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. 2)
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.
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(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):
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|_| 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:
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<PAGE>
ProMedCo Management Company
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 14, 1999
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
ProMedCo Management Company (the "Company") will be held at 9:00 a.m. local time
on Friday, May 14, 1999, at The Petroleum Club, 777 Main Street, Fort Worth,
Texas 76102 for the following purposes:
1. to elect two Class II Directors to serve on the Board of Directors for a
three-year term;
2. to consider and act upon an amendment to the Company's 1996 Stock Option
Plan to increase the number of shares of Common Stock that may be issued
pursuant to stock options granted thereunder by 1,000,000 shares; and
3. 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 March 31,
1999 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 15, 1999
<PAGE>
ProMedCo Management Company
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
(817) 335-5035
PROXY STATEMENT
FOR THE
1999 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 14, 1999 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 David T. Bailey, M.D. and Jack W. McCaslin to serve
as Class II Directors of the Company for a term of three years and in favor of
the proposed amendment to the Company's 1996 Stock Option Plan.
Only the holders of Common Stock of record at the close of business on
March 31, 1999 are entitled to vote at the meeting. On such date, 21,061,215
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 1998 Annual Report to Stockholders were first mailed
to stockholders on or about April 15, 1999.
<PAGE>
PROPOSAL 1 -- ELECTION OF CLASS II DIRECTORS
The Company's Certificate 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 2001, 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 H. Wayne Posey, Richard E. Ragsdale and E.
Thomas Chaney are Class III Directors. At the meeting, two Class II 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
David T. Bailey, M.D. and Jack W. McCaslin have been nominated by the
Board to serve as Class II 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>
H. Wayne Posey(1)(2)............................... 60 Chairman, President, Chief
Executive Officer and Director III
Richard E. Ragsdale(1)(2)(3)....................... 55 Director III
David T. Bailey, M.D.(4)........................... 53 Director II
Charles J. Buysse, M.D............................. 58 Director I
E. Thomas Chaney(1)(2)(3).......................... 56 Director III
James F. Herd, M.D................................. 63 Director I
Jack W. McCaslin(4)................................ 59 Director II
</TABLE>
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Option Committee
(4) Member of Audit Committee
Class II Nominees:
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. He is presently serving as Chairman of the
medical section at Abilene Regional Medical Center and is a member of the
patient/physician advocacy committee for the Texas Medical Association.
<PAGE>
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.
Continuing Directors:
The persons named below will continue to serve as directors until the
annual meeting of stockholders in the years indicated and until their successors
are elected and take office. Stockholders are not voting at this Annual Meeting
on the election of Class I and Class III directors.
Class I Directors Serving Until 2001:
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 past President of Naples Medical Center,
P.A., a ProMedCo affiliated physician group, and has been a Director of the
Company since November 1997.
Class III Directors Serving Until 2000:
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 and
Chairman of its Board of Directors since December 1998. 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 has also served as a director of InterDent, Inc. (formerly Gentle
Dental Services Corporation), a publicly held dental practice management company
since 1996.
Richard E. Ragsdale, a co-founder of the Company, served as the
Chairman of its Board of Directors from its inception until December 1998. He is
currently Chairman of the Board's Executive Committee. He was also a co-founder
and served as the Chairman of the Board of Directors of Community Health
Systems, Inc. ("CHS"), a non-urban hospital management company, from its
inception in 1985 until his retirement in 1998, and has been a director of The
RehabCare Group, Inc., a publicly owned rehabilitation services management
company, since 1993.
E. Thomas Chaney served as President and Chief Executive Officer of
CHS, which he co-founded in 1985, until his retirement in 1997. A co-founder of
the Company, he has served as a Director since its inception and is a member of
the Board's Executive Committee.
<PAGE>
Certain Board Information
The Board of Directors held three meetings and acted by unanimous
consent on one occasion during the fiscal year ended December 31, 1998. The
Executive Committee acted by unanimous consent on 15 occasions, the Compensation
Committee held two meetings, the Option Committee held two meetings and acted by
unanimous consent on 15 occasions and the Audit Committee held two 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.
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 recommends that the stockholders vote FOR the
election of Messrs. Bailey and McCaslin as Class II 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.
Bailey and McCaslin 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.
