administrator, CPC shall refer the matter to the Policy Council. ProMedCo 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 shall
have the ultimate authority to terminate the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 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 and CPC shall 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 CPC.
2.2.6 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 $10,000 shall require the approval of the Policy Council.
<PAGE> 6
2.2.7 Annual Budgets. AR annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3, shall be subject to the review and
approval of the Policy Council, provided, however, ProMedCo shall have final
approval of any capital required by ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, whether now or in the future, shall
be subject to the approval of the Policy Council.
2.2.10 Advertising. AR advertising, marketing, and public relations
shall be subject to the prior review and approval of the Policy Council.
2.2.11 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 CPC's board or ProMedCo.
3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo 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 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. CPC
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in a business like manner. CPC, through its CPC
Employees, will provide all medical services. ProMedCo will have no authority,
directly or indirectly, to perform, and will not perform any medical function.
ProMedCo may, however, advise CPC 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,
CPC hereby appoints ProMedCo as the sole and exclusive manager and administrator
of all non-medical functions and services related to CPC's services at the
Clinic. CPC shall perform all medical services, and ProMedCo shall have no
authority, directly or indirectly, to perform, and will not perform any medical
function. ProMedCo may, however, advise CPC as to the relationship between its
performance of medical functions and the overall administrative and business
functioning of its practice. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with CPC's services at the Clinic.
ProMedCo 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, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to CPC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of CPC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and fiscal
year unaudited financial statements containing a balance sheet and a statement
of income for Clinic operations, which shall include Net Clinic Revenues and
Clinic Expenses, which shall be delivered to CPC 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 in connection with the
audit of the financial statements of Parent. If CPC desires an audit in
<PAGE> 7
addition to the audit provided by ProMedCo, such an audit would be at CPC's
expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Physician Extenders and Technical Employees. ProMedCo 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, with those personnel performing patient care services subject to the
professional supervision of CPC. If CPC is dissatisfied with the services of any
person, CPC shall consult with ProMedCo. If CPC desires that such person be
terminated, then, unless ProMedCo shall in good faith determine that the
performance of that employee is likely to be brought to acceptable levels
through counsel and assistance, such employee shall be terminated. AR of
ProMedCo's obligations regarding staff shall be governed by the overriding
principle and goal of providing high quality medical care.
3.1.4 Quality Assurance. ProMedCo will assist CPC 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 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 shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall reasonably 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 will be responsible for
marketing, negotiation, and administering all managed care contracts, as well as
providing necessary actuarial and utilization data for these managed care
contracts, subject to the provisions of Section 2.2.5.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. CPC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in CPC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in CPC'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 CPC (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 (v) in accordance with policies adopted by the Policy Council,
to' initiate legal proceedings in the name of CPC to collect any accounts and
monies owed to the Clinic, to enforce the rights of CPC as creditors under any
contract or in connection with the rendering of any service, and to contest
reduced payments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors. AR Adjustments, as hereinafter defined,
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's independent certified public
accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, an Net Clinic Revenues collected resulting from the operations of
<PAGE> 8
the Clinic shall be deposited directly into a bank account of which CPC shall be
the owner ("Account"). ProMedCo and CPC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo or CPC. CPC hereby appoints ProMedCo as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected. CPC
covenants, and shall cause all CPC Employees to covenant, to forward any
payments received with respect to Net Clinic Revenues for services provided by
CPC and CPC Employees to ProMedCo for deposit. ProMedCo 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 ("ProMedCo
Account"). CPC and ProMedCo 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 CPC that
interferes with the operation of this Section, including, but not limited to,
any failure to deposit or have ProMedCo 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, 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 CPC and its CPC 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 CPC and its CPC 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
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 shall arrange for or
render to CPC such business, legal and financial management consultation and
advice as may be reasonably required or requested by CPC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to CPC or any
employee or agent of CPC.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By CPC. ProMedCo 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 shall assist CPC in recruiting
additional physicians, as approved by the Policy Council, carrying out such
administrative functions as may be appropriate such as advertising for and
identifying potential candidates, checking credentials, and arranging
interviews; provided, however, CPC shall interview and make the ultimate
decision as to the suitability of any physician to become associated with the
Clinic. AU physicians recruited by ProMedCo and accepted by CPC shall be the
sole employees of CPC 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.
<PAGE> 9
3.1.14 Supervision of Ancillary Services. ProMedCo shall operate and
supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. As provided in Section 2.2.
10, this would be subject to the review and approval of the Policy Council. The
program shall be conducted 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 Alabama Medical
Association.
3.1.17 Files and Records. ProMedCo 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 CPC. The management of all files and records shall comply with applicable
state and federal statutes. ProMedCo shall use its good faith 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 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting CPC 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 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, ProMedCo
may acquire other physician practices. CPC will cooperate with ProMedCo in such
expansion efforts and use its good faith efforts to assist ProMedCo with respect
thereto. Without limiting the generality of the foregoing, CPC will not enter
into any agreements with respect to any such matter without the prior consent of
ProMedCo.
3.3 Events Excusing Performance. ProMedCo shall not be liable to CPC
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 has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.4 Compliance With Applicable Laws. ProMedCo shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
3.5 Guaranty. Parent hereby guarantees the performance by ProMedCo of
ProMedCo's obligations under this Agreement.
3.6 Minimum Net Worth. During the Term of the Service Agreement Parent
shall maintain a minimum net worth of Two Million Five Hundred Thousand Dollars
($2,500, 000). The term "Net Worth" shall mean consolidated shareholders equity
of Parent and its subsidiaries, including redeemable preferred stock, less
liabilities determined in accordance with generally accepted accounting
principles. Parent shall notify CPC in writing in the event its Net Worth falls
below this minimum and shall provide CPC semiannually a letter evidencing
compliance with this Section 3.6.
4. OBLIGATIONS OF CPC
4.1 Professional Services. CPC shall provide professional services to
patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. CPC shall also ensure that
<PAGE> 10
each physician associated with CPC is licensed by the State of Alabama. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any such physician, CPC shall immediately inform the Administrator of
such action and the underlying facts and circumstances. CPC shall carry out a
program to monitor the quality of medical care practiced, with ProMedCo's
assistance. CPC will cooperate with ProMedCo 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. CPC 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 CPC, ProMedCo shall consult with CPC regarding such matters. CPC
shall enforce formal employment agreements from each of its Physician
Shareholders and Physician Employees, hired or contracted, substantially in the
form attached hereto as Exhibit "C".
4.3 Non-Clinic Expenses. CPC shall be solely responsible for the
payment of all costs and expenses incurred in connection with CPC's operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, membership in professional associations,
continuing medical education, and licensing and board certification fees, plus
salaries and benefits, retirement plan contributions, health, disability and
life insurance premiums, payroll taxes for its physicians and Physician
Extenders.
4.4 Medical Practice. CPC 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 CPC
as employee or independent contractor, and no other physician or medical
practitioner shall be permitted to use or occupy the Clinic Facility without the
prior written consent of ProMedCo.
4.5 Professional Insurance Eligibility. CPC 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. Technical Employees will
remain in the employ of CPC. As provided in Section 3.1.3., ProMedCo will
provide payroll and administrative services for such Technical Employees, and
such Technical Employees, as provided for under Section IL 6. 1, shall be a
Clinic Expense.
4.7 Events Excusing Performance. CPC shall not be liable to ProMedCo
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, death
or Total Disability (as hereinafter defined) of any physician, or other events
over which CPC has no control for so long as such events continue, and for a
reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. CPC 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. CPC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6.2 herein.
4.10 CPC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, CPC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) of the
<PAGE> 11
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 "D" to this Agreement.
(b) CPC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, CPC shall not materially amend,
freeze, terminate or merge any CPC Plan without the express written consent of
ProMedCo. CPC agrees to make such changes to CPC's Plan, including the freeze,
termination, or merger of such CPC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any CPC Plan or other employee
benefit plan maintained by CPC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician
Shareholders and Physician Employees shall be an expense of CPC. ProMedCo shall
make contributions or payments with respect to any CPC Plan, as a Clinic
Expense, on behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. CPC shall require all CPC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and CPC, appointing ProMedCo 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. CPC shall serve as@ spokesperson for ProMedCo,
Parent and Clinic sales and development activities. The parties agree that Dr.
Gregory L. Meiman and Dr. Rick Gober, or such other Physician Shareholders as
the Policy Council shall appoint, shall serve in this capacity on behalf of CPC.
4.13 Physician Guarantees. AU CPC shareholders(Drs. Meiman, Bostick,
Montgomery, Holowach, Schendel, Gober, Machen, Brumleve, and Johnson) agree to
the terms and conditions of this Agreement as evidenced by their signature on
the Agreement. These physicians agree to personally guarantee the performance of
the obligations of CPC under this Agreement for a period of seven (7) years from
the effective date of this Agreement; provided, however, that in the event any
of the above named physicians employment with CPC is terminated due to death or
Total Disability, then such physician's guarantee shall terminate immediately
and provided further, however, in the event this Agreement is terminated in
accordance with Section 1 0 hereof then such physician's guarantee shall
terminate upon such termination of this Agreement.. For purposes of this
Agreement, "Total Disability" shall mean the physician's inability to perform
the normal duties of his employment by CPC as a physician. If there is any
disagreement between CPC and the physician as to the disability or
non-disability of the physician or as to the effective date of any such
disability, the same shall be determined after an examination of the physician
by an examining physician (the "Examining Physician") to be selected by CPC and
ProMedCo. The physician shall be available for such an examination at any
reasonable time. The determination of such Examining Physician selected by the
Employer shall be conclusive evidence of the disability or the nondisability of
the physician and of the date any such disability began. If the physician should
not cooperate in the examination by such physician selected by CPC and ProMedCo,
then, for purposes hereof, the determination of the physician's disability or
nondisability and the date any such disability began shall be made by CPC and
ProMedCo in their sole
<PAGE> 12
discretion.
5.RECORDS
5.1 Patient Records. Upon termination of this Agreement, CPC shall
retain all patient medical records maintained by CPC or ProMedCo in the name of
CPC. CPC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by CPC.
5.2 Other Records. All records relating in any way to the operation
of the Clinic which are not the property of CPC under the provisions of Section
5.1 above, shall at an times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, CPC or its designee shall have reasonable access upon reasonable
notice during normal business hours ProMedCo's financial records, including, but
not limited to, records of collections, expenses and disbursements as kept by
ProMedCo in performing ProMedCo's obligations under this Agreement, and CPC may
copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo 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
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and CPC agree that CPC, 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 shall not receive any ProMedCo Distribution from the revenue
generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to CPC. CPC and ProMedCo agree that the compensation set
fourth herein is being paid to CPC in lieu of charges which CPC or its Physician
Shareholders or CPC Employees would otherwise earn and retain for the provision
of medical services to patients of their medical practice and which CPC or the
Physician Shareholders or CPC Employees would otherwise bill and retain for
their own account. As compensation for its services rendered, each month
ProMedCo shall pay CPC the amount of the CPC Distribution. All Net Clinic
Revenues after deduction of Clinic Expenses, and the ProMedCo Distribution,
shall be referred to as the " CPC Distribution."
7.2 Distribution. ProMedCo shall pay to CPC the CPC Distribution. 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 shall
pay an Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of CPC, 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 hereby agrees to indemnify
and hold CPC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of CPC (including, without limitation,
reasonable attorney fees) resulting from the contest of any Clinic
<PAGE> 13
Expenses.
7.4 Accounts Receivable. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo shall purchase the
accounts receivable of CPC arising during the previous month, by payment of
cash, or other readily available funds into an account of CPC. The consideration
for the purchase shall be an amount equal to the CPC Distribution for such
previous month. Although it is the intention of the parties that ProMedCo
purchase and thereby become owner of the accounts receivable of CPC, in case
such purchase shall be ineffective for any reason, CPC, as of the Effective Date
of this Agreement, grants and shall cause each CPC Employee to grant to ProMedCo
a first priority lien on and security interest in and to any and all interest of
CPC and such CPC Employees in any accounts receivable generated by the medical
practice of CPC and the CPC Employees or otherwise generated through the
operations of the Clinic during the term of this Agreement, and all proceeds
with respect thereto,
<PAGE> 14
to secure the performance of CPC under the terms of this Agreement including,
but not limited to the transfer of funds in accordance with Section 3.1.9, and
this Agreement shall be deemed to be a security agreement to the extent
necessary to give effect to the foregoing. In addition, CPC shall cooperate with
ProMedCo and execute and deliver, and cause each CPC Employee to execute and
deliver, all reasonably necessary documents in connection with the pledge of
such accounts receivable to ProMedCo or at ProMedCo's option, its lenders. All
collections in respect of such accounts receivable shall be deposited in a bank
account in accordance with Section 3.1.9. To the extent CPC or any CPC Employee
comes into possession of any payments in respect of such accounts receivable,
CPC or such CPC Employee shall direct such payments to be deposited in
accordance with Section 3.1.9.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will purchase and maintain, as a Clinic Expense,
comprehensive professional liability insurance for all professional
non-physician employees of ProMedCo and CPC with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to Be Maintained by CPC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, CPC 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 $3,000,000 per physician
and a separate limit for CPC, the cost of which shall be a Clinic Expense. CPC
shall be responsible for all liabilities (including without limitation
deductibles and excess liabilities) not paid within the limits of such policies.
ProMedCo shall have the option, with Policy Council approval, of providing such
professional liability insurance through an alternative program, provided such
program meets the requirements of the Insurance Commissioner of the State of
Alabama.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, CPC will cause each individual physician associated with the
Clinic to enter into an agreement with CPC that upon termination of such
physician's relationship with CPC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by CPC and the individual physicians, and CPC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such coverage at the expense of CPC.
8.4 Additional Insured. CPC and ProMedCo agree to use their good faith
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. CPC shall indemnify, hold harmless and defend
ProMedCo, 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 CPC and/or its
shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an CPC Employee,
which claim arises out of such CPC Employees' employment relationship with CPC
or as a result of services performed by such CPC Employee, and which claim would
typically be covered by worker's compensation and ProMedCo shall indemnify, hold
harmless and defend CPC, 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 acts or omissions by ProMedCo and/or its
shareholders, agents, employees and/or subcontractors (other than CPO during the
term of this
<PAGE> 15
Agreement including, but not limited to, the purchase of accounts receivable of
CPC pursuant to Section 7.4 provided any such liability is not incurred as a
result of any intentional act or failure to act, on the part of CPC or any
director, officer, Shareholder, employee or agent thereof.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if CPC operates an active medical practice to which the
physicians associated with CPC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by CPC. During the term of this Agreement,
CPC shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by CPC pursuant to this Agreement anywhere within the
Restricted Area as defined within Exhibit C without the consent of ProMedCo.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. CPC shall enforce employment agreements, substantially in
the form of Exhibit B and in a form reasonably satisfactory to ProMedCo, with
its current Physician Shareholders and Physician Employees pursuant to which the
Physician Shareholders and Physician Employees agree that (a) during the term of
their employment agreement not to 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 CPC pursuant to this Agreement within the Restricted Area as defined
within Exhibit C and (b) if the termination of the employment agreement occurs
prior to the expiration of the initial seven (7) year term of the employment
agreement that for a period of twenty-four (24) months after the date of
termination of his employment with CPC, the Physician Shareholders and Physician
Employees shall not, either directly as a partner, employer,' agent, independent
contractor, employee or indirectly through a corporation, partnership,
affiliate, subsidiary or otherwise, (i) enter into a provider agreement or other
contract with, nor provide any medical services in connection with or pursuant
to any such provider agreement or other contract, any third party payor having a
provider agreement or other contract with CPC or any other employee of CPC at
any time within 120 days prior to and including the date of Physician
Shareholder's or Physician Employee's termination of employment with CPC or (ii)
solicit, induce or attempt to induce any patient of CPC to become a patient of
such Physician Shareholder or Physician Employee or any partner, employee or
affiliate of such Physician Shareholder or Physician Employee. As used herein, a
third party payor shall include, without limitation, any employer, coalition of
employers, union or similar organization maintaining a health benefit plan for
the benefit of its employees or members, any insurance company, any Blue
Cross/Blue Shield plan, any health maintenance organization, preferred provider
organization, independent physicians association, physicians hospital
organization, or similar entity or arrangement which contracts for physician
services on behalf of its employees or members or other third party payors.
However, as used herein, the term "third party payor" shall not include the
federal Medicare program or the state Medicaid program, although such terms
shall include any health maintenance organization providing Medicare or Medicaid
benefits to plan participants. This provision shall be limited in its
application to the Restricted Area as defined within Exhibit C. The employment
agreements shall have a term of seven (7) years ("employment agreement term" as
used within this Section 9 shall mean a time period of seven (7) years),
commencing on the effective date of the CFP Stock Purchase Agreement and the FMC
Stock Purchase Agreement. ProMedCo shall have third-party rights to enforce such
agreements.
9.3 Restrictive Covenants By Future Physician Employees. CPC shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree (a) during the term of their employment agreement not to
establish, operate or provide physician services at any medical office, clinic
or outpatient and/or ambulatory treatment or diagnostic facility providing
services substantially
<PAGE> 16
similar to those provided by CPC pursuant to this Agreement within the
Restricted Area as defined within Exhibit C and (b) that for a period of
twenty-four (24) months after the date of termination of his employment with
CPC, the Physician Shareholders and Physician Employees shall not, either
directly as a partner, employer, agent, independent contractor, employee or
indirectly through a corporation, partnership, affiliate, subsidiary or
otherwise, (i) enter into a provider agreement or other contract with, nor
provide any medical services in connection with or pursuant to any such provider
agreement or other contract, any third party payor having a provider agreement
or other contract with CPC or any other employee of CPC at any time within 120
days prior to and including the date of Physician Shareholder's or Physician
Employee's termination of employment with CPC or (ii) solicit, induce or attempt
to induce any patient of CPC to become a patient of such Physician Shareholder
or Physician Employee or any partner, employee or affiliate of such Physician
Shareholder or Physician Employee. As used herein, a third party payor shall
include, without limitation, any employer, coalition of employers, union or
similar organization maintaining a health benefit plan for the benefit of its
employees or members, any insurance company, any Blue Cross/Blue Shield plan,
any health maintenance organization, preferred provider organization,
independent physicians association, physicians hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein, the
term 'third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants. This
provision shall be limited in its application to the Restricted Area as defined
within Exhibit C. The employment agreements shall have a term of five (5) years.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The employment agreement terms described in Sections 9.2 and 9.3 of this
Agreement will provide that the Physician Shareholders and Physician Employees
(existing or future) may be released from the restrictive covenants described in
Sections 9.2(b) and (9.3(b) contained in their employment agreement by paying
Liquidated Damages in the amount of the lesser of Two Hundred Thousand Dollars
($200,000) or one (1) times such physician's income, as reported to the Internal
Revenue Service for the previous twelve (12) months. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo consideration pursuant
to the CFP Stock Purchase Agreement or the FMC Stock Purchase Agreement, and
said Physician Shareholder or Physician Employee terminates their employment
agreement with CPC for any reason (other than death or disability) prior to the
seventh anniversary of the CFP Stock Purchase Agreement and the FMC Stock
Purchase Agreement, or is terminated for cause by CPC prior to the seventh
anniversary of the CFP Stock Purchase Agreement and the FMC Stock Purchase
Agreement, then said Physician Shareholder or Physician Employee will forfeit
any Unredeemed Equity, as hereinafter defined, that was yet to be received
pursuant to the CFP Stock Purchase Agreement or the FMC Stock Purchase
Agreement, as the case may be. Such payments shall be made to ProMedCo by CPC
simultaneously with the payment by the physician to CPC. Such payment shall be
first applied to all costs incurred by ProMedCo in the enforcement of the
employment agreement for that departing physician and in recruiting a
replacement physician for that departing physician. The remainder, if any, shall
become an additional service fee to be paid to ProMedCo pursuant to Section 7.
The accounting treatment of such funds shall be consistently applied and
approved by ProMedCo's independent certified public accountants and the Policy
Council.
9.5 Restrictive Covenants of ProMedCo. During the term of this
Agreement, ProMedCo shall not establish, operate or enter into a service
agreement with, or provide the same services as those provided under this
Agreement to, any medical practice within the Restricted Area set forth in
Exhibit C, without the consent of CPC.
9.6 Enforcement. ProMedCo and CPC 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
<PAGE> 17
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 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 most 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 or non-enforceability of this
Section 9 in any respect shall not affect the validity or 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.
9.7 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated, the employment
agreement terms contained in this Section 9 shall be null and void and of no
further force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Term and Renewal. The term of this Agreement shall commence on the date
hereof and shall continue for forty (40) years, after which it shall
automatically renew for 5-year terms unless either party provides the other
party with at least six (6) months but not more than nine (9) months written
notice prior to any renewal date.
10.2 Termination by CPC. CPC may terminate this Agreement as follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo or Parent, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by ProMedCo, except for the filing of a
petition in involuntary bankruptcy against ProMedCo which is dismissed within 30
days thereafter, CPC may give notice of the immediate termination of this
Agreement.
10.2.2 In the event ProMedCo or Parent shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by CPC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of ten (10) days after written notice thereof, CPC may terminate this
Agreement. Termination of this Agreement pursuant to this Section 10.2.2 by CPC
shall require the affirmative vote of 75% of the Physician Shareholders.
10.2.3 In the event ProMedCo or Parent shall default on any of its
payments due under the Subordinated Convertible Notes pursuant to the CFP Stock
Purchase Agreement or the FMC Stock Purchase Agreement between the parties, and
such failure to remit shall continue for ten (10) business days after written
notice thereof.
10.2.4 During the first five (5) business days following the fifth
anniversary of the Agreement, if CPC and or CPC's Shareholders have not realized
Two Million, Two Hundred Twelve Thousand, Eight Hundred Sixty-Six Dollars
($2,212,866) or such amount as adjusted in accordance with the CFP Stock
Purchase or the FMC Stock Purchase Agreement, as applicable in Value (as defined
below), it may elect to receive Two Million, Two Hundred Twelve Thousand, Eight
Hundred Sixty-Six Dollars ($2,212,866) or such amount as adjusted in accordance
with the CFP Stock Purchase or the FMC Stock Purchase Agreement, as applicable
less any Value received prior to such election.
<PAGE> 18
1. Value received shall equal the sum of:
Four Hundred Fifty-Six Thousand, Five Hundred Twenty-Two Dollars ($456,522) plus
Value of Stock Received.
Value of Stock Received is defined as the sum of:
The amount received by CPC and/or CPC Shareholders upon the sale of ProMedCo
stock, plus
The Market Value of any shares possessed by CPC and/or CPC Shareholders that is
either: (1) registered or (2) that is eligible to be sold pursuant to Rule 144
2. Within 30 days from the receipt of written notice by CPC of this
election, ProMedCo shall be required to pay to CPC in cash, the amount
calculated above. Simultaneously with such payment, CPC shall deliver the
Subordinated Convertible Notes to ProMedCo, as well as Certificates representing
shares of Stock not included in the calculation of Value Of Stock Received. In
addition, the Agreement shall continue for the remainder of its 40 year term.
3. Should ProMedCo not make this payment, then CPC may terminate the
Agreement.
10.2.5 On the second, fourth and sixth anniversaries of this Agreement
in the event the average annual Distribution Funds for the previous two year
period immediately preceding each such anniversary for CPC is less than
seventy-five percent (75 %) of the Distribution Funds of CFP and FMC, in the
aggregate, for the twelve (12) month period ended December 31, 1995.
10.2.6 Within ten (10) days of receipt of notice from Parent that. it
does not in . meet the requirements of Section 3.6. In the event CPC fails to
terminate this Agreement pursuant to this Section 10.2.6, CPC's right to
terminate this Agreement under this Section 10.2.6 shall be waived and of no
further force or effect.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement
as follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by CPC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by CPC, except for the filing of a petition in
involuntary bankruptcy against CPC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.3.2 In the event CPC 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 CPC, and such default shall continue for a
period of 90 days after written notice thereof has been given to CPC and such
Physician Shareholders by ProMedCo, ProMedCo may terminate this Agreement.
10.3.3 ProMedCo may terminate the Agreement if three (3) or more of the
original physician shareholders (Drs Meiman, Bostick, Montgomery, Holowach,
Schendel, Gober, Machen, Johnson and Brunileve) terminate their Employment
Agreements with CPC during the first seven (7) years of the term of this
Agreement, for reasons other than death or Total Disability, as such term is
defined within Section 4.13.
10.3.4 On the second, fourth and sixth anniversaries of this Agreement
in the event the average annual Distribution Funds for the previous two year
period immediately preceding each such anniversary is less than seventy-five
percent (75
<PAGE> 19
%) of the Distribution Funds of CFP and FMC, in the aggregate, for the twelve
(12) month period immediately preceding the date of this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the CPC Distribution and the ProMedCo 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,
CPC and the CPC Shareholders shall:
10.4.1 Intangible Assets. Purchase from ProMedCo at book value the
Restrictive Covenants provided for in Section 9 and any other 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 Restrictive Covenants
and intangibles, which amortization shall be for a period not in excess of 40
years. For purposes of this Section 10.4.1 "Intangible Assets" shall mean those
Assets other than those Assets described in Sections 10.4.2 - 10.4.5 hereof.
10.4.2 Real Estate. Purchase from ProMedCo all real estate, if any,
associated with the Clinic at the then book value thereof.
10.4.3 Improvements. Purchase all improvements, additions or leasehold
improvements which have been made by ProMedCo and which relate solely to the
performance of its obligations under this Agreement or the properties subleased
by ProMedCo, if any, at book value.
10.4.4 Debts. Assume all ordinary and necessary debt, contracts,
payables and leases which are obligations of ProMedCo and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo.
10.4.5 Other Tangible Assets. Purchase from ProMedCo at book value all
of the equipment listed as set forth in the CFP Stock Purchase Agreement and the
FMC Stock Purchase Agreement, including all replacements and additions thereto
made by ProMedCo with the approval of the Policy Council pursuant to the
performance of its obligations under this Agreement, and all other tangible
Assets, including, but not limited to inventory, supplies, accounts receivable
less Adjustments and other tangible 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 operations of
the Clinic, depreciation, amortization and other adjustments of Assets shown on
the Opening Balance Sheet.
10.4.6 Stock. Purchase from ProMedCo all shares of capital stock of CFP
and FMC for an amount equal to net book value of CFP and FMC in the aggregate
less the aggregate book value paid in accordance with Section 10.4.1 - 10.4.5
hereof.
10.4.7 Closing of Repurchase Upon Termination by ProMedCo or by CPC
Pursuant to Section 10.2.5 or 10.2.6. CPC and the CPC Shareholders shall pay
cash or may use the Subordinated Convertible Notes issued pursuant to the CFP
Stock Purchase Agreement or the FMC Stock Purchase Agreement as currency for the
repurchase described herein. The value of the Subordinated Convertible Notes for
purposes of repurchase shall be @@, @, less the value of stock received as
defined in Section 10.2.4, but in nicase less than $0. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
ProMedCo assumed by CPC and shall be reduced by any payment ProMedCo has failed
to make under this Agreement. CPC and any physician associated with CPC shall
execute such documents as may be required to assume the liabilities set forth in
Section 10.4.4. and to remove ProMedCo from any liability with respect to such
repurchased Assets and with respect to any property leased or subleased by
ProMedCo. The closing date for the repurchase shall be determined by CPC, but
<PAGE> 20
shall in no event occur later than 180 days from the date of the notice of
termination. The termination of this Agreement as provided for in this Section
10 shall become effective upon the closing of the sale of the Assets and CPC
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.
10.4.8 Closing of Repurchase Upon Termination by CPC under Sections
10.2.1 - 10.2.4.
(a) CPC and the CPC Shareholders shall deliver to ProMedCo any
'Unredeemed Equity" received in connection with the CFP Stock Purchase Agreement
or the FMC Stock Purchase Agreement. Unredeemed Equity shall mean any shares of
ProMedCo common stock which remain unsold on the date of termination and the
fair market value of any ProMedCo common stock within ninety (90) days prior to
termination and any principal amount of the Subordinated Convertible Notes which
has not been converted into ProMedCo common stock as of the date of termination.
The delivery of the Unredeemed Equity to ProMedCo shall be deemed to be payment
in full for the repurchase obligations under this Section 10.
(b) For a period of one (1) year after termination of this Agreement by
CPC under Sections 10.2.1 - 10.2.4, ProMedCo and Parent will not provide
services to any medical group substantially similar to those provided under this
Agreement anywhere within the Restricted Area as defined in Exhibit C without
the consent of CPC.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply:
11.1 Net Clinic Revenues shall mean all of CPC's gross fees or revenues
recorded each month for services rendered in connection with the Clinic,
including (a) professional medical services furnished to patients by physicians
and Physician Extenders and other fees or income generated in their capacity as
professionals, whether in an inpatient or outpatient setting plus (b)
ancillaries, including medical director fees, global and technical fees from
ancillary services; fees for medical, utilization and quality assurance
management; interest on malpractice reserve funds; and fees for depositions and
expert testimony. The gross fees or revenues shall be reduced by any
Adjustments. Net Clinic Revenues specifically excludes Risk Pool Surpluses and
revenues or compensation not to exceed two nights per month per physician
received by CPC Physician shareholders as a result of the provision of services
at urgent care centers which such physician shareholders are providing at nights
as of the date of this Agreement.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenues.
11.3 ProMedCo Distribution shall mean 15% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by CPC and the CPC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 408
Clark Street Northeast, Cullman, Alabama, 35055 and 1948 Alabama Highway 157,
Suite 380, Cullman, Alabama 35055, and any substitute facility or additional
facility location, within the Restricted Area as defined within Exhibit C.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
<PAGE> 21
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all employees of ProMedCo and Technical
Employees attributable to CPC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with CPC; provided, however, only
that portion of such employee's or consultant's costs without mark-up by Parent
that is allocable to Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness reasonably incurred by ProMedCo
or Parent to finance or refinance any of its obligations or services provided
under this Agreement and directly attributable to the Clinic. Interest will be
charged for loans or operating cash advances from Parent; in such event, charges
will be computed at a floating rate that is equal to the current blended
borrowing rate in effect for outside borrowing sources of Parent.
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses to the extend extent provided in
Section 8.
11.6.7 Other expenses reasonably incurred by ProMedCo in carrying out
its obligations under this Agreement.
11.6.8 In the event an opportunity arises for additional physicians in
the service area of CPC to become employed by or merge with CPC, and is approved
by the Policy Council, amortization of intangible asset value as a result of
each such transaction shall be a Clinic Expense.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Any expenses which are expressly designated herein as expenses
or responsibilities of CPC and/or CPC Employees;
11.7.4 Any amortization expense resulting from the amortization of
expenses incurred in connection with the acquisition and execution of the CFP
Stock Purchase Agreement or the FMC Stock Purchase Agreement and this Agreement;
and
11.7.5 Interest expense on indebtedness incurred by ProMedCo or Parent
to finance the consideration paid under the CFP Stock Purchase Agreement or the
FMC Stock Purchase Agreement.
11.7.6 Any liabilities, judgements or settlements assessed against CPC
or Physician Shareholders in excess of any insurance policy limits.
11.8 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, and after the direct expenses of risk pool
management have been deducted.
11.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo
as of
<PAGE> 22
the Effective Date (as defined in the CFP Stock Purchase Agreement or the FMC
Stock Purchase Agreement as applicable), 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 CFP Stock Purchase Agreement and the FMC Stock Purchase
Agreement).
11.10 Technical Employees shall mean technicians who provide services
in the diagnostic areas of CPC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. AU Technical
Employees shall be CPC employees.
11.11 Physician Shareholders shall mean any physician who is a
shareholder of CPC, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.12 Physician Employees shall mean any physician employed by CPC and
providing medical services to patients on behalf of CPC, who are not Physician
Shareholders.
11.13 CPC Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.14 Effective Date shall mean 12:01 a.m. March 6, 1996.
11.15 Physician Extenders shall mean Nurse Anesthetists, Physician
Assistants, Nurse Practitioners, Psychologists, Podiatrists and other such
positions, and any position that generates a professional charge, but excluding
Technical Employees.
11.16 Adjustments "Adjustments" shall mean any Adjustments to CPC's
gross billings for uncollectible accounts, discounts, 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 made 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 the actual
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.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that CPC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. Notwithstanding the authority granted to ProMedCo herein, ProMedCo
shall neither have nor exercise any control or direction over the methods by
which CPC or the CPC Employees practice medicine. The sole function of ProMedCo
hereunder is to provide all management services in a competent, efficient and
satisfactory manner. ProMedCo shall not, by entering into and performing its
obligations under this Agreement, become liable for any of the existing
obligations, liabilities or debts of CPC unless otherwise specifically provided
for under the terms of this Agreement. ProMedCo 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 Proprietary Property.
12.2. Each party agrees that the other party's proprietary property
shall not be possessed, used or disclosed otherwise than may be necessary for
the
<PAGE> 23
performance of this Agreement or except as may be required by law. 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.
12.2.2 ProMedCo shall be the sole owner and holder of all fight, title
and interest, to all intellectual property ftimished by it under this Agreement,
including, but not limited to the trade name "CPC, " all computer software,
copyright, services mark and trademark right to any material or documents
acquired, prepared, purchased or furnished by ProMedCo pursuant to this
Agreement. CPC 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, provided, however, that the foregoing shall not
restrict CPC from distributing managed care information brochures and materials
without the prior written approval of ProMedCo provided no Proprietary Property
of ProMedCo is contained therein. Notwithstanding the preceding, however,
ProMedCo agrees that CPC shall be entitled to use on a nonexclusive and
nontransferable basis for the term of this Agreement the name "CPC" as may be
necessary or appropriate in the performance of CPC's services and obligations
hereunder.
12.3 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.
