SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ProMedCo Management Company
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ProMedCo Management Company
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 20, 1998
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
ProMedCo Management Company (the "Company") will be held at 9:00 a.m. local time
on Wednesday, May 20, 1998, at 815 Main Street, Ft. Worth, Texas 76102 for the
following purposes:
1. to elect two Class I Directors to serve on the Board of
Directors for a three-year term; and
2. to transact such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 6, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and at any adjournments thereof.
If you are unable to attend the meeting, you are requested to complete,
sign, date, and return the accompanying proxy in the enclosed postage-paid
return envelope so that your shares will be represented.
By Order of the Board of Directors,
Deborah A. Johnson
Secretary
Fort Worth, Texas
April 27, 1998
<PAGE>
ProMedCo Management Company
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
(817) 335-5035
PROXY STATEMENT
FOR THE
1998 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of the Common Stock of
ProMedCo Management Company (the "Company") in connection with the solicitation
on behalf of the Board of Directors of the Company of proxies to be used in
voting at the annual meeting of stockholders to be held on May 20, 1998 and any
adjournments thereof.
The enclosed proxy is for use at the meeting if the stockholder will
not be able to attend in person. Any stockholder who executes a proxy may revoke
it at any time before it is voted by delivering to the Secretary of the Company
either an instrument revoking the proxy or a duly executed proxy bearing a later
date. A proxy also may be revoked by any stockholder present at the meeting who
expresses a desire to vote his shares in person.
All shares represented by valid proxies received pursuant to this
solicitation and not revoked before they are exercised will be voted in the
manner specified therein. If no specification is made, the shares will be voted
in favor of the election of James F. Herd, M.D. and Charles J. Buysse, M.D. to
serve as Class I Directors of the Company for a term of three years.
Only the holders of Common Stock of record at the close of business on
April 6, 1998 are entitled to vote at the meeting. On such date, 13,502,226
shares of Common Stock were outstanding. Each share is entitled to one vote on
each matter to be voted upon at the meeting. A majority of such shares is
required to be represented to constitute a quorum for holding the meeting. The
failure of a quorum to be represented at the meeting will necessitate
adjournment and will subject the Company to additional expense.
The Notice of Annual Meeting of Stockholders, this Proxy Statement, the
accompanying proxy, and the 1997 Annual Report to Stockholders were first mailed
to stockholders on or about April 27, 1998.
1
<PAGE>
ELECTION OF CLASS I DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for the
division of the Board of Directors into three classes, designated Class I, Class
II, and Class III, with staggered terms of three years. The terms of Class I,
Class II, and Class III Directors expire in 1998, 1999, and 2000, respectively.
The Board currently consists of seven members. James F. Herd, M.D. and
Charles J. Buysse, M.D. are Class I Directors, David T. Bailey, M.D. and Jack W.
McCaslin are Class II Directors, and E. Thomas Chaney, H. Wayne Posey, and
Richard E. Ragsdale are Class III Directors. At the meeting, two Class I
Directors are to be elected to serve for a term of three years and until their
successors are duly elected.
The Company's Bylaws provide for the election of Directors by the
affirmative vote of the majority of shares represented at a meeting and entitled
to vote for the election of Directors.
Directors and Nominees
James F. Herd, M.D. and Charles J. Buysse, M.D. have been nominated by the
Board to serve as Class I Directors for a three-year term. The following table
sets forth certain information with respect to the nominees and the Company's
other Directors:
<TABLE>
<CAPTION>
Director
Name Age Position Class
<S> <C> <C> <C>
Richard E. Ragsdale(1)(2)(3)....................... 54 Chairman and Director III
H. Wayne Posey(1)(2)............................... 59 President, Chief Executive Officer,
and Director III
David T. Bailey, M.D.(4)........................... 52 Director II
Charles J. Buysse, M.D............................. 57 Director I
E. Thomas Chaney(1)(2)(3).......................... 55 Director III
James F. Herd, M.D................................. 62 Director I
Jack W. McCaslin(4)................................ 58 Director II
</TABLE>
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Option Committee
(4) Member of Audit Committee
Class I Nominees:
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 of Harris Methodist Hospital in Fort Worth. He has been a
Director of the Company since its inception in July 1994.
