<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1997
REGISTRATION NO. 333-17091
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PHYSICIANS' SPECIALTY CORP.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8011 58-2251438
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction of incorporation) classification code number) identification number)
</TABLE>
THE MEDICAL QUARTERS
5555 PEACHTREE DUNWOODY ROAD, SUITE 235
ATLANTA, GEORGIA 30342
(404) 256-7535
(Address and telephone number of Registrant's principal executive offices)
---------------------
RAMIE A. TRITT, M.D.
CHAIRMAN AND PRESIDENT
PHYSICIANS' SPECIALTY CORP.
5555 PEACHTREE DUNWOODY ROAD, SUITE 235
ATLANTA, GEORGIA 30342
(404) 256-7535
(Name, address and telephone number of agent for service)
---------------------
COPIES TO:
<TABLE>
<C> <C>
JILL COHEN, ESQ. THOMAS CONSTANCE, ESQ.
BACHNER, TALLY, POLEVOY & MISHER LLP KRAMER, LEVIN, NAFTALIS & FRANKEL
380 MADISON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 687-7000 (212) 715-9100
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF ADDITIONAL REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
ADDITIONAL PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE ADDITIONAL
ADDITIONAL SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) ADDITIONAL OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(2)......... 230,000 $ 9.00 $2,070,000 $628
- ------------------------------------------------------------------------------------------------------------------------------
Underwriters' Warrants(3)................ 20,000 .001 20 --
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 per value(4)(5)...... 20,000 10.80 216,000 65
- ------------------------------------------------------------------------------------------------------------------------------
Total........................... $2,286,020 $693
==============================================================================================================================
</TABLE>
* $8,082 previously paid.
(1) Estimated solely for purposes of calculating the additional registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2) Includes an additional 30,000 shares that may be purchased by the
Underwriters from the Company to cover over-allotments, if any.
(3) Warrants to be granted to the Underwriters (the "Underwriters' Warrants").
(4) Issuable upon exercise of the Underwriters' Warrants.
(5) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may become issuable pursuant to anti-dilution provisions
of the Underwriters' Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
PHYSICIANS' SPECIALTY CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Financial
Statements
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... *
11. Information With Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- ---------------
* Not applicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1997
PROSPECTUS
(LOGO) PHYSICIANS' SPECIALTY CORP.
2,200,000 SHARES
PHYSICIANS' SPECIALTY CORP.
COMMON STOCK
---------------------
Physicians' Specialty Corp. (the "Company") hereby offers 2,200,000 shares
of Common Stock, par value $.001 per share (the "Common Stock"), of the Company.
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. It is anticipated that the initial public offering price will be
between $8.00 and $9.00 per share. The Common Stock has been approved for
listing on the Nasdaq National Market under the symbol "ENTS." See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 11.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
============================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by Southcoast
Capital Corporation ("Southcoast") and/or Barington Capital Group, L.P.
("Barington"), the representatives (the "Representatives") of the several
underwriters (the "Underwriters"), including (i) a consulting fee of
$487,000 payable to Barington and (ii) warrants to purchase 220,000 shares
of Common Stock at an exercise price of $ per share (the
"Representatives' Options"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company (including
the consulting fee referred to above) estimated at $ .
(3) The Company has granted the Underwriters a 45-day option to purchase up to
330,000 additional shares of Common Stock on the same terms and conditions
as set forth herein, solely to cover over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
---------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE OFFERED, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT
TO THE APPROVAL OF CERTAIN LEGAL MATTERS BY THEIR COUNSEL AND TO CERTAIN OTHER
CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY
THIS OFFERING AND TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE CERTIFICATES REPRESENTING THE COMMON STOCK WILL BE MADE AT THE
OFFICES OF SOUTHCOAST CAPITAL CORPORATION, 277 PARK AVENUE, NEW YORK, NEW YORK
10172 ON OR ABOUT , 1997.
---------------------
SOUTHCOAST CAPITAL BARINGTON CAPITAL GROUP, L.P.
CORPORATION
The date of this Prospectus is , 1997
<PAGE> 4
MAP OF METRO ATLANTA PHYSICIAN OFFICE LOCATION
THE MAP DEPICTS (I) THE ATLANTA METROPOLITAN AREA
AND THE LOCATION OF THE CLINICAL OFFICES OF
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.,
METROPOLITAN EAR, NOSE AND THROAT, P.C.,
ATLANTA HEAD AND NECK SURGERY, P.C.,
EAR, NOSE AND THROAT ASSOCIATES, P.C.
AND INDEPENDENT PHYSICIANS PROVIDING ENT
MEDICAL AND SURGICAL SERVICES UNDER THE
ENT NETWORKS' MANAGED CARE CONTRACTS
AND (II) THE CLINICAL OFFICE OF
W.J. CORNAY, III, M.D.,P.C. IN BIRMINGHAM, ALABAMA.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
2
<PAGE> 5
As used in this Prospectus, unless the context otherwise requires, the
"Company" refers to (i) Physicians' Specialty Corp., a Delaware corporation,
(ii) its wholly-owned subsidiaries, PSC Management Corp. ("PSC Management"), PSC
Acquisition Corp. ("PSC Acquisition") and PSC Alabama, Corp. ("PSC Alabama"),
and (iii) the ENT Networks (as defined), which will become wholly-owned
subsidiaries in connection with the Reorganization (as defined). See "The
Reorganization." Unless otherwise indicated, the information in this Prospectus
(i) assumes no exercise of the Over-Allotment Option or the Representatives'
Option, (ii) gives effect to a .6875 for 1 reverse stock split effected in
November 1996, and (iii) gives effect to the completion of the Reorganization
upon the closing of the Offering. The consummation of the Offering is
conditioned upon the simultaneous closing of the Reorganization. Investors
should carefully consider the information set forth under the heading "Risk
Factors."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus and accordingly, should be read in conjunction with such
information, financial statements and notes thereto. Each prospective investor
is urged to read this Prospectus in its entirety.
THE COMPANY
Physicians' Specialty Corp. was recently organized to provide comprehensive
physician practice management services to physician practices and health care
providers specializing in the treatment and management of diseases and disorders
of the ear, nose and throat, head and neck ("ENT"). The Company's primary
objective is to develop, manage and integrate ENT physician and related
specialty practices which will provide high quality, cost effective medical and
surgical services to fee-for-service patients and capitated managed care
enrollees. The Company will provide financial and administrative management,
enhancement of clinical operations, network development and payor contracting
services, including the negotiation and administration of capitated
arrangements. Following the Reorganization, the Company will be affiliated with
23 physicians, one dentist and 26 allied health care professionals operating 19
clinical locations.
THE REORGANIZATION
Concurrently with the closing of the Offering, the Company will effect the
Reorganization in which the Company will acquire (i) substantially all of the
assets of Atlanta Ear, Nose & Throat Associates, P.C. ("Atlanta ENT"), which was
founded in 1979 and is today, the largest ENT group practice in the State of
Georgia, three additional ENT practices in the metropolitan Atlanta area (the
"Additional Atlanta Practices") and one ENT practice in Birmingham, Alabama
("Birmingham ENT") (collectively, the "Initial Practices"); and (ii) the common
stock of three corporations (collectively, the "ENT Networks") which hold,
manage and administer capitated ENT managed care contracts covering an aggregate
of approximately 361,000 enrollees of health maintenance organizations ("HMOs")
sponsored by United HealthCare of Georgia ("United HealthCare"), Aetna Health
Plans of Georgia ("Aetna") and Cigna HealthCare of Georgia ("Cigna"). In
connection with the Reorganization, the Company will enter into management
services agreements with the physician practices providing for the comprehensive
management of the practices by the Company, while enabling the practices to
retain authority over the provision of medical care.
INDUSTRY TRENDS
Increasing concern over the rising cost of health care in the United States
has led to the emergence and increasing prominence of managed care. Because many
fee-for-service arrangements for compensating health care providers fail to
create incentives for the efficient utilization of resources and are generally
believed to contribute to health care cost increases, many payors are selecting
alternative reimbursement methods, such as capitated arrangements, which shift
the financial risk of delivering health care from payors to providers. Under
capitated arrangements, the health care provider or other contracting party
(e.g. the ENT Networks) is typically paid by HMOs or other third-party payors a
fixed amount per enrollee per month. In return, the
3
<PAGE> 6
contracting party, directly or indirectly, is responsible for the provision of
substantially all medical services, as set forth in the agreement with the
third-party payor, required by the payor's enrollees.
While the acceptance of greater responsibility and risk under capitated
arrangements provides physicians with the opportunity to retain and enhance
market share and generate a more predictable level of revenues, the acceptance
of capitation carries with it significant requirements for infrastructure,
information systems, capital, network resources and management. Individual
physicians and small group practices tend to have limited administrative
capacity, limited capital to invest in new clinical equipment and technologies
and typically lack the information systems necessary to negotiate and manage
sophisticated risk-sharing contracts with payors. As a result, individual
physicians and small group practices are increasingly affiliating with large
group practices and physician practice management companies, such as the
Company, which offer physicians clinical information and practice management
systems, administrative support, network development and payor contracting
services.
