ProMedCo Management Company
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 8, 2000
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
ProMedCo Management Company (the "Company") will be held at 9:00 a.m. local time
on September 8, 2000, at The Fort Worth Club, 306 West 7th Street, Fort Worth,
Texas 76102 for the following purposes:
1. to elect three Class III 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 July 14,
2000, 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
August 14, 2000
<PAGE>
ProMedCo Management Company
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
(817) 335-5035
PROXY STATEMENT
FOR THE
2000 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 September 8, 2000,
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 or her 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 H. Wayne Posey, Richard E. Ragsdale, and E. Thomas
Chaney to serve as Class III Directors of the Company for a term of three years.
Holders of the Company's Common Stock, Series A Preferred Stock and
Series B Preferred Stock of record at the close of business on July 14, 2000,
are entitled to vote at the meeting. The Common Stock, the Series A Preferred
Stock, and the Series B Preferred Stock will vote together as a single class.
Holders of Common Stock are entitled to one vote per share held on each matter
to be voted upon at the meeting, and holders of preferred stock are entitled to
the number of votes that could be cast by holders of the number of shares of
Common Stock into which their preferred stock is convertible. On the record
date, 22,430,675 shares of Common Stock were outstanding, the outstanding Series
A Preferred Stock was convertible into 17,000,000 shares of Common Stock, and
the outstanding Series B Preferred Stock was convertible into 3,125,000 shares
of Common Stock. The holders of a majority of the voting power must be present
in person or by proxy 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 1999 Annual Report to Stockholders were first mailed
to stockholders on or about August 14, 2000.
<PAGE>
ELECTION OF CLASS III 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 2001, 2002 and 2000, respectively.
The Board currently consists of eight members. James F. Herd, M.D.,
Charles J. Buysse, M.D. and Curtis Lane are Class I Directors, Jack W. McCaslin
and Sanjeev K. Mehra are Class II Directors, and H. Wayne Posey, Richard E.
Ragsdale, and E. Thomas Chaney are Class III Directors. At the meeting, three
Class III 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
H. Wayne Posey, Richard E. Ragsdale, and E. Thomas Chaney have been
nominated by the Board to serve as Class III 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)............................... 62 Chairman, President, Chief
Executive Officer and Director III
Richard E. Ragsdale(1)(2)(3)....................... 56 Director III
Charles J. Buysse, M.D............................. 59 Director I
E. Thomas Chaney(1)(2)(3).......................... 57 Director III
James F. Herd, M.D................................. 64 Director I
Jack W. McCaslin(4)................................ 60 Director II
Sanjeev K. Mehra(1)................................ 41 Director II
Curtis S. Lane..................................... 43 Director I
</TABLE>
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Option Committee
(4) Member of Audit Committee
Class III Nominees:
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., 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 a co-founder of the Company, has served as a Director
since its inception and is a member of the Board's Executive Committee. He also
served as President and Chief Executive Officer of CHS, which he co-founded in
1985, until his retirement in 1997.
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 II 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.
Curtis S. Lane is a Managing Member of MTS Partners, a private equity
firm focused on the health care industry. He spent 13 years at Bear, Stearns &
Co., Inc where he founded and built the firm's Health Care Investment Banking
Group and was a member of the Board of Directors of Bear Stearns. He currently
serves on the Board of LINC Capital, Inc. and Radiology Corporation of America
and is President of The Lifeline Center for Child Development. Mr. Lane received
his BS and MBA degrees for the Wharton School of the University of Pennsylvania.
Class II Directors Serving Until 2002:
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.
Sanjeev K. Mehra is a Managing Director of Goldman, Sachs & Co. in the
Principal Investment Area. He joined Goldman Sachs in 1986 and is currently a
member of Goldman Sachs' Principal Investment Area Investment Committee. Mr.
Mehra serves on the Boards of Directors of Madison River Telephone Company,
L.L.C., and several privately held companies on behalf of Goldman Sachs. He
holds a B.A. from Harvard University and an M.B.A. from the Harvard Graduate
School of Business Administration.
Certain Board Information
The Board of Directors held five meetings and acted by unanimous
consent on one occasion during the fiscal year ended December 31, 1999. 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 except for Dr. Herd who
attended 60% of such meetings.
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
approves 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. Posey, Ragsdale, and Chaney as Class III 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. Posey, Ragsdale, and Chaney unless authority is withheld. If for any
reason any 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.