Charles J. Buysse, M.D. has been in the private practice of medicine in
Naples, Florida, since 1975. He is President of Naples Medical Center, P.A., a
ProMedCo affiliated physician group, and has been a Director of the Company
since November 1997.
2
<PAGE>
Continuing Directors:
The persons named below will continue to serve as directors until the
annual meeting of shareholders in the years indicated and until their successors
are elected and take office. Shareholders are not voting at this Annual Meeting
on the election of Class II and Class III directors.
Class II Directors Serving Until 1999:
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.
Jack W. McCaslin has been the managing principal of McCaslin & Company,
P.C., a public accounting and consulting company in Fort Worth, Texas and its
predecessor, McCaslin, Wright & Greenwood, P.C. since 1983. He has served as a
Director of the Company since its inception.
Class III Directors Serving Until 2000:
Richard E. Ragsdale, a co-founder of the Company, has served as the
Chairman of its Board of Directors since its inception. He was also a co-founder
and has served as the Chairman of the Board of Directors of Community Health
Systems, Inc. ("CHS"), a non-urban hospital management company, since its
inception in 1985, and has been a director of The RehabCare Group, Inc., a
publicly owned rehabilitation services management company, since 1993.
H. Wayne Posey, a co-founder, 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. Mr. Posey
was employed by Hospital Affiliates International, Inc. ("HAI"), a publicly
owned hospital management company, 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 Gentle Dental Services Corporation, a
publicly held dental practice management company.
E. Thomas Chaney has served as President, Chief Executive Officer, and
as a Director of CHS, which he co-founded in 1985, since its inception. A
co-founder of the Company, he has served as a Director since its inception.
Certain Board Information
The Board of Directors held two meetings and acted by unanimous consent
on four occasions during the fiscal year ended December 31, 1997. The Executive
Committee acted by unanimous consent on seven occasions, the Compensation
Committee held five meetings, the Option Committee held two meetings and the
Audit Committee did not hold any meetings during such period. All of the
Company's Directors attended at least 75 percent of the meetings of the Board
and of the committees of which they were members. The Board of Directors has no
nominating committee.
3
<PAGE>
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 and
determines the compensation of executive officers. The Option Committee
administers the Company's option plan and determines the grants 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.
The Board of Directors unanimously recommends that the stockholders
vote FOR the election of Messrs. Herd and Buysse as Class I Directors to serve
for a term of three years. Election of Directors requires the affirmative vote
of a majority of the shares represented in person or by proxy at the meeting.
Shares represented by the enclosed proxy will be voted for the election of
Messrs. Herd and Buysse unless authority is withheld. If for any reason either
such nominee is not a candidate for election as a Director at the meeting as the
result of an event not now anticipated, the shares represented by the enclosed
proxy will be voted for such substitute or substitutes as shall be designated by
the Board.
Executive Compensation
The following table sets forth the compensation earned in the years
ended December 31, 1996 and 1997 by the Chief Executive Officer and the five
most highly compensated executive officers whose individual remuneration
exceeded $100,000 for 1997 (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 Year Salary Bonus Compensation Options Compensation(1)
- ----------------- ------- --------- ----------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey............................. 1997 $ 327,383 $ -- -- 50,000 $ 26,152
President and CEO 1996 243,750 62,218 -- -- 23,668
Richard R. D'Antoni(2)..................... 1997 230,736 -- -- -- --
Executive Vice President 1996 181,314 47,000 -- 480,000 89,918
and COO
Dale K. Edwards............................ 1997 176,667 16,431 -- 80,000 --
Senior Vice President 1996 148,333 43,176 -- -- --
--Development
Deborah A. Johnson......................... 1997 150,000 -- -- -- 4,000
Senior Vice President 1996 30,770 -- -- -- --
--Administration
R. Alan Gleghorn........................... 1997 135,000 62,601(3) -- 15,000 --
Vice President--Operations 1996 120,000 35,700 -- -- --
Charles W. McQueary........................ 1997 104,583 25,000(4) -- 200,000 --
Senior Vice President 1996 -- -- -- -- --
--Operations
</TABLE>
4
<PAGE>
(1) For 1997, reflects payment of professional fees for estate planning in
the amount of $26,152 for Mr. Posey and payments for moving expenses in
the amounts of $89,918 and $4,000 for Mr. D'Antoni and Ms. Johnson,
respectively. For 1996, reflects payment of professional fees for
estate planning in the amount of $23,668 for Mr. Posey.