Based upon a 1994 American Group Practice Association study, the Company
estimates that 1994 revenues generated by ENTs in the United States exceeded $6
billion. According to the American Academy of Otolaryngology-Head and Neck
Surgery, Inc. (the "Academy"), there were approximately 8,400 ENT specialists in
the United States as of December 31, 1995. The Company estimates that
approximately 70% of all ENT practices consist of individual practitioners or
small (less than four physician) group practices. Although the Company's
operations will be initially located in the Southeastern United States, the
Company intends to expand its physician practice management services to ENT and
related specialty physician practices throughout the United States. In general,
physician practice management companies have captured only a small percentage of
total medical service revenues, and there can be no assurance that the Company
will be able to capture a significant amount of the revenues generated by ENT
practices throughout the United States. The Company believes that upon
completion of the Offering, it will be the leading physician practice management
company focusing solely or substantially on acquiring assets of and managing ENT
physician practices.
STRATEGY
The Company's primary objective is to develop, manage and integrate ENT
physician and related specialty practices into comprehensive networks for the
provision of high quality, cost-effective ENT medical and surgical services to
capitated managed care enrollees and fee-for-service patients. The key elements
of the Company's implementation strategy are to:
Acquire and Affiliate with ENT and Related Specialty Practices. The
Company intends to associate with additional ENT physician practices and
health care providers specializing in the treatment and management of
diseases and disorders of the ear, nose and throat, head and neck,
including specialists practicing in the fields of allergy, audiology, oral
surgery, plastic surgery and sleep medicine (collectively the "Related
Specialties"), either by acquiring assets or equity of practices
("affiliated practices") of physicians or other health care providers and
entering into management service agreements with such practices, or by
contracting with physician practices and independent physicians to provide
network administration services.
Develop Provider Networks. The Company intends to integrate
associated physicians into multi-site ENT and related specialty provider
networks. In addition to physicians employed by practices whose assets are
acquired by the Company, the Company intends to enter into network
administration agreements with independent ENT and other specialty
physicians providing for their inclusion in managed care provider panels in
targeted geographic markets.
Implement and Expand Information Systems. The Company intends to
implement on a Company-wide basis a comprehensive network administration
and utilization management system utilized by Atlanta ENT (the "Capitated
Network System").
Shift to Shared-Risk Capitated Payment Arrangements. The Company
believes that a key success factor in the management of ENT specialty
practices lies in the development and management of capitated payor
arrangements which address the administrative demands of managed care. The
Company
4
<PAGE> 7
believes that the experience of Atlanta ENT and the ENT Networks in
capitated managed care arrangements and the development of the Capitated
Network System, will enhance the Company's ability to market to managed
care payors the services of Atlanta ENT, as well as other practices
affiliating with the Company, and negotiate risk sharing arrangements with
additional managed care payors.
The Company believes that as a result of the experience of the physicians
at Atlanta ENT in (i) providing ENT medical and surgical services, (ii)
negotiating, managing and administering capitated managed care contracts and
(iii) developing and utilizing sophisticated information systems, including the
Capitated Network System, the Company is well-positioned to acquire and manage
additional ENT practices, to negotiate capitated managed care contracts and to
capture a growing market share of capitated arrangements. The Company is
evaluating and is in various stages of discussions with respect to the potential
acquisition of assets or equity of other ENT physician practices and Related
Specialty practices but, except as part of the Reorganization, has no agreements
or arrangements with respect to any particular additional acquisition and there
can be no assurance that any additional acquisitions will be completed.
The Company's revenues will initially be derived (i) under a management
services agreement with Atlanta ENT (including the Additional Atlanta
Practices), substantially all of the assets of which will be acquired by the
Company in the Reorganization; (ii) from patient services revenues generated by
the physicians of Birmingham ENT (who will be employed directly by a
wholly-owned subsidiary of the Company); and (iii) under capitated management
care contracts held by the ENT Networks (which will become wholly-owned
subsidiaries of the Company in connection with the Reorganization). Under the
management services agreements, all non-governmental accounts receivable and
proceeds of governmental accounts receivable relating to fee-for-service
revenues generated by the practice will be assigned to the Company, which will
(i) be responsible for payment of all operating and non-operating expenses of
the physician practice, (ii) retain a management fee based upon a percentage of
the revenues and (iii) remit to the physician practice the balance to pay
physician and physician assistant compensation and benefits. The Company's
revenues under the management services agreements will be derived from amounts
equal to the expenses plus a varying percentage of the revenues of the
affiliated physician practices. The affiliated physician practices are
responsible for the payment of compensation to physicians and physician
assistants. In states where the Company can employ physicians, such as Alabama,
the Company's revenues will equal all of the fee-for-service revenues generated
by the practice. Under the managed care contracts, the Company, as owner of the
ENT Networks, will be entitled to all of the capitated fees received from the
HMOs . The Company will bear the capitation risk under these agreements, as it
will compensate each participating physician providing ENT medical and surgical
services to the HMO's enrollees on a discounted fee-for-service basis.
The Company was incorporated in Delaware in July 1996. The Company's
executive offices are located at The Medical Quarters, 5555 Peachtree Dunwoody
Road, Suite 235, Atlanta, Georgia 30342 and its telephone number is (404)
256-7535.
5
<PAGE> 8
THE OFFERING
Common Stock offered hereby......... 2,200,000 shares
Common Stock to be outstanding after
the Offering(1)..................... 5,886,452 shares
Use of Proceeds..................... For working capital, including future
acquisitions; to repay outstanding
indebtedness of Atlanta ENT and the
Company and to expand the Company's
information systems. See "Use of
Proceeds" and "Certain Transactions."
Proposed Nasdaq National Market
symbol.............................. ENTS
Risk factors........................ The Common Stock offered hereby
involves a high degree of risk. See
"Risk Factors."
- ---------------
(1) Includes an aggregate of 3,086,559 shares of Common Stock to be issued in
connection with the Reorganization, based upon an assumed initial public
offering price of $8.50 per share. Excludes (i) 550,000 shares of Common
Stock reserved for issuance under the Company's 1996 Stock Option Plan,
under which (a) options to purchase 247,460 shares of Common Stock have
been granted, of which 67,490 are currently exercisable, and (b) options to
purchase 179,980 shares of Common Stock have been granted, effective upon
the closing of the Offering, of which 44,995 will be exercisable upon the
closing of the Offering; (ii) 275,000 shares of Common Stock reserved for
issuance under the Company's 1996 Health Care Professionals Stock Option
Plan, under which options to purchase 25,000 shares of Common Stock have
been granted, effective upon the closing of the Offering, none of which
will be exercisable until the first anniversary of the closing of the
Offering; and (iii) 220,000 shares of Common Stock issuable upon exercise
of the Representatives' Options. See "Management -- Stock Option Plans,"
"Description of Capital Stock" and "Underwriting."
6
<PAGE> 9
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The Company was incorporated in July 1996 and commenced operations in
August 1996 through the acquisition of the computer hardware of the ENT Networks
and the utilization of the Capitated Network System. The following summary
unaudited pro forma combined financial data gives effect to the Reorganization
as a combination of promoter interests, at historical costs, under generally
accepted accounting principles, and should be read in conjunction with the
financial statements of the Company, Atlanta ENT, Birmingham ENT and the ENT
Networks and notes thereto included elsewhere herein, the unaudited pro forma
combined financial statements of the Company and notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The financial data set forth below reflect
the unaudited pro forma combined historical financial data of Atlanta ENT, the
Additional Atlanta Practices, Birmingham ENT and the ENT Networks as of and for
the periods indicated. Unless otherwise indicated, the unaudited pro forma
statement of operations data set forth below give effect to the Reorganization,
the reverse stock split and the implementation of the Company's management
services agreements with Atlanta ENT and Birmingham ENT as if such transactions
had occurred on January 1, 1996. The unaudited pro forma balance sheet data
gives effect to such transactions, as if such transactions had been consummated
on the balance sheet date. The summary unaudited pro forma information does not
purport to represent what the Company's financial position or results of
operations actually would have been had the Reorganization in fact occurred on
the dates indicated, or to project the Company's financial position or results
of operations for any future date or period. The pro forma adjustments are based
on currently available information and certain assumptions that the Company
believes are reasonable under the circumstances.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
1996
-----------------
<S> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Patient service revenues.................................... $ 1,339
Capitation revenues......................................... 4,453
Management fees............................................. 12,682
-------
Net revenues................................................ 18,474
Expenses:
Physician compensation.................................... 422
Salaries, wages and benefits.............................. 6,365
General and administrative................................ 4,758
Bad debt expense.......................................... 200
Depreciation and amortization............................. 436
Provider claims........................................... 3,217
-------
Operating expenses.......................................... 15,398
-------
Operating income............................................ $ 3,076
=======
Pro forma net income(1)..................................... $ 1,879
Pro forma net income per share(1)........................... $ .32
Weighted average shares outstanding(1)...................... 5,963
PRO FORMA OPERATING DATA AT END OF PERIOD:
Number of affiliated physicians (including physicians
employed by the Company).................................. 24
Number of allied health care professionals.................. 26
Number of other employees................................... 115
Number of clinical locations................................ 19
Number of capitated covered lives........................... 360,537
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
SUMMARY BALANCE SHEET DATA:
Working capital............................................. $1,823 $16,879
Total assets................................................ 7,593 21,823
Total debt.................................................. 1,774 0
Stockholders' equity........................................ 2,839 18,843
</TABLE>
- ---------------
(1) Atlanta ENT, two of the Additional Atlanta Practices and the ENT Networks
were S corporations for federal and state income tax purposes and,
accordingly, were not subject to corporate income taxes. The pro forma net
income and net income per share for the year ended December 31, 1996 have
been computed as if the Company were subject to federal and state corporate
income taxes based on the corporate income taxes in effect during the year
ended December 31, 1996 and the Reorganization had been completed prior to
such period.