12.4 Licenses, Permits and Certificates. ProMedCo and CPC 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.
12.5 Compliance with Rules, Regulations and Laws. ProMedCo and CPC
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 and CPC 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 XIIX 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 XIIX of the Social Security Act.
12.6 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.
12.7 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.
<PAGE> 24
12.8 Attorneys' Fees. ProMedCo and CPC 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.
12.9 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.
12.10 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 in Birmingham, Alabama, 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.
12.11 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Alabama. 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.
12.12 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor CPC shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. CPC
may not delegate any of CPC's duties hereunder. CPC may not delegate any of
CPC's duties hereunder, except as expressly contemplated herein; however,
ProMedCo may delegate some or all of ProMedCo' s duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto, provided however, ProMedCo shall remain
responsible for the performance of such duties.
12.13 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.
12.14 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.
12.15 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.
12.16 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.
12.17 Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
12.18 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
<PAGE> 25
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 Alabama 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 CPC to practice medicine in the State of Alabama,
CPC and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between CPC and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between CPC and ProMedCo, 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 CPC shall require the affirmative
vote of a majority of Physician Shareholders.
12.19 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 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, INC.,
By:
Name
Title
Address
PROMEDCO OF CULLMAN, INC.,
By:
Name:
Title:
Address:
CULLMAN PRIMARY CARE, P.C.
By:
Name:
Address:
<PAGE> 26
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses.
ProMedCo's percentage shall be based on the cumulative Risk Pool Surpluses that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Savings ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for an
additional 6 months to pay for any unanticipated claims. At the end of that 6
months, any funds remaining from the [*]% reserved shall be distributed.
A-1
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
<PAGE> 27
AGREEMENT OF EMPLOYMENT
AGREEMENT, made as of the day of , 1996, by and between CULLMAN PRIMARY CARE,
P.C., an Alabama professional corporation (the "Employer, " "CPC" or the
"Corporation") , and , M.D., a resident of the State of Alabama duly licensed to
practice the profession of medicine under the laws of the State of Alabama (the
"Employee").
W I T N E S S E T H:
WHEREAS, pursuant to the Provisions of a Stock Purchase Agreement
of even date (the "Stock Purchase Agreement"), by and among Cullman
Family Practice, Inc. ("CFP, Inc."), Gregory L. Meiman, M.D.,
Thomas W. Montgomery, M.D., B. Gregory Bostick, M.D., James R.
liolowach, M.D. and Michael L. Schendel, M.D., ProMedCo, Inc. and
ProMedCo of Cullman, Inc. ("ProMedCo"), ProMedCo acquired
substantially all of the stock of CFP, Inc. , including the stock
of CFP, Inc. owned by the Employee;
WHEREAS, the Stock Purchase Agreement provides for the contemporaneous execution
and delivery of that certain Service Agreement (the "Service Agreement"), which
outlines and determines the amount of compensation the Employer is to receive
for providing services under said Service Agreement;
WHEREAS, the Employer and the Employee desire to enter into a agreement relating
to the employment of the Employee by the Employer to provide for compensation
consistent with the relevant provisions of the Service Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. EMPLOYMENT. The Employer hereby employs Employee, and the
Employee hereby accepts such Employment from the Employer, upon the
terms and conditions hereinafter set forth.
2. EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective as of the date
hereof (the "Effective Date") and shall continue for a period of seven (7) years
(the "Initial Term"), unless otherwise terminated pursuant to the terms hereof.
Thereafter, the term of Employee's employment hereunder shall renew
automatically for three (3) year terms thereafter, unless otherwise terminated
as provided below.
3. DUTIES. The Employee shall devote his full time and attention to the practice
of medicine in which the Employer is and will be engaged, as an employee of the
Employer, and the Employee shall not, without the written consent of the Board
of Directors (the "Board"), either directly or indirectly, engage in any other
professional or business activity, whether or not such professional or business
activity is pursued for gain, profit or other pecuniary advantage; provided,
however, that the Employee may engage in personal non-financial pursuits that do
not substantially interfere
<PAGE> 28
with the performance of his duties under this Agreement and nothing contained
herein shall be construed as preventing the Employee from investing his assets
in such form or manner as will not require his services in the operation of the
affairs of the company or companies in which such investment or investments are
made. Any consent granted to the Employee to engage in other professional or
business activities shall be revocable by the Employer at any time upon ten (10)
days' notice, and the Employee agrees to cease and desist upon receipt of such
notice. The Employee shall use his best efforts to promote the interest and
welfare of the Employer and, during the term of this Agreement, the Employee
shall not engage in the practice of medicine except as an employee of the
Employer.
The Employee shall abide by all of the rules, regulations and policies
established or promulgated by the Employer. The Employee shall devote such time
to the administration and operation of the medical practice of the Employer as
the Employer shall determine. The Employee shall provide such evening and
weekend coverage for the Employer's medical practice as shall be assigned to
him, from time to time, by the Employer. His duties shall include, but not be
limited to, the following:
(a) Keeping and maintaining (or causing to be kept and maintained)
appropriate records relating to all professional services rendered
by him during the term of his employment with the Employer;
(b) Preparing and attending to, in connection with such services, all reports,
claims and correspondence necessary or appropriate in the circumstances, all of
which records, reports, claims and correspondence shall belong to the Employer;
(c) Working with the staff of the Employer in a cooperative, constructive manner
consistent with a policy of providing quality professional services to patients
while maintaining excellent morale among the members of the staff of the
Employer; and
(d) Carrying out all other duties assigned to him by the Board or
the President.
4. DIRECTION OF SERVICES. The Employer shall direct, control and supervise the
duties and work of the Employee; provided, however, that the Employer shall not
impose employment duties or constraints of any kind which would require the
Employee to infringe the ethics of his profession or violate any ordinance or
law. The Employer shall have the exclusive right to allocate the patients among
its employees with due regard to the source of the patient, the specialty and
skill of the employees, and the work load of the employees. The Employer shall
have the right to determine the days and hours when the Employee shall perform
his duties; provided, however, that the Employee shall not be required to work
longer than a physician's normal work week.
<PAGE> 29
5. RELATIONSHIP WITH PATIENTS. The Employee agrees that in dealing with patients
or prospective patients of the Employer, he will give no assurance in any form
to such persons that he or any particular employee of the Employer will treat
such patient, it being expressly understood that the Board, or its designee,
shall have sole authority to determine which employees of the Employer shall
perform professional services for any particular patient of the Employer. The
Employer shall have authority to determine who shall assume the Employee's
duties during periods of illness and vacation.
6. FEES FOR SERVICE. Except as otherwise provided herein or in the Service
Agreement, all income generated by the Employee for his services as a physician
including, without limitation: (i) treatment of patients; (ii) reading or
interpreting tests, films or other data; (iii) consulting or testifying with
regard to the medical aspects of any controversy, litigation, or safety program;
(iv) consulting, advising, managing or directing with regard to any medical
program or facility; or (v) any other compensation paid with respect to any
employment or engagement of the Employee on account of his being a medical
doctor shall belong to ProMedCo in accordance with the terms of the Service
Agreement. The Employee agrees, upon request by the Employer, to render an
accounting of all transactions relating to his practice as a physician during
the course of his employment. Employee shall be entitled to retain any
compensation paid for Employee's participation in educational programs for
teaching, instruction, or supervising persons in connection with residency
programs in any local hospital.
7 . RELATIONSHIP OF PARTIES. The relationship between the Employee and the
Employer is that of employee and employer. The Employee, by virtue of this
relationship, shall not have any interest in the Employer's tangible or
intangible assets. The relationship between the Employee and the Employer shall
not modify or affect in any way the physician-patient privilege or relationship.
8. COMPENSATION. As his entire compensation for all services rendered to the
Employer during the term of this Agreement, in whatever capacity rendered, the
Employee shall have and receive the compensation which shall be determined from
time to time by the Board. Such compensation shall be subject to withholding and
other applicable employment taxes.
9. WORKING FACILITIES.
(a) Office. The Employee shall be provided with an office, stenographic and
technical help, equipment and such other facilities and services suitable to his
position and adequate for the performance of his duties.
(b) Professional Organizations. The Employer shall pay the
reasonable expenses of the Employee's membership and participation
in such professional organizations as shall be approved by the
Board. The Employee is expected, from time to time, to incur
<PAGE> 30
reasonable expenses for additional social, professional, and civic club
memberships and participation, entertainment, travel and similar items. The cost
of such activities shall be at the sole expense of the Employee except as the
Board shall authorize the payment or reimbursement of such expenses as an
expense of the Employer.
10. RECORDS. All records, documents and personal or professional files
pertaining to patients of the Employer or patients consulted, interviewed,
served or treated by the Employee shall belong to and remain the property of the
Employer; provided, however, the Employee, upon termination of his employment,
shall have the privilege of reproducing at his own expense any of such records
of patients treated or served by him during his employment with the Employer.
11. MEETING AND POST-GRADUATE COURSES. The Employee is encouraged and is
expected to attend such meetings, professional conventions and post-graduate
courses in the field of medicine as approved from time to time by the Board. The
cost of tuition and registration for attending such meetings and other costs
incurred by the Employee in connection therewith shall be an expense of the
Employer.
12. VACATION AND SICK LEAVE. The Employee shall be entitled to (_) weeks of
vacation with pay (or such greater length of time as may be approved from time
to time by the Board) during each calendar year, such (_) week period to include
such time taken by the Employee during the year to attend professional seminars.
In addition, Employee shall be entitled to - (-) days per month sick leave
during each calendar year. For purposes of this Paragraph 12, a "week" shall
mean five business days and one weekend. Such vacation shall be taken by the
Employee at such time or times as shall be approved by the Board. In addition,
the Employee shall be entitled to such holidays (unless Employee is on call) as
the Board may approve. Unused days of vacation, sick leave or holidays may not
be carried over from one calendar year to another. No payment for any such
unused days of vacation, sick days or holidays shall be made upon the
termination of Employee' employment hereunder.
13. HEALTH, WELFARE AND INSURANCE PLANS. In accordance with their terms, the
Employee may be entitled to participate in any plans, insurance contracts, or
agreements maintained by the Employer relating to retirement, health, disability
and other related benefits. The Employee's rights and entitlement with respect
to any such benefits will be subject to the provisions of the relevant
contracts, policies or plans providing such benefits. Nothing contained herein
shall be deemed to impose any obligation on the Employer to initiate or maintain
any such plans, policies, contracts or agreements.
14. TERMINATION OF EMPLOYMENT - The employee's employment under the Agreement,
shall be terminated immediately upon the happening of any of the following
events:
<PAGE> 31
(a) The termination by the Employer of the Employee's employment without cause
upon at least ninety (90) days written notice to the Employee; provided,
however, that the Employer shall not be entitled to terminate the Employee's
employment under the terms of this Paragraph 14(a) during any period of total
disability of the Employee as defined in Paragraph 17(c) hereof;
(b) The termination by the Employee of his employment with the
Employer without cause upon at least ninety (90) days written
notice to the Employer;
(c) The permanent disqualification of the Employee to practice
medicine in the State of Alabama;
(d) The death of the Employee;
(e) The Employee's expulsion from membership in the Medical
Association of the State of Alabama;
(f) Abusive use or abuse of drugs or alcohol;
(g) The total disability of the Employee as set forth in Paragraph
17 hereof;
(h) The suspension, revocation, termination or cancellation of the Employee's
membership on the medical staff of, or his privileges at, any hospital for
non-disciplinary reasons, including, without limitation, failure to admit
patients or failure to maintain patient records on a timely basis;
(i) The termination of Employee's ability to participate in or
receive reimbursements from Medicare or Medicaid; and
(j) Immediate termination by the Employer with "good cause" upon the giving of
written notice. For the purpose of this Agreement, "good cause" shall include,
neglect of duty or professional standards, proven dishonesty, theft, fraud,
embezzlement, repeated failure to be available for work or call when scheduled,
disloyalty to the Employer, conviction of a felony or a crime involving moral
turpitude, willful inattention to the economic or ethical welfare of the
Employer, and conduct constituting a breach of this or any other agreement
between the Employer and the Employee.
In the event the Employee's employment under the Agreement is terminated without
cause pursuant to Paragraph 14(a) or 14(b), the Employer, at its option, may
require the Employee to cease providing services to the Employer immediately;
provided, however, that the Employee shall receive his compensation and other
benefits, if any, hereunder until the effective date of such termination.
15. PAYMENTS BY EMPLOYER UPON TERMINATION. Within fifty (50) days
following the effective date of the Employee's termination of
<PAGE> 32
employment (the "Termination Date"), the Employer shall pay the Employee (or his
legal representative, as the case may be) his compensation due under Paragraph 8
above prorated through the Termination Date. Except as provided in this
Paragraph, the Employee shall not be entitled to receive any severance pay or
other compensation. The Employee shall not have nor acquire any interest in the
Employer's accounts receivable, shall not be entitled to receive any payment
from or on account of such accounts receivable and shall have no interest in or
claim to the nonvested portion of his benefits in any qualified retirement plan
maintained by the Employer.
16. PAYMENTS BY EMPLOYEE UPON TERMINATION. Upon the termination
of the Employee's employment, the Employee (or his legal
representative, as the case may be) shall pay the Employer an
amount equal to the sum of:
(a) all amounts owed by the Employee to the Employer as of the
Termination Date; and
(b) the value of all prepaid and unearned items and expenses paid by the
Employer for the benefit of the Employee including, without limitation, all
prepaid and unearned premiums for health insurance prorated through the
Termination Date but only to the extent the Employee continues to derive
benefits from such coverage after the Termination Date.
The amount payable to the Employer pursuant to this Paragraph shall be
determined by the accountant retained by the Employer and such determination,
when made and delivered to the Employer and the Employee (or his legal
representative, as the case may be), shall be conclusive and binding on the
Employer and the Employee (or his legal representative, as the case may be) -
The Employer may offset any amounts payable to it pursuant to this Paragraph
against any amounts payable by the Employer to the Employee (or his legal
representative, as the case may be) under this Agreement.
17. DISABILITY.
(a) Amount. Notwithstanding anything to the contrary herein, in the event the
Employee becomes totally disabled, as defined below, and is unable to perform
his normal duties as an employee of the Employer, then the Employee, in lieu of
any compensation due under Paragraph 8 above, shall pay Employee only such
compensation as the Board may approve. The parties acknowledge that Employee's
compensation and disability benefits hereunder shall be based on Employee's
productivity and that Employee's disability will likely result in a reduction
and possible elimination of Employee's compensation hereunder.
(b) Termination of Employment. In the event such total disability continues for
a period of (_) months in a month period, such disability shall be deemed to be
permanent total disability, and the Employee's employment hereunder shall, at
the end of such (_)
<PAGE> 33
month period, be automatically terminated. If, however, prior to the end of such
(_) month period of total disability, the Employee's total disability shall have
ceased and he shall have resumed the performance of his normal duties hereunder,
the Employee shall thereafter receive his full compensation as set forth in
Paragraph 8 hereof.
(c) Definition and Determination of Total Disability. For purposes of this
Agreement, the term "total disability" shall mean the Employee's inability to
perform the normal duties of his employment by the Employer as a physician. If
there is any disagreement between the Employer and the Employee as to the
disability or non-disability of the Employee or as to the effective date of any
such disability, the same shall be determined after an examination of the
Employee by a physician to be selected by the Board and ProMedCo. The Employee
shall be available for such an examination at any reasonable time. The
determination of such physician selected by the Employer shall be conclusive
evidence of the disability or the nondisability of the Employee and of the date
any such disability began. If the Employee should not cooperate in the
examination by such physician selected by the Employer, then, for purposes
hereof, the determination of the Employee's disability or nondisability and the
date any such disability began shall be made by the Employer and ProMedCo in
their sole discretion.
18. PROFESSIONAL LIABILITY INSURANCE. The Employer, at its expense shall carry
professional liability (malpractice) insurance for the Employee in the same
manner, with the same limitations and to the same extent and amount, if any, as
is provided by the Employer for its other professional employees. Upon the
termination of his employment, the Employee shall pay the "tail premium," "final
endorsement premium" or any other premium or charge for extending the coverage
of the professional liability insurance then carried by the Employer for the
nine (9) year period beginning on the date of such termination or otherwise
cause such insurance to remain in effect for such nine (9) year period. if the
Employee fails to pay such tail premium or cause such insurance to remain in
effect for such nine (9) year period, the Employer may pay such tail premium and
the Employee shall reimburse the Employer for any and all costs incurred by the
Employer in connection with the Employer's payment of such tail premium
including interest on such amount at a rate of 15% per annum. Any premium refund
or similar reimbursement which may be payable by any malpractice insurance
company upon the cancellation of the Employee's coverage on account of the
termination of his employment with the Employer shall be the exclusive property
of the Employer and the Employee shall cooperate in good faith with the
Employer's efforts to collect any such amounts.
19. PROMEDCO CONSIDERATION. In the event that, during the Initial
Term of this Agreement, the Employee is terminated by Employer
pursuant to Paragraphs 14(c), (e), (f), (h), (i) or (j), or by the
Employee pursuant to Paragraph 14(b), the Employee shall forfeit
any Unredeemed Equity (as defined in the Service Agreement) that
<PAGE> 34
was yet to be received by him pursuant to the Stock Purchase Agreement (this
would include any future interest or principal payments under the Convertible
Subordinated Note, and any future Converted Shares) attributable to the sale of
his shares in CFP, Inc. Said future consideration will be transferred to
ProMedCo (the "Transfer"). The Employee acknowledges that in the event that,
during the Initial Term, Employee is terminated by Employer pursuant to
Paragraph 14(c), (e), (f), (h), (i) or (j) or the Employee's termination of his
or her employment pursuant to Paragraph 14(b), it would be difficult to
calculate the precise amount of damages and for that reason the parties have
determined that the Transfer will be appropriate liquidated damages for such
actions during the Initial Term hereof. The Transfer shall be effective as of
the date of the event giving rise to the termination of Employee's employment
hereunder by Employer or Employee as aforesaid. The Employee hereby appoints
ProMedCo as its attorney in fact to cause such Transfer. The Employer and
ProMedCo shall be entitled to specific performance and other equitable relief to
enforce the Transfer. This provision is in addition to the rights of Employer
pursuant to Paragraph 14 of this Agreement.
20. NON-COMPETITION AND NON-SOLICITATION.
(a) Noncompetition. During the term of his employment hereunder (including any
extensions thereof), the Employee shall not, either directly as a partner,
employer, agent, independent contractor, employee or indirectly through a
corporation, partnership, affiliate, subsidiary or otherwise:
(1) establish, operate or provide professional medical services at any medical
office, clinic or outpatient and/or ambulatory treatment or diagnostic facility
within the geographic area described in Exhibit A attached hereto (the "Area")
other than such offices, clinics or facilities owned, operated, managed, staffed
or leased by ProMedCo, or any affiliate thereof;
(2) solicit, induce or attempt to induce, in connection with any business
competitive with that of the Employer, patients of any physician associated with
the Employer to leave the care of physicians associated with the Employer; or
(3) solicit, induce or attempt to induce any employee, consultant or other
persons associated with the Employer or ProMedco to leave the employment of, or
to discontinue their association with the Employer or ProMedCo, or any affiliate
thereof.
(b) Employee agrees and covenants that for a period of twenty-four (24) months
after the date of termination of his employment with CPC during the Initial
Term, the Employee shall not, either directly as a partner, employer, agent,
independent contractor, employee or indirectly through a corporation,
partnership, affiliate, subsidiary or otherwise, (a) enter into a provider
agreement or other contract with, nor provide any medical services
<PAGE> 35
in connection with or pursuant to any such provider agreement or other contract,
any third party payor having a provider agreement or other contract with CPC or
any other employee of CPC at any time within 120 days prior to and including the
date of Employee's termination of employment with CPC or (b) solicit, induce or
attempt to induce any patient of CPC to become a patient of Employee or any
partner, employee or affiliate of Employee. As used herein, a third party payor
shall include, without limitation, any employer, coalition of employers, union
or similar organization maintaining a health benefit plan for the benefit of its
employees or members, any insurance company, any Blue Cross/Blue Shield plan,
any health maintenance organization, preferred provider organization,
independent physicians association, physicians hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein, the
term "third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants. This
provision shall be limited in its application to the Area.
(c) Covenants Necessary. The covenants contained in Paragraphs 20 and 22 herein
are necessary to protect the business and goodwill of the Employer and ProMedCo
and a breach of these covenants will result in the irreparable harm and
continuing damage to the Employer and ProMedCo. In the event the Employee
breaches such covenants during the Initial Term, the Employer and ProMedCo shall
be entitled to specific performance and/or injunctive or other equitable relief
in order to prevent the continuation of such harm, as well as money damages. The
Employee waives any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief. The Employee
acknowledges that if the Employee breaches the covenants contained in Paragraph
20(b) and the Employer or ProMedCo is unable for any reason to obtain a
restraining order from a court of competent jurisdiction within thirty (30) days
after application enjoining the breach by the Employee, it will be difficult to
calculate the precise amount of the Employer's damages. As a result, the parties
have determined that, in the event of such a breach, the Employer's damages
shall be equal to Liquidated Damages in the amount of the physician's total
compensation for the most recent 12 month period, but not in excess of $200,000.
(d) Limitations. The parties have attempted to limit the provisions of this
Paragraph 20 only to the extent necessary to protect each parties' interest. In
the event that any provision, section or subsection of this Paragraph 20 is
adjudged by any court of competent jurisdiction to be void or unenforceable, in
whole or part, such court shall modify and enforce any such provision, section,
or subsection to the extent and geographic area that it believes to be
reasonable under the circumstances.
<PAGE> 36
21. ACKNOWLEDGMENTS. The Employee hereby represents and
acknowledges as follows:
(a) All documents, knowledge and information regarding the methods of operation
of Employer and ProMedCo, and any affiliate thereof, are highly confidential and
constitute trade secrets, including, but not limited to information regarding
patient lists, patient solicitation, patient treatment and charging, financial
statements and reports, memorandum or correspondence regarding the Employer's
and ProMedCo's, and any affiliate thereof, methods of operation (collectively,
"Confidential Information,,);
(b) The Employee is fully capable of earning a livelihood and
practicing in the Employee's professional medical field without
violating any of the provisions of this Agreement;
(c) The Employee's ability to earn a livelihood and practice in his or her
professional medical field without violating any of the provisions of this
Agreement was a material condition to the execution of this Agreement;
(d) Under current circumstances, the Employee has no reason to believe that the
medical needs of the communities served by the Employer for the professional
medical services which the Employer provides cannot be adequately met without
the Employee violating any of the provisions of this Agreement; and
(e) The ability to adequately meet the medical needs of the communities served
by the Employer for the professional medical services which the Employee will
provide without violating any of the provisions of this Agreement was a material
condition to the execution of this Agreement.
22. TRADE SECRETS AND CONFIDENTIAL INFORMATION. The Employee shall not disclose,
communicate or misuse, to the detriment or injury of the Employer or ProMedCo
and any affiliate thereof, any Confidential Information to any person or entity
not associated with the Employer or ProMedCo and any affiliate thereof, other
than his or her attorneys or accountants who shall also agree not to disclose
such information without the written consent of the Employer or ProMedCo, and
any affiliate thereof, as the case may be, unless required to disclose it by law
or, unless such information is generally known or available in the industry or
by the person to whom it is communicated. Immediately after the earlier of the
termination of Employee's employment under this Agreement or such time as the
Employee shall cease to be associated with the Employer, the Employee shall
return any and all Confidential Information to the possession of the Employer
and/or ProMedCo, and any affiliate thereof.
23. ARBITRATION. Any dispute arising out of this Agreement shall
be settled by a single arbitrator sitting in the City of Cullman,
who is mutually agreeable to both parties, and applying the rules
and regulations of the American Arbitration Association. The
<PAGE> 37
parties hereto agree to be bound by the arbitrator's decision.
Judgment may be entered in any state or federal court having
jurisdiction.
24. GENERAL ASSETS OF THE EMPLOYER. Nothing contained in this Agreement nor any
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Employer and the Employee, his designated beneficiary or any other person. Any
funds which may be used to discharge the Employer's obligations under the
provisions of this Agreement shall be paid from the general funds of the
Employer, and no person other than the Employer shall, by virtue of the
provisions of this Agreement, have any interest in such funds or assets. To the
extent that any person acquires a right to receive payments from the Employer
under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
25. MISCELLANEOUS.
(a) Standards. The Employee shall perform his duties under this Agreement in
accordance with such standards of professional ethics and practice as may from
time to time be applicable during the term of his employment hereunder.
(b) Nature and Survival of Representations. All representations, warranties and
agreements made herein by any of the parties hereto shall survive consummation
of the transactions contemplated hereby.
(c) Construction. This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of Alabama, applied without giving effect
to conflict-of-laws principles.
(d) Notices. Any and all notices required or permitted to be given under this
Agreement shall be sufficient if furnished in writing and sent by certified
mail, return receipt requested, in the case of the Employee, to the Employee's
last known residence address or, in the case of the Employer, to its principal
office in Cullman, Alabama.
(e) Severability. The provisions of this Agreement shall be severable and if any
provision shall be invalid, void or unenforceable in whole or in part for any
reason, the remaining provisions shall remain in full force and effect.
(f) Binding Agreement. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and
permitted assigns.
(g) Amendment. Neither this Agreement nor any term or provision
hereof may be changed, modified, waived, discharged or terminated
orally or in any manner other than by instrument in writing, signed
<PAGE> 38
by the party against whom the enforcement of such change, modification, waiver,
discharge or termination is sought.
(h) Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as, or be construed to be, a
waiver of any subsequent breach hereof.
(i) Necessary Action. Each party shall perform any further acts
and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
(j) Interpretation. The terms "herein" or "hereunder" or like terms shall be
deemed to refer to this Agreement as a whole and not to a particular section.
Whenever terms such as "include" or"including" are used in this Agreement, they
shall mean "include" or "including", as the case may be, without limiting the
generality of any description or word preceding such term. The captions or
headings in this Agreement are made for convenience and general reference only
and shall not be construed to describe, define or limit the scope or intent of
the provisions of this Agreement. As used herein, all masculine pronouns shall
include the feminine or neuter, and all singular terms the plural forms thereof,
and vice versa. All references to sections hereunder shall be deemed to refer to
sections of this Agreement, unless otherwise expressly provided, whether or not
"hereof", "above", "below" or like words are used.
(k) Litigation. In the event that it becomes necessary for any party to initiate
litigation for the purpose of enforcing any of any rights hereunder or for the
purpose of seeking damages for any violation hereof, then, in addition to all
other judicial remedies that may be granted, the prevailing party or parties
shall be entitled to recover reasonable attorneys, fees and all other cost that
may be sustained by such prevailing party or parties in connection with such
litigation. For purposes of any action or proceeding involving this Agreement,
each party hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Alabama and consent to be served with any process
on paper by registered mail or by personal service within or without the State
of Alabama in accordance with applicable law, provided a reasonable time for
appearance is allowed. All parties hereby waive, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
any such action or proceeding.
(1) Assignment. Employee shall not assign any of his rights or delegate any of
his duties under this Agreement without the express prior written consent of the
Employer. Employer shall have the absolute right, in its sole discretion, to
assign all or any of its rights or obligations hereunder or to delegate all or
any of its duties hereunder to any affiliate of Employer or in connection with
the sale of substantially all of the operating assets of the Employer's
business.
<PAGE> 39
(m) Authority. The provisions of this Agreement required to be
approved by the Board have been so approved and authorized.
(n) Fiscal Year Defined. Whenever the term "fiscal year" is used
herein, it shall, unless otherwise specified, be deemed to refer to
the fiscal year of the Employer.
(o) Counterparts. This Agreement may be executed in any number of
counterparts, which together shall constitute a single fully
executed agreement.
(p) Defined Terms. Except as otherwise defined herein, terms in
the Stock Purchase Agreement and the Service Agreement shall have
the same meaning in this Agreement.
(q) Entire Agreement. This Agreement and the written documents referred to or
described herein contains the entire agreement of the parties hereto regarding
the transactions contemplated hereby and thereby and supersede all prior
negotiations or agreements among such parties regarding such transactions.
IN WITNESS WHEREOF, the Employer has hereunto caused this Agreement to be
executed by its duly authorized officers and the Employee has hereunto set his
hand, all being done in duplicate originals with one (1) original being
delivered to each party on the day and year first above written.
EMPLOYER:
By:
President
EMPLOYEE:
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[*]."
- -------------------------------------------------------------------------------
SERVICE AGREEMENT
- -------------------------------------------------------------------------------
PROMEDCO OF MAYFIELD, INC.
AND
MORGAN-HAUGH, P.S.C.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective April 1, 1996
- -------------------------------------------------------------------------------
<PAGE> 2
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Table of Contents
1. RESPONSIBILITIES OF THE PARTIES...........................................1
1.1 General Responsibilities of the Parties.........................1
1.2 MH's Matters....................................................1
1.3 Patient Referrals...............................................1
2. POLICY COUNCIL............................................................2
2.1 Formation and Operation of the Policy Council...................2
2.2 Duties and Responsibilities of the Policy Council...............2
3. OBLIGATIONS OF PROMEDCO...................................................3
3.1 Management and Administration...................................4
3.3 Expansion of Clinic.............................................8
3.4 Events Excusing Performance.....................................8
3.5 Compliance With Applicable Laws.................................8
4. OBLIGATIONS OF MH.........................................................8
Professional Services................................................8
4.2 Employment Of Physician Employees...............................8
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.................................9
4.9 Restrictions on Use of Clinic Facility..........................9
4.10 MH Employee Benefit Plans......................................9
4.11 Physician Powers of Attorney...................................10
4.12 Spokesperson...................................................10
5. RECORDS...................................................................10
5.1 Patient Records.................................................11
5.2 Other Records...................................................11
5.3 Access to Records...............................................11
6. FACILITIES TO BE PROVIDED BY PROMEDCO.....................................11
6.1 Facilities......................................................11
6.2 Use of Facilities...............................................11
7. FINANCIAL ARRANGEMENTS....................................................11
7.1 Payments to MH and ProMedCo..............................................11
7.2 Distribution....................................................12
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7.3 Clinic Expenses.................................................12
7.4 Accounts Receivables............................................12
8. INSURANCE AND INDEMNITY...................................................12
8.1 Insurance to Be Maintained by ProMedCo..........................12
8.2 Insurance to be Maintained by MH................................13
8.3 Tail Insurance Coverage.........................................13
8.4 Additional Insured..............................................13
8.5 Indemnification.................................................13
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.............................14
9.1 Restrictive Covenants by MH.....................................14
9.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees ....................................14
9.3 Restrictive Covenants By Future Physician Employees.............14
9.4 Physician Shareholder and Physician Employee Liquidated Damages.14
9.5 Enforcement.....................................................15
9.6 Termination of Restrictive Covenants............................15
10. TERM.....................................................................16
10.1 Term and Renewal...............................................16
10.2 Termination by MH..............................................16
10.3 Termination by ProMedCo.......................................16
10.4 Actions After Termination......................................17
11. DEFINITIONS..............................................................18
11.1 Net Clinic Revenues ...........................................18
11.2 Distribution Funds ............................................18
11.3 ProMedCo Distribution .........................................18
11.4 Clinic ........................................................18
11.5 Clinic Facility ...............................................19
11.6 Clinic Expenses ...............................................19
11.7 Clinic Expenses shall not include..............................20
11.8 Risk Pool Surpluses ...........................................20
11.9 Opening Balance Sheet .........................................20
11.10 Technical Employees ..........................................20
11.11 Physician Shareholders .......................................20
11.12 Physician Employees ..........................................21
11.13 MH Employees .................................................21
11.14 Effective Date ...............................................21
11.15 Physician Extenders ..........................................21
12. GENERAL PROVISIONS.......................................................21
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12.1 Independent Contractor.........................................21
12.2 Other Contractual Arrangement..................................21
12.3 Proprietary Property...........................................22
12.4 Cooperation....................................................23
12.5 Licenses, Permits and Certificates.............................23
12.6 Compliance with Rules, Regulations and Laws....................23
12.7 Generally Accepted Accounting Principles (GAAP)................23
12.8 Notices........................................................23
12.9 Attorneys' Fees................................................23
12.10 Severability..................................................23
12.11 Arbitration...................................................24
12.12 Construction of Agreement.....................................24
12.13 Assignment and Delegation.....................................24
12.14 Confidentiality...............................................24
12.15 Waiver........................................................24
12.16 Headings......................................................24
12.17 No Third Party Beneficiaries..................................24
12.18 Time is of the Essence........................................25
12.19 Modifications of Agreement for Prospective Legal Events.......25
12.20 Whole Agreement...............................................25
<PAGE> 5
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SERVICE AGREEMENT
Service Agreement ("Agreement") dated April 1, 1996, between ProMedCo
of Mayfield, Inc., a Kentucky corporation ("ProMedCo") which is an affiliate of
ProMedCo, Inc., a Texas corporation ("Parent") and Morgan-Haugh, P.S.C., a
Kentucky professional corporation ("MH").
RECITALS:
MH is a multi-specialty medical practice in Mayfield, Kentucky, which
provides professional medical care to the general public. ProMedCo is in the
business of owning certain assets of and managing and administering medical
clinics, and providing non-professional support services to and furnishing
medical practices with the necessary facilities, equipment, personnel, supplies
and support staff. Pursuant to an Asset Purchase Agreement dated as of April 25,
1996, between ProMedCo, Inc. and MH ("Asset Purchase Agreement") ProMedCo agreed
to assume certain liabilities and purchase certain assets used in the operation
of the medical practice to be conducted by MH.
Subject to the terms and conditions hereof, MH desires to engage
ProMedCo to provide to MH management services, facilities, personnel, equipment
and supplies necessary to operate the Clinic (as defined herein) and ProMedCo
desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide MH
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. MH shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of MH
and their patients.