(2) Mr. D'Antoni resigned as an officer of the Company in November 1997.
During 1998, he is serving as a consultant to the Company in various
capacities under an agreement that terminates December 31, 1998
pursuant to which he receives an annual fee of $300,000.
(3) Reflects bonus of $57,401 earned in 1997 and paid in 1998 and bonus of
$5,200 earned in 1996 and paid in 1997.
(4) Reflects bonus earned in 1997 and paid in 1998.
Option Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rates of
Shares Granted to Stock Price
Underlying Employees Exercise Appreciation for
Options in Fiscal Year Price Expiration Option Term(2)
Name Granted(1) 1997 Per Share Date 5% 10%
- ---- ------------------ ---------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................... 50,000 8.0% $ 6.00 05/06/07 $ 188,668 $ 478,123
Richard R. D'Antoni.............. -- 0.0% -- -- -- --
Dale K. Edwards.................. 80,000 12.8% 6.00 05/06/07 301,869 764,996
Deborah A. Johnson............... -- 0.0% -- -- -- --
R. Alan Gleghorn................. 15,000 2.4% 6.00 05/06/07 56,601 143,437
Charles W. McQueary.............. 40,000 6.4% 7.50 05/01/07 204,957 504,060
Charles W. McQueary.............. 160,000 25.6% 8.50 12/01/07 983,002 4,459,130
</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 market price of the Common Stock on the date the option
was granted 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 1997
and Option Values as of December 31, 1997
<TABLE>
<CAPTION>
Number of Number of Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Warrants/Options at Warrants/Options at
on Value December 31, 1997 December 31, 1997(1)
---------------------------- ---------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey............... -- $ -- 844,665 66,000 $ 7,586,875 $ 328,580
Richard R. D'Antoni.......... -- -- 391,000 -- 1,612,875 --
Dale K. Edwards.............. -- -- 56,000 144,000 363,280 682,720
Deborah A. Johnson........... -- -- 23,333 76,667 57,866 190,134
R. Alan Gleghorn............. -- -- 41,600 77,400 224,608 398,862
Charles W. McQueary.......... -- -- -- 200,000 -- 366,000
</TABLE>
(1) Based upon the closing sale price of the Company's Common Stock of $10.13
per share as reported on the Nasdaq National Market on December 31, 1997,
less the exercise price of the options.
5
<PAGE>
Employment and Termination Agreements
The Company has entered into employment agreements with Messrs. Posey,
Edwards, Gleghorn and McQueary and Ms. Johnson to serve in their respective
current positions. The agreement with Mr. Posey, which expires June 30, 2001,
currently provides for an annual base salary of $332,150, plus an annual bonus
based upon the achievement of certain operating goals. In the event Mr. Posey's
employment is terminated without cause or there is a "change in control" of the
Company (as defined in his employment agreement), Mr. Posey is entitled to
receive severance benefits equal to the present value of 36 months of his
salary, bonus, and certain other benefits.
The employment agreements with Messrs. Edwards and Gleghorn
automatically renew in November of each year and currently provide for annual
base salaries of $205,000 and $150,000, respectively. Messrs. Edwards' and
Gleghorn's agreements provide for the payment of the purchase price of shares of
Common Stock 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. In addition to the
provisions described above, the agreements with Messrs. Edwards and Gleghorn
provide for an annual bonus based upon the achievement of certain operating
goals. Ms. Johnson's agreement, which expires October 18, 1998, currently
provides for an 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 base salary and bonus through
the later of October 18, 1998 or one year following such termination or change
in control. Mr. McQueary's agreement automatically renews in April of each year
and currently provides for an annual base salary of $150,000 and an annual bonus
based upon the achievement of certain operating goals. In the event Mr.