(2) Adjusted to reflect the sale of the 2,200,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $8.50 per share, the
receipt of the net proceeds therefrom, and the application of such net
proceeds to repay indebtedness of the Initial Practices and the Company.
See "Use of Proceeds" and "Certain Transactions."
8
<PAGE> 11
THE REORGANIZATION
Concurrently with the closing of the Offering, the Company will acquire (i)
substantially all of the assets of (a) Atlanta ENT, (b) Metropolitan Ear, Nose &
Throat, P.C., Atlanta Head and Neck Surgery, P.C. and Ear, Nose & Throat
Associates, P.C. (the "Additional Atlanta Practices") and (c) W.J. Cornay, III,
M.D., P.C. ("Birmingham ENT") and (ii) all of the outstanding shares of common
stock of ENT Center of Atlanta, Inc., Atlanta ENT Center for Physicians, Inc.
and Atlanta-AHP, Inc., the three corporations comprising the ENT Networks, from
Ramie A. Tritt, M.D., (the "Seller") the Chairman of the Board and President of
the Company (the "Reorganization"). All references herein to any of the Initial
Practices include the respective predecessors of each practice.
The ENT Networks were formed by the Seller to enter into and administer the
capitated managed care contracts with United HealthCare, Aetna and Cigna. Upon
the closing of the Reorganization, the ENT Networks will become wholly-owned
subsidiaries of the Company. As a result, capitation fees paid by United
HealthCare, Aetna and Cigna under the capitated managed care contracts will be
received directly by the Company, through the ENT Networks. The ENT Networks
will retain their participation agreements with physicians, including physicians
at Atlanta ENT, pursuant to which such physicians provide all of the ENT medical
and surgical services required by enrollees of these HMOs on a discounted
fee-for-service basis.
The aggregate purchase price payable to Atlanta ENT and the Seller in
connection with the Reorganization is $15,773,748, based upon an assumed initial
public offering price of $8.50 per share, and $7,750,000, respectively, payable
in shares of Common Stock. Accordingly, the Company will issue an aggregate of
2,767,500 shares of Common Stock to Atlanta ENT and to the Seller. The
allocation of such shares between Atlanta ENT and the Seller will be based upon
the initial public offering price of the Common Stock, with the number of shares
issuable to the Seller to equal $7,750,000 divided by the initial public
offering price and the remaining shares of Common Stock issuable to Atlanta ENT.
Based upon an assumed initial public offering price of $8.50 per share, the
Seller will receive 911,765 shares of Common Stock and Atlanta ENT will receive
1,855,735 shares of Common Stock. Upon the liquidation of the existing
professional corporation constituting Atlanta ENT, the shares of Common Stock
issued to it will be distributed to its stockholders, 501,976 of which shares
will be distributed to Dr. Tritt, based on his percentage ownership of Atlanta
ENT. As a result, upon completion of the Reorganization and the Offering, Dr.
Tritt will beneficially own approximately 29% of the outstanding Common Stock of
the Company.
In connection with the acquisition of substantially all of the assets of
Atlanta ENT, Atlanta ENT will transfer the medical assets not acquired by the
Company to a newly-formed professional corporation ("New Atlanta ENT"), which
will simultaneously enter into a management services agreement with the Company
and employment agreements with its physicians. Unless the context otherwise
requires, all references herein to Atlanta ENT include New Atlanta ENT. The
management services agreement provides for the assignment to the Company by
Atlanta ENT of all or substantially all of its non-governmental accounts
receivable and all of its rights and interest in the proceeds of its
governmental accounts receivable (or the revenue it receives) and grants to the
Company the right to collect and retain the proceeds of the accounts receivable
(or revenue) for the Company's account to be applied in accordance with the
agreement. The Company will be responsible for the payment of operating and
non-operating expenses of Atlanta ENT (excluding compensation to physicians and
physician assistants) and will pay for all such expenses directly out of the
proceeds of the accounts receivable (or revenues) assigned to the Company by
Atlanta ENT. In addition, the Company will retain a management fee equal to a
stipulated percentage of all revenues (after adjustment for contractual
allowances) generated by or on behalf of physicians practicing at Atlanta ENT,
subject to specified maximum annual amounts, as payment for the Company's
services and non-allocable costs incurred by the Company attributable to the
provision of management services under the management services agreement. In
addition, the Company will be entitled to incentive compensation under the
management services agreements upon the receipt by the Company of specified
maximum annual management fees. The remaining revenues will be remitted to
Atlanta ENT to pay physician and physician assistant compensation and benefits.
The purchase price payable to Birmingham ENT and the Additional Atlanta
Practices is $992,000, subject to adjustment, and $1,720,000, respectively,
payable in shares of Common Stock. As a result, the
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Company will issue an aggregate of 319,059 shares of Common Stock to such
practices in connection with the Reorganization. Upon liquidation of the
existing professional corporations constituting the Additional Atlanta Practices
and Birmingham ENT, the shares of Common Stock issued to each practice will be
distributed to each practice's respective stockholders based upon their
percentage ownership of such practice. The physicians at the Additional Atlanta
Practices will enter into employment agreements with Atlanta ENT and
participation agreements with each of the ENT Networks, and the revenues
generated by such physicians will be governed by the management services
agreement between Atlanta ENT and the Company. In addition, certain of the
clinical offices of the Additional Atlanta Practices will be consolidated into
clinical offices of Atlanta ENT. Simultaneous with the Reorganization, the
physicians at Birmingham ENT will enter into employment agreements with PSC
Alabama, a wholly-owned subsidiary of the Company. The revenues generated by
such physicians will be governed by a management services agreement between PSC
Alabama and the Company which will be substantially similar to the management
services agreement between Atlanta ENT and the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Company Operations," "Management" and "Certain Transactions."
The promoters of these transactions include Dr. Tritt; Bock, Benjamin &
Co., Partners, L.P.; Atlanta ENT, Metropolitan Ear, Nose & Throat Associates,
P.C.; Atlanta Head and Neck Surgery, P.C.; Ear, Nose & Throat Associates, P.C.
and Birmingham ENT.
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RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR INVESTMENT. THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA
SET FORTH ELSEWHERE IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
SHARES. THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT
INTENDED TO BE AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED, BUT
MERELY IDENTIFY CERTAIN RISKS THAT ARE NOW FORESEEN BY THE COMPANY. IT MUST BE
RECOGNIZED THAT OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME SIGNIFICANT IN THE
FUTURE AND THAT THE RISKS WHICH ARE NOW FORESEEN MIGHT AFFECT THE COMPANY TO A
GREATER EXTENT THAN IS NOW FORESEEN OR IN A MANNER NOT NOW CONTEMPLATED. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER ALL INFORMATION CONTAINED IN THIS
PROSPECTUS AND SHOULD GIVE PARTICULAR CONSIDERATION TO THE FOLLOWING RISK
FACTORS BEFORE DECIDING TO PURCHASE THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS INCLUDES FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING THOSE SET FORTH BELOW, AND ACTUAL RESULTS MAY VARY FROM
THOSE CURRENTLY ANTICIPATED.
LIMITED OPERATING HISTORY; NO PRIOR HISTORY OF AND RISKS ASSOCIATED WITH
COMBINED OPERATIONS
The Company was formed in July 1996 and commenced operations by acquiring
certain of the assets (primarily computer hardware) of, and entering into a
management services agreement with, the ENT Networks, which agreement will
terminate upon the consummation of the Reorganization, and negotiating the
agreements relating to the Reorganization. For the period from July 31, 1996
(inception) through December 31, 1996, the Company had revenues of $51,000 and
an operating loss of $108,000. The Company has a limited operating history, and
will not commence operation as a physician practice management company until
completion of the Offering. Atlanta ENT, each of the Additional Atlanta
Practices and Birmingham ENT have operated as separate independent medical
practices with separate independent management and there can be no assurance
that the Company will be able to manage and operate such medical practices
successfully or that the Company will be able to implement its business plans or
achieve profitable operations.
RISKS RELATING TO ACQUISITIONS AND MANAGING GROWTH; NEED FOR ADDITIONAL FUNDS;
POTENTIAL SUBSTANTIAL LEVERAGE
A key element of the Company's strategy is to expand through acquisitions
of assets or equity of practices of established specialty physicians or other
health care professionals. Although Atlanta ENT, the Additional Atlanta
Practices, Birmingham ENT and the ENT Networks have had substantial operations
in their respective geographic regions, the Company has no experience in
integrating and managing multiple or multi-state specialty physician practices.
As the Company expands through acquisitions, the Company will be required to
hire and retain additional management and administrative personnel and develop
and expand operational systems to support its growth. This growth will continue
to place significant demands on the Company's management, technical, financial
and other resources. The Company is evaluating and is in various stages of
discussions in connection with the potential acquisition of assets or equity of
several ENT physician practices and Related Specialty practices. However, the
Company has no agreements or arrangements with respect to the terms of any
particular acquisitions (other than the agreements with Atlanta ENT, the
Additional Atlanta Practices, Birmingham ENT and the ENT Networks). Accordingly,
there can be no assurance that the Company will be able to acquire the assets or
equity of or profitably provide management services to any other specialty
physician practices that may be acquired in the future. In addition, there can
be no assurance that the Company will be able to acquire additional specialty
physician practice assets on terms favorable to the Company, that the operations
of any such practices can be successfully integrated into the Company's
business, that any anticipated benefits of the practice asset acquisitions will
be realized, or that there will not be substantial unanticipated costs
associated with the acquisition. The failure to manage growth
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effectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
Although the Company intends to use a substantial portion of the proceeds
of the Offering for certain ENT physician practice and other Related Specialty
practice acquisitions including some which it is currently evaluating, it will
require significant additional funds for future acquisitions and integration and
management of affiliated practices. The Company also intends to issue its
securities in connection with acquisitions, which could result in the dilution
of existing equity positions. The Company may also incur indebtedness to fund
future acquisitions and has received a commitment letter for a $20,000,000
credit facility with NationsBank, N.A. (South) which will be effective
concurrently with the closing of the Offering (the "Credit Facility").