PROPOSAL 2 -- AMENDMENT OF 1996 STOCK OPTION PLAN
Introduction
The Board of Directors of the Company has unanimously approved a
resolution, subject to shareholder approval, approving an amendment to the
Company's 1996 Stock Option Plan (the "Plan") to increase the number of shares
of Common Stock that may be issued pursuant to stock options granted under the
Plan by 1,000,000 shares. The Plan originally provided for the grant of options
to purchase up to 2,100,000 shares of Common Stock. Before giving effect to the
proposed amendment, options to purchase 228,900 shares of Common Stock remain
available for issuance under to the Plan. Accordingly, if the amendment is
approved, options to purchase 1,228,900 shares of Common Stock will be available
for issuance under the Plan. A copy of the Plan, as amended, is attached hereto
as Appendix A.
The Board of Directors recommends that stockholders vote for the
amendment of the Plan. The Board believes the Plan provides a means for certain
key employees, including executive officers of the Company, directors not
employed by the Company, physicians and mid-level providers employed by the
Company's affiliated physician groups, and consultants and advisors to the
Company to increase their ownership in the Company. The Board believes that such
incentive awards will further the identification
<PAGE>
of these individuals' interests with those of the Company's. No determination
has been made as to the amount of options to be granted to any individual.
A summary of the Company's 1996 Stock Option Plan follows:
Eligibility
Certain key employees, including executive officers of the Company,
non-employee directors, physicians and mid-level providers employed by the
Company's affiliated physician groups, and consultants and advisors to the
Company are eligible to receive stock options under the Plan. The Company
estimates that there are currently approximately 4,300 individuals eligible to
receive stock options under the Plan.
The Plan also provides that newly elected or appointed non-employee
directors shall be granted non-qualified options to purchase 5,000 shares of
stock. Non-employee directors who continue to serve on the Board shall be
granted nonqualified options to purchase 2,000 shares of stock on an annual
basis following the annual meeting of stockholders
Administration
The Plan is administered by the Option Committee, which is comprised of
two or more directors of the Company who are non-employee directors. In addition
to having general supervisory and interpretive authority over the Plan, the
Committee determines, subject to the terms and limits of the Plan, the employees
or other persons, if any, to whom options will be granted, the time at which
options are to be granted, the number of shares to be subject to each option,
and the terms and conditions of exercise of options.
Award of Stock Options
The Option Committee shall determine whether the option granted is to
be designated an incentive stock option. Incentive stock options have an option
price per share equal to or greater than the market value of the Common Stock on
the date such option is granted. If the incentive stock option is granted to an
employee holding stock possessing more than 10 percent of the total combined
voting power of all classes of capital stock of the Company, the option price
per share is not less than 110 percent of the market value of the Common Stock
on the date the option is granted. Nonqualified options have an option price per
share not less than 85% of the market value of the Common Stock on the date such
options are granted.
Adjustments
Adjustments will be made in the number of shares that may be issued
under the Plan in the event of a future stock dividend, stock split or similar
change in the number of outstanding shares of Common Stock or the future
creation or issuance to stockholders generally of rights, options or options for
the purchase of Company Common Stock or preferred stock.
Exercise of Options
An option may be exercised by payment of the full purchase price in
cash. In addition, an option holder may elect to receive cash or shares of
Common Stock having a market value equal to the excess of
<PAGE>
the market value of one share of Common Stock over the option price times the
number of shares with respect to which the option is exercised.
Transferability of Stock Options
No option may be sold, transferred, pledged, or otherwise disposed of,
other than by will or by the laws of descent and distribution. All rights
granted to a participant under the Plan are exercisable during his or her
lifetime only by such participant, or the participant's guardians or legal
representatives. Upon death of a participant, his or her personal representative
or beneficiary may exercise the participant's rights under the Plan.
Amendment of the Plan and Stock Options
The Board of Directors may amend the Plan in such respects as it deems
advisable; provided that the stockholders of the Company must approve any
amendment to the extent such approval is required by (i) state or federal law,
(ii) Section 16 of the Securities Exchange Act of 1934, (iii) the Nasdaq Stock
Market rules or regulations, or (iv) the Internal Revenue Code. Stock options
granted under the Plan may be amended with the consent of the recipient so long
as the amended award is consistent with the terms of the Plan.
Federal Income Tax Consequences
Generally, a participant will not incur federal income tax when he or
she is granted a stock option. Upon exercise of a nonstatutory stock option, a
participant generally will recognize ordinary income (which in the case of an
employee is subject to income tax withholding by the Company) equal to the
difference between the fair market value of the Common Stock on the date of the
exercise and the option price, and the Company is entitled to deduct the amount
recognized by the participant for tax purposes. When a participant exercises an
incentive stock option, he or she generally will not recognize income if he or
she does not sell the shares of Common Stock acquired thereby for at least two
years after the date of grant and one year after exercising the option.