1.2 MH's Matters. MH shall maintain sole discretion and authority over
the financial matters relative to its corporate existence. It shall set
compensation levels for MH Employees. MH will also be responsible for all other
matters pertaining to the operation of MH.
1.3 Patient Referrals. The parties agree that the benefits to MH 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 to any of MH's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
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 four members. ProMedCo shall designate, at its sole
<PAGE> 6
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discretion, two members of the Policy Council. Members of the Policy Council
designated by ProMedCo 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. MH at its sole discretion shall designate two members. Except
as may otherwise be provided, the act of a majority of the 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, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided; however, ProMedCo shall have final approval of any capital expenditure
required by ProMedCo.
(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 MH is dissatisfied with the services provided by the
Administrator, MH shall refer the matter to the Policy Council. ProMedCo 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 shall
have the ultimate authority to terminate the Administrator.
(c) Physician Hiring. The Policy Council, with information and analysis
provided by ProMedCo, shall determine the number and type of physicians required
for the efficient operation of the Clinic and MH shall determine the individual
physicians to be hired to fill such positions. The approval of ProMedCo shall be
required for any variations to the restrictive covenants in any physician
employment contract.
(d) Patient Fees. In consultation with MH and ProMedCo, the Policy Council
shall review and adopt the fee schedule for all physician and ancillary services
rendered by the Clinic.
(e) Ancillary Services. The Policy Council shall approve Clinic provided
ancillary services based upon the pricing, access to and quality of such
services.
(f) 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 and MH shall 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 MH.
<PAGE> 7
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(g) 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 $10,000 shall require the approval of the Policy Council.
(h) Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
(i) 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 Kentucky Medical Association.
(j) 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 MH's board or ProMedCo.
(k) Exceptions to Inclusion in the Net Revenue Calculation. The exclusion
of any revenue from Net Revenue, whether now or in the future, shall be subject
to the approval of the Policy Council.
3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo 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 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. MH
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in a business like manner. MH, through MH
Employees, will provide all medical services. ProMedCo will have no authority,
directly or indirectly, to perform, and will not perform any medical function.
ProMedCo may, however, advise MH 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,
MH hereby appoints ProMedCo as the sole and exclusive manager and administrator
of all non-medical functions and services related to MH's services at the
Clinic. MH shall perform all medical services, and ProMedCo shall have no
authority, directly or indirectly, to perform, and will not perform any medical
function. Without limiting the generality of the foregoing, ProMedCo shall
provide the following administrative, management and marketing services as may
be required in conjunction with MH's services at the Clinic. ProMedCo shall hire
and supervise an Administrator, subject to the
<PAGE> 8
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reasonable approval of the Policy Council, to manage and administer all of the
day-to-day business functions of ProMedCo, 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 shall prepare and deliver to MH capital
and operating budgets reflecting in reasonable detail anticipated
revenues and expenses, sources and uses of capital for to maintain and
enhance MH's medical practice and Clinic services.
3.1.2 Financial Statements. ProMedCo 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 MH 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 in connection with
the audit of the financial statements of Parent. If MH desires an audit
in addition to the audit provided by ProMedCo, such an audit would be
at MH's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all
personnel reasonably necessary for the conduct of Clinic operations
with the exception of Physician Extenders and Technical Employees.
ProMedCo 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, with
those personnel performing patient care services subject to the
professional supervision of MH. If MH is dissatisfied with the services
of any person, MH shall consult with ProMedCo. ProMedCo 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's obligations
regarding staff shall be governed by the overriding principle and goal
of providing high quality medical care. At ProMedCo's option some or
all of the non-physician personnel may be carried on the books of MH as
MH's employees.
3.1.4 Quality Assurance. ProMedCo will assist MH 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 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 shall order and
purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall deem to be necessary in the operation
of the Clinic, to deliver quality
<PAGE> 9
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Clinic services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible
for marketing, negotiation, and administering all managed care
contracts, subject to the provisions of Section 2.2.5; provided,
however, no contract or arrangement regarding the provision of Clinical
services shall be entered into without MH's consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients
and collect all fees for services performed inside or outside the
Clinic Facility or arrange for such billing and collection. MH hereby
appoints ProMedCo, for the term hereof, to be its true and lawful
attorney-in-fact for the following purposes (i) to bill patients in
MH's name and on its behalf, (ii) to collect accounts receivable
resulting from such billing in MH'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 MH (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 MH to collect any accounts
and monies owed to the Clinic, to enforce the rights of MH 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'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 MH shall be the owner ("Account"). ProMedCo and MH
shall maintain their accounting records in such a way as to clearly
segregate Net Clinic Revenues from other funds of ProMedCo or MH. MH
hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. MH covenants, and shall
cause all MH Employees to covenant, to forward any payments received
with respect to Net Clinic Revenues for services provided by MH and MH
Employees to ProMedCo for deposit. ProMedCo 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 ("ProMedCo Account"). MH and ProMedCo 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 MH that interferes with the
operation of this Section, including, but not limited to, any failure
to deposit or have ProMedCo deposit any Net Clinic Revenues into the
Account, any withdrawal of any funds from the Account not authorized by
the
<PAGE> 10
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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, 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 MH and its MH 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
MH and its MH 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 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 shall arrange
for or render to MH such business, legal and financial management
consultation and advice as may be reasonably required or requested by
MH and directly related to the operations of the Clinic. ProMedCo shall
not be responsible for rendering any legal or tax advice or services or
personal financial services to MH or any employee or agent of MH.
3.1.12 Negotiation and Payment of Premiums For All Insurance
Products Held By MH. ProMedCo 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 shall assist MH 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, MH 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 and accepted by MH shall
be the sole employees of MH 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 shall operate and
supervise
<PAGE> 11
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such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
3.1.17 Files and Records. ProMedCo 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 MH 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 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(c).
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting MH 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 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, ProMedCo
may acquire other physician practices. MH will cooperate with ProMedCo in such
expansion efforts and use its best efforts to assist ProMedCo with respect
thereto. Without limiting the generality of the foregoing, MH will not enter
into any agreements with respect to any such matter without the prior consent of
ProMedCo.
3.4 Events Excusing Performance. ProMedCo shall not be liable to MH 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 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 shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF MH
4.1 Professional Services. MH shall provide professional services to
patients in compliance
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at all times with ethical standards, laws and regulations applying to the
medical profession. MH shall also ensure that each physician associated with MH
is licensed by the State of Kentucky. In the event that any disciplinary actions
or medical malpractice actions are initiated against any such physician, MH
shall immediately inform the Administrator of such action and the underlying
facts and circumstances. MH shall carry out a program to monitor the quality of
medical care practiced, with ProMedCo's assistance. MH will cooperate with
ProMedCo 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. MH 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 MH, ProMedCo shall consult with MH regarding such matters. MH
shall enforce formal employee agreements from each of its Physician Shareholders
and Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. MH shall be solely responsible for the payment
of all costs and expenses incurred in connection with MH 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, and
licensing and board certification fees for its Physicians Employees and
Physician Extenders.
4.4 Medical Practice. MH 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 MH,
and no other physician or medical practitioner shall be permitted to use or
occupy the Clinic Facility except pursuant to the Excluded Leases, as defined in
the Lease dated as of April __, 1996 between MH, as Landlord, and ProMedCo, as
Tenant, without the prior written consent of the Policy Council.
4.5 Professional Insurance Eligibility. MH 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 MH. These Technical
Employees will remain in the employ of MH. As provided in Section 3.1.3.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. MH shall not be liable to ProMedCo 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 MH 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. MH 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. MH shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6.2 herein.
4.10 MH Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, MH 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 "D" to this Agreement.
(b) MH shall not enter into any new "employee benefit plan" (as defined in
Section 3(3) of ERISA) without the express written consent of ProMedCo. Except
as otherwise required by law, MH shall not materially amend, freeze, terminate
or merge any MH Plan without the express written consent of ProMedCo unless such
action is contemplated by the Asset Purchase Agreement. MH agrees to make such
changes to MH Plan, including the freeze, termination, or merger of such MH
Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any MH Plan or
other employee benefit plan maintained by MH,
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
Physician Shareholders and Physician Employees shall
be an expense of MH. ProMedCo shall make
contributions or payments with respect to any MH
Plan, as a Clinic Expense, on behalf of eligible
Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority
to adopt, amend, or terminate any employee benefit
plan for the benefit of its employees. ProMedCo shall
have the sole and exclusive authority to appoint the
trustee, custodian, and administrator of any such
plan.
4.11 Physician Powers of Attorney. MH shall require all MH Employees to
execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and MH, appointing ProMedCo 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. MH shall serve as spokesperson for ProMedCo and Parent
in Clinic
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sales and ProMedCo and Parent development activities. The parties agree that Dr.
Michael H. McBee or such other Physician Shareholder as the Policy Council shall
appoint to shall serve in this capacity on behalf of MH.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, MH shall
retain all patient medical records maintained by MH or ProMedCo in the name of
MH. MH shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by MH.
5.2 Other Records. All records relating in any way to the operation of the
Clinic which are not the property of MH under the provisions of Section 5.1
above, shall at all times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, MH or its designee shall upon 24 hours notice have reasonable access
during normal business hours to MH's and ProMedCo's financial records,
including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo in performing ProMedCo's obligations under
this Agreement, and MH may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo 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
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and MH agree that MH, 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 shall not receive any ProMedCo Distribution from the revenue
generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to MH and ProMedCo. MH and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to MH, each month ProMedCo
shall be paid the amount of all Clinic Expenses and the ProMedCo Distribution.
All Net Clinic Revenues after deduction of Clinic Expenses, and the ProMedCo
Distribution, shall be referred to as the "MH Distribution."
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7.2 Distribution. The amounts to be paid to ProMedCo under this Section
7 shall be payable monthly. ProMedCo shall pay to MH in accordance with the
provisions of Section 7.4 the MH 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 shall
pay all Clinic Expenses as they fall due (including without limitation any
Non-Physician Personnel carried on the books of MH at the requirement of
ProMedCo), provided, however, that ProMedCo may, in the name of and on behalf of
MH, 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 hereby agrees to indemnify and hold MH harmless from and
against any liability, loss, damages, claims, causes of action and reasonable
expenses of MH 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 shall purchase the
accounts receivable of MH arising during the previous month, by payment of cash,
or other readily available funds into an account of MH. The consideration for
the purchase shall be an amount equal to the MH Distribution for such previous
month. Although it is the intention of the parties that ProMedCo purchase and
thereby become owner of the accounts receivable of MH, in case such purchase
shall be ineffective for any reason, MH, as of the Effective Date of this
Agreement, grants and shall cause each MH Employee to grant to ProMedCo a first
priority lien on and security interest in and to any and all interest of MH and
such MH Employees in any accounts receivable generated by the medical practice
of MH and the MH Employees or otherwise generated through the operations of the
Clinic, and all proceeds with respect thereto, to secure the payment to ProMedCo
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, MH shall cooperate with ProMedCo and execute and deliver, and cause
each MH Employee to execute and deliver, all necessary documents in connection
with the pledge of such accounts receivable to ProMedCo or at ProMedCo'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. To the extent MH
or any MH Employee comes into possession of any payments in respect of such
accounts receivable, MH or such MH Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo and MH with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by MH. Unless otherwise determined by the
Policy
<PAGE> 16
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Council, throughout the term of this Agreement, subject to the provisions of
Section 4.5 and Section 8.1, MH 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 $3,000,000 per physician and a separate
limit for MH. MH shall be responsible for all liabilities (including without
limitation deductibles and excess liabilities) not paid within the limits of
such policies. ProMedCo 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 Kentucky and is
approved by the Policy Council.
8.3 Tail Insurance Coverage. MH will cause each individual physician
associated with the Clinic to enter into an agreement with MH that upon
termination of such physician's relationship with MH, for any reason, tail
insurance coverage will be purchased by the individual physician. Such
provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by MH and the individual physicians,
and MH hereby covenants with ProMedCo to enforce such provisions relating to the
tail insurance coverage or to provide such coverage at the expense of MH.
8.4 Additional Insured. MH and ProMedCo agree to use their best efforts
to have each other named as an additional insured on the other's respective
professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. MH shall indemnify, hold harmless and defend
ProMedCo, 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 (i)
the performance of medical services or any other acts or omissions by MH and/or
its shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by a MH Employee,
which claim arises out of such MH Employees' employment relationship with MH or
as a result of services performed by such MH Employee, and which claim would
typically be covered by worker's compensation and (ii) ProMedCo's entering into
and its performance of the terms and conditions of this Agreement. ProMedCo
shall indemnify, hold harmless and defend MH, 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 and/or its shareholders, agents,
employees and/or subcontractors (other than MH) during the term of this
Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if MH operates an active medical practice to which the
physicians associated with MH devote their full time and attention. To that end:
<PAGE> 17
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9.1 Restrictive Covenants by MH. During the term of this Agreement, MH
shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by MH pursuant to this Agreement anywhere within a
radius of 30 miles of Mayfield, Kentucky, or within a radius of 30 miles of any
current or future medical office, clinic or other health care facility from
which MH provides medical services.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. MH shall enforce employment agreements, in a form
satisfactory to ProMedCo, with its current Physician Shareholders and Physician
Employees pursuant to which the Physician Shareholders and Physician Employees
agree not to 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 MH pursuant to
this Agreement within a radius of 30 miles of Mayfield, Kentucky, or within a
radius of 30 miles of any current or future medical office, clinic or other
health care facility from which MH provides medical services, during the term of
said Physician Shareholder or Physician Employee's employment agreement, and for
a period equal to the lesser of (i) one year or (ii) the maximum period
permitted by Kentucky law after any termination of employment with MH. ProMedCo
shall have third-party rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. MH shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree not to 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 MH
pursuant to this Agreement within a radius of 30 miles of Mayfield, Kentucky, or
within a radius of 30 miles of any current or future medical office, clinic or
other health care facility from which MH provides medical services, during the
term of said Physician Employee's employment agreement, and for a period equal
to the lesser of (i) one year or (ii) the maximum period permitted by Kentucky
law after any termination of employment with MH. ProMedCo shall have third-party
rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
will provide that the Physician Shareholders and Physician Employees (existing
or future) may be released from their employment agreement by paying Liquidated
Damages in the amount of one times such physician's income, as reported to the
Internal Revenue Service for the previous 12 months. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo consideration pursuant
to the Asset Purchase Agreement, and said Physician Shareholder or Physician
Employee terminates their employment agreement with MH for any reason (other
than death or disability) prior to the fifth anniversary of the Closing under
the Asset Purchase Agreement, or is terminated for cause by MH prior to the
fifth anniversary of the Closing under the Asset Purchase Agreement, then said
Physician Shareholder or Physician Employee shall be required to reimburse back
to ProMedCo some or all of the consideration received by that physician pursuant
to the Asset Purchase Agreement as follows: (i) if such termination occurs prior
to the third such anniversary, 100% of such consideration; (ii) if such
termination occurs thereafter and prior to the fourth such anniversary, 67% of
such
<PAGE> 18
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consideration.; and (iii) if such termination occurs thereafter and prior to the
fifth such anniversary, 33% of such consideration. Such payments shall be passed
on to ProMedCo by MH simultaneously with the payment thereof by the physician to
MH. Such payment shall be first applied to all costs incurred by ProMedCo in the
enforcement of the employment agreement for that departing physician and in
recruiting a replacement physician for that departing physician. The remainder,
if any, shall become an additional service fee to be paid to ProMedCo pursuant
to Section 7. The accounting treatment of such funds shall be consistently
applied and approved by ProMedCo's independent certified public accountants and
the Policy Council.
9.5 Enforcement. ProMedCo and MH 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 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.
9.6 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
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 MH. MH 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, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is
dismissed within 30 days thereafter, MH may give
notice of the immediate termination of this
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Agreement.
(ii) In the event ProMedCo shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement and such default shall
continue for a period of 90 days after written notice thereof has been given to
ProMedCo by MH; or ProMedCo shall fail to remit the payments due as provided in
Section 7 hereof and such failure to remit shall continue for a period of 30
days after written notice thereof, MH may terminate this Agreement. Termination
of this Agreement pursuant to this Section 10.2(ii) by MH shall require the
affirmative vote of 75% of the Physician Shareholders.
10.3 Termination by ProMedCo. ProMedCo 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 MH, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
MH, except for the filing of a petition in
involuntary bankruptcy against MH which is dismissed
within 30 days thereafter, ProMedCo may give notice
of the immediate termination of this Agreement.
(ii) In the event MH 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 MH, and such default shall continue
for a period of 90 days after written notice thereof
has been given to MH and such Physician Shareholders
by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the MH Distribution and the ProMedCo 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,
MH shall:
10.4.1 Asset Repurchase. Purchase from ProMedCo 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 all real estate, if any,
associated with
<PAGE> 20
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the Clinic and owned by ProMedCo at the then book value thereof.
10.4.3 Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo and which
relate solely to the performance of its obligations under this
Agreement or the properties subleased by ProMedCo, if any.
10.4.4 Debts. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of ProMedCo and
which relate principally to the performance of its obligations under
this Agreement or the properties subleased by ProMedCo, if any.
10.4.5 Equipment; Inventories; Accounts Receivable; etc. Purchase from
ProMedCo at book value:
(i) Equipment. All of the equipment acquired by ProMedCo
pursuant to the Asset Purchase Agreement, including
all replacements and additions thereto made by
ProMedCo with the approval of the Policy Council
pursuant to the performance of its obligations under
this Agreement;
(ii) Inventory. All stocks, including inventory and
supplies, tangibles and intangibles of ProMedCo
relating to MH operations, 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
operations of the Clinic, depreciation, amortization
and other adjustments of assets shown on the Opening
Balance Sheet;
(iii) Accounts Receivable. All uncollected of accounts receivable
theretofore purchased by ProMedCo pursuant to Section 7.4 hereof at the book
value thereof on ProMedCo's books; and
(iv) Other Assets. All other assets of ProMedCo relating to the operations
of MH.
10.4.6 Closing of Repurchase. MH shall pay cash for the
repurchased assets. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of ProMedCo assumed by MH and
shall be reduced by any payment ProMedCo has failed to make under this
Agreement. MH and any physician associated with MH shall execute such
documents as may be required to assume the liabilities set forth in
Section 10.4.4. and to remove ProMedCo from any liability with respect
to such repurchased Stocks and with respect to any property leased or
subleased by ProMedCo. The closing date for the repurchase shall be
determined by MH, 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 MH shall be released from the Restrictive Covenants provided
for in Section 9 on the closing date. From and after any
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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 Net Clinic Revenues shall mean MH's gross billings, including
ancillaries and any other revenues that have historically been recorded by MH,
less any adjustments such as uncollectible accounts, discounts, contractual
adjustments, Medicare allowances, Medicaid allowances, and professional
courtesies ("adjustments"). This specifically excludes Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean 15% of Distribution Funds plus
a percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by MH and the MH Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 220
West Walnut Street, Mayfield, Kentucky 42066, and any substitute facility or
additional facility location, whether within or without Graves County, as
approved by the Policy Council.
11.6 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
Parent benefit plan), and other direct costs of all
employees of ProMedCo and Technical Employees
attributable to MH;
(ii) Direct costs, including benefits, of all employees or consultants of
Parent or affiliate of ProMedCo who, with approval of the Policy Council,
provides services at or in connection with MH 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 Parent that is allocable to
Clinic will be a Clinic Expense;
<PAGE> 22
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(iii) Obligations of ProMedCo or Parent under leases or subleases related
to Clinic operations;
(iv) Interest Expense on indebtedness incurred by ProMedCo
or Parent to finance or refinance any of its
obligations hereunder or services provided hereunder.
(v) Personal property and intangible taxes assessed
against ProMedCo's assets used in connection with the
operation of Clinic commencing on the date of this
Agreement;
(vi) Malpractice insurance expenses for ProMedCo's
operations and for the MH Employees, as well as any
deductibles and non-insured expenses relating to
malpractice claims.
(vii) Other expenses incurred by ProMedCo in carrying out its obligations
under this Agreement.
11.7 Clinic Expenses shall not include:
(i) Corporate overhead charges or any other expenses of Parent or any
corporation affiliated with Parent 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 MH and/or MH Employees;
(iv) Any amortization expense resulting from the
amortization of expenses incurred as shown on
Parent's financial statements, in connection with the
acquisition and execution of the Asset Purchase
Agreement and the execution of this Agreement; and
(v) Interest expense on indebtedness incurred by ProMedCo
or Parent to finance the consideration paid under the
Asset Purchase Agreement.
(vi) Any liabilities, judgments or settlements assessed
against MH or Physician Shareholders in excess of any
insurance policy limits.
11.8 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.
<PAGE> 23
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11.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date (as defined in the Asset Purchase Agreement), 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 Asset Purchase Agreement).
11.10 Technical Employees shall mean technicians who provide services
in the diagnostic areas of MH's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be MH employees.
11.11 Physician Shareholders shall mean any physician who is a
shareholder of MH, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.12 Physician Employees shall mean any physician employed by MH and
providing medical services to patients on behalf of MH, who are not Physician
Shareholders.
11.13 MH Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.14 Effective Date shall mean 12:01 a.m. on the first day of the month in
which the Closing Date (as such term is defined in the Asset Purchase Agreement)
occurs.
11.15 Physician Extenders shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that MH and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which MH or the MH Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of MH unless otherwise
specifically provided for under the terms of this Agreement. ProMedCo 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, or it's
affiliates (i) may have, prior to the
<PAGE> 24
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date of this Agreement, discussed proposals with respect to, or (ii) may, from
time to time hereafter, enter into agreements with one or more MH Employees to
provide consulting, medical direction, advisory or similar services relating to
activities of ProMedCo or its affiliates in clinical areas. The parties agree
that such agreement, 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, on the one hand, and
such MH Employees, on the other hand, shall not constitute Net Clinic Revenues,
or MH 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 MH Employee to another, or by ProMedCo, to MH or any Physician
Shareholder. Accordingly, MH 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 MH Employee, and hereby forever
release and discharge MH, the Physician Shareholders, ProMedCo, 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 MH Employee in any agreement or arrangement with ProMedCo,
or their affiliates of a type described in Section 12.2(a) above or from or by
reason of the failure of ProMedCo, any MH 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 MH Employee on the one
hand, and ProMedCo, 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 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 pursuant to this Agreement. MH shall
have no right, title or interest in or to such material
<PAGE> 25
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and shall not, in any manner, distribute or use the same without the
prior written authorization of ProMedCo, provided, however, that the
foregoing shall not restrict MH from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo provided no Proprietary Property of ProMedCo is contained
therein. Not withstanding the preceding, however, ProMedCo agrees that
MH shall be entitled to use on a nonexclusive and nontransferable basis
for the term of this Agreement the name "MH" as may be necessary or
appropriate in the performance of MH'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 and MH 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 and MH 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 and MH 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 and MH 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.
<PAGE> 26
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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 the County of Graves, Commonwealth of Kentucky,
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 Kentucky. 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 shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor MH shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. MH may
not delegate any of MH's duties hereunder, except as expressly contemplated
herein; however, ProMedCo may delegate some or all of ProMedCo' 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
<PAGE> 27
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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 Kentucky 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 MH to practice medicine in the State of Kentucky,
MH and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between MH and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between MH and ProMedCo, 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 MH shall require the affirmative
vote of a majority of Physician Shareholders.
12.20 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
<PAGE> 28
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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 MAYFIELD, INC.,
By:
Name:
Title:
Address: c/o ProMedCo, Inc.
801 Cherry St.
Suite 1450
Fort Worth, TX 76102
Attention: President
MORGAN-HAUGH, P.S.C.
By:
Name:
Title:
Address: 220 West Walnut St.
Mayfield, KY 40266
Attention: President
Jeffrey A. Carrico, M.D.
Physician Shareholder
Francis J. Dillard, M.D.
Physician Shareholder
Patricia S. Elliott, M.D.
Physician Shareholder
Brian K. Gaw, M.D.
Physician Shareholder
Mark D. Irvin, M.D.
Physician Shareholder
Michael H. McBee, M.D.
Physician Shareholder
<PAGE> 29
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Bruce J. Rowland, D.O.
Physician Shareholder
Dinesh H. Shah, M.D.
Physician Shareholder
Joseph C. Slaughter, M.D.
Physician Shareholder
GUARANTY
ProMedCo, Inc., a Texas corporation (the "Parent") which is the sole
shareholder of ProMedCo of Mayfield, Inc., a Kentucky corporation ("ProMedCo"),
hereby guarantees the performance of ProMedCo under the above Service Agreement.
PROMEDCO, INC.
By
Its
Name
<PAGE> 30
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EXHIBIT "A"
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses.
ProMedCo's percentage shall be based on the cumulative risk pool surpluses that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Surpluses ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for
an additional 6 months to pay for any unanticipated claims. At the end of
that 6 months, any funds remaining from the [*]% reserved shall be distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[*]."
- --------------------------------------------------------------------------------
AMENDED AND RESTATED SERVICE AGREEMENT
- -------------------------------------------------------------------------------
PROMEDCO OF LAKE -WORTH, INC.
AND
TARRANT FAMILY PRACTICE, P.A.
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective June 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 Tarrant's Matters.....................................2
1.3 Patient Referrals.....................................2
2. POLICY COUNCIL..................................................2
2.1 Formation and Operation of the Policy Council.........2
2.2 Duties and Responsibilities of the Policy Council.....2
3. OBLIGATIONS OF PROMEDCO-LW......................................4
3.1 Management and Administration.........................4
3.3 Expansion of Clinic...................................8
3.4 Events Excusing Performance...........................8
3.5 Compliance With Applicable Laws.......................8
4. REPRESENTATIONS OF TARRANT......................................8
5. OBLIGATIONS OF TARRANT..........................................9
5.1 Professional Services.................................9
5.2 Employment Of Physician Employees.....................9
5.3 NonClinic Expenses....................................9
5.4 Medical Practice......................................9
5.5 Professional Insurance Eligibility....................9
5.6 Employment Of Non-Physician Employees.................9
5.7 Events Excusing Performance...........................10
5.8 Compliance With Applicable Laws.......................10
5.9 Restrictions on Use of Clinic Facility................10
5.10 Tarrant Employee Benefit Plans.......................10
5.11 Physician Powers of Attorney.........................11
5.12 Spokesperson.........................................11
6. RECORDS.........................................................11
6.1 Patient Records.......................................11
6.2 Other Records.........................................11
6.3 Access to Records.....................................11
7. FACILITIES TO BE PROVIDED BY PROMEDCO-LW........................11
7.1 Facilities............................................11
7.2 Use of Facilities.....................................12
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8. FINANCIAL ARRANGEMENTS..........................................12
8.1 Payments to Tarrant and ProMedCo-LW............................12
8.2 Distribution..........................................12
8.3 Clinic Expenses.......................................12
8.4 Accounts Receivables..................................12
9. INSURANCE AND INDEMNITY.........................................13
9.1 Insurance to Be Maintained by ProMedCo-LW.............13
9.2 Insurance to be Maintained by Tarrant.................13
9.3 Tail Insurance Coverage...............................13
9.4 Additional Insured....................................14
9.5 Indemnification.......................................14
10. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES..................14
10.1 Restrictive Covenants by Tarrant.....................14
10.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees...........................14
10.3 Restrictive Covenants By Future Physician Employees..15
10.4 Physician Shareholder and Physician Employee Liquidated
Damages...........................................15
10.5 Enforcement..........................................16
10.6 Termination of Restrictive Covenants.................16
11. TERM...........................................................17
11.1 Term and Renewal.....................................17
11.2 Termination by Tarrant...............................17
11.3 Termination by ProMedCo-LW...........................17
11.4 Actions After Termination............................18
12. DEFINITIONS....................................................19
12.1 Clinic ..............................................19
12.2 Clinic Expenses .....................................20
12.3 Clinic Expenses shall not include....................20
12.4 Clinic Facility .....................................21
12.5 Distribution Funds ..................................21
12.6 Effective Date ......................................21
12.7 IPO..................................................21
12.8 Net Clinic Revenues .................................21
12.9 Opening Balance Sheet ...............................21
12.10 Physician Employees ................................22
12.11 Physician Extenders ................................22
12.12 Physician Shareholders .............................22
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12.13 ProMedCo-LW Distribution ...........................22
12.14 Risk Pool Surpluses ................................22
12.15 Tarrant Employees ..................................22
12.16 Technical Employees ................................22
13. GENERAL PROVISIONS.............................................22
13.1 Independent Contractor...............................22
13.2 Other Contractual Arrangement........................23
13.3 Proprietary Property.................................24
13.4 Cooperation..........................................24
13.5 Licenses, Permits and Certificates...................24
13.6 Compliance with Rules, Regulations and Laws..........24
13.7 Generally Accepted Accounting Principles (GAAP)......25
13.8 Notices..............................................25
13.9 Attorneys' Fees......................................25
13.10 Severability........................................25
13.11 Alternative Dispute Resolution......................25
13.12 Construction of Agreement...........................25
13.13 Assignment and Delegation...........................26
13.14 Confidentiality.....................................26
13.15 Waiver..............................................26
13.16 Headings............................................26
13.17 No Third Party Beneficiaries........................26
13.18 Time is of the Essence..............................26
13.19 Modifications of Agreement for Prospective Legal
Events........................................26
13.20 Whole Agreement.....................................27
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AMENDED AND RESTATED SERVICE AGREEMENT
AMENDED AND RESTATED SERVICE AGREEMENT dated June 24, 1996 between
ProMedCo of Lake Worth, Inc. a Texas corporation ("ProMedCo-LW"), and Tarrant
Family Practice, P.A., an association of physicians licensed to practice
medicine in the State of Texas ("Tarrant").
RECITALS:
Tarrant and HealthFirst Services, Inc., a Texas corporation
("HealthFirst") entered into a Management Services Agreement dated March 1, 1995
(the "Service Agreement"). Pursuant to an Asset Purchase Agreement dated as of
May 29, 1996 (the "Asset Purchase Agreement") between HealthFirst and
ProMedCo-LW, HealthFirst assigned to ProMedCo-LW all of HealthFirst's rights and
obligations under the Service Agreement. ProMedCo-LW and Tarrant now desire to
amend and restate the Service Agreement as set forth herein.
The parties agree as follows:
The Service Agreement is hereby amended and restated to read as
follows:
"SERVICE AGREEMENT
Service Agreement ("Agreement") dated June 24, 1996, between ProMedCo
of Lake Worth, Inc., a Texas corporation ("ProMedCo-LW") and Tarrant Family
Practice, P.A., an association of physicians licensed to practice medicine in
the State of Texas ("Tarrant").
RECITALS:
Subject to the terms and conditions hereof, Tarrant desires to engage
ProMedCo-LW to provide to Tarrant management services, facilities, personnel,
equipment and supplies necessary to operate the Clinic (as defined herein) and
ProMedCo-LW desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo-LW shall provide
Tarrant with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. Tarrant shall be
responsible for the recruitment and hiring of physicians, physician extenders
and all issues related to patient care and documentation thereof. ProMedCo-LW
shall neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of
Tarrant and their patients.
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1.2 Tarrant's Matters. Tarrant shall maintain sole discretion and
authority over the financial matters relative to its corporate existence. It
shall set compensation levels for Tarrant Employees. Tarrant will also be
responsible for all other matters pertaining to the operation of Tarrant.
1.3 Patient Referrals. The parties agree that the benefits to Tarrant
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-LW to any of Tarrant's patients in any facility or
laboratory controlled, managed or operated by ProMedCo-LW.
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 four members. ProMedCo-LW shall designate, at its sole discretion,
two members of the Policy Council. Members of the Policy Council designated by
ProMedCo-LW 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.
Tarrant at its sole discretion shall designate two members. Except as may
otherwise be provided, the act of a majority of the 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- LW, as set forth in Section 3 and
employing ProMedCo-LW's financial expertise, shall be subject
to the review and approval of the Policy Council, provided;
however, ProMedCo-LW shall have final approval of any capital
expenditure required by ProMedCo-LW.
(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 Tarrant is dissatisfied with the services provided by the
Administrator, Tarrant shall refer the matter to the Policy Council. ProMedCo-LW
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-LW 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
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<PAGE> 7
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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
$10,000 shall require the approval of the Policy Council.
(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
Tarrant's Board or ProMedCo-LW.
(h) Patient Fees. In consultation with Tarrant and ProMedCo-LW, 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-LW, shall determine the number
and type of physicians required for the efficient operation of
the Clinic and Tarrant shall determine the individual
physicians to be hired to fill such positions. The approval of
ProMedCo-LW 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-LW and Tarrant shall 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 Tarrant.
(k) Strategic Planning. The Policy Council, with the assistance of
ProMedCo-LW, shall develop long-term strategic planning objectives.
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3. OBLIGATIONS OF PROMEDCO-LW
During the term of this Agreement, ProMedCo-LW 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-LW 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. Tarrant will not act in a manner which would prevent ProMedCo-LW from
efficiently managing the Clinic Facility operations in a businesslike manner.
Tarrant, through Tarrant Employees, will provide all medical services.
ProMedCo-LW will have no authority, directly or indirectly, to perform, and will
not perform, any medical function. ProMedCo-LW may, however, advise Tarrant 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,
Tarrant hereby appoints ProMedCo-LW as the sole and exclusive manager and
administrator of all non-medical functions and services related to Tarrant's
services at the Clinic. Tarrant shall perform all medical services, and
ProMedCo-LW shall have no authority, directly or indirectly, to perform, and
will not perform, any medical function. Without limiting the generality of the
foregoing, ProMedCo-LW shall provide the following administrative, management
and marketing services as may be required in conjunction with Tarrant's services
at the Clinic. ProMedCo-LW 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-LW, 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-LW shall prepare and deliver to Tarrant
capital and operating budgets reflecting in reasonable detail
anticipated revenues and expenses, sources and uses of capital to
maintain and enhance Tarrant's medical practice and Clinic services.