Borrowings available under the Credit Facility to provide financing for the
acquisition of assets of physician practices and for working capital will be
governed by, among other factors, the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA"). There can be no assurance that amounts
available under the Credit Agreement will be sufficient to fund future
acquisitions or, if such amounts are not sufficient, that the Company will be
able to obtain additional financing on terms acceptable to the Company or at
all. An inability to obtain such financing on favorable terms could limit the
Company's growth. As the Company acquires additional physician practice assets,
the Company may incur significant charges for depreciation and amortization and,
to the extent financed through borrowing, interest expense which could adversely
affect the Company's future results of operations and may result in net losses.
See "-- Broad Discretion In Use of Proceeds; Inability of Stockholders to
Evaluate Future Acquisitions," "-- Risks Relating to Credit Facility;
Consequences of Default and Covenants Expected Under Credit Facility,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."
BROAD DISCRETION IN USE OF PROCEEDS; INABILITY OF STOCKHOLDERS TO EVALUATE
FUTURE ACQUISITIONS
The Company has broad discretion with respect to the use of a substantial
portion of the net proceeds of the Offering which the Company intends to use to
acquire additional specialty practice assets. In addition to the practice assets
to be acquired in connection with the Reorganization, the Company is engaged in
discussions with several practices with ENT and complementary specialities;
however, except with respect to the Reorganization, the Company has no
agreements or arrangements with respect to any particular future acquisitions
and, accordingly, it will have significant flexibility in identifying and
selecting prospective acquisition candidates. The Company does not intend to
seek stockholder approval for any acquisition, including those currently being
evaluated, unless required to do so by applicable law or regulations.
Accordingly, stockholders will not have an opportunity to review financial or
other information relating to acquisition candidates prior to consummation of an
acquisition. See "Use of Proceeds" and "Business -- Strategy."
DEPENDENCE ON AFFILIATED PHYSICIANS
All of the Company's revenues will initially be derived (i) under a
management services agreement with Atlanta ENT (which will include the
physicians of the Additional Atlanta Practices practicing at Atlanta ENT), (ii)
from patient service revenues generated by the Company's wholly-owned
subsidiary, PSC Alabama, which will directly employ the physicians of Birmingham
ENT, and (iii) under capitated HMO contracts held by the ENT Networks, each of
which will become a wholly-owned subsidiary of the Company in connection with
the Reorganization. Revenues to be derived by the Company under management
services agreements will depend on the fees and revenues generated by physicians
employed by the physician practices, the assets or equity of which are acquired
by the Company, including physicians at Atlanta ENT, the Additional Atlanta
Practices and Birmingham ENT ("affiliated physicians") and, to a lesser extent,
independent physicians contracting with the Company to participate in provider
networks which may be developed by the Company ("independent physicians" and,
together with affiliated physicians, "associated physicians"). Revenues to be
derived by the Company under the capitated managed care contracts depend on the
continued participation of the physicians providing medical services to the
HMO's enrollees. Although affiliated physicians, including the stockholders of
Atlanta ENT, the Additional Atlanta Practices and Birmingham ENT, are expected
to enter into employment agreements with their respective practices, there
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can be no assurance as to the continued services of any particular physician. In
particular, Dr. Tritt is expected to devote less time to his medical practice at
Atlanta ENT as a result of his responsibilities to the Company. Associated
physicians can typically terminate their agreements to provide medical services
under managed care contracts by providing notice of such termination to the
payor. Termination of these agreements by associated physicians may result in
termination by the payor of a managed care contract between the Company and the
payor. Any material loss of revenue by affiliated physicians and, to a lesser
extent, independent physicians, whether as a result of the loss of network
physicians or the termination of managed care contracts resulting from the loss
of network physicians or otherwise, could have a material adverse effect on the
Company's business, financial condition or operating results. See
"Business -- Company Operations."
RISKS ASSOCIATED WITH CAPITATED ARRANGEMENTS INCLUDING RISK OF OVER-UTILIZATION
BY HMO ENROLLEES, RISK OF REDUCTION OF CAPITATED RATES AND REGULATORY RISKS
During 1996, approximately 76% of the pro forma combined net revenues of
the Company were derived from payments made on a fee-for-service basis by
patients and third-party payors (including government programs) and
approximately 24% of the pro forma combined net revenues of the Company were
derived from capitated arrangements. Under capitated arrangements, the health
care provider typically accepts a pre-determined amount per patient per month
from the payor in exchange for providing all necessary covered services to the
patients covered under the agreement. Such contracts pass much of the financial
risk of providing care, such as over-utilization, from the payor to the
provider.
Pursuant to the managed care contracts held by the ENT Networks, which will
become wholly-owned subsidiaries of the Company in connection with the
Reorganization, the Company through the ENT Networks, will receive such
pre-determined capitation fees from the HMOs. However, the Company will
compensate associated physicians on a discounted fee-for-service basis for
providing ENT medical and surgical services to enrollees of the HMOs. Because
the Company will incur costs based on the frequency and extent of services
provided by such physicians, but will only receive a fixed fee for agreeing to
provide such services, to the extent that the enrollees covered by such HMO
contracts require more frequent or extensive care than is anticipated, the
Company's operating margins may be reduced and, in certain cases, the revenues
derived from such contracts may be insufficient to cover the costs of the
services provided. In either event, the Company's business, financial condition
and operating results may be materially adversely affected. As an increasing
percentage of patients enroll in managed care arrangements, the Company's future
success will depend, in part, upon its ability to negotiate, on behalf of
associated physicians, contracts with managed care payors on terms favorable to
the Company and upon the effective management of health care costs through
various methods, including utilization management and review and competitive
pricing for purchased services. The proliferation of capitated contracts in
markets served by the Company could result in increased predictability of
revenues, but decreased predictability of operating margins. There can be no
assurance that the Company will be able to negotiate, on behalf of associated
physicians, satisfactory arrangements on a capitated basis or that such
arrangements will be profitable to the Company in the future. In addition, in
certain jurisdictions, not including Georgia, capitated agreements in which the
provider bears the risk are regulated under insurance laws. As a result, the
Company may be limited in Alabama and other states in which it may seek to
operate in its attempt to enter into or arrange capitated agreements for its
associated physicians when those capitated arrangements involve the assumption
of risk. See "-- Dependence on Contracts with Managed Care Organizations."
DEPENDENCE ON CONTRACTS WITH MANAGED CARE ORGANIZATIONS
The Company's ability to expand is dependent in part on increasing the
number of managed care enrollees served by associated physicians, primarily
through negotiating additional and renewing existing contracts with managed care
organizations and contracting, on a favorable basis, with additional associated
physicians to provide medical services to such enrollees. Obtaining new
contracts increasingly involves a competitive bidding process. The Company will
be required to accurately anticipate the costs associated physicians will incur
in providing services under such contracts so that the Company only undertakes
contracts under which it can expect to realize adequate profit margins or
otherwise meet its objectives. There can be no assurance that the Company will
be successful in contracting with sufficient numbers of associated physicians
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to meet the requirements of managed care organizations or in negotiating
contracts with managed care organizations on terms favorable to the Company and
associated physicians. Three HMOs, United HealthCare, Aetna and Cigna, together
accounted for 24% of pro forma combined net revenues of the Company for the year
ended December 31, 1996. Prior to the Reorganization, the physicians of the
Additional Atlanta Practices and Birmingham ENT did not generate material
revenues under capitated managed care contracts. Agreements with the three HMOs
are generally subject to 90 to 120 day cancellation by either party, and are
subject to annual renegotiation of rates, covered benefits and other terms and
conditions. In conjunction with the recent acquisition of U.S. HealthCare by
Aetna Inc., representatives of Aetna Inc. have indicated a desire to convert the
Aetna capitated ENT managed care contract to an expanded panel (non-capitated)
modified shared risk arrangement which may be expanded to include the facility
component (inpatient and ambulatory surgery center services) as well as the
professional component (physician services) of ENT care. Although the Company is
unable to predict if and when such modification will occur, the Company does not
believe that any such change will have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that any of these managed care agreements can be renewed or, if
renewed, that they will contain terms favorable to the Company and associated
physicians. The loss of any of these contracts or significant reductions in
capitated reimbursement rates under these contracts could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Risks Associated with Capitated Arrangements Including Risk
of Over-Utilization by HMO Enrollees, Risk of Reduction of Capitated Rates and
Regulatory Risks," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Managed Care Agreements."