An individual who disposes of the Common Stock before the statutory
holding periods are satisfied will have engaged in a "disqualifying disposition"
and will recognize ordinary compensation income on the difference between the
exercise price of the incentive stock option and the fair market value of the
Common Stock at the time of exercise. The individual's basis in the Common Stock
after a disqualifying disposition is its fair market value at the time of
exercise. The individual will also be subject to tax on capital gain, if any,
upon the sale of the Common Stock on the amount realized in excess of the basis.
Generally, the Company is not entitled to a tax deduction upon the
grant of an option or the exercise of an incentive stock option. If the
individual is engaged in a disqualifying disposition, however, the Company may
take a tax deduction for the amount of ordinary income recognized by the
individual.
<PAGE>
Vote Required
Approval of the proposal to amend the plan requires the affirmative
vote of the majority of the shares represented in person or by proxy at the
meeting.
The Board of Directors recommends that you vote "FOR" the proposal to
amend the 1996 Stock Option Plan.
Executive Compensation
The following table sets forth the compensation earned in the years
ended December 31, 1996, 1997 and 1998 by the Chief Executive Officer and the
four most highly compensated executive officers whose individual remuneration
exceeded $100,000 for 1998 (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........................ 1998 $ 332,150 $ 199,290(2) $ - 300,000 $ 34,102
Chairman, President and CEO 1997 327,383 - - 50,000 26,152
1996 243,750 62,218 - - 23,668
Dale K. Edwards....................... 1998 205,000 132,000(2) - 50,000 -
Senior Vice President--Development 1997 176,667 16,431 - 80,000 -
1996 148,333 43,176 - - -
Deborah A. Johnson.................... 1998 150,000 67,500(2) - - -
Senior Vice President--Administration 1997 150,000 - - - 4,000
1996 30,770 - - - -
Charles W. McQueary................... 1998 205,000 61,500(2) - - -
Senior Vice President--Operations 1997 104,583 25,000(3) - 200,000 -
1996 - - - - -
Robert M. Sontheimer(4)............... 1998 240,000 72,000(2) - - 374
Senior Vice President--Managed Care 1997 19,068 - - - -
1996 - - - - -
</TABLE>
(1) For 1998, reflects payment of professional fees for estate planning and
automobile allowance in the amount of $34,102 for Mr. Posey and payment of
an automobile allowance in the amount of $374 for Mr. Sontheimer. For 1997,
reflects payment of professional fees for estate planning and automobile
allowance in the amount of $26,152 for Mr. Posey and payments for moving
expenses in the amount of $4,000 for Ms. Johnson. For 1996, reflects
payment of professional fees for estate planning and automobile allowance
in the amount of $23,668 for Mr. Posey.
(2) Reflects bonus earned in 1998 and paid in 1999.
(3) Reflects bonus earned in 1997 and paid in 1998.
(4) The Company employed Mr. Sontheimer in December 1997 in connection with
the acquisition of Health Plans, Inc., now PMC Medical Management.
<PAGE>
Option Grants in 1998
<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) 1998 Per Share Date 5% 10%
- ---- ---------- ---- --------- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................. 300,000 42.3% $ 9.00 01/13/08 $ 1,698,015 $ 4,303,105
Dale K. Edwards................ 50,000 7.0% 9.00 01/13/08 283,003 717,184
Deborah A. Johnson............. - 0.0% - - - -
Charles W. McQueary............ - 0.0% - - - -
Robert M. Sontheimer........... - 0.0% - - - -
</TABLE>
(1) Represents options to purchase Common Stock granted pursuant to the 1996
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 1998
and Warrant/Option Values as of December 31, 1998
<TABLE>
<CAPTION>
Number of Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Warrants/Options at Warrants/Options at
on Value December 31, 1998 December 31, 1998(1)
------------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................ 243,693 $ 1,583,549 618,972 348,000 $ 2,968,867 $ 28,000
Dale K. Edwards............... - - 96,000 154,000 176,000 44,000
Deborah A. Johnson............ - - 43,333 56,667 - -
Charles W. McQueary........... - - 40,000 60,000 - -
Robert M. Sontheimer.......... - - - - - -
</TABLE>
- ---------------
(1) Based upon the closing sale price of the Company's Common Stock of $6.00
per share as reported on the NASDAQ National Market on December 31, 1998,
less the exercise price of the options.