McQueary's employment is terminated without cause or there is a change in
control of the Company, Mr. McQueary is entitled to receive his base salary
through the later of the anniversary of the agreement or six months following
such termination or change in control.
Director Compensation
Members of the Board of Directors receive no cash compensation in their
capacities as Directors. Each Director not employed by the Company is 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. 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.
6
<PAGE>
Executive Officers of the Company
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
H. Wayne Posey................................... 59 President, Chief Executive Officer, and Director
Dale K. Edwards.................................. 35 Senior Vice President-- Development
Deborah A. Johnson............................... 45 Senior Vice President-- Administration and
Secretary
Charles W. McQueary.............................. 45 Senior Vice President-- Operations
Robert M. Sontheimer............................. 57 Senior Vice President-- Managed Care
Robert D. Smith.................................. 37 Vice President-- Finance
Gregory A. Wagoner, M.D.......................... 51 Vice President-- Medical Affairs
</TABLE>
H. Wayne Posey, a co-founder of the Company, has been the President,
Chief Executive Officer, and a Director 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. 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 Gentle Dental Services Corporation, a publicly held dental practice
management company.
Dale K. Edwards has served as a Vice President of the Company with
primary responsibility for developing affiliations with physician groups since
November 1994 and as Senior Vice President since July 1997. From November 1993
to November 1994, Mr. Edwards was Vice President of Physician Network
Development with Columbia/HCA Healthcare Corporation, an integrated healthcare
delivery company ("Columbia/HCA"), and with Medical Care America, Inc., a
publicly owned operator of outpatient surgical centers, 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.
Deborah A. Johnson has served as Senior Vice President
- --Administration of the Company since October 1996 and as Secretary since
February 1997. From February 1995 to October 1996 Ms. Johnson was, successively,
Senior Vice President -- Operations and Senior Vice President --Administration
of MedPartners, Inc., a physician practice management company. From 1978 to 1994
Ms. Johnson served in various executive capacities with Humana Inc., an
integrated healthcare delivery company, Galen Health Care, Inc., a hospital
management company, and Columbia/HCA. Her positions have included Legal Counsel,
Director of Strategic Planning, Vice President -- Information Systems, and Vice
President -- Internal Audit.
Charles W. McQueary has served as Senior Vice President -- Operations
of the Company since December 1997. Prior to joining the Company in May 1997, he
was Regional Vice President for MedPartners, Inc., a publicly traded physician
practice management company, from November 1995 to May 1997. He served as Chief
Operating Officer and Chief Financial Officer of Asthma and Allergy Care
America, Inc., a physician practice management company, from September 1993 to
November
7
<PAGE>
1995. From October 1987 to September 1993, Mr. McQueary was president of his own
privately held consulting firm, specializing in healthcare acquisitions and
physician practice management.
Robert M. Sontheimer has served as Senior Vice President with primary
responsibility for managed care services to affiliated physicians and formation
and management of IPA networks since December 1997. He was the founder of PMC
Medical Management, Inc. ("PMC"), the capitation management services provider
acquired by the Company in December 1997, and has served as its President and
Chief Executive Officer since September 1992.
Robert D. Smith has served as Vice President and Controller of the
Company since January 1997 and Vice President -- Finance since April 1, 1998.
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.
Gregory A. Wagoner, M.D., who also holds an M.B.A. degree, has been
Vice President --Medical Affairs of the Company since December 1997. He also
serves as Medical Director of PMC, a position he has held since April 1997. From
1995 to March 1997 he served as Vice President of Medical Affairs of FHP
International Corporation, an HMO that was publicly held until its acquisition
in February 1997. From 1991 to 1994, he served as Regional Medical Director with
Cigna HealthCare of California.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
General
This report is submitted by the Compensation Committee of the Company
at the direction of the Board of Directors. The Compensation Committee is
comprised of Richard E. Ragsdale, H. Wayne Posey, and E. Thomas Chaney, and is
charged by the Board of Directors with establishing and administering a
compensation program that enables the Company to attract and retain qualified
officers and key executives, to give them incentive to pursue the maximization
of stockholder value, and to recognize their success in achieving both
qualitative and quantitative goals that benefit the Company and its
stockholders.