POTENTIAL REDUCTIONS IN REIMBURSEMENT BY THIRD-PARTY PAYORS
The health care industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of health care
services. Substantially all of net revenues of Atlanta ENT, the Additional
Atlanta Practices, Birmingham ENT and the ENT Networks on a pro forma combined
basis have been, and are expected to continue to be, derived from HMOs,
commercial insurers, Medicare and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to health care providers by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. There can be no assurance that such
measures will not adversely affect the amounts or types of services that may be
reimbursable in the future, or the future reimbursement (including reductions in
capitated rates) for any service offered by associated physicians, either of
which could have a material adverse effect on the Company's business, financial
condition or operating results. The Company believes that these trends will
continue to result in a reduction from historical levels in per patient revenues
at Atlanta ENT, the Additional Atlanta Practices, Birmingham ENT and the ENT
Networks. Furthermore, government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and government restrictions, all of which could materially decrease the
range of services covered by such programs or the reimbursement rates paid for
the ENT medical and surgical services provided by associated physicians. Such
future reductions or changes would have a material adverse effect on the
Company's business, financial condition or operating results. Reimbursement
rates vary depending on the type of third-party payors. Changes in the
composition of third-party payors from higher reimbursement rate payors to lower
reimbursement rate payors could have an adverse effect on the Company's
operating results. See "-- Dependence on Contracts with Managed Care
Organizations."
CONTROL OF COMPANY BY RAMIE A. TRITT, M.D.; POTENTIAL ANTI-TAKEOVER PROVISIONS
Upon the completion of the Offering, Dr. Tritt, the Chairman of the Board
and President of the Company, will beneficially own approximately 29.2% of the
outstanding Common Stock of the Company and the officers and directors of the
Company in the aggregate will beneficially own approximately 34.2% of the
outstanding shares of Common Stock of the Company (32.4% if the Over-Allotment
Option is exercised in full), based upon an assumed initial public offering
price of $8.50 per share. As a result, Dr. Tritt will generally be able to
influence significantly the election of directors, outcome of corporate
transactions or other matters submitted for stockholder approval. Such influence
by Dr. Tritt could preclude any unsolicited acquisition of
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the Company and consequently adversely affect the market price of the Common
Stock. In addition, the Company's Board of Directors is authorized to issue from
time to time, without stockholder authorization, shares of preferred stock with
such terms and conditions as the Board of Directors may determine in its sole
discretion. The Company is also subject to a Delaware statute regulating
business combinations. Any of these provisions could discourage, hinder or
preclude an unsolicited acquisition of the Company and could make it less likely
that stockholders receive a premium for their shares as a result of any such
attempt, which may adversely affect the market price of the Common Stock. In
addition, upon the occurrence of certain events, including the merger of the
Company and a sale of all or substantially all of the assets of the Company, all
outstanding options under the Company's 1996 Stock Option Plan will become
immediately exercisable. The employment agreements with the Company's executive
officers allow for termination by the executives and the payment of severance
compensation to the executives upon a change of control of the Company. See
"Management," "Principal Stockholders" and "Description of Capital Stock."
COMPETITION
The physician practice management and network administration industry in
the United States generally, and in the Southeastern United States specifically,
is highly competitive. The restructuring of the United States health care system
is leading to rapid consolidation of the health care delivery system into larger
and more organized groups and networks of health care providers. The Company
expects competition to increase as a result of this consolidation and ongoing
cost containment pressures, among other factors. The Company will compete with
management services organizations, for-profit and nonprofit hospitals, HMOs and
other competitors seeking to form strategic alliances with or provide management
services to physicians. The Company is unable to predict the extent of future
competition because of changing competitive conditions, changes in laws and
regulations, government budgeting, technological and economic developments and
other factors. In addition, certain companies, including hospitals and insurers,
that are expanding their presence in the physician services business, are
significantly larger, provide a wider variety of services, have greater
experience in providing physician practice management services, have longer
established relationships for these services and have access to substantially
greater financial resources than the Company. See "Business -- Competition."
The Company believes that competition for fee-for-service revenue is
dependent upon, among other things, the geographic coverage of affiliated
practices, the reputation and referral patterns of affiliated physicians, the
breadth of ENT medical and surgical services provided by physicians practicing
at affiliated practices and the composition of the physicians at such practices.
The Company's ability to compete successfully for specialty capitated managed
care contracts with managed care organizations may depend upon, among other
things, the Company's ability to increase the number of associated physicians
and other health care professionals included in its network provider panel,
through asset acquisitions of additional specialty practices and by entering
into network administration agreements with independent physicians. The Company
will compete with several substantially larger physician practice management and
related companies in identifying and acquiring or contracting with such
physician practices or physicians. There can be no assurance the Company will be
able to associate with a sufficient number of competent physicians and other
health care professionals to expand its business.
Associated physicians also compete in certain markets, including the
Atlanta market, with substantial numbers of other ENT specialists as well as
general practitioners. The success of the Company is dependent upon the ability
of the Company or practices managed by the Company to recruit, train and retain
qualified health care professionals in new and existing markets. The Company
faces competition for these personnel from other health care providers, research
and academic institutions, government entities and other organizations. The
availability of such personnel is limited, and the inability to recruit and
maintain relationships with these individuals in certain geographic areas could
have a material adverse effect on the Company's future growth and operations.
There can be no assurance that sufficient numbers of qualified health care
professionals can be hired and retained. The Company's inability to hire and
retain such healthcare professionals could have a material adverse effect on the
Company's operations. In addition, a shortage of
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skilled personnel or the delay resulting from a need to train personnel could
have a material adverse effect on the Company's business, financial condition or
operating results.
GOVERNMENT REGULATION
Various state and federal laws regulate the relationships between providers
of health care services, physicians and other clinicians. These laws, among
others, include the Medicare and Medicaid anti-kickback statute and the
so-called "Stark Law." The anti-kickback statute prohibits the offer, payment,
solicitation or receipt of any direct or indirect remuneration in return for the
referral of patients for items or services, or for the ordering or arranging for
the furnishing of items or services for which payment may be made under Medicare
or Medicaid or other federally-funded health care programs. The "Stark Law"
imposes restrictions on physicians' referrals for certain designated health
services to entities with which they have financial relationships. Violations of
these laws may result in substantial civil or criminal penalties, denial of
payment, and/or exclusion from participation in the Medicare, Medicaid and other
federally-funded health care programs. In addition, under separate statutes,
submission of claims for payment that are "not provided as claimed" may lead to
civil or criminal penalties or exclusion from participation in the Medicare,
Medicaid and other federally-funded programs. Such exclusion if applied to
Atlanta ENT (including the physicians of the Additional Atlanta Practices),
Birmingham ENT or any other physician practice acquired by the Company, could
result in a significant loss of reimbursement. A determination of liability
under any such laws could have a material adverse effect on the Company's
business, financial condition and operating results.
Several states, including Georgia and Alabama, have adopted laws similar to
the federal "anti-kickback" and "anti-referral" laws that cover patients in
private programs as well as government programs. The laws of many states also
prohibit physicians from splitting fees with non-physicians and the laws of some
states, including certain states in which the Company operates or may operate,
prohibit non-physician entities from practicing medicine. In Georgia, there is
case law which could also be interpreted as prohibiting a corporation from
employing physicians, but the continued viability of such doctrine in Georgia is
unclear. In Alabama, recent interpretations by state authorities have indicated
that a corporation may employ physicians as long as the physicians exercise
their independent professional judgment in rendering medical decisions
concerning the treatment and diagnosis of patients. While the Company has
structured its arrangements to comply with applicable state laws, these laws and
their interpretation vary from state to state and are enforced by the courts and
by regulatory authorities with material discretion. A determination of liability
under any such laws could have a material adverse effect on the Company.
Although the Company believes that its operations will be in substantial
compliance with existing applicable laws, the Company's business operations have
not been the subject of judicial or regulatory interpretation. There can be no
assurance that upon review, the Company's business and its contractual
arrangements with the Initial Practices and any practices with which it has
arrangements with in the future will not be successfully challenged as
constituting the unlicensed practice of medicine. There can be no assurance that
review of the Company's business and its arrangements with affiliates by courts
or regulatory authorities will not result in determinations that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's operations or their
expansion. In addition, the regulatory requirements of certain jurisdictions may
limit the Company's expansion into, or ability to continue operations within,
such jurisdictions if the Company is unable to modify its operational structure
to conform with such regulatory requirements. Any limitation on the Company's
ability to expand could have a material adverse effect on the Company's
operations. See "Business -- Government Regulation."
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Changes in the law,
new interpretations of existing laws, or changes in payment methodology or
amounts, may have a dramatic effect on the relative costs associated with doing
business and the amount of reimbursement provided by government and other third
party payors. In addition to specific health care legislation, both the
President and the Congress have expressed an interest in controlling the
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escalation of health care expenditures and using health care reimbursement
policies to help control the federal deficit. In recent years, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue during the foreseeable future.
Aspects of certain of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly of facilities to which they refer
patients, if adopted, could adversely affect the Company. In addition, some
states in which the Company operates or may operate in the future are also
considering various health care reform proposals. The Company anticipates that
federal and state governments will continue to review and assess alternative
health care delivery systems and payment methodologies, and that public debate
of these issues will likely continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company, and there can be no assurance that the adoption of reform
proposals will not have a material adverse effect on the Company's business,
financial condition or operating results. In addition, the actual announcement
of reform proposals and the investment community's reaction to such proposals,
as well as announcements by competitors and third-party payors of their
strategies to respond to such initiatives, could produce volatility in the
trading and market price of the Common Stock of the Company. See "Business --
Government Regulation."
RISKS RELATING TO CREDIT FACILITY; CONSEQUENCES OF DEFAULT AND COVENANTS
EXPECTED UNDER CREDIT FACILITY
The Company has received a commitment letter for the Credit Facility,
effective upon satisfaction by the Company of certain conditions including
completion of the Offering and repayment of all indebtedness of the Company.