<PAGE>
Executive Compensation
The following table sets forth the compensation earned in the years
ended December 31, 1997, 1998 , and 1999 by the Chief Executive Officer and the
four most highly compensated executive officers whose individual remuneration
exceeded $100,000 for 1999 (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........................ 1999 $ 450,000 $ - $ - 375,000 $ 16,773
Chairman, President and CEO 1998 332,150 217,860(2) - 300,000 34,102
1997 327,383 - - 50,000 26,152
Dale K. Edwards....................... 1999 215,500 67,135(3) - 120,000 -
Senior Vice President--Development 1998 205,000 132,000(4) - 50,000 -
1997 176,667 16,431 - 80,000 -
Charles W. McQueary................... 1999 215,534 - - - -
Senior Vice President--Operations 1998 205,000 61,500(4) - - -
1997 104,583 25,000(5) - 200,000 -
Robert M. Sontheimer(6)............... 1999 247,000 93,860(3) - 50,000 477
Senior Vice President--Managed Care 1998 240,000 72,000(4) - - 374
1997 19,068 - - - -
Gregory A. Wagoner, M.D. (6).......... 1999 196,308 - - 20,000 -
Vice President-- Medical Affairs 1998 175,000 36,000 - 25,000 -
1997 12,308 - - - -
</TABLE>
(1)For 1999, reflects payment of professional fees for estate planning in the
amount of $12,352 and automobile allowance of $4,420 for Mr. Posey and
payment of an automobile allowance in the amount of $477 for Mr.
Sontheimer. For 1998, reflects payment of professional fees for estate
planning in the amount of $23,768 and automobile allowance of $10,334 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 in the amount of $26,152 for Mr. Posey.
(2) Reflects bonus earned in 1998 and paid in 1999 and 2000.
(3) Reflects bonus earned in 1999 and paid in 2000.
(4) Reflects bonus earned in 1998 and paid in 1999.
(5) Reflects bonus earner in 1997 and paid in 1998.
(6) The Company employed Mr. Sontheimer and Dr. Wagoner in December 1997 in
connection with the acquisition of Health Plans, Inc., now PMC Medical
Management.
<PAGE>
Option Grants in Fiscal Year 1999
<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) 1999 Per Share Date 5% 10%
---- ---------- ---- --------- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................. 375,000 37.2% $ 5.31 01/22/09 $ 1,252,286 $ 3,173,540
Dale K. Edwards................ 120,000 11.9% 5.31 01/22/09 400,732 1,015,533
Charles W. McQueary............ 80,000 7.9% 5.31 01/22/09 267,154 677,022
Robert M. Sontheimer........... 50,000 5.0% 5.31 01/22/09 166,972 423,139
Gregory A. Wagoner, M.D........ 20,000 2.0% 5.31 01/22/09 66,789 169,255
</TABLE>
(1) Represents options to purchase Common Stock granted pursuant to the 1994
and 1996 Stock Option Plans. 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 1999
and Warrant/Option Values as of December 31, 1999
<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, 1999 December 31, 1999(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Posey................ - - 696,971 645,000 $ 1,107,389 $ -
Dale K. Edwards............... 40,000 178,320 106,000 224,000 - -
Charles W. McQueary........... - - 80,000 100,000 - -
Robert M. Sontheimer.......... - - - 50,000 - -
Gregory A. Wagoner, M.D....... - - 10,000 35,000 - -
</TABLE>
---------------
(1) Based upon the closing sale price of the Company's Common Stock of $2.94
per share as reported on the NASDAQ National Market on December 31, 1999
less the exercise price of the options.
Employment and Termination Agreements
The Company has entered into employment agreements with Messrs. Posey,
Edwards, McQueary, Sontheimer, and Wagoner 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 $500,000, plus an annual bonus
based upon the achievement of certain earnings 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 agreement with Mr. Edwards automatically renews in
November of each year and currently provides for an annual base salary of
$230,000. In addition, the agreement with Mr. Edwards provides for bonuses 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 $225,000 and an annual bonus based upon the achievement of
certain operating goals. Mr. Sontheimer's agreement, which expires in December
2000 (subject to certain renewal provisions), currently provides for an annual
base salary of $260,000 and bonuses based upon the achievement of certain
operating goals. Dr. Wagoner's agreement, which expires in December 2000
(subject to certain renewal provisions), currently provides for an annual base
salary of $200,850 and an annual bonus based upon the achievement of certain
operating goals. Each of Messrs. Edwards, Sontheimer, McQueary, and Dr.