3.1.2 Financial Statements. ProMedCo-LW 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 Tarrant 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-LW in connection
with the audit of the financial statements of ProMedCo. If Tarrant
desires an audit in addition to the audit provided by ProMedCo-LW, such
an audit would be at Tarrant's expense.
3.1.3 Non-Physician Personnel. ProMedCo-LW will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Physician Extenders and Technical Employees. ProMedCo-LW shall determine and
cause to be paid the
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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-LW, with those personnel performing patient care
services subject to the professional supervision of Tarrant. If Tarrant
is dissatisfied with the services of any person, Tarrant shall consult
with ProMedCo-LW. ProMedCo-LW 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-LW's obligations regarding staff shall be
governed by the overriding principle and goal of providing high quality
medical care. At ProMedCo-LW's option some or all of the non-physician
personnel may be carried on the books of Tarrant as Tarrant's employees
in which event the costs associated with such employees will be a
Clinic Expense.
3.1.4 Quality Assurance. ProMedCo-LW will assist Tarrant 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-LW 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-LW
shall order and purchase inventory and supplies, and such other
ordinary, necessary or appropriate materials which ProMedCo-LW 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-LW 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 Tarrant's consent.
3.1.8 Billing and Collections. ProMedCo-LW shall bill patients
and collect all fees for services performed inside or outside the
Clinic Facility or arrange for such billing and collection. Tarrant
hereby appoints ProMedCo-LW, for the term hereof, to be its true and
lawful attorney-in-fact for the following purposes (i) to bill patients
in Tarrant's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in Tarrant'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
Tarrant (and/or in the name of an individual physician, such payment
intended for purpose of payment of a
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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 Tarrant to collect any
accounts and monies owed to the Clinic, to enforce the rights of
Tarrant 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- LW'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 Tarrant shall be the owner ("Account"). ProMedCo-LW
and Tarrant shall maintain their accounting records in such a way as to
clearly segregate Net Clinic Revenues from other funds of ProMedCo-LW
or Tarrant. Tarrant hereby appoints ProMedCo- LW as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected.
Tarrant covenants, and shall cause all Tarrant Employees to covenant,
to forward any payments received with respect to Net Clinic Revenues
for services provided by Tarrant and Tarrant Employees to ProMedCo-LW
for deposit. ProMedCo-LW 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-LW
("ProMedCo-LW Account"). Tarrant and ProMedCo-LW 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 Tarrant that interferes with
the operation of this Section, including, but not limited to, any
failure to deposit or have ProMedCo-LW 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-LW, 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 Tarrant and the Tarrant 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
Tarrant and its Tarrant Employees;
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(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-LW 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-LW shall
arrange for or render to Tarrant such business and financial management
consultation and advice as may be reasonably required or requested by
Tarrant and directly related to the operations of the Clinic.
ProMedCo-LW shall not be responsible for rendering any legal or tax
advice or services or personal financial services to Tarrant or any
employee or agent of Tarrant.
3.1.12 Negotiation and Payment of Premiums For All Insurance
Products Held By Tarrant. ProMedCo-LW shall negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Section 9. Premiums and deductibles with respect to such policies shall
be a Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo-LW shall assist Tarrant
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, Tarrant 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-LW and accepted
by Tarrant shall be the sole employees of Tarrant 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-LW shall operate and
supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo-LW shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
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3.1.17 Files and Records. ProMedCo-LW 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 Tarrant 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-LW 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-LW will pursue various programs to
increase revenue and profitability including assisting Tarrant 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-LW 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,
ProMedCo-LW may acquire other physician practices. Tarrant will cooperate with
ProMedCo-LW in such expansion efforts and use its reasonable efforts to assist
ProMedCo-LW with respect thereto. Without limiting the generality of the
foregoing, Tarrant will not enter into any agreements with respect to any such
matter without the prior consent of ProMedCo-LW.
3.4 Events Excusing Performance. ProMedCo-LW shall not be liable to
Tarrant 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-LW 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-LW shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. REPRESENTATIONS OF TARRANT
Tarrant has made various representations and warranties to ProMedCo-LW
in an Inducement Agreement dated as of May 29, 1996 , which are incorporated
herein.
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5. OBLIGATIONS OF TARRANT
5.1 Professional Services. Tarrant shall provide professional services
to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. Tarrant shall also ensure that
each physician associated with Tarrant is licensed by the State of Texas. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any such physician, Tarrant shall immediately inform the Administrator
of such action and the underlying facts and circumstances. Tarrant shall carry
out a program to monitor the quality of medical care practiced, with
ProMedCo-LW's assistance. Tarrant will cooperate with ProMedCo-LW in taking
steps to resolve any utilization review or quality assurance issues which may
arise in connection with the Clinic.
5.2 Employment Of Physician Employees. Tarrant 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 Tarrant, ProMedCo-LW shall consult with
Tarrant regarding such matters. Tarrant shall enforce formal employee agreements
from each of its Physician Shareholders and Physician Employees, hired or
contracted, substantially in the form attached hereto as Exhibit "C".
5.3 Non-Clinic Expenses. Tarrant shall be solely responsible for the
payment of all costs and expenses incurred in connection with Tarrant 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, and
licensing and board certification fees for its Physicians Employees and
Physician Extenders.
5.4 Medical Practice. Tarrant 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
Tarrant, 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.
5.5 Professional Insurance Eligibility. Tarrant 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.
5.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for Tarrant. These
Technical Employees will remain in the employ of Tarrant. As provided in Section
3.1.3, ProMedCo-LW will provide payroll and administrative services for such
Technical Employees.
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5.7 Events Excusing Performance. Tarrant shall not be liable to
ProMedCo-LW 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 Tarrant has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
5.8 Compliance With Applicable Laws. Tarrant shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
5.9 Restrictions on Use of Clinic Facility. Tarrant shall at all times
during the term of this Agreement comply with the policy of ProMedCo-LW stated
in Section 7.2 herein.
5.10 Tarrant Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, Tarrant
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 1.6 to the Inducement Agreement
dated May 29, 1996 between ProMedCo-LW and Tarrant.
(b) Tarrant shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo-LW. Except as otherwise required by law, Tarrant shall not materially
amend, freeze, terminate or merge any employee welfare or employee benefit plan
without the express written consent of ProMedCo-LW unless such action is
contemplated by the Asset Purchase Agreement. Tarrant 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-LW.
(c) Expenses incurred in connection with any Tarrant Plan
or other employee benefit plan maintained by Tarrant,
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
Physician Shareholders and Physician Employees shall
be an expense of Tarrant. ProMedCo-LW shall make
contributions or payments with respect to any Tarrant
Plan, as a Clinic Expense, on behalf of eligible
Technical Employees.
(e) ProMedCo-LW shall have the sole and exclusive
authority to adopt, amend, or terminate any employee
benefit plan for the benefit of its employees.
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ProMedCo-LW shall have the sole and exclusive
authority to appoint the trustee, custodian, and
administrator of any such plan.
5.11 Physician Powers of Attorney. Tarrant shall require all Tarrant
Employees to execute and deliver to ProMedCo-LW powers of attorney, satisfactory
in form and substance to ProMedCo-LW and Tarrant, appointing ProMedCo-LW 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.
5.12 Spokesperson. Tarrant shall serve as spokesperson for ProMedCo-LW
and ProMedCo in Clinic, ProMedCo-LW and ProMedCo development activities. The
parties agree that Drs. Hardee and Morrison, or such other Physician Shareholder
as the Policy Council shall appoint, shall serve in this capacity on behalf of
Tarrant.
6. RECORDS
6.1 Patient Records. Upon termination of this Agreement, Tarrant shall
retain all patient medical records maintained by Tarrant or ProMedCo-LW in the
name of Tarrant. Tarrant shall, at its option, be entitled to retain copies of
financial and accounting records relating to all services performed by Tarrant.
6.2 Other Records. All records relating in any way to the operation of the
Clinic which are not the property of Tarrant under the provisions of Section 6.1
above, shall at all times be the property of ProMedCo-LW.
6.3 Access to Records. During the term of this Agreement, and
thereafter, Tarrant or its designee shall upon 24 hours notice have reasonable
access during normal business hours to Tarrant's and ProMedCo-LW's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo-LW in performing ProMedCo-LW's obligations
under this Agreement, and Tarrant may copy any or all such records.
7. FACILITIES TO BE PROVIDED BY PROMEDCO-LW
7.1 Facilities. ProMedCo-LW 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
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
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7.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo-LW or any of its affiliates in
whole or in part. ProMedCo-LW and Tarrant agree that Tarrant, 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-LW shall not receive any ProMedCo-LW Distribution from
the revenue generated from such procedures.
8. FINANCIAL ARRANGEMENTS
8.1 Payments to Tarrant and ProMedCo-LW. Tarrant and ProMedCo-LW agree
that the compensation set forth herein is being paid to ProMedCo-LW in
consideration of a substantial commitment made by ProMedCo-LW hereunder and that
such fees are fair and reasonable. As payment for its services rendered to
Tarrant, each month ProMedCo-LW shall be paid the amount of all Clinic Expenses
and the ProMedCo-LW Distribution. All Net Clinic Revenues after deduction of
Clinic Expenses, and the ProMedCo-LW Distribution, shall be referred to as the
"Tarrant Distribution."
8.2 Distribution. The amounts to be paid to ProMedCo-LW under this
Section 8.2 shall be payable monthly. ProMedCo-LW shall pay to Tarrant, in
accordance with the provisions of Section 8.4, the Tarrant 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.
8.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo-LW
shall pay all Clinic Expenses as they fall due (including without limitation any
Non-Physician Personnel carried on the books of Tarrant at the requirement of
ProMedCo-LW), provided, however, that ProMedCo-LW may, in the name of and on
behalf of Tarrant, 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-LW hereby agrees to indemnify and hold Tarrant
harmless from and against any liability, loss, damages, claims, causes of action
and reasonable expenses of Tarrant resulting from the contest of any Clinic
Expenses.
8.4 Accounts Receivables. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo-LW shall purchase the
accounts receivable of Tarrant arising during the previous month, by payment of
cash, or other readily available funds into an account of Tarrant. The
consideration for the purchase shall be an amount equal to the Tarrant
Distribution for such previous month. Although it is the intention of the
parties that ProMedCo-LW purchase and thereby become owner of the accounts
receivable of Tarrant, in case such purchase shall be ineffective for any
reason, Tarrant, as of the Effective Date of this Agreement, grants and shall
cause each Tarrant Employee to grant to ProMedCo-LW a first priority lien on and
security interest in and to any and all interest of Tarrant and such Tarrant
Employees in any accounts receivable generated by the medical practice of
Tarrant and the Tarrant Employees or otherwise generated through the operations
of the
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Clinic, and all proceeds with respect thereto, to secure the payment to
ProMedCo-LW 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, Tarrant shall cooperate with ProMedCo-LW and execute and
deliver, and cause each Tarrant Employee to execute and deliver, all necessary
documents in connection with the pledge of such accounts receivable to
ProMedCo-LW or at ProMedCo-LW'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-LW. To the extent Tarrant or any Tarrant Employee comes
into possession of any payments in respect of such accounts receivable, Tarrant
or such Tarrant Employee shall direct such payments to ProMedCo-LW for deposit
in bank accounts designated by ProMedCo-LW.
9. INSURANCE AND INDEMNITY
9.1 Insurance to Be Maintained by ProMedCo-LW. Throughout the term of
this Agreement, ProMedCo-LW will use reasonable efforts to provide and maintain,
as a Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo-LW and Tarrant with limits as determined
reasonable by ProMedCo-LW in its national program, comprehensive general
liability insurance and property insurance covering the Clinic Facility and
operations.
9.2 Insurance to be Maintained by Tarrant. Unless otherwise determined
by the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 5.5 and Section 9.1, Tarrant shall maintain comprehensive
professional liability insurance: (i) with limits for primary care physicians of
not less than $500,000 per claim and with aggregate policy limits of not less
than $1,000,000 per physician; and (ii) with limits for specialists of not less
than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per physician; with a separate limit in either case for Tarrant;
provided however, Tarrant may maintain lesser limits for any physician employed
by Tarrant on the date hereof if such limits are at least $200,000 per claim
with aggregate policy limits of at least $600,000 per such physician with a
separate limit for Tarrant. Tarrant shall be responsible for all liabilities
(including without limitation deductibles and excess liabilities) not paid
within the limits of such policies. ProMedCo-LW 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.
9.3 Tail Insurance Coverage. Tarrant will cause each individual
physician associated with the Clinic to enter into an agreement with Tarrant
that upon termination of such physician's relationship with Tarrant, for any
reason, tail insurance coverage will be purchased by the individual physician.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by Tarrant and the individual
physicians, and Tarrant hereby covenants with ProMedCo-LW to enforce such
provisions relating to the tail insurance coverage or to provide such coverage
at the expense of Tarrant.
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9.4 Additional Insured. Tarrant and ProMedCo-LW 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-LW's
expense.
9.5 Indemnification. Tarrant shall indemnify, hold harmless and defend
ProMedCo-LW, 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 (i)
the performance of medical services or any other acts or omissions by Tarrant
and/or its shareholders, agents, employees and/or subcontractors (other than
ProMedCo-LW) during the term hereof, including any claim against ProMedCo-LW by
a Tarrant Employee, which claim arises out of such Tarrant Employees' employment
relationship with Tarrant or as a result of services performed by such Tarrant
Employee, and which claim would typically be covered by worker's compensation
and (ii) ProMedCo-LW's entering into and its performance of the terms and
conditions of this Agreement except for than ProMedCo-LW's negligence or willful
misconduct. ProMedCo-LW shall indemnify, hold harmless and defend Tarrant, 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-LW and/or its
shareholders, agents, employees and/or subcontractors (other than Tarrant)
during the term of this Agreement.
10. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo-LW
shall be feasible only if Tarrant operates an active medical practice to which
the physicians associated with Tarrant devote their full time and attention. To
that end:
10.1 Restrictive Covenants by Tarrant. During the term of this
Agreement, Tarrant shall not establish, operate or provide physician services at
any medical office, clinic or other health care facility providing services
substantially similar to those provided by Tarrant pursuant to this Agreement
anywhere within a radius of 25 miles of the Clinic Facility, or within a radius
of 25 miles of any current or future medical office, clinic or other health care
facility from which Tarrant provides medical services.
10.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. Tarrant shall enforce employment agreements, in a form
satisfactory to ProMedCo-LW, with its current Physician Shareholders and
Physician Employees pursuant to which the Physician Shareholders and Physician
Employees agree that during the term of said Physician Shareholder or Physician
Employee's employment agreement, and for a period of two years after any
termination of employment with Tarrant, not to establish, operate or provide
physician services at any medical office, clinic or outpatient and/or ambulatory
treatment or diagnostic facility providing services substantially
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similar to those provided by Tarrant pursuant to this Agreement within a radius
of 25 miles of the Clinic Facility or within a radius of 25 miles of any medical
office, clinic or other health care facility from which Tarrant provides medical
services or is in the process of developing. ProMedCo-LW shall have third-party
rights to enforce such agreements.
10.3 Restrictive Covenants By Future Physician Employees. Tarrant shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees in the form attached to the Asset
Purchase Agreement, pursuant to which such physicians agree that during the term
of said future Physician Shareholder or Physician Employee's employment
agreement, and for a period of two years after any termination of employment
with Tarrant, not to 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 Tarrant
pursuant to this Agreement within a radius of 25 miles of the Clinic Facility or
within a radius of 25 miles of any medical office, clinic or other health care
facility from which Tarrant provides medical services or is in the process of
developing. ProMedCo-LW shall have third-party rights to enforce such
agreements.
10.4 Physician Shareholder and Physician Employee Liquidated Damages.
(a) Release from Restrictive Covenants. The restrictive covenants
described in Sections 10.2 and 10.3 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) Repayment of Consideration in Certain Events. In addition, if a
Physician Shareholder or Physician Employee received any ProMedCo-LW
consideration pursuant to the Asset Purchase Agreement, and said Physician
Shareholder or Physician Employee terminates their employment agreement with
Tarrant for any reason (other than death or disability) prior to the fifth
anniversary of the Closing under the Asset Purchase Agreement, or is terminated
for cause by Tarrant prior to the fifth anniversary of the Closing under the
Asset Purchase Agreement, then Tarrant (or if the Physician Shareholder has
received any of the consideration paid to HealthFirst by ProMedCo-LW under the
Asset Purchase Agreement, said Physician Shareholder or Physician Employee)
shall be required to reimburse back to ProMedCo-LW some or all of the
consideration received by Tarrant (or that physician, as the case may be,
pursuant to the Asset Purchase Agreement as follows: (i) if such termination
occurs prior to the third such anniversary, 100% of such consideration; (ii) if
such termination occurs thereafter and prior to the fourth such anniversary, 67%
of such consideration; and (iii) if such termination occurs thereafter and prior
to the fifth such anniversary, 33% of such
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consideration. Such payments shall be passed on to ProMedCo-LW
by Tarrant simultaneously with the payment thereof by the
physician to Tarrant. For the purposes of this clause (b) Dr.
Jay H. Haynes, III shall be deemed to have received 38,697
shares of ProMedCo Stock, net of any reductions required by
ss. 2.13(d)(i)(1) of the Asset Purchase Agreement; in the
event the management agreement contemplated by ss.
2.13(d)(i)(1) of the Asset Purchase Agreement is terminated
under circumstances which, if it were a employment agreement,
would require some or all of such consideration to be returned
hereunder each individual of Tarrant who received ProMedCo
Stock as a result of the transactions contemplated by the
Asset Purchase Agreement shall be responsible for returning
such shares pro rata in relation to the number of shares of
the Stock Consideration (as defined in the Asset Purchase
Agreement) received by such individual. All payments made to
ProMedCo-LW under this clause (b) shall be first applied to
all costs incurred by ProMedCo-LW in the enforcement of the
employment or management agreement, as the case may be, for
that departing physician and the balance, if any, held in
escrow by ProMedCo-LW to be used solely for new physician
growth within Tarrant, subject to approval of the Policy
Council. The accounting treatment of such funds shall be
consistently applied and approved by ProMedCo-LW's independent
certified public accountants and the Policy Council.
10.5 Enforcement. ProMedCo-LW and Tarrant acknowledge and agree that
since a remedy at law for any breach or attempted breach of the provisions of
this Section 10 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 10 relating to territory 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 10. The invalidity of non-enforceability of this
Section 10 in any respect shall not affect the validity of enforceability of the
remainder of this Section 10 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 10 or any other
provision of this Agreement.
10.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 11.2 herein, the employment agreement term contained in this Section 10
shall be null and void and of no force or effect.
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11. TERM RENEWAL; TERMINATION;
11.1 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.
11.2 Termination by Tarrant. Tarrant 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-LW, or upon other action taken
or suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
ProMedCo-LW, except for the filing of a petition in
involuntary bankruptcy against ProMedCo-LW which is
dismissed within 30 days thereafter, Tarrant may give
notice of the immediate termination of this
Agreement.
(ii) In the event ProMedCo-LW shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such default
shall continue for a period of 90 days after written notice thereof has been
given to ProMedCo-LW by Tarrant; or ProMedCo-LW shall fail to remit the payments
due as provided in Section 8.2 hereof and such failure to remit shall continue
for a period of 30 days after written notice thereof, Tarrant may terminate this
Agreement. Termination of this Agreement pursuant to this Section 11.2(ii) by
Tarrant shall require the affirmative vote of 75% of the Physician Shareholders.
(iii) On each of the fourth, fifth or sixth anniversaries
of the Closing under the Asset Purchase Agreement if
(x) ProMedCo shall not have completed an IPO, as such
term is defined in the Asset Purchase Agreement and
(y) Tarrant shall have given notice of such
termination no earlier than 30 days prior and no
later than 15 days prior to such anniversary in the
event the IPO is not completed by such anniversary.
11.3 Termination by ProMedCo-LW. ProMedCo-LW 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 Tarrant, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
Tarrant, except for the filing of a petition in
involuntary bankruptcy against Tarrant which is
dismissed within 30 days thereafter, ProMedCo-LW
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may give notice of the immediate termination of this Agreement.
(ii) In the event Tarrant 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 Tarrant, and such default shall continue for a
period of 90 days after written notice thereof has been given to Tarrant and
such Physician Shareholders by ProMedCo-LW, ProMedCo-LW may terminate this
Agreement.
11.4 Actions After Termination. In the event that this Agreement shall
be terminated, the Tarrant Distribution and the ProMedCo-LW 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, Tarrant shall:
11.4.1 Asset Repurchase. Purchase from ProMedCo-LW 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.
11.4.2 Real Estate. Purchase from ProMedCo-LW all real estate, if any,
associated with the Clinic and owned by ProMedCo-LW at the then book value
thereof.
11.4.3 Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo-LW as reflected
on ProMedCo-LW'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-LW, if any.
11.4.4 Debts. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of ProMedCo-LW and
which relate principally to the performance of its obligations under
this Agreement or the properties subleased by ProMedCo-LW, if any.
11.4.5 Equipment; Inventories; Accounts Receivable; etc. Purchase from
ProMedCo-LW at book value as reflected on ProMedCo-LW's books as of the last day
of this Agreement:
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(i) Equipment. All of the equipment acquired by
ProMedCo-LW pursuant to the Asset Purchase Agreement,
including all replacements and additions thereto made
by ProMedCo-LW 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-LW relating to Tarrant operations;
(iii) Accounts Receivable. All uncollected accounts receivable theretofore
purchased by ProMedCo-LW pursuant to Section 8.4 hereof at the book value
thereof on ProMedCo-LW's books; and
(iv) Other Assets. All other assets of ProMedCo-LW relating to the
operations of Tarrant.
11.4.6 Closing of Repurchase. Tarrant shall pay cash for the
repurchased assets or may use shares of ProMedCo no par common stock
valued at $12.00 per share, adjusted to reflect stock splits and the
like. The amount of the purchase price shall be reduced by the amount
of debt and liabilities of ProMedCo-LW assumed by Tarrant and shall be
reduced by any payment ProMedCo-LW has failed to make under this
Agreement. Tarrant and any physician associated with Tarrant shall
execute such documents as may be required to assume the liabilities set
forth in Section 11.4.4 and to remove ProMedCo-LW from any liability
with respect to such repurchased Stocks and with respect to any
property leased or subleased by ProMedCo-LW. The closing date for the
repurchase shall be determined by Tarrant, 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 Tarrant shall be released from the
Restrictive Covenants provided for in Section 1010 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.
12. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
12.1 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by Tarrant and the Tarrant Employees, utilizing the management services
of ProMedCo-LW and the Clinic Facility, regardless of the location where such
services are rendered.
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12.2 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-LW and Technical Employees
attributable to Tarrant;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-LW who, with approval of the Policy Council,
provides services at or in connection with Tarrant 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-LW or ProMedCo under leases or subleases
related to Clinic operations;
(iv) Interest Expense on indebtedness incurred by
ProMedCo-LW or ProMedCo to finance or refinance any
of its obligations hereunder or services provided
hereunder.
(v) Personal property and intangible taxes assessed
against ProMedCo-LW's assets used in connection with
the operation of Clinic commencing on the date of
this Agreement;
(vi) Malpractice insurance expenses for ProMedCo-LW's
operations and for the Tarrant Employees, as well as
any deductibles and non-insured expenses relating to
malpractice claims.
(vii) Other expenses incurred by ProMedCo-LW in carrying out its
obligations under this Agreement.
12.3 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;
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(iii) Any expenses which are expressly designated herein as
expenses or responsibilities of Tarrant and/or
Tarrant Employees other than Technical Employees;
(iv) Any amortization expense resulting from the
amortization of expenses incurred as shown on
ProMedCo's financial statements, in connection with
the acquisition and execution of the Asset Purchase
Agreement and the execution of this Agreement; and
(v) Interest expense on indebtedness incurred by
ProMedCo-LW or ProMedCo to finance the consideration
paid under the Asset Purchase Agreement.
(vi) Any liabilities, judgments or settlements assessed
against Tarrant or Physician Shareholders in excess
of any insurance policy limits.
(vii) The direct expenses associated with management of Risk Pool
Surpluses.
12.4 Clinic Facility shall mean the clinic facilities located at (i)
4504 Boat Club Road, Suite 800, Fort Worth, Texas 76136, (ii) 2751 Green Oaks
Road, Fort Worth, Texas 76116, (iii) 112 Denver Trail, Azle, Texas 76020, (iv)
6867A Green Oaks Road, Fort Worth, Texas 76116, (v) 313 West Main, Azle, Texas
76020, (vi) 2401 Westport Parkway, Suite 140, Fort Worth, Texas 76177, (vii)
6825-27 Green Oaks Rd., Fort Worth, Texas 76116 and (viii) any substitute
facility or additional facility location, whether within or without Tarrant
County, as approved by the Policy Council.
12.5 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
12.6 Effective Date shall mean 12:01 a.m. on June 1, 1996.
12.7 IPO shall mean the initial public offering of ProMedCo securities
pursuant to a registration statement filed with the Securities and Exchange
Commission.
12.8 Net Clinic Revenues shall mean Tarrant's gross billings, including
ancillaries and any other revenues that have historically been recorded by
Tarrant as well as non-real estate revenues historically recorded by
HealthFirst, less any adjustments such as uncollectible accounts, discounts,
contractual adjustments, Medicare allowances, Medicaid allowances, and
professional courtesies ("adjustments"). This specifically excludes Risk Pool
Surpluses.
12.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo-LW
as of the Effective Date (as defined in the Asset Purchase Agreement), prepared
in accordance with GAAP (except for the absence of certain note information),
and substantially in the form of the attached Exhibit
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B subject to adjustments in the Consideration (as defined in the Asset Purchase
Agreement).
12.10 Physician Employees shall mean any physician employed by Tarrant
and providing medical services to patients on behalf of Tarrant, who are not
Physician Shareholders.
12.11 Physician Extenders shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
12.12 Physician Shareholders shall mean any physician who is a
shareholder of Tarrant, both as of the date of this Agreement (which said
Physician Shareholders are parties to this Agreement) and at any future point in
time.
12.13 ProMedCo-LW Distribution shall mean 15% of Distribution Funds
plus a percentage of Risk Pool Surpluses established by Exhibit A.
12.14 Risk Pool Surpluses shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements after the direct expenses associated with risk pool
management have been deducted. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position. Primary care capitation shall be treated as a
separate risk pool for purposes of this Section 12.14. Pursuant to Section
2.2(j) hereof, the Policy Council shall determine the amount allocated to
primary care capitation in situations in which the payor has not made such a
determination, and shall determine the fee schedule against which such primary
care capitation would be billed. In the event that primary care capitation is in
a deficit position, then that deficit shall be aggregated with all other risk
pools applicable before a distribution is made pursuant to Exhibit "A" of this
Agreement.
12.15 Tarrant Employees shall mean all Physician Shareholders, Physician
Employees, Physician Extenders and Technical Employees at the relevant dates.
12.16 Technical Employees shall mean technicians who provide services
in the diagnostic areas of Tarrant's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be Tarrant employees.
13. GENERAL PROVISIONS
13.1 Independent Contractor. It is acknowledged and agreed that Tarrant
and ProMedCo- LW are at all times acting and performing hereunder as independent
contractors. ProMedCo-LW shall neither have nor exercise any control or
direction over the methods by which Tarrant or the Tarrant Employees practice
medicine. The sole function of ProMedCo-LW hereunder is to provide all
management services in a competent, efficient and satisfactory manner.
ProMedCo-LW shall not, by entering into and performing its obligations under
this Agreement, become liable for any of the existing
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obligations, liabilities or debts of Tarrant unless otherwise specifically
provided for under the terms of this Agreement. ProMedCo-LW 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.
13.2 Other Contractual Arrangement.
(a) The parties acknowledge and agree that they have been advised and
consent to the fact that ProMedCo-LW, 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 Tarrant
Employees to provide consulting, medical direction, advisory or similar services
relating to activities of ProMedCo-LW 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-LW,
on the one hand, and such Tarrant Employees, on the other hand, shall not
constitute Net Clinic Revenues, or Tarrant 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
13.2(a) above shall constitute a breach of any fiduciary or other duty owned by
any Tarrant Employee to another, or by ProMedCo-LW, to Tarrant or any Physician
Shareholder. Accordingly, Tarrant 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 Tarrant Employee, and hereby
forever release and discharge Tarrant, the Physician Shareholders, ProMedCo-LW,
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 Tarrant Employee in any agreement or arrangement with
ProMedCo-LW, or their affiliates of a type described in Section 13.2(a) above or
from or by reason of the failure of ProMedCo-LW, any Tarrant 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
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Shareholders further agree that such negotiations, proposals
or terms of agreement are to be kept confidential between a
Tarrant Employee on the one hand, and ProMedCo- LW, on the
other hand, and shall not be disclosed by them or their
representatives, except as required by applicable law.
13.3 Proprietary Property.
13.3.1 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.
13.3.2 ProMedCo-LW 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- LW pursuant to this Agreement.
Tarrant 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-LW, provided, however, that the
foregoing shall not restrict Tarrant from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo-LW provided no Proprietary Property of ProMedCo-LW is
contained therein. Notwithstanding the preceding, however, ProMedCo-LW
agrees that Tarrant shall be entitled to use on a nonexclusive and
nontransferable basis for the term of this Agreement the name "Tarrant
Family Practice" as may be necessary or appropriate in the performance
of Tarrant's services and obligations hereunder.
13.4 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.
13.5 Licenses, Permits and Certificates. ProMedCo-LW and Tarrant 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.
13.6 Compliance with Rules, Regulations and Laws. ProMedCo-LW and
Tarrant 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
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Medicaid. ProMedCo-LW and Tarrant 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.
13.7 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.
13.8 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.
13.9 Attorneys' Fees. ProMedCo-LW and Tarrant 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.
13.10 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.
13.11 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 Tarrant 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.
13.12 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
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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.
13.13 Assignment and Delegation. ProMedCo-LW shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo-LW and to any lending
institution, for security purposes or as collateral, from which ProMedCo-LW or
ProMedCo obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo-LW nor Tarrant shall have the right to assign their respective
rights and obligations hereunder without the written consent of the other party.
Tarrant may not delegate any of Tarrant's duties hereunder, except as expressly
contemplated herein; however, ProMedCo-LW may delegate some or all of
ProMedCo-LW' s duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto.
13.14 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.
13.15 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.
13.16 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.
13.17 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.
13.18 Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
13.19 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
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jurisdiction shall, solely by virtue of this Agreement, initiate an action to
revoke, suspend, or restrict the license of any physician retained by Tarrant to
practice medicine in the State of Texas, Tarrant and ProMedCo-LW shall amend
this Agreement as necessary. To the maximum extent possible, any such amendment
shall preserve the underlying economic and financial arrangements between
Tarrant and ProMedCo-LW. In the event it is not possible to amend this Agreement
to preserve in all material respects the underlying economic and financial
arrangements between Tarrant and ProMedCo-LW, 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 13.19 by Tarrant shall require the
affirmative vote of a majority of Physician Shareholders.
13.20 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 LAKE WORTH, INC.
By:
Name:
Title:
Address: 801Cherry Street
Suite 1450
Fort Worth, TX 76102
TARRANT FAMILY PRACTICE, P.A.
By:
Name:
Title:
Address: 4504 Boat Club Road
Suite 800
Fort Worth, TX 76135
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UNANIMOUS CONSENT OF DIRECTORS
The undersigned constituting all of the directors of Tarrant Family
Practice, P.A., a Texas professional association (the "Company"), hereby
unanimously (i) consent to, and approve of, the foregoing Amended and Restated
Service Agreement (the "Agreement"); (ii) ratify the actions of officers of the
Company in negotiating, executing and delivering the Agreement; and (iii)
authorize the officers of the Company to carry into effect the transaction
contemplated by the Agreement, including the taking of any action and the
delivery of any document reasonably in furtherance thereof.
Todd K. Cowan, M.D.
Steve H. Hardee, M.D.
J. H. Huntzinger, M.D.
William D. Littlejohn, M.D.
Kriss E. Myers, M.D.
Marshall M. Morrison, M.D.
William M. Seger, M.D.
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EXHIBIT "A"
Allocation of Risk Pool Surpluses
ProMedCo-LW shall receive a percentage of the Risk Pool Surpluses, or
be responsible for a percentage of any Risk Pool Surpluses that are in a deficit
position. ProMedCo-LW's percentage shall be based on the cumulative risk pool
surpluses that have occurred during the entire term of this Agreement, including
any renewals. The percentage shall be based on the graduated scale as shown
below:
Risk Pool Savings ProMedCo-LW Percentage
[*]%
[*]
The distribution of Risk Pool Surpluses shall be made based upon the following:
In the event that the payor or any entity other than Tarrant holds the risk
pools, and makes a payment to Tarrant in the form of a Risk Pool Surplus, then
[*]% of that Risk Pool Surplus shall be distributed no later than 30 days after
receipt by Tarrant. In the event that Tarrant holds the risk pools, then the
distribution of Risk Pool Surpluses shall be made on an annual basis no later
than 90 days after the conclusion of each contract year of any relevant payor
agreement, and after a full analysis of any Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses have been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for an
additional 6 months to pay any additional IBNR or other liabilities. At the end
of that 6 months, any funds remaining from the [*]% reserved shall be
distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WTIH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
0346209.05
080020-003 08/15/96
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CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WTIH THE SYMBOL "[*]."
SERVICE AGREEMENT
By and Between
PROMEDCO OF DENTON, INC.
and
NORTH TEXAS MEDICAL SURGICAL CLINIC, P.A.
Effective June 1, 1995
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SERVICE AGREEMENT
This Service Agreement ("Agreement") dated June 30, 1995, between
ProMedCo of Denton, Inc., a Texas corporation ("ProMedCo") which is an affiliate
of ProMedCo, Inc., a Texas corporation ("Parent") and North Texas Medical
Surgical Clinic, P.A., a Texas professional association ("NTMS").