There can be no assurance that sufficient borrowings (which will be governed by,
among other factors, the Company's EBITDA) will be available to fund future
proposed acquisitions or for working capital. Advances under the Credit Facility
would bear interest at a variable rate. Accordingly, increases in interest rates
would increase the Company's interest expense and would adversely affect the
Company's cash flow and results of operations. The Company will grant to the
bank a security interest in the capital stock of the Company's subsidiaries,
including the ENT Networks, and all accounts receivable of the Company,
including the accounts receivable of affiliated practices assigned to the
Company under the management services agreements. In addition, the Company will
be required to maintain certain financial ratios, limit the amounts of
additional indebtedness, dividends, advances to officers, stockholders and
physicians, investments and advances to subsidiaries and restrict changes in
management and the Company's business. Therefore, in the event of a default
under the credit agreement or a bankruptcy, liquidation or reorganization of the
Company, such stock and assets would be available to the bank to satisfy the
Company's obligations to the bank before any payment could be made to the
Company's stockholders and, in such event, the Company's stockholders could lose
all or a substantial portion of their investment in the Company. The Company's
ability to generate sufficient cash flow to meet obligations incurred under the
Credit Facility will depend on the Company's future operations, which will in
turn, be subject to prevailing industry, economic, regulatory, and other
factors, many of which are beyond the Company's control. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL MANAGEMENT
The Company's success depends to a significant extent on Ramie A. Tritt,
M.D., the Company's Chairman of the Board and President, a principal stockholder
of the Company (and, immediately prior to the Reorganization, the sole
stockholder of the ENT Networks and a principal stockholder of Atlanta ENT) and
Richard D. Ballard, the Company's Chief Executive Officer. The loss of Dr. Tritt
or Mr. Ballard could have a material adverse effect on the development and
ultimate likelihood of success of the Company's business. Although the Company
has entered into a five year and a three year employment agreement with Dr.
Tritt and Mr. Ballard, respectively, there can be no assurance that the Company
will be able to retain their services. The Company intends to obtain "key-man"
insurance coverage on both Dr. Tritt and Mr. Ballard.
The Company believes that its future success will depend in part upon its
ability to attract and retain additional management personnel. The Company has
entered into an employment agreement with Robert A.
17
<PAGE> 20
DiProva who will become an Executive Vice President and the Chief Financial
Officer of the Company upon the closing of the Offering. The Company anticipates
recruiting additional executive officers and management personnel following the
closing of the Offering. Competition for such personnel is intense and the
Company will compete for qualified personnel with numerous other employers, some
of whom have greater financial and other resources than the Company. There can
be no assurance that the Company will be successful in attracting or retaining
such personnel. See "Management."
BENEFITS OF THE OFFERING TO INSIDERS
The Company intends to use a portion of the net proceeds of the Offering to
repay the outstanding balance of loans made to the Company by Gerald R.
Benjamin, Vice Chairman of the Board and a principal stockholder of the Company,
Atlanta ENT, Dr. Tritt, and two entities whose principal stockholders were
former directors of the Company in the aggregate principal amount of $578,000
(the "Founders' Loans") and to repay outstanding indebtedness of the Initial
Practices in the aggregate principal amount of approximately $1,600,000. In
connection with the repayment of the outstanding indebtedness of Atlanta ENT,
guarantees with respect to such indebtedness made by stockholders of Atlanta
ENT, including Dr. Tritt, will be cancelled. The Company will also use $250,000
of the net proceeds of the Offering to pay a consulting fee to an affiliate of
Mr. Benjamin. In connection with the Reorganization, Dr. Tritt will receive
1,413,741 shares of Common Stock, with a value on the date of this Prospectus of
$12,016,799, based upon an assumed initial public offering price of $8.50 per
share. However, such shares of Common Stock are subject to regulatory and
contractual restrictions on resale and their ultimate value will depend on the
market price of the Common Stock in the future. In addition, the Company has
entered into employment agreements with each of Mr. Ballard, Mr. Benjamin, Mr.
Kraska and Mr. DiProva providing for annual salaries of $150,000, $60,000,
$130,000 and $120,000, respectively, plus performance related bonuses and has
entered into an employment agreement with Dr. Tritt providing for an initial
annual salary of $350,000, subject to adjustment, plus a performance related
bonus. Each of Dr. Tritt and Mr. Benjamin will devote only a portion of their
time as executive officers of the Company. See "Use of Proceeds,"
"Management -- Employment Agreements" and "Certain Transactions."
POTENTIAL CONFLICTS OF INTEREST
There have been and are currently agreements by and among the Company,
Atlanta ENT and the ENT Networks and each of their respective officers,
directors and affiliates, and entities controlled by such officers, directors
and affiliates. In addition, Dr. Tritt, the Company's Chairman of the Board and
President will continue as a physician at Atlanta ENT and will be subject to
competing demands on his time. Any future transactions and agreements between
the Company and such individuals and entities are subject to approval by a
majority of the Board of Directors, including a majority of the independent
directors. See "Management -- Employment Agreements" and "Certain Transactions."
POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS
The provision of health care services entails the substantial risk of
potential claims of medical malpractice and similar claims. The Company does
not, itself, engage in the practice of medicine or assume responsibility for
compliance with regulatory requirements directly applicable to physicians and
will require associated physicians to maintain medical malpractice insurance.
Nevertheless, there can be no assurance that claims will not be asserted against
the Company in the event that services provided by physicians at Atlanta ENT
(including the physicians at the Additional Atlanta Practices), Birmingham ENT
or any affiliated practice are alleged to have resulted in injury or other
adverse effects. Although the Company expects to obtain liability insurance
effective upon the closing of the Offering that it believes will be adequate as
to both risk and amounts, successful malpractice claims could exceed the limits
of the Company's insurance and could have a material adverse effect on the
Company's business, financial condition or operating results. Moreover, there
can be no assurance that the Company will be able to obtain such insurance on
commercially reasonable terms or that any such insurance will provide adequate
coverage against potential claims. In addition, a malpractice claim asserted
against the Company could be costly to defend, could consume management
resources and could adversely affect the Company's reputation and business,
regardless of the merit or eventual outcome of
18
<PAGE> 21
such claim. In addition, in connection with the acquisition of assets of Atlanta
ENT, the Additional Atlanta Practices, and the Birmingham ENT, the Company is
assuming certain of the stated liabilities of such practices. Additionally,
claims may be asserted against the Company for events related to Atlanta ENT,
the Additional Atlanta Practices or Birmingham ENT that occurred prior to the
Reorganization. The Company expects to obtain insurance coverage effective upon
the closing of the Offering related to those risks that it believes is adequate
as to the risks and amounts, although there can be no assurance that any
successful claims will not exceed applicable policy limits or that the Company
will be able to obtain such insurance on commercially reasonable terms. In
addition, the Company is negotiating liability insurance, on behalf of Atlanta
ENT (including the Additional Atlanta Practices) and Birmingham ENT, that will
become effective on the closing of the Reorganization and the Offering and will
name the Company as an additional insured. See "Business -- Liability and
Insurance" and "-- Legal Proceedings."
TECHNOLOGICAL CHANGE
The health care information industry is relatively new and is experiencing
rapid technological change, changes in physician and payor needs, frequent new
product introductions and evolving industry standards. As the computer and
software industries continue to experience rapid technological change, the
Company must be able to quickly and successfully adapt its clinical information
systems so that they continue to integrate well with the computer platforms and
other software employed by associated physicians. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development and introduction of system enhancements or new systems in
response to technological changes. The Company's inability to respond to
technological changes in a timely and cost-effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations and on the price of the Common Stock by reducing the
Company's ability to efficiently and accurately analyze and anticipate the costs
incurred by associated physicians providing medical services pursuant to
capitated managed care contracts. See "Business -- Information Systems."
ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there is no assurance that an active market for the Common Stock will
develop or be sustained after the Offering. The initial public offering price
will be determined by negotiation between the Company and the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
completion of the Offering. See "Underwriting" for factors to be considered in
determining such offering price. The market price of the Common Stock following
the Offering could be subject to significant fluctuations in response to a
number of factors, including variations in the Company's quarterly operating
results, changes in estimates of the Company's earnings, perceptions about
market conditions in the health care industry or the impact of various health
care reform proposals and general economic conditions, some of which are
unrelated to the Company's operating performance. In addition, the stock market
generally has experienced significant price and volume fluctuations. These
market fluctuations could have an adverse effect on the market price or
liquidity of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
through the exercise of outstanding registration rights or through the issuance
of shares of Common Stock upon exercise of options, warrants or otherwise, could
have an adverse effect on the price of the Company's Common Stock. The 2,200,000
shares of Common Stock offered hereby will be freely tradeable without
restriction under the Securities Act, except if any shares are purchased by
"affiliates" as defined under Rule 144. The remaining 3,686,452 shares
outstanding upon completion of the Offering (including the shares of Common
Stock issued in connection with the Reorganization) are "restricted securities"
as that term is defined under Rule 144 and may not be sold publicly unless they
are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration. Of the restricted securities, 550,000,
11,225 and 38,668 shares issued in
19
<PAGE> 22
connection with the formation of the Company will become eligible for sale
pursuant to Rule 144 commencing July 1998, November 1998 and December 1998,
respectively. An additional 67,490 shares of Common Stock issuable upon the
exercise of vested options will also become eligible for sale in the public
market pursuant to Rule 701 and Rule 144 under the Securities Act beginning 90
days from the date of this Prospectus. Holders of all of such shares (including
all individuals receiving Common Stock in the Reorganization) have agreed not to
sell, transfer or otherwise dispose of any of their shares for a period of 12
months from the date of this Prospectus without the prior written consent of
Southcoast on behalf of the Underwriters. In addition, the holders of the
Representatives' Options have certain demand and "piggyback" registration rights
with respect to their securities and all existing holders of the Common Stock
(the "Existing Stockholders") and all holders acquiring shares of Common Stock
in connection with the Reorganization (the "Acquisition Stockholders") will have
"piggyback" registration rights with respect to their shares of Common Stock.