Wagoner's contracts 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 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.
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.......................... 62 Chairman, President, Chief Executive Officer and Director
Dale K. Edwards......................... 37 Senior Vice President-- Development
Deborah A. Johnson...................... 47 Senior Vice President-- Administration and Secretary
Charles W. McQueary..................... 48 Senior Vice President-- Operations
Robert M. Sontheimer.................... 59 Senior Vice President-- Managed Care
Robert D. Smith......................... 40 Senior Vice President-- Chief Financial Officer
Gregory A. Wagoner, M.D................. 53 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., 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.
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 Allergy Care of 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 -- Managed
Care since December 1997 with primary responsibility for managed care services
to affiliated physicians and management of IPA networks. He was the founder of
Health Plans, Inc. (now known as PMC Medical Management, 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 Medical Management, 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 healthcare 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) 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 compensation has
been determined to be non-deductible to the Company for the year ended December
31, 1999.
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.
Bonus
The Company's 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 bonuses based upon a percentage of their
base salaries and Company and/or individual performance.
Incentive Compensation
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.
Compensation Paid in 1999 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 $500,000.
Mr. Posey earned no bonus in 1999. 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, certain estate planning and disability
and health insurance. 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 1999 were appropriate
and were instrumental in the achievement of the Company's goals for 1999. 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
The Company's compensation committee is comprised of Messrs. Posey,
Ragsdale, and Chaney. See "Executive Compensation," "Employment and Termination
Agreements," and "Director Compensation."
In August 1998, the Company lent $2.0 million to H. Wayne Posey, its
President, Chief Executive Officer, and a Director of the Company. 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, for up
to 620,665 shares of the Company's common stock.
In April 1999, David T. Bailey, M.D., then a Director of the Company,
sold 19,402 shares of the Company's Common Stock to the Company at a price of
$4.18 per share.
In June 2000, the Company completed the final phase of a $55.0 million
equity investment from affiliates of Goldman, Sachs & Co. In the transaction,
Goldman Sachs purchased $42.5 million of the Company's Series A Convertible
Preferred Stock in exchange for $26.5 million in cash together with $16.0
million of subordinated notes and 1.25 million shares of Company common stock
that it acquired from the Company on January 13. In addition, Goldman Sachs
purchased for cash $12.5 million of the Company's Series B Convertible Preferred
Stock by exercising a warrant issued to it in the transaction. The Series A
Preferred Stock and Series B Preferred Stock are initially convertible into
common stock at $2.50 and $4.00 per share, respectively. The company's agreement
with Goldman Sachs entitles Goldman Sachs to nominate three members to the
Company's Board of Directors. Goldman Sachs subsequently sold some of its
preferred stock to MTS Investors E, L.P., and assigned it the right to nominate
one member to the Company's Board of Directors. As of the date of this proxy
statement, Goldman Sachs and MTS Investors have nominated Sanjeev K. Mehra and
Curtis S. Lane, respectively, to the Company's Board of Directors.
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, 1999.
<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 August 1, 2000 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................................................................. 1,760,721 8.0%
Richard E. Ragsdale(2)......................................................... 2,258,640 10.2%
Charles J. Buysse, M.D......................................................... 1,000 *
E. Thomas Chaney............................................................... 1,115,180 5.2%
James F. Herd, M.D............................................................. 155,420 *
Jack W. McCaslin............................................................... 378,352 1.8%
Robert D. Smith................................................................ 114,250 *
Robert M. Sontheimer........................................................... 334,107 1.6%
Sanjeev K. Mehra(3)............................................................ - *
Curtis S. Lane (4)............................................................. - *
Terrence Quinn (4)............................................................. - *
Charles W. McQueary............................................................ 87,500 *
Dale K. Edwards................................................................ 33,334 *
Deborah A. Johnson............................................................. 17,500 *
Gregory A. Wagoner............................................................. 10,500 *
Wellington Management Company, LLP(5).......................................... 1,965,000 8.5%
Dimensional Fund Advisors, Inc.(6)............................................. 1,586,500 6.9%
The Goldman Sachs Group, Inc.(7)............................................... 16,465,909 48.7%
MTS Investors E, LP(4)......................................................... 3,659,095 14.1%
All Directors and executive officers as a group (14 persons)................... 6,266,503 26.4%
</TABLE>
* Less than 1%
(1) Includes shares issuable upon the exercise of options and the conversion of
convertible securities that are exercisable or convertible within 60 days
of the date of this Proxy Statement, including the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock. The shares
underlying such options and convertible securities 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 45,000 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) Mr. Mehra, who is a Managing Director of Goldman, Sachs & Co., disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group, Inc.
and its affiliates, except to the extent of his pecuniary interest therein,
if any.