Compensation Philosophy
The Compensation Committee believes that the Company's executives
should be rewarded based upon their success in meeting the Company's operational
goals, improving its earnings, establishing its leadership role in the
healthcare field, and generating returns for its stockholders. The Compensation
Committee strives to establish levels of compensation that take such factors
into account and provide appropriate recognition for past achievement and
incentive for future success.
The Compensation Committee also recognizes that the demand for
executives with expertise and experience in the healthcare and physician
practice management fields is intense. Therefore, in order to attract and retain
qualified persons, the Compensation Committee believes that the Company must
offer current compensation at levels consistent with other publicly held
healthcare and physician practice management companies that are comparable in
size and performance to the Company.
In addition, the Compensation Committee believes that it is in the
best interests of the Company's stockholders to offer its executives meaningful
equity participation so that the interests of the Company's executives will be
aligned with those of the Company's stockholders. The Compensation Committee
feels that the historic mix of cash compensation and equity participation has
proven to be effective in stimulating the Company's executives to meet both
long-term and short-term goals. In accordance with these objectives, the total
compensation program for the executive officers of the Company consists of three
components:
(1) base salary;
(2) annual incentive compensation consisting of bonuses based upon
achievement of financial performance objectives; and
(3) long-term equity incentives composed of stock options and other
incentive awards, including outright share grants, which may be
conditioned upon future events such as continued employment
and/or the attainment of performance objectives. Performance
objectives may be measured by reference to the earnings of the
Company or to the market value of the Common Stock, among other
things.
It is the Company's policy to consider the deductibility of executive
compensation under applicable income tax rules as a factor used to make specific
compensation determinations consistent with the goals of the Company's executive
compensation program. No component of the Company's executive
9
<PAGE>
compensation has been determined to be non-deductible to the Company for the
year ended December 31, 1997.
Base Salary
The Company's annual salary levels are intended to reflect the level of
responsibility of the particular executive officer, with increases in salary
resulting from the individual performance of the executive officer and the
financial results of the Company, as measured by increases over prior year
levels of the Company's pre-tax earnings, pre-tax profit margin, return on
capital, earnings per share and cash flow from operations. No specific weighting
was assigned to any of these factors. In determining the levels of annual
compensation payable to the executive officers, the Company considered
comparisons to compensation paid to executive officers in companies in the
health care industry with comparable performance and operating histories. The
companies utilized in the comparison were located throughout the United States
and many, but not all, of such companies are included in the peer group indices
used in the performance graph located elsewhere in this Proxy Statement. The
Company does not maintain a reference record of where its compensation stands
with respect to other companies. However, the Compensation Committee and the
Board of Directors take such levels of comparison into account in determining
appropriate levels of compensation for the Company's executives.
Annual Bonus
The Company's annual bonus program is intended to promote superior
performance by making incentive compensation an important part of the executive
officers' compensation. In calculating such bonuses, the Compensation Committee
examines both objective performance, in which a given executive's performance is
measured in terms of financial results as compared to budgeted targets and
investor expectations, and subjective performance, which is measured and
periodically evaluated. For the 1997 fiscal year, three of the Company's Vice
Presidents earned bonuses of $16,431, $5,200 and $25,000, respectively.
Other executive officers of the Company, corporate vice presidents, and
other managers, also are entitled to receive annual bonuses based upon a
percentage of their base salaries and Company and/or individual performance.
Incentive Compensation
As a growth company, the Company has utilized equity-based
compensation, since inception, in the form of stock option grants, to reward
contributions by the executive officers to the Company's long-term stock
performance. These grants are intended not only to motivate and retain executive
officers, but also to more closely align the executive officers' interests with
those of the Company's stockholders.