The sale of a substantial number of shares of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the Common Stock and impair the Company's ability to raise additional
capital in the future. See "Management -- Stock Option Plans," "Shares Eligible
for Future Sale" and "Underwriting."
DILUTION; RECENT SALES OF COMMON STOCK AT PRICES SUBSTANTIALLY BELOW INITIAL
PUBLIC OFFERING PRICE
In connection with the formation of the Company in July 1996, Bock Benjamin
& Co., Partners, L.P., a partnership of which Gerald R. Benjamin, the Company's
Vice Chairman and Secretary, is a partner, and Ramie A. Tritt, M.D., the
Company's Chairman of the Board and President, were each issued 275,000 shares
of Common Stock, at a purchase price of approximately $.0018 per share. In
November and December 1996, Dr. Tritt and Bock Benjamin & Co., Partners, L.P.
purchased an aggregate of 49,893 shares of Common Stock at an average purchase
price of approximately $.01 per share. In connection with the Reorganization,
the Company will issue an aggregate of 3,086,559 shares of Common Stock, of
which Dr. Tritt, as the owner of the ENT Networks and as a shareholder of
Atlanta ENT, will receive an aggregate of 1,413,741 shares of Common Stock,
based upon an assumed initial public offering price of $8.50 per share. See "The
Reorganization." Investors purchasing shares of Common Stock in the Offering
will incur immediate and substantial net tangible book value dilution of
approximately $5.30 per share, or 62.4%, assuming an initial public offering
price of $8.50 per share. This dilution will be increased to the extent that
holders of outstanding options to purchase Common Stock at prices below the
initial public offering price exercise such options. See "Dilution," "Principal
Stockholders" and "Certain Transactions."
ABSENCE OF DIVIDENDS.
The Company has never paid any cash dividends on its Common Stock and does
not intend to pay cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for the development of its
business. The Credit Facility contemplates restrictions on the payment of
dividends. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
20
<PAGE> 23
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$8.50 per share and after deducting underwriting discounts and the estimated
expenses of the Offering payable by the Company, are estimated to be
approximately $16,004,000 ($18,612,650 if the Over-Allotment Option is exercised
in full).
<TABLE>
<CAPTION>
APPROXIMATE
EXPECTED APPLICATION AMOUNT
-------------------- -----------
<S> <C>
Working capital............................................. $13,926,000
Repayment of indebtedness of the Initial Practices.......... 1,461,000
Repayment of Company indebtedness........................... 617,000
-----------
$16,004,000
===========
</TABLE>
Working capital is expected to be used to fund future Company acquisitions
of physician practice assets, for capital equipment and information systems and
for general corporate purposes, including general and administrative expenses
and the payment of a consulting fee incurred in connection with the formation of
the Company, the Offering and the Reorganization. An integral part of the
Company's business strategy is to grow through acquisitions. Although the
Company is evaluating and is engaged in discussions in connection with the
potential acquisitions of the assets or equity of additional ENT physician
practices and Related Specialty practices, except with respect to the practice
assets being acquired in connection with the Reorganization, the Company has no
agreements relating to any particular additional acquisition and there can be no
assurance that any such acquisitions will be consummated. See "Risk
Factors -- Risks Relating to Acquisitions and Managing Growth; Need for
Additional Funds; Potential Substantial Leverage," "Business -- Strategy" and
"Certain Transactions."
The Company intends to repay outstanding indebtedness of (i) Atlanta ENT in
the principal amount of approximately $1,111,000, plus accrued interest ($7,000
at December 31, 1996), of which 45% is guaranteed by Dr. Tritt. This
indebtedness was incurred in connection with leasehold improvements, expansion
of offices and equipment purchases, matures on July 10, 2001 and accrues annual
interest at the prime rate less 0.25%, (ii) the Additional Atlanta Practices in
the aggregate principal amount of $230,000, plus accrued interest ($400 at
December 31, 1996), which was incurred in connection with working capital and
equipment loans, matures on varying dates and accrues annual interest based upon
an index above the prime rate and (iii) Birmingham ENT in the aggregate
principal amount of $113,000, with no accrued interest, which was incurred in
connection with working capital and the purchase of a vehicle, matures between
December 1998 and March 2000 and accrues annual interest at rates ranging from
7.25% to 8%. Certain of the indebtedness has been incurred since December 31,
1996.
The Company will also repay Company indebtedness in the principal amount of
$598,000, plus accrued interest ($18,560 at December 31, 1996), owed to Atlanta
ENT, officers and principal stockholders of the Company and two entities whose
principal stockholders were former directors of the Company, (i) $578,000 of
which was incurred to pay legal, accounting and other fees in connection with
the formation of the Company, the Reorganization and the Offering and is
evidenced by promissory notes maturing on the earlier of completion of the
Offering or June 30, 1997 and bearing simple interest at a prime rate as
announced by NationsBank of Georgia, N.A. ("NationsBank") and (ii) $20,000 of
which was incurred in connection with the acquisition of certain assets
(primarily computer hardware) of the ENT Networks and is evidenced by a
promissory note maturing on the earlier of completion of the Offering or June
30, 1997 and bearing simple interest at a prime rate as announced by
NationsBank. Certain of the indebtedness has been incurred since December 31,
1996. See "Certain Transactions."
Pending such uses, the Company intends to invest the net proceeds of this
Offering in short-term, investment grade, interest-bearing securities. The
foregoing represents the Company's best estimate of the allocation of the net
proceeds based upon currently contemplated operations, current legislation and
regulatory, economic and industry conditions. Accordingly, such allocation is
subject to reapportionment among the categories described above or to new
categories in response to, among other things, changes in the Company's plans
and results of operations as well as changes in regulatory, economic, industry
and competitive conditions.
21
<PAGE> 24
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. Any future determination as to dividend policy will be made by the Board
of Directors of the Company in its discretion, and will depend on a number of
factors, including the future earnings, if any, capital requirements, financial
condition and business prospectus of the Company and such other factors as the
Board of Directors may deem relevant. In addition, the Credit Facility restricts
the payment of cash dividends. See "Risk Factors -- Absence of Dividends" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
22
<PAGE> 25
CAPITALIZATION
The following table sets forth at December 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization giving effect
to the consummation of the Reorganization and the related issuance of an
aggregate of 3,086,559 shares of Common Stock and (iii) the pro forma
capitalization as adjusted to give effect to the sale of the 2,200,000 shares of
Common Stock offered hereby, the receipt of the estimated net proceeds therefrom
and the application of the net proceeds to repay outstanding indebtedness of the
Company and the Initial Practices, all based on an assumed initial public
offering price of $8.50 per share. See "Use of Proceeds." This table should be
read in conjunction with the Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- -----------
<S> <C> <C> <C>
Total debt(1)........................................... $ 505,000 $1,774,289 $ 0
Stockholders' Equity:
Preferred Stock, $1.00 par value; 10,000 authorized;
no shares issued and outstanding................... -- -- --
Common Stock, $.001 par value; 50,000,000 shares
authorized; 599,893 shares issued and outstanding
actual; 3,686,452 shares issued and outstanding pro
forma and 5,886,452 shares issued and outstanding
pro forma as adjusted(2)........................... 600 3,686 5,886
Additional paid-in capital.............................. 96,711 2,450,466(3) 18,452,266(3)
Retained Earnings....................................... (107,601) 385,044 385,044
--------- ---------- -----------
Total stockholders' equity.................... (10,290) 2,839,196 18,843,196
--------- ---------- -----------
Total capitalization.......................... $ 494,710 $4,613,485 $18,843,196
========= ========== ===========
</TABLE>
- ---------------
(1) Excludes capital lease obligations. See Note 7 to Financial Statements of
Atlanta ENT and Note 4 to Financial Statements of Birmingham ENT.
(2) Includes an aggregate of 3,086,559 shares of Common Stock to be issued in
connection with the Reorganization, based upon an assumed initial public
offering price of $8.50 per share. Excludes (i) 550,000 shares of Common
Stock reserved for issuance under the Company's 1996 Stock Option Plan,
under which (a) options to purchase 247,460 shares of Common Stock have
been granted, of which 67,490 are currently exercisable and (b) options to
purchase 179,980 shares of Common Stock have been granted, effective upon
the closing of the Offering, of which 44,995 will be exercisable upon the
closing of the Offering; (ii) 275,000 shares of Common Stock reserved for
issuance under the Company's 1996 Health Care Professionals Stock Option
Plan, under which options to purchase 25,000 shares of Common Stock have
been granted, effective upon the closing of the Offering, none of which
will be exercisable until the first anniversary of the closing of the
Offering and (iii) 220,000 shares of Common Stock issuable upon exercise of
the Representatives' Options. See "Management -- Stock Option Plans,"
"Description of Capital Stock" and "Underwriting."
(3) See Notes 9 and 10 to the Unaudited Pro Forma Combined Financial Statements
of the Company.