(4) Reflects shares of Common Stock issuable upon conversion of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock held
by MTS Investors E, LP. Messrs Curtis and Quinn are managing members of MTS
Investors, LLC, which is the general partner of MTS Investors E, LP, and
thus may be deemed the beneficial owners of the shares held by MTS
Investors E, LP.
(5) Based upon an amendment to a Schedule 13G filed with the Commission on
February 11, 2000. The stockholder has sole investment and voting power
with respect to none of such shares, shared voting power with respect to
945,000 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.
(6) Based upon a Schedule 13G filed with the Commission on February 3, 2000.
The stockholder has sole investment and voting power with respect to all of
such shares. The address of Dimensional Fund Advisors, Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401.
(7) Represents shares owned by certain investment partnerships, of which
Goldman Sachs or affiliates of Goldman Sachs or The Goldman Sachs Group,
Inc. ("GS Group") are the general partner, or managing partner or
investment manager. Consists of 12,237,360 shares held of record by GS
Capital Partners III, L.P., 3,364,200 shares held of record by GS Capital
Partners III Offshore L.P., 564,965 shares held of record by Goldman, Sachs
& Co. Verwaltungs GmbH, and 299,380 shares held of record by Stone Street
Fund 2000, L.P. Excludes shares of Common Stock beneficially owned by
Goldman Sachs which were acquired in connection with its ordinary course of
trading activities and/or held in managed accounts ("Managed Accounts") for
which Goldman Sachs exercises voting or investment authority, or both. GS
Group and Goldman Sachs disclaim beneficial ownership of the shares held in
Managed Accounts and also disclaims beneficial ownership of the shares
owned by the investment partnerships and the limited liability company to
the extent attributable to partnership interests therein held by persons
other than GS Group, Goldman Sachs and their affiliates. Each of the
Investment partnerships shares voting and investment power with certain of
its respective affiliates. The address of GS Group is 85 Broad Street, New
York, New York 10004.
<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 12/31/99
ProMedCo Management Company 100 113 67 33
NASDAQ Stock Market
(U.S. companies) 100 122 171 319
NASDAQ Health Services Stocks 100 102 87 71
<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 1999 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 August 15, 2000 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
2001 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder who wishes to present a proposal for consideration at
the annual meeting of stockholders to be held in 2001 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 2001 annual
meeting, it must be received by the Company no later than June 30, 2001. If a
stockholder intends to submit a proposal at the 2001 annual meeting that is not
eligible for inclusion in the proxy materials relating to that meeting, the
stockholder must do so no later than April 16, 2001. 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
2001 annual meeting of stockholders. If the 2001 annual meeting is advanced or
delayed by more than 30 calendar days from the date of the 2000 annual meeting
the dates for stockholder proposals may be changed. The company will notify
shareholders of any such change. Such proposals should be addressed to Deborah
A. Johnson, Secretary, ProMedCo Management Company, 801 Cherry Street, Suite
3200, Fort Worth, Texas 76102.
<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 on September 8, 2000, at The Fort Worth
Club located 306 West 7th 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 2000 Annual
Meeting of Stockholders and Proxy Statement, as follows:
1. ELECTION OF H. Wayne Posey, Richard E. Ragsdale, and E. Thomas Chaney AS
CLASS III DIRECTORS FOR A TERM OF THREE YEARS
___ FOR ALL NOMINEES ___ WITHHELD AS TO ALL NOMINEE(S)
___ 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. Posey, Ragsdale,
and Chaney as Directors.
This proxy, when properly executed, will be voted as specified. If no
specification is made, it will be voted for Messrs. Posey, Ragsdale,
and Chaney 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 2000 Annual Meeting and Proxy
Statement, and 1999 Annual Report to Stockholders is hereby acknowledged. PLEASE
MARK, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE DATE SIGNATURE DATE