RECITALS:
WHEREAS, NTMS is a multi-specialty group medical practice in Denton,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices, with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, pursuant to an Asset Purchase Agreement dated June 30, 1995,
between ProMedCo, Inc. and Seller (as such term is defined therein) ("Asset
Purchase Agreement") ProMedCo agreed to assume the leases for certain real
property, assume certain contracts, and purchase equipment, accounts receivable,
inventory and other assets utilizing the operation of the medical practice to be
conducted by NTMS;
WHEREAS, subject to the terms and conditions hereof, NTMS desires to
engage ProMedCo to provide to NTMS management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement; and
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
NTMS, such revenues having been documented by NTMS and delivered to ProMedCo
prior to the formulation and agreement of such aforementioned financial
considerations;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, NTMS and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide
NTMS with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. NTMS shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of NTMS
and their patients.
1.2 NTMS's Matters. NTMS shall maintain sole discretion and authority
over the financial matters relative to it's own professional association. It
shall set compensation levels for NTMS Employees. NTMS will also be responsible
for all other matters pertaining to the operation of NTMS.
1.3 Patient Referrals. The parties agree that the benefits to NTMS 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
<PAGE> 3
service offered by ProMedCo to any of NTMS's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
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 four (4) members. ProMedCo shall designate,at it's sole discretion,
two (2) members of the Policy Council. NTMS at it's sole discretion shall
designate two (2) members. Except as may otherwise be provided, the act of a
majority of the members of the Policy Council shall be the act of the Policy
Council.
2.2 Duties and Responsibilities of the Policy Council. The policy
council shall have the following duties and responsibilities.
2.2.1 Physician Hiring. The Policy Council, with information and analysis
provided by ProMedCo, shall determine the number and type of physicians required
for the efficient operation of the Clinic and NTMS shall determine the
individual physicians to be hired to fill such positions. The approval of the
Policy Council shall be required for any variations to the restrictive covenants
in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget, in
consultation with NTMS and ProMedCo, the Policy Council shall review and adopt
the fee schedule for all physician and ancillary services rendered by the
Clinic.
2.2.3 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 NTMS is dissatisfied with the services provided by the
Administrator, NTMS shall refer the matter to the Policy Council. ProMedCo 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 shall
have the ultimate authority to terminate the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility regarding the establishment and maintenance of relationships
with institutional health care providers and payors.
2.2.6 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 $1,000 shall require the approval of the Policy Council.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared by
ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Board,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance of
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ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, whether now or in the future, shall
be subject to the approval of the Policy Council.
2.2.10 Advertising. All advertising and marketing of the services performed
at the Clinic 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.
2.2.11 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 NTMS's board or ProMedCo.
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3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo 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 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. NTMS
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in accordance with the terms of this Agreement.
NTMS, through its NTMS Employees, will provide all medical services. ProMedCo
will have no authority, directly or indirectly, to perform, and will not perform
any medical function. ProMedCo may, however, advise NTMS 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. NTMS hereby appoints ProMedCo as the
sole and exclusive manager and administrator of all non-medical functions and
services related to NTMS's services at the Clinic. NTMS shall perform all
medical services, and ProMedCo shall have no authority, directly or indirectly,
to perform, and will not perform any medical function. Without limiting the
generality of the foregoing, ProMedCo shall provide the following
administrative, management and marketing services as may be required in
conjunction with NTMS's services at the Clinic. ProMedCo 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, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual budgets.
Annually and at least thirty (30) days prior to the commencement of each fiscal
year, ProMedCo shall prepare and deliver to NTMS capital and operating budgets
reflecting in reasonable detail anticipated revenues and expenses, sources and
uses of capital for growth of NTMS' practice and Clinic services.
3.1.2 Financial Statements. ProMedCo 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 NTMS 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 in
connection with the audit of the financial statements of Parent. If NTMS desires
an audit in addition to the audit provided by ProMedCo, such an audit would be
at NTMS's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo 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, with those personnel performing
patient care services subject to the professional supervision of NTMS. If NTMS
is dissatisfied with the services of any person, NTMS shall consult with
ProMedCo. ProMedCo 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's obligations
regarding staff shall be governed by the overriding principle and goal of
providing high quality medical care.
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3.1.4 Quality Assurance. ProMedCo will assist NTMS 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 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 shall order and
purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall deem to be necessary in the operation
of the Clinic, to deliver quality Clinic services in a cost effective manner;
provided, however, that NTMS shall order, purchase, stock and monitor the
inventory of pharmaceutical and other medical supplies, substances, or items
whose purchase, maintenance, or security requires licensure as a healthcare
provider or requires a permit, registration, certification or identification
number that requires licensure or certification as a healthcare provider.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for marketing,
negotiation, and administering all managed care contracts, subject to the
provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without NTMS'
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect all
fees for services performed inside or outside the Clinic Facility. NTMS hereby
appoints ProMedCo, for the term hereof, to be its true and lawful
attorney-in-fact for the following purposes (i) to bill patients in NTMS's name
and on its behalf, (ii) to collect accounts receivable resulting from such
billing in NTMS's name and on its behalf; (iii) to receive payments from Blue
Shield, Medicare, Medicaid, payments from health plans, and all other third
party payors; (iv) to take possession of and endorse in the name of NTMS (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
(v) in accordance with policies adopted by the Policy Council, to initiate legal
proceedings in the name of NTMS to collect any accounts and monies owed to the
Clinic, to enforce the rights of NTMS 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 approved by ProMedCo'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 NTMS shall be the owner
("Account"). ProMedCo and NTMS shall maintain their accounting records in such a
way as to clearly segregate Net Clinic Revenues from other funds of ProMedCo or
NTMS. NTMS hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. NTMS covenants, and shall cause
all NTMS Employees to covenant, to forward any payments received with respect to
Net Clinic Revenues for services provided by NTMS and NTMS Employees to ProMedCo
for deposit. ProMedCo 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
<PAGE> 7
bank maintaining the Account shall periodically transfer the entire balance of
the Account to a separate bank account owned solely by ProMedCo ("ProMedCo
Account"). NTMS and ProMedCo 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 NTMS that
interferes with the operation of this Section, including, but not limited to,
any failure to deposit or have ProMedCo 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, 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 NTMS and its NTMS 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 NTMS and its NTMS 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.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or render
to NTMS such business, legal and financial management consultation and advice as
may be reasonably required or requested by NTMS and directly related to the
operations of the Clinic. ProMedCo shall not be responsible for rendering any
legal or tax advice or services or personal financial services to NTMS or any
employee or agent of NTMS.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By NTMS.
3.1.13 Physician Recruiting. ProMedCo shall assist NTMS 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, NTMS 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 and
accepted by NTMS shall be the sole employees of NTMS 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 budgeted Clinic Expenses set forth in the
budget approved by the Policy Council.
3.1.14 Supervision of Ancillary Services.
3.1.15 Strategic Planning Assistance.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
<PAGE> 8
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 NTMS 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 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 2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting NTMS 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 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, ProMedCo
may acquire other physician practices. NTMS will cooperate with ProMedCo in such
efforts and use its best efforts to assist ProMedCo with respect thereto.
Without limiting the generality of the foregoing, NTMS will not enter into any
agreements with respect to any such matter without the prior consent of
ProMedCo.
3.4 Events Excusing Performance. ProMedCo shall not be liable to NTMS
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 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 shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF NTMS
4.1 Professional Services. NTMS shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. NTMS shall also ensure that each physician
associated with NTMS is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, NTMS shall immediately inform the Administrator of such action
and the underlying facts and circumstances. NTMS shall carry out a program to
monitor the quality of medical care practiced, with ProMedCo's assistance. NTMS
will cooperate with ProMedCo 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. NTMS 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 NTMS, ProMedCo shall consult with NTMS regarding such matters.
NTMS shall enforce formal employee agreements from each of its Physician
Shareholders and Physician Employees, hired or contracted, substantially in the
form attached hereto as Exhibit "C".
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4.3 Non-Clinic Expenses. NTMS shall be solely responsible for the
payment of all costs and expenses incurred in connection with NTMS' s 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,
and continuing medical education.
4.4 Medical Practice. NTMS 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 be physicians associated with
NTMS, and no other physician or medical practitioner shall be permitted to use
or occupy the Clinic Facility without the prior written consent of ProMedCo.
4.5 Professional Insurance Eligibility. NTMS 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 NTMS. These Technical
Employees will remain in the employ of NTMS. As provided in Section 3.1.4.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. NTMS shall not be liable to ProMedCo
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 NTMS has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. NTMS 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. NTMS shall at all times during the
term of this Agreement comply with the policy of ProMedCo stated in Section 6
herein.
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4.10 NTMS Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, NTMS has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) 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 "D" to this Agreement. With respect to any such
employee pension benefit plan ("NTMS Plan"), effective on the Effective Date of
this Agreement such NTMS Plan shall be amended to provide that the ProMedCo
employees who are classified as "leased employees" (as defined in Section 414(n)
of the Internal Revenue Code of 1986, as amended ("Code")) of NTMS shall be
treated as NTMS employees for purposes of eligibility and participation in such
NTMS Plan. Not less often than annually, NTMS and ProMedCo shall agree upon and
identify in writing those individuals to be classified as leased employees of
NTMS and shall establish mutually agreeable procedures, with respect to the
participation of such leased employees in the NTMS plan. Such procedures shall
be designed to avoid the tax disqualification of the NTMS Plan, similar plans of
clinics similarly situated, and any similar plan sponsor maintained by ProMedCo
from time to time (collectively, the "Plans").
(b) If the Policy Council determines that the relationship between
ProMedCo and NTMS (and other clinics similarly situated) constitutes an
"affiliated service group" (as defined in Code Section 414(m)), ProMedCo and
NTMS shall take such actions as may be necessary to avoid the tax
disqualification of the Plans. Such actions may include the amendment, freeze,
termination or merger of the NTMS Plan.
(c) NTMS shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, NTMS shall not materially amend,
freeze, terminate or merge any NTMS Plan without the express written consent of
ProMedCo. In the event of either of the foregoing, ProMedCo's consent shall not
be withheld if such action would not jeopardize the qualification of any of the
Plans. NTMS agrees to make such changes to NTMS' Plan, including the freeze,
termination, or merger of such NTMS Plan, as may be approved by ProMedCo.
(d) Expenses incurred in connection with any NTMS Plan or other
employee benefit plan maintained by NTMS, including without limitation the
compensation of counsel, accountants, corporate trustees and other agents shall
be included in Clinic Expenses.
(e) The contribution and administration expenses for Physician
Shareholders and Physician Employees shall be an expense of NTMS. ProMedCo shall
make contributions or payments with respect to any NTMS Plan, as a Clinic
Expense, on behalf of eligible Technical Employees and designated leased
employees.
(f) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees,
regardless of whether such employees are designated leased employees, unless
such actions would require the amendment, freeze or termination of any NTMS Plan
to avoid disqualification of such plan, in which case any such action would be
subject to the express prior written consent of the Policy Council. ProMedCo
shall have the sole and exclusive authority to appoint the trustee, custodian,
and administrator of any such plan.
(g) In the event that any employee welfare benefit plan maintained or
sponsored by NTMS must be amended, terminated, modified, or changed as the
<PAGE> 11
result of NTMS and ProMedCo being deemed to be a part of an affiliated service
group, the Policy Council will replace any such plan or plans with a plan or
plans that provides those benefits approved by ProMedCo with the advice of the
Poky Council. It shall be the goal of the Policy Council in such event to
provide substantially similar or comparable benefits that the same can be
provided at a substantially similar cost to the replaced plan.
4.11 Physician Powers of Attorney. NTMS shall require all NTMS
Employees to execute and deliver to ProMedCo powers of attorney, satisfactory in
form and substance to ProMedCo and NTMS, appointing ProMedCo as attorney-in-fact
for each for the purposes set forth in Section 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. NTMS shall serve as spokesperson for ProMedCo,
Parent and Clinic sales and development activities. The parties agree that Drs.
Blucker, Taylor and Shelton, or such other Physician Shareholders as the Policy
Council shall appoint, shall serve in this capacity on behalf of NTMS.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, NTMS shall
retain all patient medical records maintained by NTMS or ProMedCo in the name of
NTMS. NTMS shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by NTMS.
5.2 Other Records. All records relating in any way to the operation
of the Clinic which are not the property of NTMS under the provisions of
Section 5.1 above, shall at all times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, NTMS or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to NTMS's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and NTMS may copy any or all such records.
<PAGE> 12
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide 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 reasonable incurred
in conducting operations in the Clinic Facility during the term of this
Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and NTMS agree that NTMS, 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 shall not receive any ProMedCo Distribution from the
revenue generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to NTMS and ProMedCo. NTMS and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to NTMS, each month
ProMedCo shall be paid the amount of all Clinic Expenses and New Investment
Expenses and the ProMedCo Distribution. All Net Clinic Revenues and New
Investment Revenues after deduction of Clinic Expenses, New Investment Expenses
and the ProMedCo Distribution, shall be referred to as the "NTMS Distribution."
7.2 Calculation of Payments. The amounts to be paid to ProMedCo under
this Section 7 shall be payable monthly. ProMedCo shall, to the extent it is
reasonably able, estimate such amounts by the 10th day of the following month
and shall pay to NTMS in accordance with the provisions of Section 7.4 the NTMS
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 shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of NTMS, 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 hereby agrees to indemnify
and hold NTMS harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of NTMS resulting from the contest of
any Clinic Expenses.
<PAGE> 13
7.4 Accounts Receivables. On approximately the 15th day of each month,
ProMedCo shall purchase the accounts receivable of NTMS arising during the
previous month, by payment of cash, or other readily available funds into an
account of NTMS. The consideration for the purchase shall be an amount equal to
the NTMS Distribution for such previous month. Although it is the intention of
the parties that ProMedCo purchase and thereby become owner of the accounts
receivable of NTMS, in case such purchase shall be ineffective for any reason,
NTMS, as of the Effective Date of this Agreement, grants and shall cause each
NTMS Employee to grant to ProMedCo a first priority lien on and security
interest in and to any and all interest of NTMS and such NTMS Employees in any
accounts receivable generated by the medical practice of NTMS and the NTMS
Employees or otherwise generated through the operations of the Clinic, and all
proceeds with respect thereto, to secure the payment to ProMedCo 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,
NTMS shall cooperate with ProMedCo and execute and deliver, and cause each NTMS
Employee to execute and deliver, all necessary documents in connection with the
pledge of such accounts receivable to ProMedCo or at ProMedCo'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. To the extent NTMS
or any NTMS Employee comes into possession of any payments in respect of such
accounts receivable, NTMS or such NTMS Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
7.5 Additional NTMS Payments. In addition to the NTMS Distribution
provided for in Section 7.1 of this Agreement, within 45 days following the end
of each fiscal quarter of ProMedCo, ProMedCo shall determine its net after-tax
income for such quarter, in accordance with GAAP, and shall distribute to NTMS,
as an additional payment, an amount equal to 15% of such net after-tax income.
Any audit adjustments would be made after completion of the fiscal year audit.
7.6 NTMS Advance. In the event that for either of the second and third
years following the Effective Date of this Agreement (each of such years
hereafter referred to as the "Computation Year"), the NTMS Distribution amount
plus the Additional NTMS Payments payable to NTMS pursuant to Section 7.5
hereof, payable to NTMS during such Computation Year (collectively, the "NTMS
Payments") are not equal to or greater than what would have been computed as the
Distribution Funds for North Texas Medical-Surgical, P.A., the Seller under the
Asset Purchase Agreement, (the "Predecessor Corporation") for the 12-month
period immediately prior to the Effective Date of this Agreement ("Historical
Distribution Funds"), then for such Computation Year NTMS shall be entitled to
an advance in accordance with the following terms:
(a) For the Computation Year, ProMedCo shall advance to NTMS an amount
equal to the difference, if any, between the Historical Distribution Funds and
the actual NTMS Payments for such Computation Year; provided, however, that in
no event shall the advance for any Computation Year exceed 15% of the Historical
Distribution Funds.
(b) ProMedCo shall be obligated to make such advance and NTMS shall be
eligible for such advance only in the event that the Net Clinic Revenues for the
Computation Year are equal to or greater than the Net Clinic Revenue of the
Predecessor Corporation for the 12-month period immediately preceding the
Effective Date of this Agreement.
(c) For purposes of computing the advance amount set forth in
subparagraph (a) above, for each Computation Year the Historical Distribution
<PAGE> 14
Funds shall be subject to an adjustment in the event that during such
Computation Year all of the original NTMS shareholders (other than Robert J.
Lee, M.D. who is retiring) shall no longer be employed by NTMS on a full-time
basis. In such event, the Historical Distribution Fund for such Computation Year
shall be reduced by 1/7 of the Historical Distribution Fund amount for each such
original shareholder no longer employed on a full-time basis by NTMS.
(d) The Computation Year shall be a 12 month period which commences on the
second and third anniversary dates of the Effective Date of this Agreement. The
advance, if any, shall be paid by ProMedCo within 15 days of review of the
financial statement by a certified public accountant, as provided in Section
3.1.2 hereof, for each of such Computation Years.
(e) With respect to any advance made in accordance with the provisions
of this Section, ProMedCo shall be entitled to charge interest against the
balance of such advance at the minimum applicable federal rate for such period
of time as the advance shall remain outstanding.
(f) Any advances made, and interest thereon, shall be paid to ProMedCo
by NTMS from future NTMS Payments, but only to the extent that such NTMS
Payments exceed the Historical Distribution Funds.
8. INSURANCE AND INDEMNITY
8.1 Insurance to be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo and NTMS with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by NTMS. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8.1, NTMS shall maintain comprehensive
professional liability insurance with limits of not less than $500,000 per claim
and with aggregate policy limits of not less than $1,000,000 per physician and a
separate limit for NTMS. NTMS shall be responsible for all liabilities
(including without limitation deductibles and excess liabilities) not paid
within the limits of such policies. ProMedCo shall have the option, with Policy
Council approval, 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.
8.3 Tail Insurance Coverage. NTMS will cause each individual physician
associated with the Clinic to enter into an agreement with NTMS that upon
termination of such physician's relationship with NTMS, for any reason, tail
insurance coverage will be purchased by the individual physician. Such
provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by NTMS and the individual
physicians, and NTMS hereby covenants with ProMedCo to enforce such provisions
relating to the tail insurance coverage or to provide such coverage at the
expense of NTMS.
8.4 Additional Insured. NTMS and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
<PAGE> 15
8.5 Indemnification. NTMS shall indemnify, hold harmless and defend
ProMedCo, 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 NTMS and/or
its shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an NTMS
Employee, which claim arises out of such NTMS Employees' employment relationship
with NTMS or as a result of services performed by such NTMS Employee, and which
claim would typically be covered by worker's compensation. ProMedCo shall
indemnify, hold harmless and defend NTMS, 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 an intentional acts, negligent acts or
omissions by ProMedCo and/or its shareholders, agents, employees and/or
subcontractors (other than NTMS) during the term of this Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if NTMS operates an active medical practice to which the
physicians associated with NTMS devote their full time and attention. To that
end:
9.1 Restrictive Covenants by NTMS. During the term of this Agreement,
NTMS shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by NTMS pursuant to this Agreement anywhere within
Denton County, Texas. The restrictive covenant contained within this Section 9.1
shall not apply to any Clinic Facility approved by the Policy Council.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. NTMS shall enforce the employment agreements with its
current Physician Shareholders and Physician Employees obtained in connection
with the Asset Purchase Agreement, pursuant to which the Physician Shareholders
and Physician Employees agree not to 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 NTMS pursuant to this Agreement within Denton County and for a
period of thirty-six (36) months after the first date of such Physician
Shareholder's or such Physician Employee's employment with NTMS. ProMedCo shall
have third-party rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. NTMS shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree not to 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 NTMS
pursuant to this Agreement within Denton County during the term of said
Physician Employee's employment with NTMS and for a period of thirty-six (36)
months after the date of their first employment, with NTMS. ProMedCo shall have
third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
may provide that the Physician Shareholders and Physician Employees (existing
<PAGE> 16
or future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of $75,000. Such payment shall be made to ProMedCo by NTMS
simultaneously with the payment by the physician to NTMS. Such payment shall be
first applied to all costs incurred by ProMedCo in the enforcement of the
restrictive covenant for that departing physician and in recruiting a
replacement physician for that departing physician. The remainder, if any, shall
become an additional service fee to be paid to ProMedCo pursuant to Section 7.
The accounting treatment of such funds shall be consistently applied and
approved by ProMedCo's independent certified public accountants and the Policy
Council.
9.5 Additional Covenants with Respect to Payor Contracts. In addition
to the restrictive covenants set forth in Sections 9.2 and 9.3 of this Section
9, the employment agreements with Physician Shareholders and Physician Employees
shall require that for the period stated hereafter each such Physician
Shareholder and Physician Employee shall not enter into a provider agreement or
other contract with, nor provide any medical services in connection with or
pursuant to any such provider agreement or other contract, any third party payor
having a provider agreement or other contract with NTMS or any NTMS Employee at
any time within 120 days prior to and including the date of such physician's
termination of employment with NTMS. For Physician Shareholders and Physician
Employees employed by NTMS on the date of this Agreement, the restrictive
covenants contained in this Section 9.5 shall apply for the four-year period
commencing on the first date of such Physician Shareholder's or such Physician
Employee's employment with NTMS. For Physician Shareholders and Physician
Employees who are not employed by NTMS on the date of this Agreement, the
restrictive covenants set forth in this Section 9.5 shall apply for a period of
12 months following the date of such Physician Shareholder's or Physician
Employee's termination of employment with NTMS. As used herein, a third party
payor shall include, without limitation, any employer, coalition of employers,
union or similar organization maintaining a health benefit plan for the benefit
of its employees or members, any insurance company, any Blue Cross/Blue Shield
plan, any health maintenance organization, preferred provider organization,
independent physicians association, physician hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein the
term "third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants.
9.6 Enforcement. ProMedCo and NTMS 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 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
<PAGE> 17
receive under this Section 9 or any other provision of this Agreement.
9.7 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the restrictive covenants 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
date hereof and shall continue for forty (40) years, after which it shall
automatically renew for 5-year terms unless either party provides the other
party with at least twelve (12) months but not more than fifteen (I 5) months
written notice prior to any renewal date.
<PAGE> 18
10.2 Termination by NTMS. NTMS may terminate this Agreement as
follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, NTMS may give notice of the immediate termination of this Agreement.
10.2.2 In the event ProMedCo shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement and such default shall
continue for a period of 90 days after written notice thereof has been given to
ProMedCo by NTMS; or ProMedCo shall fail to remit the payments due as provided
in Section 7 hereof and such failure to remit shall continue for a period of 15
days after written notice thereof, NTMS may terminate this Agreement.
Termination of this Agreement pursuant to this subsection (2) by NTMS shall
require the affirmative vote of 75% of the Physician Shareholders.
10.2.3 In the event ProMedCo intentionally misappropriates or misapplies
the NTMS Distribution.
10.2.4 In the event a court of competent jurisdiction makes a final
determination that ProMedCo has breached a fiduciary duty owed to NTMS.
10.2.5 In the event Parent shall default in any obligation it may have to
purchase the Shares owned by any Stockholder in accordance with the provisions
of Section 3.1 of the Stock Agreement between Parent and the stockholders of
NTMS dated of even date with this Agreement.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement as
follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by NTMS, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by NTMS, except for the filing of a petition in
involuntary bankruptcy against NTMS which is dismissed within 30 days
thereafter, ProMedCo may give notice of the immediate termination of this
Agreement.
10.3.2 In the event NTMS 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 NTMS, and such default shall continue for a period of
90 days after written notice thereof has been given to NTMS and such Physician
Shareholders by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the NTMS Compensation and the ProMedCo 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,
NTMS shall:
<PAGE> 19
10.4.1 Asset Repurchase. Purchase from ProMedCo at book value the
Restrictive Covenants provided for in Section 9 and any other 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 Restrictive Covenants
and intangibles, which amortization shall be for a period not in excess of 40
years.
10.4.2. Real Estate. Purchase from ProMedCo all real estate, if
any, associated with the Clinic at the then book value thereof.
10.4.3. Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo and which relate
solely to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo, if any.
10.4.4. Debts. Assume all ordinary and necessary debt, contracts,
payables and leases watch are obligations of ProMedCo and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo, if any.
10.4.5. Equipment. Purchase from ProMedCo at book value all of the
equipment listed as set forth in the Asset Purchase Agreement, including all
replacements and additions thereto made by ProMedCo with the approval of the
Policy Council pursuant to the performance of its obligations under this
Agreement, and all other assets, including inventory and supplies, tangibles and
intangibles, 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 operations of the Clinic, depreciation,
amortization and other adjustments of assets shown on the Opening Balance Sheet.
10.4.6. Closing of Repurchase. NTMS shall, at its option, pay cash or
surrender shares of common stock of Parent valued at the greater of (i) $12.00
per share or (ii) the then current market value, if such shares are then traded
on any exchange or pursuant to the NASDAQ System, for the repurchased assets.
The amount of the purchase price shall be reduced by the amount of debt and
liabilities of ProMedCo assumed by NTMS and shall be reduced by any payment
ProMedCo has failed to make under this Agreement. NTMS and any physician
associated with NTMS shall execute such documents as may required to assume the
liabilities set forth in Section 10.4.4. and to remove ProMedCo from any
liability with respect to such repurchased assets and with respect to any
property leased or subleased by ProMedCo. The closing date for the repurchase
shall be determined by NTMS, 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 NTMS 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 Net Clinic Revenues shall mean NTMS's gross billings, including
ancillaries and any other revenues that have historically been recorded by NTMS,
less any adjustments such as uncollectible accounts, discounts,
<PAGE> 20
contractual adjustments, Medicare allowances, Medicaid allowances, and
professional courtesies ("adjustments"). This specifically excludes New
Investment Revenues and Risk Pool Reserves.
11.2 New Investment Revenues shall mean NTMS's gross billings (net of
adjustments) which are not, except as provided below, Physician Service
Revenues, but excluding any interest, investment, rental or similar payments or
income made or payable to NTMS that are unrelated to the provisions of medical
or administrative services or products, arising from a new project which
required the expenditure of capital by ProMedCo, as approved by the Policy
Council. Additionally, New Investment Revenues shall include any Physician
Service Revenues arising from a new project which required the expenditure of
capital by ProMedCo, and which are so designated in writing by the Policy
Council prior to such expenditure.
11.3 New Investment Expenses shall mean those expenses which constitute
expenses related to New Investment Revenues.
11.4 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.5 New Investment Distribution Funds shall mean those funds remaining
after New Investment Expenses and 6% of New Investment Revenues are
subtracted from New Investment Revenues.
11.6 ProMedCo Distribution shall mean 15% of Distribution Funds,
a percentage of Risk Pool Reserves established by Exhibit A, 6% of New
Investment Revenues, as well as 50% of New Investment Distribution Funds.
11.7 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by NTMS and the NTMS Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.8 Clinic Facility shall mean the clinic facility located at 2509
Scripture, Suite 200, Denton, Texas, and any substitute facility or additional
facility location, whether within or without Denton County, as approved by the
Policy Council.
11.9 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.9.1 Salaries, benefits (including contributions under any Parent benefit
plan), and other direct costs of all employees of ProMedCo and Technical
Employees attributable to NTMS;
11.9.2 Direct costs, including benefits, of all employees or consultants of
Parent or affiliate of ProMedCo who, with approval of the Policy Council,
provides services at or in connection with NTMS 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 Parent that is
allocable to Clinic will be a Clinic Expense;
11.9.3 Obligations of ProMedCo or Parent under leases or subleases
<PAGE> 21
related to Clinic operations;
11.9.4 Interest Expense on indebtedness incurred by ProMedCo or Parent to
finance or refinance any of its obligations hereunder or services provided
hereunder.
11.9.5 Personal property and intangible taxes assessed against ProMedCo's
assets used in connection with the operation of Clinic commencing of the date of
this Agreement;
11.9.6 Malpractice insurance expenses for ProMedCo's operations and for
the NTMS Employees, as well as any deductibles and non-insured expenses
relating to malpractice claims;
11.9.7 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement.
<PAGE> 22
11.10 Clinic Expenses shall not include:
11.10.1 Corporate overhead charges or any other expenses of Parent or any
corporation affiliated with Parent other than the kind of items listed above;
11.10.2 Any federal or state income taxes;
11.10.3 Any expenses which are expressly designated herein as
expenses or responsibilities of NTMS and/or NTMS Employees;
11.10.4 Any amortization expense resulting from the amortization of
expenses incurred as shown on Parent's financial statements, in connection with
the acquisition pursuant to the Asset Purchase Agreement and the execution of
this Agreement;
11.10.5 Interest expense or indebtedness incurred by ProMedCo
or Parent to finance the consideration paid under the Asset Purchase Agreement;
and
11.10.6 Any expense classified as New Investment Expense.
11.11 Risk Pool Reserves shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements.
11.12 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Closing Date (as defined in the Asset Purchase Agreement), 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 Asset Purchase Agreement).
11.13 Technical Employees shall mean technicians who provide services in
the diagnostic areas of NTMS's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be NTMS employees.
11.14 Physician Shareholders shall mean any physician who is a
shareholder of NTMS, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.15 Physician Employees shall mean any physician employed by NTMS and
providing medical services to patients on behalf of NTMS, who are not Physician
Shareholders.
11.16 NTMS Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.17 Effective Date shall mean 12:01 a.m. on the first day of the month
in which the Closing Date (as such term is defined in the Asset Purchase
Agreement) occurs.
11.18 Physician Service Revenues shall mean all fees actually recorded
each month (net of adjustments) by or on behalf of NTMS as a result of
professional medical services personally furnished to patients by NTMS Employees
and other fees or income generated in their capacities as professionals, whether
rendered in an in-patient or out-patient setting.
11.19 Capitation Revenues shall mean all payments from managed care
<PAGE> 23
organizations, where payment is made periodically on a per member basis for the
partial or total medical care needs of a patient (and co-payments with respect
thereto) but excluding any amounts allocated to Risk Pool Reserves. Such
Capitation Revenues shall be divided between the categories of Physician Service
Revenues and New Investment Revenues in such manner as shall be determined by
the Policy Council.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that NTMS
and ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which NTMS or the NTMS Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of NTMS unless otherwise
specifically provided for under the terms of this Agreement. ProMedCo 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, 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
NTMS Employees to provide consulting, medical direction, advisory or similar
services relating to activities of ProMedCo or its affiliates in clinical areas.
The parties agree that such agreement, 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, on
the one hand, and such NTMS Employees, on the other hand, shall not constitute
Net Clinic Revenues, or NTMS 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 NTMS Employee to another, or by ProMedCo to NTMS or any
Physician Shareholder. Accordingly, NTMS 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 NTMS Employee, and
hereby forever release and discharge NTMS, the Physician Shareholders, ProMedCo,
and their respective representatives (including, but not limited to, their
respective attorneys, accountants, affifiates, 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 NTMS Employee in any agreement or arrangement with
ProMedCo, or their affiliates of a type described in Section 12.2(a) above or
from or by reason of the failure of
<PAGE> 24
ProMedCo, any NTMS 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 an NTMS Employee on the one hand, and ProMedCo, 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 parts' 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 shall be the sole owner and holder of all right, title and
interest, to all intellectual property fimnished by it under this Agreement,
including, but not limited to the trade name "North Texas Medical- Surgical,"
all computer software, copyright, services mark and trademark right to any
material or documents acquired, prepared, purchased or furnished by ProMedCo
pursuant to this Agreement. NTMS 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, provided, however, that the
foregoing shall not restrict NTMS from distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein. Notwithstanding the
preceding, however, ProMedCo agrees that NTMS shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement the name
"North Texas Medical-Surgical" as may be necessary or appropriate in the
performance of NTMS' 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 and NTMS 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 and NTMS
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 and NTMS 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 fiimishing 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,
<PAGE> 25
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 and NTMS 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 the County of Tarrant, 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.
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 shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor NTMS shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. NTMS
may not delegate any of NTMS's duties hereunder, except as expressly
contemplated herein; however, ProMedCo may delegate some of all of ProMedCo'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
<PAGE> 26
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.
<PAGE> 27
12.16 Headings. The subject headings of the articles and sections of
this Agreement are not 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 NTMS to practice medicine in the State of Texas,
NTMS and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between NTMS and ProMedCo. In the event it is not
possible to amend this Agreement to preserve in all material respects the
underlying economic and financial arrangements between NTMS and ProMedCo, 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 earfier 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 6.21 by NTMS shall require
the affirmative vote of a majority of Physician Shareholders.
12.20 Whole Agreement; Modirication. 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 part'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 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. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written,
PROMEDCO OF DENTON, INC.,
By:
Name:
Title:
Address:
NORTH TEXAS MEDICAL SURGICAL
CLINIC, P.A.
By:
Name:
Title:
Address:
Thomas 0. Blucker, M.D.
Physician Shareholder
Douglas B. Hagen, M.D.
Physician Shareholder
Harvard L. McBrayer, Jr., M.D.
Physician Shareholder
John S. Shelton, M.D.
Physician Shareholder
<PAGE> 28
Eugene M. Taylor, M.D.
Physician Shareholder
Charles H. Wahlert, M.D.
Physician Shareholder
Arvin D. Short, M.D., F.A.C. S.
Physician Shareholder
<PAGE> 29
EXHIBIT "A"
Allocation of Risk Pool Reserves
ProMedCo shall receive a percentage of the Risk Pool Reserves.