Employment and Termination Agreements
The Company has entered into employment agreements with Messrs. Posey,
Edwards, Sontheimer and McQueary, and Ms. Johnson to serve in their respective
current positions. The agreement with Mr. Posey, which expires February 15,
2004, currently provides for an annual base salary of $425,000, 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
<PAGE>
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 agreement with Mr. Edwards automatically renews in
November of each year and currently provides for an annual base salary of
$217,000. In addition, the agreement with Mr. Edwards provides for an annual
bonus based upon the achievement of certain operating goals. Ms. Johnson's
agreement, which automatically renews in October of each year, currently
provides for an annual base salary of $150,000 and an annual bonus based upon
the achievement of certain operating goals. Mr. McQueary's agreement
automatically renews in April of each year and currently provides for an annual
base salary of $215,000 and an annual bonus based upon the achievement of
certain operating goals. Mr. Sontheimer's agreement, which expires in December
2000 (with certain renewal provisions), currently provides for an annual base
salary of $240,000 and an annual bonus based upon the achievement of certain
operating goals. The employment agreements with Messrs. Edwards, Sontheimer and
McQueary, and Ms. Johnson each include a provision that in the event of a
termination without cause or a change in control of the Company, the individual
is entitled to receive his or her base salary and average bonus through the
later of the expiration of the agreement or periods ranging from six to twelve
months, depending on the individual agreement.
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.
<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.......................... 60 Chairman, President, Chief Executive Officer and Director
Dale K. Edwards......................... 36 Senior Vice President, Development
Deborah A. Johnson...................... 46 Senior Vice President, Administration and Secretary
Charles W. McQueary..................... 46 Senior Vice President, Operations
Robert M. Sontheimer.................... 58 Senior Vice President, Managed Care
Robert D. Smith......................... 38 Senior Vice President, Chief Financial Officer
Gregory A. Wagoner, M.D................. 52 Vice President, Medical Affairs
</TABLE>
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 and
Chairman of its Board of Directors since December 1998. 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 has also
served as a director of InterDent, Inc. (formerly Gentle Dental Services
Corporation), a publicly held dental practice management company since 1996.
Dale K. Edwards has served as a Vice President of the Company with
primary responsibility for developing affiliations with physician groups from
November 1994 until July 1997, at which time he was promoted to Senior Vice
President. 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.
<PAGE>
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 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 Health
Plans, Inc., 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 Senior Vice President and Chief
Financial Officer of the Company since August 1998. Mr. Smith joined the Company
in January 1997 as Vice President and Controller and later served as Vice
President-Finance from April 1998 to August 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.
<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 H. Wayne Posey, Richard E. Ragsdale, 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 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
<PAGE>
compensation has been determined to be non-deductible to the Company for the
year ended December 31, 1998.
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 takes 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. Executive officers of the Company, corporate vice
presidents, and other managers, 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
Option 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 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.
<PAGE>
Compensation Paid in 1998 to the Chief Executive Officer
Mr. H. Wayne Posey is employed as Chairman, President and Chief
Executive Officer of the Company. Mr. Posey's employment agreement expires
February 15, 2004 and currently provides for an annual base salary of $425,000.
Mr. Posey earned a $199,290 bonus in 1998. 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.
Conclusion
The Compensation Committee believes that the levels and mix of
compensation provided to the Company's executives during 1998 were appropriate
and were instrumental in the achievement of the Company's goals for 1998. 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
H. Wayne Posey
Richard E. Ragsdale
E. Thomas Chaney
<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.
In August 1998, the Company lent $2.0 million to Mr. Posey. Beginning
in August 2003, the loan will be repaid in annual installments of $200,000 plus
accrued interest of 7.0%, with the remaining balance due in August 2008. This
loan is secured by a pledge of warrants, with an exercise price of $1.25, to
purchase up to 620,665 shares of the Company's common stock.
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, 1998, except
for Messrs. Buysse, McQueary and Wagoner, who each were late in filing their
Initial Statement of Beneficial Ownership on Form 3, and Messrs. Bailey, Buysse,
Gleghorn and Wagoner, who each were late in filing one Statement of Changes of
Beneficial Ownership on Form 4.