The Option Committee, working closely with the Compensation Committee,
determines stock option grants valued in whole based on the Common Stock of the
Company. Specific grants are determined taking into account an executive's
current responsibilities and historical performance, as well as the executive's
perceived contribution to the Company's results of operations. Awards are also
used to provide an incentive to newly promoted officers at the time that they
are asked to assume greater responsibilities. In evaluating award grants, the
Compensation Committee considers prior grants and shares currently held, as well
as the recipient's success in meeting operational goals and the recipient's
level of responsibility. However, no fixed formula is utilized to determine
particular grants. The
10
<PAGE>
Company believes that the opportunity to acquire a significant equity interest
in the Company is a strong motivation for its executives to pursue the long-term
interests of the Company and its stockholders, and promotes longevity and
retention of key executives. Information relating to stock options granted to
the five most highly compensated executive officers of the Company is set forth
elsewhere in this Proxy Statement.
Compensation Paid in 1997 to the Chief Executive Officer
Mr. H. Wayne Posey is employed as President and Chief Executive Officer of
the Company. Mr. Posey's employment agreement expires June 30, 2001 and
currently provides for an annual base salary of $332,150. Mr. Posey received no
bonus in 1997. Mr. Posey is entitled to participate in any bonus plan approved
by the Compensation Committee for the Company's management. Mr. Posey is also
provided an automobile and disability and health insurance through a
Company-wide plan or otherwise. Mr. Posey's employment agreement provides for
appropriate incentive-based compensation and equity participation consistent
with the philosophies set forth in this report. In the event Mr. Posey's
employment is terminated without cause or there is a "change of 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.
Conclusion
The Compensation Committee believes that the levels and mix of
compensation provided to the Company's executives during 1997 were appropriate
and were instrumental in the achievement of the Company's goals for 1997. It is
the intent of the Compensation Committee to ensure that the Company's
compensation programs continue to motivate its executives and reward them for
being responsive to the long-term interests of the Company and its stockholders.
The foregoing report is submitted by the following directors of the
Company, comprising all of the members of the Compensation Committee of the
Board of Directors.
COMPENSATION COMMITTEE
Richard E. Ragsdale
H. Wayne Posey
E. Thomas Chaney
11
<PAGE>
Compensation Committee Interlocks and Insider Participation and Certain
Transactions
In May 1997, the Company lent $600,000 to H. Wayne Posey, its
President, Chief Executive Officer and a Director of the Company. The loan,
which accrued interest at 6.5% per annum, was repaid in March 1998 through the
cancellation of warrants held by Mr. Posey that were in the money in an
aggregate amount equal to the outstanding principal and accrued interest on the
loan.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and Directors, and persons who own
more than ten percent of the Company's Common Stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). The Company believes that each such person complied with
such filing requirements during the fiscal year ended December 31, 1997, except
for Messrs. McQueary and Buysse, whose initial reports on Form 3 were not timely
filed.
12
<PAGE>
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 by (i) each person
who is known by the Company to be the beneficial owner of more than five percent
of the Company's outstanding Common Stock, (ii) each Director of the Company,
(iii) each Named Executive, and (iv) all Directors and executive officers of the
Company as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed, based on information furnished by
such owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Unless otherwise indicated,
the address of each stockholder is: c/o ProMedCo Management Company, 801 Cherry
Street, Suite 1450, Fort Worth, Texas 76102.