ProMedCo's percentage shall be based on the cumulative risk pool savings that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Savings ProMedCo %
---------------------------- ----------
[*]
The distribution of Risk Pool Reserves shall be made on an annual basis no later
than 90 days after the conclusion of each Payor contract annual term, and after
a full analysis of an Incurred But Not Reported (IBNR) liabilities. Once the
final balance of Risk Pool Reserves has been calculated, [*]% of that amount
shall be distributed, with the final [*]% held for an additional 6 months to pay
for any unanticipated claims. At the end of that 6 months, any funds remaining
from the [*]% reserved shall be distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS ON
THIS PAGE WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL
"[*]."
<PAGE> 30
EXHIBIT "B"
Opening Balance Sheet
Current Assets
Cash
Accounts Receivable
Prepaid
Other Current Assets
Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment
Equipment
Capitalized Lease Equipment
Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
<PAGE> 31
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Current Maturities-Leases
Current Maturities-Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Partnership
Deferred Credits
Total Other Liabilities
Long Term Payables
Mortgages
Notes Payable
Lease Obligations
Total Long Tenn Payables
Shareholders Equity
Common Stock
Paid in Capital
Retained Earnings
Total Shareholders Equity
TOTAL LIABILITIES AND EQUITY
<PAGE> 1
EXHIBIT 10.8
PROMEDCO MANAGEMENT COMPANY
STOCK OPTION PLAN
1. PURPOSE
This Stock Option Plan (the "Plan") for ProMedCo Management Company
(the "Company") is intended to advance the interests of the Company by
providing certain directors and employees of the Company and its subsidiaries
(the "Subsidiaries"), as well as certain physicians and physician extenders
employed by the Company's affiliated physician groups (the "Physician Groups"),
with additional incentive to promote the success of the Company, its
Subsidiaries, and the Physician Groups, to increase their proprietary interest
in the Company, and to encourage them to remain in the Company's employ or in
the employ of its Subsidiaries or Physician Groups.
2. ADMINISTRATION OF THE PLAN
2.1 The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall consist of two or more members of the Board, each of whom shall
be appointed by and shall serve at the pleasure of the Board. The Board shall
have the sole continuing authority to appoint members of the Committee both in
substitution for members previously appointed and to fill vacancies however
caused. All members of the Committee shall be "Non-Employee Directors" as such
term is defined in Rule 16b-3(b)(3) under the Securities Exchange Act of 1934,
as amended, or any successor provision. Each grant of options under the Plan
shall be approved by the Board or the Committee.
2.2 The Committee shall have the authority to grant (i) stock
options that constitute incentive stock options ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "IRC") and (ii) stock options that do not constitute Incentive
Stock Options within the meaning of Section 422 of the IRC ("Nonqualified
Options"). Incentive Stock Options and Nonqualified Options are together
referred to as "Options" herein.
2.3 Subject to the provisions of this Plan, the Committee shall
have plenary authority, in its discretion, to: (i) determine the employees and
other persons (from the class of employees and other persons eligible under
Section 4 to receive Options under this Plan) to whom Options shall be granted;
(ii) determine the time or times at which Options shall be granted; (iii)
determine the type of Options granted and their terms; and (iv) interpret the
Plan and to prescribe, amend, and rescind rules and regulations relating to it.
2.4 The Committee shall hold its meetings at such times and places
as it shall deem advisable. All actions of the Committee shall be taken by
agreement of a majority of the whole Committee. Any action taken by the
Committee through a written instrument signed by a majority of its members
shall be as effective as though taken at a meeting duly called and held. The
Committee may appoint a secretary to keep minutes
<PAGE> 2
of its meetings and shall make such rules and regulations for the conduct of
its business as it shall deem advisable.
3. SHARES OF STOCK SUBJECT TO THE PLAN
The Committee shall have authority to grant Options under this Plan
for the purchase of an aggregate of 2,100,000 shares of the Common Stock of the
Company, no par value per share (the "Common Stock"). Of such shares of Common
Stock, 100,000 are reserved for issuance to directors, 1,000,000 are reserved
for issuance to employees, consultants, and advisors, and 1,000,000 are
reserved for issuance to physicians and physician extenders. Such shares may
be authorized but unissued shares of Common Stock, or shares of Common Stock
that have been reacquired by the Company. In the event of a lapse, expiration,
termination, or cancellation of any Option granted hereunder without the
issuance of shares or payment of cash, the shares subject to or reserved for
such Option may again be used to grant additional Options; provided, that in no
event may the number of shares subject to Options issued hereunder exceed the
total number of shares reserved for issuance. The Company shall reserve and
keep available for issuance that number of shares of Common Stock equal to the
number of shares of Common Stock subject to outstanding Options hereunder.
4. PERSONS ELIGIBLE TO RECEIVE OPTIONS
4.1 The persons who shall be eligible to receive Options granted
hereunder shall be:
(i) directors and employees of the Company and/or its
Subsidiaries; provided, however, that the persons who shall be
eligible to receive options granted hereunder intended to be Incentive
Stock Options shall be employees of the Company and/or its
Subsidiaries, as that term is defined in Section 424 of the IRC; and
provided, further, that no employee shall receive options to purchase
Common Stock hereunder or under any plan of the Company or its
Subsidiaries intended to be Incentive Stock Options to the extent that
the stock subject to such options exercisable for the first time in
any year has a Market Value (determined at the time the options are
granted) in excess of $100,000;
(ii) physicians and physician extenders employed by Physician
Groups who are selected by the Committee from time to time; and
(iii) consultants or advisors of the Company and/or its
Subsidiaries.
5. AWARDS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
Each newly elected Non-Employee Director of the Company shall be
granted Nonqualified Options to purchase 5,000 shares of stock upon election to
the Board at the 1997 annual meeting of stockholders. Thereafter, each newly
elected or appointed
2
<PAGE> 3
Non-Employee Director shall be granted Nonqualified Options to purchase 5,000
shares of stock upon initial election or appointment to the Board. Following
such initial election or appointment, Non-Employee Directors who continue to
serve in such capacity shall be granted Nonqualified Options to purchase 2,000
shares of stock on an annual basis following the annual stockholders meeting.
The exercise price per share of all such Nonqualified Options shall be the
Market Value of the Common Stock on the date of grant, as defined in Section
7.2. All such Nonqualified Options shall become exercisable in five equal
annual installments beginning on the first anniversary of the date of grant.
6. OPTIONS
6.1 Each option granted hereunder shall be evidenced by an Option
Certificate that shall state the number of shares of stock to which it relates.
6.2 Each Option Certificate shall contain such provisions as may
be required by the terms hereof and such other provisions (including, without
limitation, restrictions on the option and the Common Stock) as the Committee
shall in its discretion impose. The Committee may vary the terms and
provisions of individual Option Certificate on a case- by-case basis and shall
not be required to make all Option Certificates uniform.
6.3 At the time each option is granted under this Plan, the
Committee shall determine whether such option is to be designated an Incentive
Stock Option. Options designated Incentive Stock Options shall conform to
those provisions of this Plan specifically applicable to Incentive Stock
Options, including, without limitation, the minimum option price specified in
Section 7 and the maximum exercise period specified in Section 8.1.
7. OPTION PRICE
7.1 Other than the options issued to Non-Employee Directors
described in Section 5 of this Plan, the option price of each option issued
hereunder shall be determined by the Committee in its discretion at the time
the option is granted, subject to the conditions of this Section 7. Options
intended to be Incentive Stock Options shall have an option price per share
equal to or greater than the Market Value of the Common Stock (as defined in
Section 7.2) on the date such option is granted. If any option intended to be
an Incentive Stock Option is granted to any employee holding stock possessing
more than 10 percent of the total combined voting power of all classes of the
capital stock of the Company, its parent (if any) or any of its Subsidiaries,
the option price per share shall not be less than 110 percent of the Market
Value of the Common Stock on the date the option is granted. Nonqualified
Options shall have an option price per share not less than 85% of the Market
Value of the Common Stock on the date such option is granted.
7.2 For purposes of this Plan, the term "Market Value" shall mean
the closing price of the Common Stock on the Nasdaq National Market or such
other exchange upon which the Common Stock might later be traded, on the date
specified.
3
<PAGE> 4
8. TERMS AND EXERCISE OF OPTIONS
8.1 Each option granted hereunder shall be exercisable only during
a term commencing and ending (unless the option shall have terminated earlier
under other provisions of this Plan) on dates to be fixed by the Committee,
subject to the following further limitations:
(i) with respect to any option intended to be an
Incentive Stock Option, the date fixed by the Committee as the end of
the option term must be a date not more than 10 years from the date
the option was granted;
(ii) subject to the provisions of Sections 9.3 and 9.4
hereof, any option intended to be an Incentive Stock Option may not be
exercisable more than three months after the optionee ceases to be an
employee of the Company or a Subsidiary; and
(iii) with respect to any option intended to be an
Incentive Stock Option that is granted to a person possessing more
than 10 percent of the total combined voting power of all classes of
the capital stock of the Company, its parent (if any) or any of its
Subsidiaries, the date fixed by the Committee as the end of the option
term must be a date not more than five years from the date the option
was granted.
The period of the option, once it is granted, may be reduced only as provided
for in Section 9 in connection with the termination of employment, death, or
disability of the optionee.
8.2 In the event of a Change of Control of the Corporation, the
Committee has the authority to cause all options granted hereunder to be vested
in their entirety as of the date of such Change of Control.
For purposes of this Plan, a "Change of Control" occurs when (1) any Person or
Group (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the Founders
(as hereinafter defined) or an entity the majority of the voting stock of which
is owned or controlled by 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, of more than 30% of the total voting power
of the outstanding voting stock of the Corporation; or (2) the Corporation
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 Corporation pursuant to a transaction in
which the outstanding voting stock of the Corporation is changed into or
exchanged for cash, securities or other property, other than a transaction
between the Corporation and (i) any subsidiary of the Corporation or (ii) any
other entity
4
<PAGE> 5
owned or controlled by the Founders; or (3) individuals who at the beginning of
any period of two consecutive calendar years constitute the Corporation's Board
of Directors (together with any new directors whose election by such Board of
directors or whose nomination for election by the Corporation'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 of
Directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason (other than death or
resignation of such persons) to constitute a majority of the members of the
Board of Directors then in office.
For purposes of this Plan, the "Founders" means each of Richard E. Ragsdale, E.
Thomas Chaney and H. Wayne Posey, individually.
8.3 The Committee shall have authority to grant options
exercisable in whole or in part at any time during their term, or exercisable
in cumulative or non-cumulative installments, as may be determined by the
Committee, provided that any option that is intended to be an Incentive Stock
Option shall meet the requirements of Sections 8.1 and 4.1 hereof.
8.4 Unless otherwise provided herein or in the option agreement,
an option may be exercised in whole or in part at any time during its term.
The Committee may, in its discretion, provide that an option may not be
exercised in whole or in part for any period or periods of time specified in
the option agreement. The Committee may, in its discretion, include in any
option granted hereunder, a condition that the optionee shall agree to remain
in the employ of, and to render services to, the Company and/or a
Subsidiary(ies) for a specified period of time following the date the option is
granted. No such agreement shall impose upon the Company or any Subsidiary any
obligation to employ the optionee for any period of time.
8.5 Options shall be exercised by delivering or mailing to the
Committee:
(i) a notice, in the form prescribed by the Committee,
specifying the number of shares of Common Stock with respect to which
the option is exercised;
(ii) a certified bank check or money order payable to the
Company, or shares of Common Stock, or any combination thereof, for
the full option price in the case of Incentive Stock Options, and in
an amount equal to the full option price plus any withholding tax
required by law as determined by the Committee in the case of
Nonqualified Options; and
(iii) if the shares are to be issued pursuant to the
exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act"), provided by Section 4(2) or any
successor section of such Act, an "investment letter" in such form as
may be dictated by the Committee.
5
<PAGE> 6
Shares of Common Stock delivered in full or partial payment of the option price
shall be applied to the option price at their Market Value on the date received
by the Committee. Any withholding tax required in connection with the exercise
of Nonqualified Options must be paid by certified bank check or money order
payable to the Company.
8.6 Upon receipt of such notice (and investment letter if
applicable) and upon payment of the option price (and taxes if applicable), the
Company shall promptly deliver to the optionee a certificate or certificates
for the number of shares of Common Stock in respect of which the option was
exercised, without charge to the optionee for issue or transfer tax. The stock
certificate(s) may, at the request of the optionee, be issued in the name of
such optionee and the name of another person as joint tenants with the right of
survivorship, provided that any restrictions on such stock shall apply with
equal force to such joint tenant. In the event that such shares are not
registered under the Securities Act, such certificates shall bear the following
legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED AND MAY NOT BE TRANSFERRED WITHOUT AN OPINION OF
COUNSEL THAT SUCH TRANSFER MAY BE LAWFULLY EFFECTED IN THE ABSENCE OF
SUCH REGISTRATION."
8.7 No optionee or legal representative, legatee, or distributee
of such optionee, will be, or will be deemed to be, a holder of any shares of
Common Stock subject to an option unless and until certificates for such shares
are issued to such person under the terms of this Plan. No adjustment shall be
made for dividends or other rights the record date of which is prior to the
date such stock certificate is issued.
8.8 The Committee may, in its discretion, provide in the option
agreement that the optionee may elect either of the following settlement
methods as an alternative to payment in full of the option price for the number
of shares of Common Stock in respect of which an option is exercised:
(i) the right to receive from the Company cash in an
amount equal to the excess of the Market Value of one share of Common
Stock on the date of exercise over the option price times the number
of shares with respect to which the option is exercised; or
(ii) the right to receive from the Company that number of
whole shares of Common Stock having an aggregate Market Value on the
date of exercise not greater than the cash amount calculated under
subsection (i) of this Section 8.8.
8.9 The exercise of an option in any manner, including an exercise
involving an election of an alternative settlement method with respect to an
option, shall result in a decrease in the number of shares of Common Stock that
thereafter may be available under the Plan by the number of shares as to which
the option is exercised.
6
<PAGE> 7
8.10 To the extent that the exercise of options by one of the
alternative settlement methods provided for in Section 8.8 results in
compensation income to the optionee, the Company will withhold from the amount
due to the optionee any amount required for federal, state, and local taxes.
If the settlement method set forth in subsection (ii) of Section 8.8 is
selected and results in compensation income to the optionee, the optionee shall
deliver to the Company a certified bank check or money order payable to the
Company in an amount equal to any withholding tax required by law.
8.11 All options granted under this Plan shall be non-transferable
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the IRC or the rules
thereunder, and options may be exercised during the lifetime of the optionee
only by the person to whom the option was granted. Except as permitted by the
preceding sentence, no option granted under this Plan or any of the rights and
privileges thereby conferred shall be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise), and no such
option, right, or privilege shall be subject to execution, attachment, or
similar process. Upon any attempt so to transfer, assign, pledge, hypothecate,
or otherwise dispose of the option or of any right or privilege conferred
thereby contrary to the provisions hereof, or upon the levy or any attachment
or similar process upon such option, right, or privilege, the option and such
rights and privileges shall immediately become null and void.
9. EFFECT OF TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY ON OPTIONS
9.1 If an optionee is an employee and ceases to be employed by the
Company or a Subsidiary for any reason other than death, retirement on or after
his Retirement Date (as defined in Section 9.2), or disability (as defined in
Section 9.4), any options granted to such optionee hereunder to the extent not
previously exercised shall be deemed canceled and terminated as of the date 90
days following the date such employment is terminated; provided, however, that
the Committee may, subject to section 8.1(ii) hereof, extend the period of time
during which options the optionee is entitled to exercise as of the date of
termination may be exercised if, in its opinion, circumstances warrant such an
extension. The transfer of an optionee from the employ of the Company to a
Subsidiary or visa versa, or from one Subsidiary to another, shall not be
deemed to constitute a termination of employment for purposes of this Section
9. The Committee shall determine in each case whether, in accordance with
applicable laws, a leave of absence shall constitute a termination of
employment.
9.2 If an optionee is an employee and ceases to be employed by the
Company or a Subsidiary by reason of the optionee's retirement on or after his
Retirement Date, such optionee shall have the right, at any time within three
months after the date such employment is terminated, to exercise any options
held by him to the extent that he was entitled to exercise the options on the
date of cessation of employment, but in no event shall any option be
exercisable more than ten years from the date it was granted. For purposes of
this Plan, the term "Retirement Date" shall mean the earlier of the date of
such employee's 65th birthday, the date of such employee's 60th birthday after
30 years
7
<PAGE> 8
of employment by the Company or a Subsidiary, or any date an employee is
otherwise entitled to retire under the Company's retirement plans (if any).
9.3 Unless otherwise provided in the option agreement, if an
optionee who is an employee should die while employed by the Company or a
Subsidiary, or should die within three months after retirement on or after his
Retirement Date, then, until the expiration of one year from the date of the
optionee's death or the earlier termination of the term of the option, any
options granted to the deceased optionee and not exercised by him prior to his
death shall, to the extent exercisable by the optionee on the date of his
death, be exercisable by his estate or by any person who acquired such options
by bequest or inheritance from the optionee. Such exercise shall be subject to
all applicable conditions and restrictions prescribed in this Plan or in the
option agreement.
9.4 If an optionee ceases to be employed by the Company or a
Subsidiary by reason of the optionee's disability, such optionee shall have the
right to exercise all options held by him, to the extent not previously expired
or exercised, at any time within one year after such termination of employment
due to a disability. For purposes of this Section 9.4, the term "disability"
shall be defined in the same manner that it is defined in the Company's long
term disability plan at the applicable time, if any. In the event the Company
has no long term disability plan, the Optionee shall be deemed to be disabled
if he or she is eligible for and is receiving total and permanent disability
benefits under Section 223 of the Social Security Act, as amended, or any
similar or subsequent section or act of like intent or purpose.
10. ADJUSTMENTS TO SHARES SUBJECT TO THE PLAN
10.1 In the event that additional shares of the capital stock of
the Company are issued pursuant to a stock split or stock dividend, the number
of shares of Common Stock then covered by each outstanding Option granted
hereunder shall be increased proportionately (and, in the case of options, the
option price shall be reduced proportionately) and the number of shares of
Common Stock reserved for purposes of this Plan shall be increased
proportionately.
10.2 In the event that the shares of Common Stock of the Company
from time to time issued and outstanding are reduced by a combination of
shares, the number of shares of Common Stock then covered by each outstanding
Option granted hereunder shall be reduced proportionately (and, in the case of
options, the option price shall be increased proportionately) and the number of
shares of Common Stock reserved for purposes of this Plan shall be reduced
proportionately.
10.3 In the event that the Company transfers assets to another
corporation and distributes the stock of such other corporation without the
surrender of Common Stock of the Company, and if such distribution is not
taxable as a dividend and no gain or loss is recognized by reason of Section
355 of the IRC or some similar section, then the price per share of the shares
covered by each outstanding option shall be reduced by an amount that bears the
same ratio to the option price per share then in effect as the market
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<PAGE> 9
value of the stock distributed in respect of a share of the Common Stock of the
Company immediately following the distribution bears to the aggregate market
value at such time of a share of the Common Stock of the Company and the stock
distributed in respect thereof.
10.4 In the event of a merger or consolidation in which the Company
is not the surviving corporation, or other reorganization, recapitalization, or
exchange which results in substantially all the shares of the capital stock of
the Company being exchanged for or converted into cash or other property, or
upon the dissolution or liquidation of the Company, the Company shall have the
right to terminate this Plan, in which case the options shall, to the extent
exercisable upon the date of such termination, become the right to receive such
cash or property net of the exercise price of the options. If the Company
shall be the surviving corporation in any merger or consolidation, any option
issued hereunder shall pertain, apply and relate to the securities or other
property to which a holder of the number of shares of Common Stock subject to
the option would have been entitled after the merger or consolidation.
10.5 All adjustments pursuant to this Section 10 shall be made by
the Committee, whose determination upon the same shall be final and binding
upon the Option holders; provided, however, that each option granted hereunder
that is intended to be an Incentive Stock Option shall be adjusted so as to
continue to qualify as an Incentive Stock Option. No fractional shares shall
be issued, and any fractional interests resulting from computation pursuant to
this Section 10 shall be paid in cash. No adjustment shall be made for (i) the
declaration of cash dividends, (ii) the issuance of Options hereunder or under
any of the Company's other incentive stock or option plans, or (iii) the
issuance of rights to subscribe for additional shares of Common Stock at the
Market Value thereof (or other securities at the fair market value thereof as
determined by the Committee in good faith).
11. LISTING AND REGISTRATION OF SHARES SUBJECT TO OPTIONS
Each option issued hereunder shall be subject to the requirement that
if at any time the Committee shall determine, in its discretion, that the
listing, registration, or qualification of the shares subject to the options
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the granting of such option or the
issuance or purchase of shares thereunder, such option may not be exercised in
whole or in part unless and until such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.
12. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of shares pursuant
to options shall be used for general corporate purposes.
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<PAGE> 10
13. TERMINATION OF THE PLAN
This Plan may be abandoned or terminated at any time by the Board
except with respect to any Options then outstanding under the Plan. No Option
shall be granted hereunder after 10 years from the effective date of this Plan.
14. AMENDMENT OF THE PLAN
The Board may at any time and from time to time modify and amend the
terms of this Plan in any respect, with the exception of Section 5 of this Plan
which may not be amended more than once every six months, other than to comport
with changes in the IRC, the Employee Retirement Income Security Act, or the
rules thereunder; provided, however, that the Board shall seek stockholder
approval of the amendment to the extent such approval is required by (i) state
or federal law; (ii) Section 16 of the Exchange Act, to the extent that Options
may be granted hereunder to persons who are required to file reports under
Section 16; (iii) the Nasdaq Stock Market rules or regulations or the rules or
regulations of such other exchange upon which the Common Stock might later be
traded; or (iv) the IRC, to the extent that Incentive Stock Options may be
granted hereunder. No modification or amendment of this Plan shall adversely
affect any right acquired by any Option holder under the terms of an Option
award granted before the date of such modification or amendment, without the
consent of the Option holder.
15. EFFECTIVE DATE OF THE PLAN
This Plan became effective on the later of the date of its adoption by
the Board or its approval by the Shareholders.
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<PAGE> 1
EXHIBIT 10.9
PROMEDCO MANAGEMENT COMPANY
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The Purpose of the Plan is to provide employees of
the Company and its Subsidiaries with an opportunity to purchase Common Stock
of the Company through accumulated payroll deductions. It is the intention of
the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions
of the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions. As used herein:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the Common Stock, par value
$.01 per share, of the Company.
(d) "Company" shall mean ProMedCo Management Company, a
Delaware corporation.
(e) "Compensation" shall mean all regular straight time
gross earnings, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses, commissions, or
other compensation.
(f) "Continuous Status as an Employee" shall mean the
absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted
in the case of a leave of absence agreed to in writing by the Company,
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by
contract or statute.
(g) "Employee" shall mean any person, including an
officer, who is customarily employed for at least 20 hours per week
and more than five months in a calendar year by the Company or one of
its Subsidiaries.
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(i) "Exercise Date" shall mean the last day of each
Offering Period of the Plan.
(j) "Offering Date" shall mean the first day of each
Offering Period of the Plan.
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(k) "Offering Period" shall have the meaning set forth in
paragraph 4.
(l) "Participant" shall mean an Employee who elects to
participate in the Plan in accordance with the terms hereof.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
(n) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange
Act, as adopted in Exchange Act Release No. 34-37260 (May 31, 1996),
or any successor rule, as such rule may be amended from time to time.
(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by
the Company or a Subsidiary, whether or not such corporation now
exists or is hereafter organized or acquired by the Company or a
Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date
of a given Offering Period shall be eligible to participate under the
Plan during such Offering Period, subject to the requirements of
paragraph 5(a) and the limitations imposed by Section 423(b) of the
Code.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan
(i) if, immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to
Section 425(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent or more of the total
combined voting power or value of all classes of stock of the Company
or of any Subsidiary, or (ii) which permits his rights to purchase
stock under all employee stock purchase plans (described in Section
423 of the Code) of the Company and its Subsidiaries to accrue at a
rate which exceeds $25,000 of fair market value of such stock
(determined at the time such option is granted) for each calendar year
in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by one
offering during each 6 month period of the Plan, commencing on ,
1997, and continuing thereafter until terminated in accordance with paragraph
19 (each such six-month period being called herein an "Offering Period"). The
Board shall have the power to change the duration of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least 15 days prior to the scheduled beginning of the first
Offering Period to be affected.
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<PAGE> 3
5. Participation.
(a) An eligible Employee may become a Participant in the
Plan by completing a subscription agreement authorizing payroll
deductions on the form provided by the Company and filing it with the
Company's payroll office.
(b) Payroll deductions for a Participant shall commence
on the first payday on or following the first Offering Date on or
following the filing referred to in paragraph 5(a) and shall continue
until terminated as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a Participant files his subscription
agreement, he shall elect to have payroll deductions made on each
payday during each Offering Period thereafter in an amount not less
than $5 per payday and not exceeding 15% of the Compensation which he
received on the payday immediately preceding the relevant Offering
Date, and the aggregate of such payroll deductions during such
Offering Period shall not exceed 15% of his aggregate Compensation
during such Offering Period.
(b) All payroll deductions made by a Participant shall be
credited to his account under the Plan. A Participant may not make
any additional payments into such account.
(c) A Participant may discontinue his participation in
the Plan as provided in paragraph 10, or may lower, but not increase,
the rate of his payroll deductions no more than once during an
Offering Period by completing and filing with the Company a new
authorization for payroll deduction. The change in rate shall be
effective 15 days following the Company's receipt of the new
authorization. The effectiveness of discontinuation of participation
in the Plan shall be governed by paragraph 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each
eligible Employee participating in the Plan shall be granted an option
to purchase (at the per share option price determined in accordance
with paragraph 7(b)) up to a number of shares of Common Stock
determined by dividing such Employee's payroll deductions to be
accumulated during such Offering Period (not to exceed an amount equal
to 15% of his Compensation as of the date of commencement of the
applicable Offering Period) by such per share option price, subject to
the limitations set forth in paragraphs 3(b) and 12 hereof
(b) The per share option price of the share of Common
Stock offered in a given Offering Period shall be the lower of (i) 85%
of the fair market value per share of Common Stock on the Offering
Date for such Offering Period and (ii) 85%
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<PAGE> 4
of the fair market value per share of Common Stock on the Exercise
Date for such Offering Period. The fair market value per share of
Common Stock on a particular date shall be the closing price of the
Common Stock on such date, as reported by the Nasdaq National Market
or the primary national securities exchange on which the Common Stock
is listed, as applicable. If the Common Stock is not so reported or
listed, then the fair market value of the Common Stock on that date
shall be determined on such basis as shall be established or specified
by the Committee referred to in paragraph 13.
8. Exercise of Option. Unless a Participant withdraws from the
Plan as provided in paragraph 10, his option to purchase shares of Common Stock
will be exercised automatically on the Exercise Date of each Offering Period,
and the maximum number of full shares subject to option will be purchased for
him at the applicable option price with the accumulated payroll deductions in
his account. The shares purchased upon exercise of an option hereunder shall
be deemed to be transferred to the Participant on each Exercise Date. During
his lifetime, a Participant's option to purchase shares hereunder shall be
exercisable only by him.
9. Delivery. As promptly as practicable after the Exercise Date
of each Offering Period, the Company shall arrange for the delivery to each
Participant, as appropriate, of a certificate representing the shares of Common
Stock purchased upon exercise of his option. Any cash remaining to the credit
of a Participant's account under the Plan after a purchase by him of shares of
Common Stock at the termination of each Offering Period, or which is
insufficient to purchase a full share of Common Stock of the Company, shall be
credited to the account of such Participant for the subsequent Offering Period.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all
the payroll deductions credited to his account under the Plan at any
time prior to the Exercise Date of an Offering Period by giving
written notice to the Company. All of the Participant's payroll
deductions credited to his account will be paid to him promptly after
receipt of his notice of withdrawal and his option for the current
Offering Period will be automatically terminated, and no further
payroll deductions for the purchase of shares of Common Stock will be
made during the Offering Period.
(b) Upon termination of the Participant's Continuous
Status as an Employee prior to the Exercise Date of the Offering
Period for any reason, including retirement or death, the payroll
deductions credited to his account will be returned to him or, in the
case of his death, to the person or persons entitled thereto under
paragraph 14, and his option will be automatically terminated.
(c) A Participant's withdrawal from an offering under the
Plan will not have any effect upon his eligibility to participate in a
succeeding offering or in any similar plan which may hereafter be
adopted by the Company.
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<PAGE> 5
11. Interest. No interest shall accrue on the payroll deductions
of a Participant of the Plan.
12. Stock.
(a) The maximum number of shares of Common Stock which
shall be made available for sale under the Plan shall be 500,000
shares, subject to adjustment upon changes in capitalization of the
Company as provided in paragraph 18. If the total number of shares
which would otherwise be subject to options granted pursuant to
paragraph 7(a) on the Offering Date of an Offering Period exceeds the
number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding),
the Company shall make a pro rata allocation of the shares remaining
available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number
of shares subject to the option to each Employee affected thereby and
shall similarly reduce the rate of payroll deductions, if necessary.
(b) The Participant will have no interest or voting right
in shares of Common Stock covered by his option until such option has
been exercised.
(c) Shares to be delivered to a Participant under the
Plan will be registered in the name of the Participant or in the name
of the Participant and his spouse.
13. Administration. The Plan shall be administered by a committee
comprised solely of two or more members of the Board who are "Non-Employee
Directors" (as defined in Rule 16b-3) and are appointed by the Board (the
"Committee"). The administration, interpretation, or application of the Plan
by the committee shall be final, conclusive, and binding upon all Participants.
The Committee may select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable and may hold
telephonic meetings. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members.
The Committee may correct any defect or omission or reconcile any inconsistency
in the Plan, in the manner and to the extent it shall deem desirable. Any
decision or determination reduced to writing and signed by a majority of the
members of the Committee shall be as fully effective as if it had been made by
a majority vote at a meeting duly called and held. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business
as it shall deem advisable.
14. Designation of Beneficiary.
(a) A Participant may file with the Company a written
designation of a beneficiary who is to receive shares of Common Stock
and cash, if any, from the Participant's account under the Plan in the
event of such Participant's death
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<PAGE> 6
subsequent to the end of an Offering Period but prior to delivery to
him of such shares and cash. In addition, the Participant may file
with the Company a written designation of a beneficiary who is to
receive any cash from the Participant's account under the Plan in the
event of such Participant's death prior to the Exercise Date of an
Offering Period.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice to the Company. In the
event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of
the Participant, or if (to the knowledge of the Company) no such
executor or administrator has been appointed, the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the Participant, or if no
spouse, dependent, or relative is known to the Company, then to such
other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option
or to receive shares of Common Stock under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way (other than by will,
the laws of descent and distribution, or as provided in paragraph 14) by the
Participant. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to participating
Employees promptly following each Exercise Date, which statements will set
forth the amounts of payroll deductions under the Plan, the per share purchase
price, the number of shares of Common Stock purchased, and the remaining cash
balance, if any.
18. Adjustments Upon Changes in Capitalization. The number of
shares of Common Stock covered by each option under the Plan which has not yet
been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under
option, as well as the price per share of Common Stock covered by each option
under the plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effective without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of
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<PAGE> 7
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option hereunder.
In the event of the dissolution or liquidation of the Company, a sale
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Offering Period will terminate
immediately prior to the consummation of such action or transaction, unless
otherwise provided by the Board.
19. Amendment or Termination. The Board may at any time terminate
or amend the Plan. Except as provided in paragraph 18, no such termination
shall affect options previously granted, nor may an amendment make any change
in any option theretofore granted which adversely affects the rights of any
Participant, nor may an amendment be made without prior approval of the
stockholders of the Company if such amendment would require approval as
provided in paragraph 21.
20. Notices. All notices or other communications by the
Participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. Stockholder Approval. The effectiveness of the Plan or any
amendments to the Plan requiring approval under state or federal law, the rules
or regulations of the Nasdaq Stock Market, or the Code, shall be subject to
stockholder approval.
22. Conditions Upon Issuance of Shares. Shares of Common Stock
shall not be issued with respect to an option hereunder unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, the requirements of any stock
exchange or quotation system upon which the shares may then be listed or
quoted. As a condition to the exercise of any option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the later
to occur of its adoption by the Board or its approval by the stockholders of
the Company. It shall continue in effect until terminated under paragraph 19.
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<PAGE> 8
24. No Employment Rights. The Plan does not, directly or
indirectly, create in any Employee or class of Employees any right with respect
to continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise
modify, an Employee's employment at any time.
25. Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitations, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees thereof, and any receiver, trustee in
bankruptcy, or representative of creditors of such Employee.
26. Governing Law. The law of the State of Delaware shall govern
all matters relating to the Plan except to the extent superseded by the laws of
the United States.
27. Severability. In the event that any provision of this Plan,
or the application hereof to any Employee or circumstance, is held by a court
of competent jurisdiction to be invalid, illegal, or unenforceable in any
respect under present or future laws effective during the effective term of any
such provision, such invalid, illegal, or unenforceable provision shall be
fully severable; this Plan shall then be construed and enforced as if such
invalid, illegal, or unenforceable provision had not been contained in this
Plan; and the remaining provisions of this Plan shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Plan. Furthermore, in lieu of each
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Plan a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid, and enforceable. If any of the terms or provisions of this Plan
conflict with the requirements of Rule 16b-3 (as those terms or provisions are
applied to Employees who are subject to Section 16 of the Exchange Act), then
those conflicting terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of Rule 16b-3 and, in lieu of
such conflicting provision, there shall be added automatically as part of this
Plan a provision as similar in terms to such conflicting provisions as may be
possible and not conflict with the requirements of Rule 16b-3.
IN WITNESS WHEREOF, ProMedCo Management Company, acting by and through its
officer hereunto duly authorized, has executed this Plan this ____day of
_____________, 1997.
PROMEDCO MANAGEMENT COMPANY
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
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<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of November 15, 1996, between
Professional Medical Management Company, a Delaware corporation (the
"Company"), and Dale K. Edwards ("Executive").