<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 1, 1999 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................................................................. 1,578,972 7.3%
Richard E. Ragsdale(2)......................................................... 2,261,240 10.3%
David T. Bailey, M.D........................................................... 71,701 *
Charles J. Buysse, M.D......................................................... 2,200 *
E. Thomas Chaney............................................................... 1,114,780 5.2%
James F. Herd, M.D............................................................. 155,020 *
Jack W. McCaslin............................................................... 377,952 1.8%
Robert D. Smith................................................................ 36,500 *
Robert M. Sontheimer........................................................... 347,142 1.6%
Charles W. McQueary............................................................ 48,000 *
Dale K. Edwards................................................................ 154,000 *
Deborah A. Johnson............................................................. 51,666 *
Gregory A. Wagoner............................................................. 7,711 *
Wellington Management Company, LLP(3).......................................... 1,794,600 8.5%
T. Rowe Price Associates(4).................................................... 1,404,700 6.7%
All Directors and executive officers as a group (14 persons)................... 6,206,944 26.3%
</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) This amount includes 15,000 shares owned by Mr. Ragsdale's spouse and
50,000 shares owned by the Ragsdale Unified Credit Trust, as to which Mr.
Ragsdale disclaims beneficial ownership.
(3) Based upon a Schedule 13G filed with the Commission on February 9, 1999.
The owner has sole investment and voting power with respect to none of such
shares, shared voting power with respect to 927,100 of such shares, and
shared investment power with respect to all of such shares. The address of
Wellington Management Company, LLP is 75 State Street, Boston,
Massachusetts 02109.
(4) Based upon an amendment to a Schedule 13G filed with the Commission on
February 10, 1999. 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.
<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The following is a comparative performance graph, which compares the
percentage change of cumulative total stockholder 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.
3/12/97 12/31/97 12/31/98
ProMedCo Management Company 100 113 67
NASDAQ Stock Market (U.S. Companies) 100 122 171
NASDAQ Health Services Stocks 100 102 86
<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 1998 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, approve the amendment to the 1996 Stock
Option Plan 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 April 30, 1999 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.
<PAGE>
STOCKHOLDER PROPOSALS FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder who wishes to present a proposal for consideration at
the annual meeting of stockholders to be held in 2000 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 2000 annual
meeting, it must be received by the Company no later than December 16, 1999. If
a stockholder intends to submit a proposal at the 2000 annual meeting that is
not eligible for inclusion in the proxy materials relating to that meeting, the
stockholder must do so no later than February 29, 2000. If the stockholder fails
to comply with this notice provision, the proxy holders will be allowed to use
their discretionary voting authority when and if the proposal is raised at the
2000 annual meeting of stockholders. Such proposals should be addressed to
Deborah A. Johnson, Secretary, ProMedCo Management Company, 801 Cherry Street,
Suite 1450, Fort Worth, Texas 76102.
<PAGE>
Appendix A
PROMEDCO MANAGEMENT COMPANY
AMENDED 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 Option 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 of its meetings and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
A-1
<PAGE>
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 3,100,000 shares of the Common Stock of the
Company, no par value per share (the "Common Stock"). 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 or appointed 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.
A-2
<PAGE>
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.
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
A-3
<PAGE>
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 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.
8.3 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.
8.4 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.
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.
8.5 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
A-4
<PAGE>
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."
8.6 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.
8.7 Unless otherwise provided in any option agreement, 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 8.7.
8.8 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.
8.9 To the extent that the exercise of options by one of the
alternative settlement methods provided for in Section 8.7 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 8.7 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.
8.10 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
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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 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.
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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 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).
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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.
13. Disqualifying Dispositions
If an Optionee disposes of shares of Common Stock acquired upon
exercise of an Incentive Stock Option within two years from the date the Options
is granted or within one 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.
14. 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.
15. 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.
16. 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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[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 on Friday, May 14, 1999, at The Petroleum
Club, 777 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 relating to such Annual Meeting, as follows:
1. ELECTION OF DAVID T. BAILEY, M.D. and JACK W. MCCASLIN AS CLASS II
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 consider and act upon an amendment to the Company's 1996 Stock Option
Plan to increase the number of shares of Common Stock that may be issued
pursuant to stock options granted thereunder by 1,000,000 shares
___ FOR ___ AGAINST ____ ABSTAIN
3. 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. Bailey and McCaslin as
Directors.
This proxy, when properly executed, will be voted as specified. If no
specification is made, it will be voted for Messrs. Bailey and McCaslin as
Directors, and for the proposal to amend the 1996 Stock Option Plan 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 1999 Annual Meeting and Proxy
Statement, and 1998 Annual Report to Stockholders is hereby acknowledged. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE DATE SIGNATURE DATE