<TABLE>
<CAPTION>
Shares Beneficially
Number and Address Owned(1)
of Beneficial Owner Number Percent
<S> <C> <C>
H. Wayne Posey................................................................. 1,544,665 11.2%
Richard E. Ragsdale............................................................ 2,021,540 14.6%
David T. Bailey, M.D.(2)....................................................... 2,350 *
Charles J. Buysse, M.D......................................................... 2,200 *
E. Thomas Chaney............................................................... 1,114,780 8.3%
James F. Herd, M.D............................................................. 155,020 1.2%
Jack W. McCaslin............................................................... 377,952 2.9%
Robert D. Smith................................................................ 11,500 *
Robert M. Sontheimer........................................................... 348,242 2.7%
Charles W. McQueary............................................................ 8,000 *
Richard D'Antoni............................................................... 321,000 2.4%
Dale K. Edwards................................................................ 104,000 *
R. Alan Gleghorn............................................................... 69,400 *
Deborah A. Johnson............................................................. 31,666 *
T. Rowe Price Associates(3).................................................... 844,900 6.5%
Bessemer Venture Partners III L.P.(4).......................................... 691,528 5.3%
Abilene Diagnostic Clinic, P.L.L.C............................................. 1,994,250 15.4%
All Directors and executive officers
as a group (14 persons)..................................................... 6,112,315 38.2%
</TABLE>
________________________
* Less than 1%
(1) Includes shares issuable upon the exercise of options that are exercisable
within 60 days of the date of this Proxy Statement. 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 of any other person.
(2) Excludes 1,994,250 shares held by to Abilene Diagnostic Clinic, P.L.L.C.,
of which Dr. Bailey is President.
(3) Based upon a Schedule 13G filed with the Commission on February 10, 1998.
The stockholder has sole investment power with respect to all of such
shares and sole voting power with respect to 362,300 of such shares. These
securities are owned by various individual and institutional investors
which T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of
such securities; however, T. Rowe Price expressly disclaims that it is in
fact, the beneficial owner of such securities. The address of T. Rowe Price
Associates is 100 East Pratt Street, Baltimore, Maryland 21202.
(4) Based upon a Schedule 13G filed with the Commission on February 12, 1998.
Comprised of 655,310 shares as to which the owner has sole investment and
voting power and 36,218 shares as to which it has shared investment and
voting power. The address of Bessemer Venture Partners is 1025 Old Country
Road, Suite 205, Westbury, New York 11590.
13
<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The following is a comparative performance graph, which compares the
percentage change of cumulative total shareholder return on the Company's common
Stock with (a) the performance of a broad equity market indicator, the CRSP
Index for Nasdaq Stock Market (US Companies) (the "Broad Index"), and (b) the
performance of a published industry index, the CRSP Index for Nasdaq Health
Services Stocks (the "Industry Index"). The graph begins on March 12, 1997, the
date on which the Company's Common Stock first began trading on the Nasdaq
National Market, and assumes the investment on such date of $100 in the
Company's Common Stock, the Broad Index and the Industry Index and assumes that
all dividends, if any, were reinvested at the time they were paid.
<TABLE>
<CAPTION>
Date Company Index Market Index Peer Index
<S> <C> <C> <C>
03/12/97 100.000 100.000 100.000
03/31/97 100.000 93.824 93.147
06/30/97 94.444 111.023 103.968
09/30/97 116.667 129.807 113.119
12/31/97 112.500 121.764 101.667
</TABLE>
The index level for all series was set to 100.0 on 03/12/97
14
<PAGE>
OTHER MATTERS
The Board of Directors has no knowledge of any additional business to
be presented for consideration at the meeting. Should any such matters properly
come before the meeting or any adjournments thereof, the persons named in the
enclosed proxy will have discretionary authority to vote such proxy in
accordance with their best judgment on such other matters and with respect to
matters incident to the conduct of the meeting. Certain financial and other
information regarding the Company, including audited consolidated financial
statements of the Company and its subsidiaries for the last fiscal year, is
included in the Company's 1997 Annual Report to Stockholders mailed together
with this Proxy Statement.
Stockholders may obtain a copy of the Company's Annual Report on Form
10-K by writing to Deborah A. Johnson, Secretary, ProMedCo Management Company,
801 Cherry Street, Suite 1450, Fort Worth, Texas 76102. Additional copies of
this Proxy Statement and the accompanying proxy also may be obtained from Ms.
Johnson.