WHEREAS, Company and Executive were parties to that certain Employment
Agreement of November 15, 1994;
NOW THEREFORE, 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 serve as a Vice President of the
Company.
(b) Executive shall 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 $160,000 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
<PAGE> 2
2
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 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 approved by the Compensation Committee for
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 with grants as
approved by the Option Committee from time to time, and
(iii) annual paid vacation in accordance with Company's
policies as from time to time established.
(e) Terms relating to the stock purchase by Executive at the time
of initial employment remain in effect as follows: If
Executive is termianted prior to November 15, 1998, Company
shall have the right to purchase 20,000 shares (adjusted for
the split date October 1995) of the stock for Executive's
purchase price, unless a "Change of Control" (as later
defined herein) occurs or a termination without cause, in
which case the Company's right to repurchase shall terminate.
4. TERM.
(a) Unless renewed by the mutual agreement of the Company and
Executive, the Employment Period shall end on November 14,
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 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
ninety (90) days preceding November 14 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, 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 in regular
installments in accordance with the Company's general payroll
practice. Any earned, but deferred bonus amount will be
<PAGE> 3
3
paid out in quartelry payments during the two (2) year
post-employment non-compete period. 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
(ii) the commission of any other act involving dishonesty,
embezzelment 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
sections 5, 6 or 7 (vii) Executive's material breach of any
dutied owned to the Company, included without limitation, the
duty of loyalty or (viii) any other material breach of this
Agreement, all of the above as determined solely by the Chief
Executive Officer ("CEO"). Cause shall not include acts or
failure to act if Executive has exercised substantial efforts
in good faith to perform the duties reasoanbly asisgned or
appropirate to his position, as determind solely by the CEO.
(f) If a "Change of Control" occurs and the Employment Period is
terminated or Executve voluntarily resigns within 12 months,
such termination shall constitute a termination Without
Cuase. 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), direclty 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 consodliates with or merges into the Company
pursuant to a transaction in which the outstandin votin
stock of the Company is changed into or exchanged for
cash,
<PAGE> 4
4
securities or other property, other htan 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 unvestd options will vest
immediately and Executive shall have 36 months to exercise all
options. Notwithstanding the 36 month exercise peirod, 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 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.
<PAGE> 5
5
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 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
<PAGE> 6
6
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 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 1450
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.
<PAGE> 7
7
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.
BY: /s/ H. WAYNE POSEY
---------------------------
H. Wayne Posey
ITS: President and CEO
--------------------------
"Executive"
/s/ DALE K. EDWARDS
- ------------------------------
Dale K. Edwards
<PAGE> 1
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SERVICE AGREEMENT
- --------------------------------------------------------------------------------
PROMEDCO OF TEMPLE, INC.
AND
PHYSICIANS OF KING'S DAUGHTERS, P.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EFFECTIVE SEPTEMBER 1, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
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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
<PAGE> 3
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7.1 Payments to KDCP and ProMedCo-Temple...........................12
<PAGE> 4
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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
<PAGE> 5
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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
<PAGE> 6
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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
<PAGE> 7
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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.
<PAGE> 8
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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.
<PAGE> 9
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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
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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
<PAGE> 21
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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> 23
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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, 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> 24
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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> 25
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(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> 26
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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 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
<PAGE> 27
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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
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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> 29
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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
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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> 31
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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> 32
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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.
Edward McCaffrey, D.P.M.
Dewayne Nash, M.D.
<PAGE> 33
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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> 34
-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
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of December 31, 1996, between ProMedCo,
Inc. a Texas corporation (the "Company"), and Robert D. Smith ("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 Vice President & Controller 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 $120,000 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 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> 2
2
(c) The Company will pay relocation expenses as follows:
(i) moving expenses will be reimbursed, based on
competitive bids as approved by the CEO.
(ii) the Company will "gross up" the reimbursement of such
expenses that are taxable as compensation to the
Executive.
The Company will assist Executive in the event he incurs
significant "double housing" costs by advancing funds to
him in an amount, and for a time period, to be mutually
determined, based on the circumstances at the time.
(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 amounts 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 50,000 shares
exercisable at 85% of the IPO price, if IPO is
completed within six (6) weeks, and if IPO is not
completed within said time frame, the exercise price
shall be $12.00 per share.
(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_____________, 19
, 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
<PAGE> 3
3
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, 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 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 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 be 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 him 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
<PAGE> 4
4
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 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
him control.
6. INVENTION 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,
<PAGE> 5
5
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-complete 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, license 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 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, 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.
<PAGE> 6
6
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 of Executive
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 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 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) has 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.
<PAGE> 7
7
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 date first written above.
ProMedCo, Inc. Execute"
BY:
H. Wayne Pose Robert Smith
President and CEO
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED AS TO PORTIONS OF THIS DOCUMENT,
AND SUCH OMITTED INFORMATION HAS BEEN SEPARATLEY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS IN THIS DOCUMENT
WHERE INFORMATION HAS BEEN OMITTED ARE MARKED WITH THE SYMBOL "[*]."
- --------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------
PROMEDCO OF NORTHERN NEVADA, INC.
AND
KNUTZEN GORING MEDICAL GROUP, LTD.
DBA THE NORTHERN NEVADA MEDICAL GROUP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EFFECTIVE ________
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
1. RESPONSIBILITIES OF THE PARTIES.........................................1
1.1 General Responsibilities of the Parties.......................1
1.2 TMG'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-NORTHERN........................................3
3.1 Management and Administration.................................3
3.3 Expansion of Clinic...........................................8
3.4 Events Excusing Performance...................................8
3.5 Compliance With Applicable Laws...............................8
3.6 Working Capital...............................................8
4. OBLIGATIONS OF TMG......................................................8
4.1 Professional Services.........................................8
4.2 Employment Of Provider Employees..............................9
4.3 Non-Clinic Expenses...........................................9
4.4 Medical Practice..............................................9
4.5 Professional Insurance Eligibility............................9
4.6 Employment Of Non-Providers...................................9
4.7 Events Excusing Performance...................................9
4.8 Compliance With Applicable Laws...............................9
4.9 TMG Employee Benefit Plans...................................10
4.10 Powers of Attorney..........................................10
4.11 Spokesperson................................................11
4.12 Revision of Compensation Plan...............................11
4.13 Hiring of Additional Providers..............................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-NORTHERN.........................11
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7. FINANCIAL ARRANGEMENTS.................................................12
7.1 Payments to TMG and ProMedCo-Northern.................................12
7.2 Distribution.................................................12
7.3 Clinic Expenses..............................................12
7.4 Accounts Receivables.........................................12
7.5 Special Incentive Arrangements...............................13
8. INSURANCE AND INDEMNITY................................................13
8.1 Insurance to Be Maintained by ProMedCo-Northern..............13
8.2 Insurance to be Maintained by TMG............................13
8.3 Tail Insurance Coverage......................................14
8.4 Additional Insured...........................................14
8.5 Indemnification..............................................14
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES..........................14
9.1 Restrictive Covenants by TMG.................................14
9.2 Restrictive Covenants By Providers...........................15
9.3 Provider 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 TMG..........................................16
10.3 Termination by ProMedCo-Northern............................17
10.4 Actions After Termination...................................17
11. DEFINITIONS...........................................................19
11.1 Merger Agreement ...........................................19
11.2 Clinic .....................................................19
11.3 Clinic Expenses ............................................19
11.4 Clinic Expenses shall not include...........................20
11.5 Clinic Facility ............................................21
11.6 Distribution Funds .........................................21
11.7 Effective Date .............................................21
11.8 Net Clinic Revenues ........................................21
11.9 Opening Balance Sheet ......................................21
11.10 Physician Employees .......................................21
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11.11 Physician Extenders .......................................21
11.12 Physician Shareholders ....................................21
11.13 Providers .................................................21
11.14 ProMedCo ..................................................21
11.15 ProMedCo-Northern Distribution ............................22
11.16 Risk Pool Surpluses .......................................22
11.17 TMG Capitation.............................................22
11.18 TMG Employees .............................................22
11.19 TMG Expenses...............................................22
11.20 Technical Employees .......................................22
12. GENERAL PROVISIONS....................................................22
12.1 Independent Contractor......................................22
12.2 Other Contractual Arrangement...............................23
12.3 Proprietary Property........................................24
12.4 Cooperation.................................................24
12.5 Licenses, Permits and Certificates..........................24
12.6 Compliance with Rules, Regulations and Laws.................24
12.7 Generally Accepted Accounting Principles (GAAP).............25
12.8 Notices.....................................................25
12.9 Attorneys' Fees.............................................25
12.10 Severability...............................................25
12.11 Arbitration................................................25
12.12 Construction of Agreement..................................25
12.13 Assignment and Delegation..................................25
12.14 Confidentiality............................................26
12.15 Waiver.....................................................26
12.16 Headings...................................................26
12.17 No Third Party Beneficiaries...............................26
12.18 Time is of the Essence.....................................26
12.19 Modifications of Agreement for Prospective Legal Events....26
12.20 Whole Agreement;Modification...............................27
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SERVICE AGREEMENT
Service Agreement ("Agreement") dated ____________ between ProMedCo of
Northern Nevada, Inc., a Nevada corporation ("ProMedCo-Northern") and Knutzen
Goring Medical Group, Ltd., a Nevada corporation, dba The Northern Nevada
Medical Group ("TMG").
RECITALS:
Subject to the terms and conditions hereof, TMG desires to engage
ProMedCo-Northern to provide to TMG management services, facilities, personnel,
equipment and supplies necessary to operate the Clinic (as defined herein) and
ProMedCo-Northern desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 GENERAL RESPONSIBILITIES OF THE PARTIES. ProMedCo-Northern shall
provide TMG with offices, facilities, equipment, supplies, non-professional
support personnel, and management and financial advisory services.
ProMedCo-Northern shall neither exercise control over nor interfere with the
Provider-patient relationship, which shall be maintained strictly between the
Providers of TMG and their patients.
1.2 TMG'S MATTERS. TMG shall maintain sole discretion and authority
over the financial matters relative to its corporate existence. It shall set
compensation levels for TMG Employees. TMG will also be responsible for all
other matters pertaining to the operation of TMG.
1.3 PATIENT REFERRALS. The parties agree that the benefits to TMG 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-Northern to any of TMG's patients in any facility or
laboratory controlled, managed or operated by ProMedCo-Northern.
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 eight members. ProMedCo-Northern shall designate, at its sole
discretion, four members of the Policy Council. Members of the Policy Council
designated by either party 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. TMG at its sole discretion shall designate four members.
Except as may otherwise be provided, the act of a majority of the 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- Northern, as set forth in Section 3 and
employing ProMedCo-Northern's financial expertise, shall be
subject to the review and approval of the Policy Council,
provided; however, ProMedCo-Northern shall have final approval
of any capital expenditure required by ProMedCo-Northern.
(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 TMG is
dissatisfied with the services provided by the Administrator,
TMG shall refer the matter to the Policy Council. ProMedCo-
Northern 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-
Northern 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 Nevada 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, Provider support, productivity and
market conditions. Any capital expenditure in excess of
$20,000 shall require the approval of the Policy Council.
(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
TMG's Board or ProMedCo-Northern.
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(h) PATIENT FEES. In consultation with TMG and ProMedCo-Northern,
the Policy Council shall review and adopt the fee schedule for
all Provider and ancillary services rendered by the Clinic.
(i) PROVIDER HIRING. The Policy Council, with information and
analysis provided by ProMedCo-Northern, shall determine the
number and type of Providers required for the efficient
operation of the Clinic and TMG shall determine the individual
Providers to be hired to fill such positions. The approval of
ProMedCo-Northern shall be required for any variations to the
restrictive covenants in any Provider 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-Northern and TMG shall 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 TMG ("TMG Capitation").
(k) STRATEGIC PLANNING. The Policy Council, with the assistance
of ProMedCo-Northern, shall develop long-term strategic
planning objectives.
3. OBLIGATIONS OF PROMEDCO-NORTHERN
During the term of this Agreement, ProMedCo-Northern 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-Northern 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. TMG will not act in a manner which would prevent
ProMedCo-Northern from efficiently managing the Clinic Facility operations in a
businesslike manner. TMG, through TMG Employees, will provide all medical
services. ProMedCo-Northern will have no authority, directly or indirectly, to
perform, and will not perform, any medical function. ProMedCo-Northern may,
however, advise TMG 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,
TMG hereby appoints ProMedCo-Northern as the sole and exclusive manager and
administrator of all non-medical functions and services related to TMG's
services at the Clinic. TMG shall perform all medical services, and
ProMedCo-Northern shall have no authority, directly or indirectly, to perform,
and will
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not perform, any medical function. Without limiting the generality of the
foregoing, ProMedCo- Northern shall provide the following administrative,
management and marketing services as may be required in conjunction with TMG's
services at the Clinic. ProMedCo-Northern 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-Northern, 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- Northern shall prepare and deliver to
TMG capital and operating budgets reflecting in reasonable detail
anticipated revenues and expenses, sources and uses of capital to
maintain and enhance TMG's medical practice and Clinic services.
3.1.2 FINANCIAL STATEMENTS. ProMedCo-Northern 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 TMG 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-Northern in
connection with the audit of the financial statements of ProMedCo. If
TMG desires an audit in addition to the audit provided by
ProMedCo-Northern, such an audit would be at TMG's expense.
3.1.3 NON-PROVIDER PERSONNEL. ProMedCo-Northern will provide
all non-physician personnel reasonably necessary for the conduct of
Clinic operations with the exception of Providers and Technical
Employees. ProMedCo-Northern 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-Northern, with those personnel performing patient
care services subject to the professional supervision of TMG. If TMG is
dissatisfied with the services of any person, TMG shall consult with
ProMedCo-Northern. ProMedCo-Northern 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-Northern's obligations regarding staff
shall be governed by the overriding principle and goal of providing
high quality medical care. At ProMedCo- Northern's option some or all
of the non-Provider personnel may be carried on the books of TMG as
TMG's employees in which event the costs associated with such employees
will be a Clinic Expense.
3.1.4 QUALITY ASSURANCE. ProMedCo-Northern will assist TMG
in fulfilling its obligation to its patients to maintain high quality
medical and professional services, including
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patient satisfaction programs, employee education, outcomes analysis,
clinical protocol development and to implement a risk management
program.
3.1.5 FACILITIES AND EQUIPMENT. ProMedCo-Northern 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-Northern shall order and purchase inventory and supplies, and
such other ordinary, necessary or appropriate materials which
ProMedCo-Northern 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-Northern 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 TMG's consent.
3.1.8 BILLING AND COLLECTIONS. ProMedCo-Northern shall bill
patients and collect all fees for services performed inside or outside
the Clinic Facility or arrange for such billing and collection. TMG
hereby appoints ProMedCo-Northern, for the term hereof, to be its true
and lawful attorney-in-fact for the following purposes (i) to bill
patients in TMG's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in TMG'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 TMG (and/or in the name
of an individual Provider, such payment intended for purpose of payment
of a Provider'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 TMG to collect
any accounts and monies owed to the Clinic, to enforce the rights of
TMG 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-Northern'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 TMG shall be the owner ("Account"). ProMedCo-
Northern and TMG shall maintain their accounting records in such a way
as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo-Northern or TMG. TMG
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hereby appoints ProMedCo-Northern as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected. TMG
covenants, and shall cause all TMG Employees to covenant, to forward
any payments received with respect to Net Clinic Revenues for services
provided by TMG and TMG Employees to ProMedCo-Northern for deposit.
ProMedCo- Northern 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-Northern ("ProMedCo-Northern Account"). TMG and
ProMedCo-Northern 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 TMG that interferes with the operation of this Section,
including, but not limited to, any failure to deposit or have
ProMedCo-Northern 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-Northern, 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 TMG and the
TMG 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
TMG and its TMG 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-Northern 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-Northern shall
arrange for or render to TMG such business and financial management
consultation and advice as may be reasonably required or requested by
TMG and directly related to the operations of the Clinic.
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ProMedCo-Northern shall not be responsible for rendering any legal or
tax advice or services or personal financial services to TMG or any
employee or agent of TMG.
3.1.12 NEGOTIATION AND PAYMENT OF PREMIUMS FOR ALL INSURANCE
PRODUCTS HELD BY TMG. ProMedCo-Northern 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 PROVIDER RECRUITING. ProMedCo-Northern shall assist TMG
in recruiting additional Providers, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, TMG shall interview and make the ultimate decision
as to the suitability of any Provider to become associated with the
Clinic. All Providers recruited by ProMedCo-Northern and accepted by
TMG shall be the sole employees of TMG to the extent such Providers are
hired as employees. Any expenses incurred in the recruitment of
Providers, 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-Northern
shall operate and supervise such ancillary services as approved by
the Policy Council.
3.1.15 STRATEGIC PLANNING ASSISTANCE. ProMedCo-Northern
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-Northern 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-Northern 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 TMG 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-Northern 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).
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3.3 EXPANSION OF CLINIC. ProMedCo-Northern will pursue various programs
to increase revenue and profitability including assisting TMG 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-Northern will also assist TMG in recruiting new Providers and
developing relationships and affiliations with other Providers, hospitals,
networks, HMOs, etc. To assist in the continued growth and development of the
Clinic, ProMedCo-Northern may acquire other Provider practices. TMG will be
given first right to acquire and/or merge with any physician or physician group
that ProMedCo-Northern desires to acquire and/or manage in Northern Nevada. TMG
will cooperate with ProMedCo-Northern in such expansion efforts and use its
reasonable efforts to assist ProMedCo-Northern with respect thereto. Without
limiting the generality of the foregoing, TMG will not enter into any agreements
with respect to any such matter without the prior consent of ProMedCo-Northern.
3.4 EVENTS EXCUSING PERFORMANCE. ProMedCo-Northern shall not be liable
to TMG 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-Northern 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-Northern shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of its obligations under this Agreement.
3.6 WORKING CAPITAL. ProMedCo-Northern shall provide TMG with a working
capital line of credit not to exceed $750,000 during the period prior to April
30, 1997; an additional $500,000 thereafter and prior to October 31, 1997 and an
additional $250,000 thereafter and prior to April 30, 1998. Commencing the
earlier of (i) the last day of the sixth month after the first month in which
the TMG Distribution exceeds TMG Expenses or (ii) the second anniversary of the
Escrow Closing Date, any amounts outstanding on such date shall be amortized in
84 equal principal payments. All outstanding amounts shall bear interest payable
on the last day of each month at ProMedCo's average cost of funds as certified
from time to time by the Treasurer of ProMedCo. The obligation of TMG to make
such payments shall be evidenced by a note in form and substance satisfactory to
ProMedCo- Northern.
4. OBLIGATIONS OF TMG
4.1 PROFESSIONAL SERVICES. TMG shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. TMG shall also ensure that each Provider
associated with TMG is licensed by the State of Nevada. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such Provider, TMG shall immediately inform the Administrator of such action and
the underlying facts and circumstances. TMG shall carry out a program to monitor
the quality of medical care practiced, with ProMedCo-Northern's assistance. TMG
will cooperate with ProMedCo- Northern in taking steps to resolve any
utilization review or quality assurance issues which may arise in connection
with the Clinic.
4.2 EMPLOYMENT OF PROVIDER EMPLOYEES. TMG shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Providers, although at the request of TMG, ProMedCo-Northern
shall consult with TMG regarding such matters. TMG shall enforce formal employee
agreements from each of its Providers, hired or contracted, substantially in the
form attached to the Merger Agreement as Appendix 2.10B-1.
4.3 NON-CLINIC EXPENSES. TMG shall be solely responsible for the
payment of all costs and expenses incurred in connection with TMG operations
which are not Clinic Expenses, including, but not limited to, TMG Expenses.
4.4 MEDICAL PRACTICE. TMG 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 Providers associated with TMG,
and no other Provider 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. TMG shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Provider Employees are insurable, and participating
in an ongoing risk management program.
4.6 EMPLOYMENT OF NON-PROVIDERS. There will be certain Technical
Employees that perform technical functions for TMG. These Technical Employees
will remain in the employ of TMG. As provided in Section 3.1.3,
ProMedCo-Northern will provide payroll and administrative services for such
Technical Employees which shall be a Clinic Expense.
4.7 EVENTS EXCUSING PERFORMANCE. TMG shall not be liable to
ProMedCo-Northern 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 TMG has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
4.8 COMPLIANCE WITH APPLICABLE LAWS. TMG 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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4.9 TMG EMPLOYEE BENEFIT PLANS.
(a) As of the Effective Date of this Agreement, TMG 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 Merger Agreement.
(b) TMG shall not enter into any new "employee benefit
plan" (as defined in Section 3(3) of ERISA) without
the express written consent of ProMedCo-
Northern. Except as otherwise required by law, TMG
shall not materially amend, freeze, terminate or
merge any employee welfare or employee benefit
plan without the express written consent of ProMedCo-
Northern unless such action is contemplated by the
Merger Agreement. TMG 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-Northern.
(c) Expenses incurred in connection with any TMG Plan or
other employee benefit plan maintained by TMG,
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
Providers shall be an expense of TMG.
ProMedCo-Northern shall make contributions or
payments with respect to any TMG Plan, as a Clinic
Expense, on behalf of eligible Technical Employees.
(e) ProMedCo-Northern shall have the sole and exclusive
authority to adopt, amend, or terminate any employee
benefit plan for the benefit of its employees.
ProMedCo-Northern shall have the sole and exclusive
authority to appoint the trustee, custodian, and
administrator of any such plan.
(f) ProMedCo-Northern shall take all appropriate steps to
include TMG employees in benefit plans applicable to
ProMedCo-Northern employees, including without
limitation, its 401(k) plan, as members of an
affiliated service group.
4.10 POWERS OF ATTORNEY. TMG shall require all Providers to execute and
deliver to ProMedCo-Northern powers of attorney, satisfactory in form and
substance to ProMedCo-Northern and TMG, appointing ProMedCo-Northern as
attorney-in-fact for each for the purposes set forth in
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Sections 3.1.8 and 3.1.9, which powers of attorney shall immediately terminate
upon termination of this Agreement.
4.11 SPOKESPERSON. The president of TMG, or such other Physician
Shareholder as the Policy Council shall appoint, shall serve as spokesperson for
ProMedCo-Northern and ProMedCo in Clinic, ProMedCo-Northern and ProMedCo
development activities in northern Nevada.
4.12 REVISION OF COMPENSATION PLAN. TMG shall revise its compensation
plan to in order to provide incentives and otherwise encourage Providers to
higher levels of production with the goal that TMG will be able to pay TMG
Expenses from TMG Distributions under this Agreement within six months of the
date hereof.
4.13 HIRING OF ADDITIONAL PROVIDERS. TMG shall not hire any new
Providers for existing clinic locations until it has revised its compensation
plan pursuant to Section 4.12 of this Agreement and met the goal of matching TMG
Expenses to TMG Distributions. TMG shall work closely with ProMedCo-Northern
through the Policy Council to review each new Provider recruitment opportunity
for any new locations, with the Policy Council making the final decision on the
expansion to new sites and the recruitment of new Providers to those sites.
5. RECORDS
5.1 PATIENT RECORDS. Upon termination of this Agreement, TMG shall
retain all patient medical records maintained by TMG or ProMedCo-Northern in the
name of TMG. TMG shall, at its option, be entitled to retain copies of financial
and accounting records relating to all services performed by TMG.
5.2 OTHER RECORDS. All records relating in any way to the operation
of the Clinic which are not the property of TMG under the provisions of Section
5.1 above, shall at all times be the property of ProMedCo-Northern.
5.3 ACCESS TO RECORDS. During the term of this Agreement, and
thereafter, TMG or its designee shall upon 24 hours notice have reasonable
access during normal business hours to TMG's and ProMedCo-Northern's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo-Northern in performing ProMedCo-Northern's
obligations under this Agreement, and TMG may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO-NORTHERN
ProMedCo-Northern 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
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services, related real or personal property lease cost payments and expenses,
taxes and insurance, refuse disposal and all other costs and expenses reasonable
incurred in conducting operations in the Clinic Facility during the term of this
Agreement.
7. FINANCIAL ARRANGEMENTS
7.1 PAYMENTS TO TMG AND PROMEDCO-NORTHERN. TMG and ProMedCo-Northern
agree that the compensation set forth herein is being paid to ProMedCo-Northern
in consideration of a substantial commitment made by ProMedCo-Northern hereunder
and that such fees are fair and reasonable. As payment for its services rendered
to TMG, each month ProMedCo-Northern shall be paid the amount of all Clinic
Expenses and the ProMedCo-Northern Distribution. All Net Clinic Revenues after
deduction of Clinic Expenses, and the ProMedCo-Northern Distribution, shall be
referred to as the "TMG Distribution."
7.2 DISTRIBUTION. The amounts to be paid to ProMedCo-Northern under
this Section 7 shall be payable monthly. ProMedCo-Northern shall pay to TMG, in
accordance with the provisions of Section 7.4, the TMG 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. ProMedCo-Northern shall pay all Clinic Expenses as
they fall due (including without limitation any Non-Provider Personnel carried
on the books of TMG at the requirement of ProMedCo-Northern), provided, however,
that ProMedCo-Northern may, in the name of and on behalf of TMG, 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-
Northern hereby agrees to indemnify and hold TMG harmless from and against any
liability, loss, damages, claims, causes of action and reasonable expenses of
TMG resulting from the contest of any Clinic Expenses.
7.4 ACCOUNTS RECEIVABLES. On approximately the 15th day of each month,
ProMedCo- Northern shall purchase the accounts receivable of TMG arising during
the previous month, by payment of cash, or other readily available funds into an
account of TMG. The consideration for the purchase shall be an amount equal to
the TMG Distribution for such previous month. Although it is the intention of
the parties that ProMedCo-Northern purchase and thereby become owner of the
accounts receivable of TMG, in case such purchase shall be ineffective for any
reason, TMG, as of the Effective Date of this Agreement, grants and shall cause
each TMG Employee to grant to ProMedCo-Northern a first priority lien on and
security interest in and to any and all interest of TMG and such TMG Employees
in any accounts receivable generated by the medical practice of TMG and the TMG
Employees or otherwise generated through the operations of the Clinic, and all
proceeds with respect thereto, to secure the payment to ProMedCo-Northern of all
such accounts receivable, and this Agreement shall be deemed to be a security
agreement to the extent necessary to give effect
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to the foregoing. In addition, TMG shall cooperate with ProMedCo-Northern and
execute and deliver, and cause each TMG Employee to execute and deliver, all
necessary documents in connection with the pledge of such accounts receivable to
ProMedCo-Northern or at ProMedCo-Northern'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-Northern. To the extent TMG or any TMG Employee
comes into possession of any payments in respect of such accounts receivable,
TMG or such TMG Employee shall direct such payments to ProMedCo-Northern for
deposit in bank accounts designated by ProMedCo-Northern.
7.5 SPECIAL INCENTIVE ARRANGEMENTS. In the event Net Clinic Revenues exceed
(i) $15,000,000 for the calendar year ended December 31, 1997, ProMedCo-
Northern shall arrange for ProMedCo to issue 10 year warrants to TMG for the
purchase of 20,000 shares of ProMedCo Common Stock exercisable at the average
closing price for the last 10 trading days of such year; (ii) $19,000,000 for
the calendar year ended December 31, 1998, ProMedCo-Northern shall arrange for
ProMedCo to issue 10 year warrants to TMG for the purchase of 20,000 shares of
ProMedCo Common Stock exercisable at the average closing price for the last 10
trading days of such year;; and (iii) $24,000,000 for the calendar year ended
December 31, 1999, ProMedCo-Northern shall arrange for ProMedCo to issue 10 year
warrants to TMG for the purchase of 20,000 shares of ProMedCo Common Stock
exercisable at the average closing price for the last 10 trading days of such
year. The number of shares covered by such warrants shall be adjusted to reflect
stock splits, stock dividends, recapitalizations and the like. If ProMedCo's
stock is not publicly traded at the time such Warrants are issued, the exercise
price shall be the determined in good faith by the Board of Directors of
ProMedCo as representing its good faith evaluation of the value of the Stock on
the applicable December 31.
8. INSURANCE AND INDEMNITY
8.1 INSURANCE TO BE MAINTAINED BY PROMEDCO-NORTHERN. Throughout the
term of this Agreement, ProMedCo-Northern will use reasonable efforts to provide
and maintain, as a Clinic Expense, comprehensive professional liability
insurance for all professional employees of ProMedCo- Northern and TMG with
limits as determined reasonable by ProMedCo-Northern in its national program,
comprehensive general liability insurance and property insurance covering the
Clinic Facility and operations.
8.2 INSURANCE TO BE MAINTAINED BY TMG. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, TMG 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 Provider with limits for specialists of not less than $3,000,000
per claim Provider with a separate limit for TMG. TMG shall be responsible for
all liabilities (including without limitation deductibles and excess
liabilities) not paid within the limits of such policies. ProMedCo-Northern
shall have the option of providing such professional liability insurance through
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an alternative program, provided such program meets the requirements of the
Insurance Commissioner of the State of Nevada and is approved by the Policy
Council.
8.3 TAIL INSURANCE COVERAGE. TMG will cause each individual Provider
associated with the Clinic to enter into an agreement with TMG that upon
termination of such Provider's relationship with TMG, for any reason, tail
insurance coverage will be purchased by the individual Provider. Such provisions
shall be contained in employment agreements, restrictive covenant agreements or
other agreements entered into by TMG and the individual Providers, and TMG
hereby covenants with ProMedCo-Northern to enforce such provisions relating to
the tail insurance coverage or to provide such coverage at the expense of TMG.
8.4 ADDITIONAL INSURED. TMG and ProMedCo-Northern 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-Northern's expense.
8.5 INDEMNIFICATION. TMG shall indemnify, hold harmless and defend
ProMedCo-Northern, 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
TMG and/or its shareholders, agents, employees and/or subcontractors (other than
ProMedCo-Northern) during the term hereof, including any claim against
ProMedCo-Northern by a TMG Employee, which claim arises out of such TMG
Employees' employment relationship with TMG or as a result of services performed
by such TMG Employee, and which claim would typically be covered by worker's
compensation. ProMedCo-Northern shall indemnify, hold harmless and defend TMG,
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-Northern and/or
its shareholders, agents, employees and/or subcontractors (other than TMG)
during the term of this Agreement, including claims which would typically be
covered by worker's compensation.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by
ProMedCo-Northern shall be feasible only if TMG operates an active medical
practice to which the Providers associated with TMG devote their full time and
attention. To that end:
9.1 RESTRICTIVE COVENANTS BY TMG. During the term of this Agreement,
TMG shall not establish, operate or provide Provider services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by TMG except pursuant to this Agreement anywhere
within a radius of 30 miles of the Clinic Facility, or within a radius of 30
miles of any
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current or future medical office, clinic or other health care facility from
which TMG provides medical services.
9.2 RESTRICTIVE COVENANTS BY PROVIDERS. TMG shall:
(a) Current Providers. Enforce employment agreements, in a form
satisfactory to ProMedCo-Northern, with its current
Providers; and
(b) Future Providers. Obtain and enforce formal employment
agreements from each of its future Providers in a form
satisfactory to ProMedCo-Northern.
pursuant to which each of the Providers agrees that during the term of such
Provider's employment agreement, and for a period of two years after any
termination of employment with TMG, such Provider will not establish, operate or
provide Provider services at any medical office, clinic or outpatient and/or
ambulatory treatment or diagnostic facility providing services substantially
similar to those provided by TMG pursuant to this Agreement within a radius of
30 miles of any medical office, clinic or other health care facility operated by
TMG from which Provider had provided medical services within 24 months prior to
such termination, and that ProMedCo-Northern shall have third-party rights to
enforce such agreement.
9.3 PROVIDER LIQUIDATED DAMAGES.
(a) RELEASE FROM RESTRICTIVE COVENANTS. The restrictive covenants
described in Section 9.2 of this Agreement will provide that
the Providers (existing or future) may be released from such
restrictive covenants by paying Liquidated Damages in the
amount equal to such Provider's income related to the Clinic,
as reported to the Internal Revenue Service for the previous
12 months; in addition, Providers who are terminated by TMG
without cause with the prior approval of the Policy Council
shall be released from the restrictive covenants described in
Section 9.2 of this Agreement.
(b) PAYMENT OF LIQUIDATED DAMAGES IN CERTAIN EVENTS. In addition,
if prior to the fifth anniversary of the Closing under the
Merger Agreement, a Provider terminates his or
her employment agreement with TMG for any reason (other than
death or Total Disability as defined in the employment
agreement between such Provider and TMG) prior to the fifth
anniversary of the Closing under the Merger Agreement, or is
terminated for cause by TMG, or is terminated without cause by
TMG without prior approval by the Policy Council, then the
Provider shall pay TMG liquidated damages equal to the amount
designated for such Provider's employment agreement. TMG
shall retain such payments in a separate fund (the
"Recruitment Fund") to be used first to defray all costs
incurred by TMG or ProMedCo-Northern in the enforcement of the
employment agreement for that departing Provider and second
for recruiting,
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relocating and funding the compensation for a replacement
Provider for that departing Provider and/or additional
Providers as approved by the Policy Council.
9.4 ENFORCEMENT. ProMedCo-Northern and TMG 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 or non-enforceability of
this Section 9 in any respect shall not affect the validity or 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 TMG. TMG 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-Northern, or upon other action
taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of
debtors by ProMedCo-Northern, except for the filing
of a petition in involuntary bankruptcy against
ProMedCo-Northern which is dismissed within 30 days
thereafter, TMG may give notice of the immediate
termination of this Agreement.
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(ii) In the event ProMedCo-Northern shall materially
default in the performance of any duty or obligation
imposed upon it by this Agreement and such default
shall continue for a period of 120 days after
written notice thereof has been given to ProMedCo-
Northern by TMG; or ProMedCo-Northern shall fail to
remit the payments due as provided in Section 7.2
hereof and such failure to remit shall continue for
a period of 30 days after written notice thereof, TMG
may terminate this Agreement. Termination of this
Agreement pursuant to this Section 10.2(ii) by TMG
shall require the affirmative vote of 75% of the
Physician Shareholders.
10.3 TERMINATION BY PROMEDCO-NORTHERN. ProMedCo-Northern 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 TMG, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
TMG, except for the filing of a petition in
involuntary bankruptcy against TMG which is dismissed
within 30 days thereafter, ProMedCo-Northern may give
notice of the immediate termination of this
Agreement.
(ii) In the event TMG 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 TMG, and such default shall continue
for a period of 90 days after written notice thereof
has been given to TMG and such Physician
Shareholders by ProMedCo-Northern, ProMedCo-Northern
may terminate this Agreement.
10.4 ACTIONS AFTER TERMINATION. In the event that this Agreement shall
be terminated, the TMG Distribution and the ProMedCo-Northern 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, TMG shall:
10.4.1 ASSET REPURCHASE. Pay ProMedCo-Northern $3,500,457 as
adjusted pursuant the Merger Agreement, less an amount equal to the
product of $8,333.33 times the number of months that shall have passed
since the Effective Date.
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10.4.2 REAL ESTATE. Purchase from ProMedCo-Northern all real
estate, if any, associated with the Clinic and owned by ProMedCo-
Northern at the then book value thereof.
10.4.3 IMPROVEMENTS. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo-Northern at
book value as reflected on ProMedCo-Northern'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-Northern, if any.
10.4.4 DEBTS. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of
ProMedCo-Northern and which relate principally to the performance of
its obligations under this Agreement or the properties subleased by
ProMedCo-Northern, if any.
10.4.5 EQUIPMENT; INVENTORIES; ACCOUNTS RECEIVABLE; ETC.
Purchase from ProMedCo-Northern at book value as reflected on ProMedCo-
Northern's books as of the last day of this Agreement:
(i) EQUIPMENT. All of the equipment acquired by ProMedCo-Northern pursuant to
the Merger Agreement, including all replacements and additions thereto made
by ProMedCo-Northern 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-Northern relating to TMG operations;
(iii)ACCOUNTS RECEIVABLE. All uncollected accounts receivable theretofore
purchased by ProMedCo-Northern pursuant to Section 7.4 hereof at the book
value thereof on ProMedCo-Northern's books; and
(iv) OTHER ASSETS. All other assets of ProMedCo-Northern relating to the
operations of TMG.
10.4.6 CLOSING OF REPURCHASE. TMG shall pay cash for the
repurchased assets. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of ProMedCo-Northern assumed by
TMG and shall be reduced by any payment ProMedCo- Northern has failed
to make under this Agreement. TMG and any Provider associated with TMG
shall execute such documents as may be required to assume the
liabilities set forth in Section 10.4.4 and to remove ProMedCo-Northern
from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by ProMedCo- Northern. The
closing date for the repurchase shall be determined by TMG, but shall
in no
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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 TMG 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 MERGER AGREEMENT shall mean the Agreement for Statutory Merger
dated as of November 7, 1996 between Western Medical Management Corporation,
Inc., ProMedCo and
ProMedCo-Northern.
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 TMG and the TMG Employees, utilizing the management services of
ProMedCo-Northern 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 attributable to TMG of all employees of
ProMedCo- Northern and Technical Employees;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-Northern who, with approval of the
Policy Council, provides services at or in connection with TMG 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-Northern or ProMedCo under leases or subleases
related to Clinic operations;
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(iv) Interest Expense on indebtedness incurred by ProMedCo-Northern or ProMedCo
to finance or refinance any of its obligations hereunder or services
provided hereunder.
(v) Personal property and intangible taxes assessed against ProMedCo-Northern's
assets used in connection with the operation of Clinic commencing on the
date of this Agreement;
(vi) Malpractice insurance expenses for ProMedCo-Northern's operations with
respect to the Clinic and for the TMG Employees, as well as any deductibles
and non-insured expenses relating to malpractice claims.
(vii)Other expenses incurred by ProMedCo-Northern in carrying out its
obligations under this Agreement.
(viii) Amortization of intangible asset value resulting from the employment of,
merger with, or other acquisition of, additional Providers in the TMG
service area employed by TMG and approved by the Policy Council.
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 TMG and/or TMG Employees other than Technical
Employees;
(iv) Any amortization expense resulting from the amortization of expenses
incurred as shown on ProMedCo's financial statements, in connection with
the acquisition and execution of the Merger Agreement and the execution of
this Agreement; and
(v) Interest expense on indebtedness incurred by ProMedCo-Northern or ProMedCo
to finance the consideration paid under the Merger Agreement.
(vi) Any liabilities, judgments or settlements assessed against TMG or Providers
in excess of any insurance policy limits.
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(vii) The direct expenses associated with management of Risk Pool Surpluses.
11.5 CLINIC FACILITY shall mean the clinic facilities located at 75
Pringle Way, Reno, NV 89502 (Suites 301,302, 303, 801, 803 and 804); 2005 Sierra
Highlands Suite 101, Reno, NV 89523; 236 W. Sixth St., Suite 201, Reno, NV
89503; 343 Elm Street, (Suites 407 and 407), Reno, NV 89503; 730 Willow Avenue,
Reno, NV 89502; and Incline Medical 889 Alder, Suite 201, Incline Village, NV
89451 and any substitute facility or additional facility location, whether
within or without Washoe, Nevada 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 __________.
11.8 NET CLINIC REVENUES shall mean TMG's gross billings, including
ancillaries and any other revenues that have historically been recorded by TMG
as well as non-real estate revenues historically recorded by TMG, less any
adjustments such as uncollectible accounts, discounts, contractual adjustments,
Medicare allowances, Medicaid allowances, and professional courtesies
("adjustments") but specifically excluding Risk Pool Surpluses.
11.9 OPENING BALANCE SHEET shall mean the balance sheet of
ProMedCo-Northern as of October 31, 1996, 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 Merger Agreement).
11.10 PHYSICIAN EMPLOYEES shall mean any physician employed by TMG and
providing medical services to patients on behalf of TMG, who are not Physician
Shareholders.
11.11 PHYSICIAN EXTENDERS shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
11.12 PHYSICIAN SHAREHOLDERS shall mean at any relevant date any
physician who is a shareholder of TMG.
11.13 PROVIDERS shall mean Physician Shareholders, Physician Employees
and Physician Extenders.
11.14 PROMEDCO shall mean ProMedCo, Inc., a Texas corporation which is
sole shareholder of ProMedCo-Northern.
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11.15 PROMEDCO-NORTHERN DISTRIBUTION shall mean 15% of Distribution
Funds plus a percentage of Risk Pool Surpluses established by Exhibit A.
11.16 RISK POOL SURPLUSES shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements after the direct expenses associated with risk pool
management have been deducted. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position. TMG Capitation shall be treated as a separate
risk pool for purposes of this Section 11.16. Pursuant to Section 2.2(j) hereof,
the Policy Council shall determine the amount allocated to TMG Capitation in
situations in which the payor has not made such a determination, and shall
determine the fee schedule against which such TMG Capitation would be billed. In
the event that TMG Capitation is in a deficit position, then that deficit shall
be aggregated with all other risk pools applicable before a distribution is made
pursuant to Exhibit "A" of this Agreement.
11.17 TMG CAPITATION is defined in Section 2.2(j) of this Agreement.
11.18 TMG EMPLOYEES shall mean all Physician Shareholders, Physician
Employees, Physician Extenders and Technical Employees at the relevant dates.
11.19 TMG EXPENSES shall mean 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, and licensing and board
certification fees paid to or on behalf of Providers.
11.20 TECHNICAL EMPLOYEES shall mean technicians who provide services
in the diagnostic areas of TMG's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be TMG employees.
12. GENERAL PROVISIONS
12.1 INDEPENDENT CONTRACTOR. It is acknowledged and agreed that TMG and
ProMedCo- Northern are at all times acting and performing hereunder as
independent contractors. ProMedCo- Northern shall neither have nor exercise any
control or direction over the methods by which TMG or the TMG Employees practice
medicine. The sole function of ProMedCo-Northern hereunder is to provide all
management services in a competent, efficient and satisfactory manner. ProMedCo-
Northern shall not, by entering into and performing its obligations under this
Agreement, become liable for any of the existing obligations, liabilities or
debts of TMG unless otherwise specifically provided for under the terms of this
Agreement. ProMedCo-Northern 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
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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-Northern, 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
TMG Employees to provide consulting, medical direction, advisory or similar
services relating to activities of ProMedCo-Northern 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-Northern, on the one hand, and such
TMG Employees, on the other hand, shall not constitute Net Clinic Revenues,
or TMG 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 TMG Employee to another, or by ProMedCo-Northern, to TMG
or any Physician Shareholder. Accordingly, TMG 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 TMG Employee, and hereby forever release and discharge
TMG, the Physician Shareholders, ProMedCo-Northern, 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 TMG Employee in any agreement or arrangement with
ProMedCo-Northern, or their affiliates of a type described in Section
12.2(a) above or from or by reason of the failure of ProMedCo-Northern, any
TMG 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 TMG Employee on the one
hand, and ProMedCo-Northern, on the other hand, and shall not be disclosed
by them or their representatives, except as required by applicable law.
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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-Northern 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-Northern pursuant to this Agreement.
TMG 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-Northern, provided, however, that the
foregoing shall not restrict TMG from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo-Northern provided no Proprietary Property of
ProMedCo-Northern is contained therein. Notwithstanding the preceding,
however, ProMedCo-Northern agrees that TMG shall be entitled to use on
a nonexclusive and nontransferable basis for the term of this Agreement
the name "TMG Family Practice" as may be necessary or appropriate in
the performance of TMG'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-Northern and TMG
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-Northern and
TMG 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-Northern and TMG 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
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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-Northern and TMG 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; provided
however, this Section 12.11 shall not apply to Policy Council Disputes. Such
arbitration shall occur within Washoe County, Nevada, 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 Nevada. 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-Northern shall have the
right to assign its rights hereunder to any person, firm or corporation
controlling, controlled by or under common
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control with ProMedCo-Northern and to any lending institution, for security
purposes or as collateral, from which ProMedCo-Northern or ProMedCo obtains
financing for itself and as agent. Except as set forth above, neither
ProMedCo-Northern nor TMG shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. TMG
may not delegate any of TMG's duties hereunder, except as expressly contemplated
herein; however, ProMedCo-Northern may delegate some or all of
ProMedCo-Northern' 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.
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 Nevada 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 Provider retained by TMG to practice medicine in the State of Nevada, TMG
and ProMedCo-Northern shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements
0376862.03
080020-011 02/07/97
<PAGE> 31
-27-
between TMG and ProMedCo-Northern. In the event it is not possible to amend this
Agreement to preserve in all material respects the underlying economic and
financial arrangements between TMG and ProMedCo-Northern, 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 TMG shall require the affirmative
vote of a majority of Physician Shareholders.
12.20 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
0376862.03
080020-011 02/07/97
<PAGE> 32
-28-
(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 NORTHERN NEVADA, INC.
By:
Name:
Title:
Address: 801 Cherry Street
Suite 1450
Fort Worth, TX 76102
Attention: President
KNUTZEN GORING MEDICAL GROUP, LTD. DBA THE
NORTHERN NEVADA MEDICAL GROUP
By:
Name:
Title:
Address: 75 Pringle Way
Suite 712
Reno, NV 89502
Attention: CEO
0376862.03
080020-011 02/07/97
<PAGE> 33
-29-
Acknowledgment and Agreement by Physician Shareholders
to abide by the terms of the Service Agreement
Catherine Goring, M.D.
Physician Shareholder
Robert Bailey, M.D.
Physician Shareholder
Craig Klose, M.D.
Physician Shareholder
Jill Anderson-Jenkins, M.D.
Physician Shareholder
Melissa Byram, M.D.
Physician Shareholder
Kathleen Christopherson, M.D.
Physician Shareholder
Mark Cullen, M.D.
Physician Shareholder
Kenneth Cutler, M.D.
Physician Shareholder
David Dugger, M.D.
Physician Shareholder
Russell Foulk, M.D.
Physician Shareholder
Ricardo Garcia, M.D.
Physician Shareholder
Brad Graves, M.D.
Physician Shareholder
Lester Ho, M.D.
Physician Shareholder
Scott Jacobs, M.D.
Physician Shareholder
Alan Kletzky, M.D.
Physician Shareholder
Kristen Lorenzen, M.D.
Physician Shareholder
0376862.03
080020-011 02/07/97
<PAGE> 34
-30-
Terrence McGaw, M.D.
Physician Shareholder
Lorrie Oksenhold, M.D.
Physician Shareholder
Brian Passalacqua, M.D.
Physician Shareholder
Valerie Schram, M.D.
Physician Shareholder
Christopher Scully, M.D.
Physician Shareholder
Emily Smith, M.D.
Physician Shareholder
Robin Willcourt, M.D.
Physician Shareholder
Cheryl Winder, M.D.
Physician Shareholder
James Winder, M.D.
Physician Shareholder
GUARANTY
ProMedCo, Inc., a Texas corporation (the "Parent") which is the sole
shareholder of ProMedCo of Northern Nevada, Inc., a Nevada corporation
("ProMedCo-Northern"), hereby guarantees the performance of ProMedCo-Northern
under the above Service Agreement.
PROMEDCO, INC.
By
Its
Name
0376862.03
080020-011 02/07/97
<PAGE> 1
EXHIBIT 10.21
STOCK OPTION PLAN
OF
PROMEDCO, INC.
SECTION 1.
DEFINITIONS
As used in this Plan and all options granted hereunder, the following
definitions shall apply:
1.1. BOARD shall mean the Board of Directors of the Company.
1.2. CODE shall mean the Internal Revenue Code of 1986, as amended.
1.3. COMMITTEE shall mean a committee selected by the Board charged
with the administration of the Plan.
1.4. COMMON STOCK shall mean the Common Stock of the Company, having no
par value.
1.5. COMPANY shall mean ProMedCo, Inc., a Texas corporation.
1.6. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
1.7. FAIR MARKET VALUE shall mean (i) the last price on any date for a
share of Common Stock as accurately reported by THE WALL STREET JOURNAL under
the NASDAQ Over-The-Counter Market, National Market Issues, quotation system
(or under any successor quotation system) or, if Common Stock is not traded on
the over-the-counter markets, the closing price for a share of Common Stock as
accurately reported by THE WALL STREET JOURNAL under the quotation system which
reports such closing price or, if THE WALL STREET JOURNAL no longer reports
such price, such price as reported by a newspaper or trade journal selected by
the Committee or, if no such price is available on such date, (ii) such price
as so reported or so quoted in accordance with Section 1.7 (i) for the
immediately preceding business day or, if no newspaper or trade journal reports
such price or if no such price quotation is available, (iii) the price which
the Committee acting in good faith determines through any reasonable valuation
method that a share of Common Stock might change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or to sell and
both having reasonable knowledge of the relevant facts.
1.8. ISO shall mean an Option granted under the Plan which meets the
requirements of an incentive stock option under Section 422 of the Code and
which is designated as an ISO by the Committee.
<PAGE> 2
-2-
1.9. KEY EMPLOYEE shall mean a full time salaried employee of the
Company or any subsidiary who, in the judgment of the Committee, in its sole
discretion, is instrumental to the success of the Company or a subsidiary.
1.10. NON-EMPLOYEE OPTIONEE shall mean an individual who is not a Key
Employee and, who, in the judgment of the Committee, in its sole discretion,
has the capacity to significantly assist the development of the business of
the Company.
1.11. NQSO shall mean an Option granted under the Plan which does not
meet the requirements of an incentive stock option under Section 422 of the
Code, and which is designated as an NQSO by the Committee.
1.12. OPTION shall mean a right to purchase Common Stock granted
pursuant to the Plan.
1.13. OPTION AGREEMENT means the written agreement entered into
pursuant to this Plan through which an Option is granted to a Key Employee or
a Non-Employee Optionee.
1.14. OPTIONEE shall mean a Key Employee or a Non-Employee Optionee
granted an Option under this Plan.
1.15. OPTION PRICE shall mean the purchase price to be paid by an
Optionee for each share of Common Stock purchased under an Option, determined
in accordance with Section 6 of this Plan.
1.16. PARENT shall mean a parent corporation as defined in Sections
424(e) and (g) of the Code.
1.17. PLAN shall mean the Stock Option Plan of the Company.
1.18. SECURITIES ACT shall mean the Securities Act of 1933, as amended.
1.19. STOCKHOLDERS shall mean the holders of the outstanding shares of
the Company's Common Stock.
1.20. SUBSIDIARY shall mean a subsidiary corporation as defined in
Section 424(f) and (g) of the Code.
1.21. SUBSTANTIAL SHAREHOLDER means any person who owns, within the
meaning of Section 422 and Section 424 of the Code, more than 10% of the total
combined voting power of all classes of stock of the Company or of its Parent
or Subsidiary.
<PAGE> 3
-3-
1.22. WILLFUL MISCONDUCT shall mean conduct which in the sole
determination of the Committee is materially detrimental to the interests of the
Company and shall include but not be limited to wrongful appropriation of funds
or the commission of any crime.
SECTION 2
SHARES AVAILABLE UNDER PLAN
Options may be granted under the Plan with respect to 750,000 shares of
Common Stock of the Company and all such shares shall be, and upon adoption of
this Plan by the Board, are hereby, reserved for Options granted under the Plan
subject to adjustment as provided in Section 13 hereof. The shares issued upon
the exercise of Options granted under the Plan shall be authorized and
unissued shares. If any Option granted under the Plan shall terminate, expire,
or be cancelled as to any shares, new Options may
thereafter be granted covering such shares.
SECTION 3
ELIGIBILITY
The persons eligible to participate in the Plan as recipients of
Options shall be Key Employees and Non-Employee Optionees; provided that ISOs
shall be granted only to Key Employees. No member of the Committee shall be
eligible to receive Options.
SECTION 4
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
only consist of directors who have not been granted Options under the Plan (or
under any other plan of the Company, its Parent, or any Subsidiary which
provides for the acquisition by its participants of shares of common stock,
stock options or stock appreciation rights) within the one year period ending
on the date the director was appointed to the Committee, and in no event shall
include a person unless such person is a disinterested person within the meaning
of Rule 16b-3 of the Exchange Act. The Committee shall have full and final
authority in its discretion, but subject to the express provisions of the Plan,
to determine from time to time the individuals to whom Options shall be granted
and the number of shares to be covered by each proposed Option; to determine the
purchase price of the shares covered by each Option and the time or times at
which Options shall be granted; to set vesting schedules for Options granted
under the Plan; to interpret the Plan; to make, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
instruments by which Options shall be evidenced; to take any action which may
be taken only by a disinterested administrator under Rule 16b-3 of the Exchange
Act and to make all other determinations necessary or advisable for the
administration of the Plan.
<PAGE> 4
-4-
SECTION 5.
GRANTING OF OPTIONS
Each grant of an Option shall be evidenced by an Option Agreement
executed by the Optionee and the Company or such other instruments in such form
as the Committee shall from time to time approve, which instruments shall (i)
comply with and include expressly or by reference the terms and conditions set
forth in the Plan, (ii) shall specify whether the option is an ISO or NQSO; and
(iii) may include such other provisions not inconsistent with the provisions of
the Plan as the Committee shall deem advisable. The terms and conditions of
Options granted to each Optionee need not contain similar provisions. The
recommendation or selection of an Optionee as a participant in any grant of
Options under the Plan shall not be deemed to entitle the Optionee to such
Option prior to the time when it shall be granted by the Committee; and the
granting of any Option under the Plan shall not be deemed either to entitle such
Optionee to, or to disqualify such Optionee from, any participation in any other
grant of Options under the Plan.
SECTION 6.
OPTION PRICE
The Option Price per share shall be determined by the Committee at the
time the Option is granted. The Option Price per share for an ISO shall not be
less than the Fair Market Value of the Common Stock upon the date of the grant
of the Option; provided, however, that with respect to an ISO granted to a
Substantial Shareholder the Option Price per share shall not be less than 110%
of the Fair Market Value of the Common Stock upon the date of the grant of the
ISO. The Option Price per share for an NQSO shall not be less than 50% of the
Fair Market Value of the Common Stock upon the date of the grant of the Option.
SECTION 7.
OPTION PERIOD
Each Option Agreement shall specify the period for which the Option
thereunder is granted and shall provide that the Option shall expire at the
end of such period; provided that the Option Agreement shall provide that:
(i) The exercise of an Option shall not be permitted more than
ten years after the date on which the Option is granted.
(ii) In the case of a Substantial Shareholder, the exercise of an
ISO shall not be permitted more than five years after the date on which the
option was granted.
<PAGE> 5
-5-
SECTION 8.
EXERCISE AND PAYMENT
Options shall be exercised by delivering or mailing to the Committee the
following items:
(i) A notice, in the form prescribed by the Committee, specifying
the number of shares to be purchased;
(ii) A check (or note in such form and with such terms as may be
prescribed by the Committee) payable to the Company for the full
Option Price in the case of ISOs and an amount equal to the full
Option Price plus any withholding tax required by law in the case of
NQSOs (if approved by the Committee, payment of the Option Price
required by this clause may be made by delivery of Stock of the
Company which will be deemed to be worth its Fair Market Value on
the date of Delivery); and
(iii) If the shares are to be issued pursuant to the exemption from
registration under the Securities Act provided by Section 4(2) or
any successor section of such act, an "Investment Letter" in such
form as may be required by the Committee.
The Committee may for any reason decline to accept payment of the
Option Price and/or withholding taxes by exchange of shares of common stock of
the Company or may impose such limitations or restrictions on such payment as
the Committee, in its sole discretion, deems advisable.
Upon compliance with this provision, the Company shall promptly deliver
to the Optionee a certificate or certificates for the shares purchased, without
charge to the Optionee for issue or transfer tax. In the event that such shares
are not registered under the Securities Act such certificate shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND THEREFORE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS (A) SUCH SHARES ARE REGISTERED UNDER SUCH ACT OR (B)
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE
EFFECT THAT SUCH REGISTRATION IS NOT NECESSARY.
<PAGE> 6
-6-
SECTION 9.
EXERCISE IN EVENT OF TERMINATION OF EMPLOYMENT OR OTHER
RELATIONSHIP WITH THE COMPANY
9.1. GENERAL. If the employment of a Key Employee to whom Options have
been granted by the Company or a Subsidiary shall terminate for any reason
other than disability, as specified in Section 9.4, death, or Willful
Misconduct, he may exercise his Option, to the extent that he may be entitled
to do so at the date of the termination of his employment, at any time, or from
time to time, within one month of the date of termination of his employment,
but in no event later than the expiration date specified in the Option
Agreement or one month after termination of employment, whichever is earlier.
Whether authorized leave of absence for military or governmental service shall
constitute termination of employment for purposes of this Plan shall be
determined by the Committee.
9.2. TERMINATION FOR MISCONDUCT. In the event the employment of a Key
Employee to whom Options have been granted with the Company is terminated by
reason of Willful Misconduct, all Options granted to such Optionee shall
terminate as of the date of termination of employment.
9.3. TERMINATION AS A RESULT OF DEATH. If a Key Employee to whom Options
have been granted shall die (i) while an employee of the Company or of a
Subsidiary or (ii) within one month after termination (other than by reason of
Willful Misconduct) of his employment with the Company or a Subsidiary, his
Option may be exercised, to the extent that such Optionee shall have been
entitled to do so at the date of his termination of employment, by the person
or persons to whom such Optionee's rights under the Option pass by will or
applicable law, or if no such person has such right, by his executors or
administrators, at any time, or from time to time, within one year after the
date of such Optionee's death, but in no event later than the expiration date
specified in the Option Agreement.
9.4. TERMINATION AS A RESULT OF DISABILITY. If an Optionee's employment
with the Company is terminated because the Optionee is disabled (within the
meaning of Section 22(e)(3) of the Code), the Optionee may exercise his option
in the manner provided in Section 9.1; provided that the one (1) month period
specified in Section 9.1 shall be one (1) year.
9.5. NON-EMPLOYEES. In the event the Committee shall determine, in its
sole discretion, that a Non-Employee Optionee has committed Willful Misconduct,
all Options granted to such Optionee shall terminate as of the date of such
determination. If a Non-Employee Optionee to whom Options have been granted
shall die, his Option may be exercised to the extent that such Optionee shall
have been entitled to do so at the date of his death, by the person or persons
to whom such Optionee's rights under the Option pass by will or applicable law,
or if no such person has such right, by his executors or administrators, at any
time, or from time to time, within one year after the date of such Optionee's
death, but in no event later than the expiration date specified in the Option
Agreement.
<PAGE> 7
-7-
SECTION 10.
NONTRANSFERABILITY
An Option shall not be assignable or transferable by the Optionee
except by will or by the laws of descent and distribution, and during the
lifetime of the Optionee the Option shall be exercisable only by the Optionee.
SECTION 11.
SECURITIES REQUIREMENTS
Each Option shall be subject to the requirement that if at any time
the Committee shall determine, in its discretion, that the listing,
registration, or qualification of the shares subject to the Option upon any
securities exchange or under any state or federal securities or other law or
regulation, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the granting of
such Option or the issue or purchase of shares thereunder, no such Option may be
exercised or paid in Common Stock in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee, and the holder
of the Option will supply the Company with such certificates, representations,
and information as the Company shall request and shall otherwise cooperate with
the Company in obtaining such listing, registration, qualification, consent or
approval.
In the case of officers and other persons subject to Section 16(b) of
the Exchange Act, the Committee may at any time impose any limitations upon the
exercise of an Option which, in the Committee's discretion, are necessary or
desirable in order to comply with Section 16(b) of the Exchange Act and the
rules and regulations thereunder. If the Company, as part of an offering of
securities or otherwise, finds it desirable because of federal or state
regulatory requirements to reduce the period during which any Options may be
exercised, the Committee may, in its discretion and without the holders'
consent, so reduce such period on not less than 15 days' written notice to the
holders thereof.
SECTION 12.
DURATION OF PLAN
No ISO shall be granted more than ten years after the date of the
adoption of the Plan by the Board. Nothing contained herein, however, shall
terminate or affect the continued existence of rights created under Options
issued hereunder and outstanding on the expiration date of the Plan, which by
their terms extend beyond such date.
SECTION 13.
CAPITAL ADJUSTMENTS, REORGANIZATION AND LIQUIDATION
13.1. CAPITAL ADJUSTMENTS. The number of shares of Common Stock which
may be issued under the Plan, the number of shares reserved as stated in
Section 2 hereof, the
<PAGE> 8
-8-
number of shares issuable upon exercise of outstanding Options under the Plan
(as well as the Option Price per share under such outstanding Options), and the
Option Price limitations as set forth in Section 6, shall be adjusted, as may
be deemed appropriate by the Committee, to reflect any stock dividend, stock
split, share combination, or similar change in capitalization of the Company.
13.2. REORGANIZATION OR LIQUIDATION. The dissolution or liquidation of
the Company shall cause each outstanding Option to terminate. Any outstanding
Option may be exercised up to and including the date immediately preceding such
dissolution or liquidation if it has not otherwise expired and if it is then
subject to exercise under the individual Option grant. The Committee may, in
its discretion, change the terms of any outstanding Option solely to the extent
necessary to effect a substitution for or assumption of the Option in the event
of any merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation.
13.3. COMMITTEE'S DISCRETION. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive
SECTION 14.
AMENDMENT OR DISCONTINUANCE OF PLAN
The Committee may from time to time, with respect to any Common Stock
on which Options have not then been granted, suspend or discontinue the Plan
or amend it in any respect whatsoever; provided, however, that no amendment
shall be made which (i) changes the class of individuals eligible to receive
Options, or otherwise materially modifies (within the meaning Section 16b-3 of
the Exchange Act) the requirements as to eligibility for participation in the
Plan or materially increases (within the meaning of Section 16b-3 of the
Exchange Act) the benefits accruing to Optionees under the Plan; (ii) except to
the extent permitted by Section 13, increases the maximum number of shares of
Common Stock with respect to which Options may be granted under the Plan, (iii)
or changes the limitations on the Option Price, without approval of the
Stockholders of the Company, which must comply with all the applicable
provisions of the Company's Articles of Incorporation and the law of the State
of Texas.
SECTION 15.
MISCELLANEOUS
15.1. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Options granted under the Plan will be
used for general corporate purposes.
15.2. RIGHT TO RECEIVE OPTIONS. Neither the adoption of the Plan nor any
action of the Committee shall be deemed to give any person any right to be
granted an Option, or any
<PAGE> 9
-9-
other right hereunder, unless and until the Committee shall have granted such
person an Option, and then his rights shall be only such as are prescribed in
the instrument evidencing such Option.
15.3. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by his Option until the issuance
of a stock certificate to him for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such stock certificate, except as provided in Section 13.
15.4. WITHHOLDING. The exercise of any Option granted pursuant to this
Plan shall constitute the Optionee's full and complete consent to whatever
action the Committee directs to satisfy federal and state withholding
requirements, if any, including withholding under the Federal Insurance
Contribution Act and requirements for withholding from wages as the Committee
in its discretion deems applicable to such exercise.
15.5. APPROVAL BY STOCKHOLDERS. The Plan shall take effect upon adoption
by the Board and approval by the stockholders of the Company.
15.6. DISQUALIFYING DISPOSITIONS. If an Optionee disposes of shares of
Common Stock acquired upon exercise of an ISO within two years from the date
the Option is granted or within one (1) year after the issuance of such shares
to the Optionee, the Optionee shall notify the Company of such disposition and
provide information as to the date of disposition, sale price, number of
shares disposed of and any other information relating thereto which the Company
may reasonably request.
15.7. GOVERNING LAW. The validity and construction of the Plan and any
agreements thereunder shall be governed by the laws of the State of Texas.
15.8. MISCELLANEOUS PROVISIONS. Options granted to Key Employees under
the Plan shall not be affected by any change of employment among the Company
and its Subsidiaries, so long as the Optionee continues to be an employee of
the Company or of any Subsidiary. Nothing in the Plan shall be deemed to give
any employee of the Company or of a Subsidiary the right to be retained in
employment by the Company or a Subsidiary for any period of time, and no
provision of the Plan or granting of Options under the Plan shall be deemed to
interfere with the right of the Company or of a Subsidiary to terminate the
employment of any Optionee at any time without regard to the effect that such
discharge will have on his rights, if any, under the Plan or under any Option
granted under the Plan.
Date Plan Adopted by Board: July 1, 1994
------------------------------------
Date Plan Approved by Stockholders: July 1, 1994
----------------------------
<PAGE> 1
EXHIBIT 11
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year Ended Dec. 31,
--------------------------
7/1/94 Year Ended Pro Forma
(Inception) to Dec. 31, As Adjusted
12/31/94 1995 1996 1996
-------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Primary
Weighted average shares
outstanding 3,213,404 4,548,475 4,634,337 4,634,337
Net common shares issuable
on exercise of certain
stock options (1)(2) 312,356 312,356 283,746 2,811,075
Net common shares issuable
on exercise of certain
stock warrants (1)(2) 80,000 80,000 80,000 80,000
Contingently issuable shares in
business combinations 2,716,447 2,716,447 2,716,447 3,049,780
Shares issuable in
Offering(3) -- -- -- 4,000,000
Number of common shares
outstanding 6,322,207 7,657,278 7,714,530 14,575,192
Fully Diluted
Weighted average shares
outstanding 3,213,404 4,548,475 4,634,337 4,634,337
Net common shares issuable
on exercise of certain
stock options (1)(2) 312,356 312,356 283,746 2,811,075
Net common shares issuable
on exercise of certain
stock options warrants 80,000 80,000 80,000 80,000
Contingently issuable shares in
business combinations 2,716,447 2,716,447 2,716,447 3,116,447
Shares issuable in
Offering(3) -- -- -- 4,000,000
Other dilutive securities 200,030 200,030 200,030 200,030
Number of common shares
outstanding 6,522,237 7,857,308 7,914,560 10,841,889
</TABLE>
(1) Net common shares issuable on exercise of certain stock options and warrants
is calculated based on the treasury stock method using an estimated of the
initial public offering price.
(2) Common shares issuable on exercise of certain stock options and warrants
were not included when the effect of the inclusion would be anti-dilutive.
(However, 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 anti-dilutive effect.)
(3) Reflects common shares of 4,000,000 issuable as part of this Offering.
<PAGE> 1
Exhibit 22
List of Subsidiaries
ProMedCo of Abilene, Inc.
ProMedCo of Denton, Inc.
ProMedCo of Cullman, Inc.
ProMedCo of Lake Worth, Inc.
ProMedCo of Mayfield, Inc.
ProMedCo of Temple, Inc.
ProMedCo of Northern Nevada, Inc.
ProMedCo Inc.
<PAGE> 1
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.
/s/ ARTHUR ANDERSEN LLP
Fort Worth, Texas
February 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,633,534
<SECURITIES> 0
<RECEIVABLES> 6,004,021
<ALLOWANCES> 2,732,000
<INVENTORY> 212,709
<CURRENT-ASSETS> 8,305,447
<PP&E> 3,644,594
<DEPRECIATION> 302,819
<TOTAL-ASSETS> 28,470,335
<CURRENT-LIABILITIES> 5,475,307
<BONDS> 0
2,957,641
0
<COMMON> 27,427
<OTHER-SE> 11,150,337
<TOTAL-LIABILITY-AND-EQUITY> 28,470,335
<SALES> 34,641,222
<TOTAL-REVENUES> 34,641,222
<CGS> 15,322,220
<TOTAL-COSTS> 35,190,527
<OTHER-EXPENSES> 0
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