The affirmative vote of the holders of a majority of the shares
entitled to vote that are present in person or represented by proxy at the
meeting is required to elect Directors and act on any other matters properly
brought before the meeting. Shares represented by proxies marked "withhold
authority" with respect to the election of the nominee for Director will be
counted for the purpose of determining the number of shares represented by proxy
at the meeting. Such proxies thus will have the same effect as if the shares
represented thereby were voted against such nominee. If a broker indicates on
the proxy that it does not have discretionary authority to vote in the election
of Directors, those shares will not be counted for the purpose of determining
the number of shares represented by proxy at the meeting.
The Company will pay the cost of soliciting proxies. In addition to
solicitation by use of the mail, certain officers and employees of the Company
may solicit the return of proxies by telephone, telegram, or in person. The
Company has requested that brokerage houses, custodians, nominees, and
fiduciaries forward soliciting materials to the beneficial owners of Common
Stock of the Company and will reimburse them for their reasonable out-of-pocket
expenses.
A list of stockholders of record entitled to be present and vote at the
meeting will be available at the offices of the Company for inspection by the
stockholders during regular business hours from May 8, 1998 to the date of the
meeting. The list will also be available during the meeting for inspection by
stockholders who are present. Votes will be tabulated by an automated system
administered by Harris Trust and Savings Bank, Chicago, Illinois, the Company's
transfer agent. Members of the Company's independent accounting firm, Arthur
Andersen LLP, are expected to attend the meeting to make a statement if they so
desire and to respond to questions from stockholders.
In order to assure the presence of the necessary quorum at the meeting,
please sign and mail the enclosed proxy promptly in the envelope provided. No
postage is required if mailed within the United States. Signing and returning
the proxy will not prevent you from attending the meeting and voting in person,
should you so desire.
15
<PAGE>
STOCKHOLDER PROPOSALS FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder who wishes to present a proposal for consideration at
the annual meeting of stockholders to be held in 1999 must submit such proposal
in accordance with the rules promulgated by the Commission. In order for a
proposal to be included in the proxy materials relating to the 1999 annual
meeting, it must be received by the Company no later than December 19, 1998.
Such proposals should be addressed to Deborah A. Johnson, Secretary, ProMedCo
Management Company, 801 Cherry Street, Suite 1450, Fort Worth, Texas 76102.
16
<PAGE>
[card front]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROMEDCO MANAGEMENT COMPANY-- COMMON STOCK PROXY -- for the Annual Meeting of
Stockholders at 9:00 a.m. local time, Wednesday, May 20, 1998, at 815 Main
Street, Fort Worth, Texas 76102.
The undersigned hereby appoints H. Wayne Posey and Deborah A. Johnson, or
either of them, with full power of substitution, as Proxies to represent and
vote all of the shares of Common Stock of ProMedCo Management Company held of
record by the undersigned at the above-stated Annual Meeting, and any
adjournments thereof, upon the matter set forth in the Notice of Annual Meeting
of Stockholders and Proxy Statement dated April 20, 1998, as follows:
1. ELECTION OF JAMES F. HERD, M.D. AND CHARLES J. BUYSSE, M.D. AS CLASS I
DIRECTORS FOR A TERM OF THREE YEARS
FOR BOTH NOMINEES ___ WITHHELD AS TO BOTH NOMINEES
- ----
___ FOR, EXCEPT VOTE WITHHELD AS TO THE FOLLOWING NOMINEE:
2. TO TAKE ANY ACTION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF
The Board of Directors recommends a vote FOR Messrs. Herd and Buysse as
Directors.
This proxy, when properly executed, will be voted as specified. If no
specification is made, it will be voted for Messrs. Herd and Buysse as
Directors, and in the discretion of the Proxy or Proxies on any other business
that may properly come before the Annual Meeting or any adjournments thereof.
[card reverse]
Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on
this proxy. When signing as attorney, trustee, executor, administrator, guardian
or corporate officer, please give your FULL title.
MARK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
Any proxy heretofore given by the undersigned with respect to such stock is
hereby revoked. Receipt of the Notice of the 1998 Annual Meeting and Proxy
Statement, and 1997 Annual Report to Stockholders is hereby acknowledged. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------- --------------------------------
SIGNATURE DATE SIGNATURE DATE