23
<PAGE> 26
DILUTION
The Company had a pro forma combined net tangible book value as of December
31, 1996 of approximately $(10,300), or approximately $(.02) per share. Net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the Reorganization the pro forma net
tangible book value at December 31, 1996 would have been approximately
$2,839,000 or $.77 per share. After giving further effect to the sale of the
2,200,000 shares of Common Stock in the Offering at an assumed initial public
offering price of $8.50 per share and receipt and application of the estimated
net proceeds therefrom to repay indebtedness, the pro forma net tangible book
value at December 31, 1996 would have been approximately $18,843,000 or
approximately $3.20 per share. This represents an immediate increase in such net
tangible book value of approximately $3.22 per share to existing stockholders
and an immediate dilution in net tangible book value of approximately $5.30 per
share to new investors purchasing shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.50
Net tangible book value before the Reorganization and the
Offering............................................... $(.02)
Increase per share attributable to the Reorganization..... .79
Increase per share attributable to the Offering........... 2.43
-----
Pro forma net tangible book value per share after the
Reorganization and the Offering........................... 3.20
-----
Dilution of net tangible book value per share to new
investors................................................. $5.30
=====
</TABLE>
The following table sets forth, giving effect to the completion of the
Reorganization and the Offering, the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by the Existing Stockholders, by the Acquisition Stockholders, and by new
investors in the Offering (assuming an initial public offering price of $8.50
per share and before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............. 599,893 10.2% $ 1,311 0.0% $.0022
Acquisition Stockholders........... 3,086,559 52.4 2,839,196(1) 13.2 .92
New Investors...................... 2,200,000 37.4 18,700,000 86.8 8.50
--------- ----- ----------- -----
Total.................... 5,886,452 100.0% 21,540,507 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Represents the pro forma combined net tangible book value of the assets of
the Initial Practices and the ENT Networks acquired by the Company in
exchange for an aggregate of 3,086,559 shares of Common Stock in connection
with the Reorganization. See Notes 9 and 10 to the Unaudited Pro Forma
Combined Financial Statements of the Company.
The foregoing tables do not give effect to the exercise of options and the
Representatives' Options. To the extent that such options and warrants are
exercised, there will be additional dilution to new investors. See
"Management -- Stock Option Plans" and "Underwriting."
24
<PAGE> 27
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial statements give effect
to the Reorganization among Physicians' Specialty Corp., Atlanta ENT, the
Additional Atlanta Practices, Birmingham ENT and the ENT Networks as a
combination of promoter interests, at historical costs, and are based upon the
historical statements of each entity. The unaudited pro forma statement of
operations gives effect to the Reorganization and the management services
agreements between the Company and the physician practices as if such
transactions had occurred on January 1, 1996 and the unaudited pro forma balance
sheet gives effect as if such transactions had occurred on December 31, 1996.
The unaudited pro forma financial statements and related notes should be read in
conjunction with other financial information, including the audited financial
statements of Physicians' Specialty Corp., Atlanta ENT, the ENT Networks and
Birmingham ENT included elsewhere herein. The Company will not be acquiring
equity interests in the Initial Practices, but will be acquiring substantially
all of the assets of the Initial Practices and following the Reorganization will
directly employ the physicians of Birmingham ENT.
The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved if the Reorganization had been
consummated at the beginning of the period presented, nor are they necessarily
indicative of the future operating results of the Company. The pro forma
combined financial information does not give effect to any cost savings or
integration which may result from the Reorganization.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------------------------------
PHYSICIANS' ADDITIONAL
SPECIALTY ENT ATLANTA ATLANTA BIRMINGHAM UNADJUSTED PRO-FORMA PRO-FORMA
CORP. NETWORKS ENT PRACTICES ENT COMBINED ADJUSTMENTS COMBINED
----------- -------- ------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patient service revenues... $ 0 $ 0 $13,609 $3,773 $1,339 $18,721 $(17,382)(1) $ 1,339
Capitation revenues........ 0 4,453 0 0 0 4,453 0 4,453
Management fees............ 51 0 0 0 0 51 12,631(1) 12,682
----- ------ ------- ------ ------ ------- -------- -------
Net revenue........ $ 51 $4,453 $13,609 $3,773 $1,339 $23,225 $ (4,751) $18,474
Expenses
Physician compensation... $ 0 $ 0 $ 5,006 $1,882 $ 589 $ 7,477 $ (7,055)(2) $ 422
Salaries, wages &
benefits............... 47 85 5,208 717 356 6,413 (48)(3) 6,365
General and
administrative......... 110 166 2,841 1,104 360 4,581 (153)(4)
330(5) 4,758
Bad debt expense......... 0 0 197 0 3 200 0 200
Depreciation and
amortization........... 2 3 360 30 39 434 2(6) 436
Provider claims.......... 0 3,217 0 0 0 3,217 0 3,217
----- ------ ------- ------ ------ ------- -------- -------
Operating expenses..... $ 159 $3,471 $13,612 $3,733 $1,347 $22,322 $ (6,924) $15,398
Operating income (loss).... (108) 982 (3) 40 (8) 903 2,173 3,076
Other (income) expense,
net...................... 0 (23) (3) 13 9 (4) 0 (4)
Pretax income (loss)....... (108) 1,005 0 27 (17) 907 2,173 3,080
Provision for income
taxes.................... 0 0 0 0 2 2 1,199(7) 1,201
----- ------ ------- ------ ------ ------- -------- -------
Net income
(loss)........... $(108) $1,005 $ 0 $ 27 $ (19) $ 905 $ 974 $ 1,879
===== ====== ======= ====== ====== ======= ======== =======
Pro forma earnings per
share.................... 0.32
=======
Pro forma weighted average
shares outstanding....... 5,963(8)
-------
</TABLE>
See the accompanying notes to unaudited pro forma financial statements.
25
<PAGE> 28
PHYSICIANS' SPECIALTY CORP.
BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------
PHYSICIANS' ADDITIONAL
SPECIALTY ENT ATLANTA ATLANTA BIRMINGHAM UNADJUSTED
CORP. NETWORKS ENT PRACTICES ENT COMBINED
----------- -------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......... $ 123 $828 $ 4 $ 31 $ 61 $1,047
Accounts receivable, net.......... 27 0 3,277 637 224 4,165
Note receivable................... 0 0 171 0 0 171
Prepayments and other............. 0 0 77 0 16 93
----- ---- ------ ---- ---- ------
150 828 3,529 668 301 5,476
PROPERTY AND EQUIPMENT (net)........ 20 13 1,329 154 115 1,631
OTHER ASSETS........................ 443 0 40 3 0 486
----- ---- ------ ---- ---- ------
Total assets................ $ 613 $841 $4,898 $825 $416 $7,593
===== ==== ====== ==== ==== ======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable..................... $ 505 $ 0 $ 242 $ 37 $ 42 $ 826
Accrued compensation to owners.... 0 0 2,553 42 0 2,595
Accounts payable.................. 97 346 240 70 41 794
Accrued expenses.................. 21 0 776 104 60 961
Deferred Taxes.................... 0 0 0 0 69 69
----- ---- ------ ---- ---- ------
Current Liabilities......... $ 623 $346 $3,811 $253 $212 $5,245
LONG TERM LIABILITIES
Deferred Rent..................... 0 0 153 0 0 153
Long term debt.................... 0 0 868 0 80 948
----- ---- ------ ---- ---- ------
Long Term liabilities........... 0 0 1,021 0 80 1,101
OWNERS' EQUITY...................... (10) 495 66 572 124 1,247
----- ---- ------ ---- ---- ------
Total liabilities and
stockholders' equity...... $ 613 $841 $4,898 $825 $416 $7,593
===== ==== ====== ==== ==== ======
<CAPTION>
AT DECEMBER 31, 1996
----------------------------
PRO-FORMA PRO-FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......... $ 0 $1,047
Accounts receivable, net.......... 0 4,165
Note receivable................... 0 171
Prepayments and other............. 0 93
------- ------
0 5,476
PROPERTY AND EQUIPMENT (net)........ 0 1,631
OTHER ASSETS........................ 0 486
------- ------
Total assets................ $ 0 $7,593
======= ======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable..................... $ 0 $ 826
Accrued compensation to owners.... (2,595)(9) 0
Accounts payable.................. 0 794
Accrued expenses.................. 0 961
Deferred Taxes.................... 1,003(10) 1,072
------- ------
Current Liabilities......... $(1,592) $3,653
LONG TERM LIABILITIES
Deferred Rent..................... 0 153
Long term debt.................... 0 948
------- ------
Long Term liabilities........... 0 1,101
OWNERS' EQUITY...................... 1,592(9)(10) 2,839
------- ------
Total liabilities and
stockholders' equity...... $ 0 $7,593
======= ======
</TABLE>
See the accompanying notes to unaudited pro forma financial statements.
26
<PAGE> 29
PHYSICIANS' SPECIALTY CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following is a summary of the adjustments reflected in the Unaudited
Pro Forma Financial Statements assuming the Reorganization of the ENT Networks
and the Initial Practices with Physicians' Specialty Corp. This Reorganization
will be accomplished as a combination of promotor interests at historical costs
under generally accepted accounting principles. The Company will not be
acquiring equity interests in the Initial Practices, but will be acquiring
substantially all of the assets of the Initial Practices and following the
Reorganization will directly employ the physicians of Birmingham ENT.
(1) Reflects the elimination of patient service revenue for all physician
practices with which the Company has a management services agreement, but will
not directly employ the physicians of such practices, except for the physicians
of Birmingham ENT. Pursuant to management service agreements, the Company,
through PSC Management, will act as the exclusive manager and administrator of
an affiliated practice. The management service agreements provide for the
affiliated practice to assign to the Company all or substantially all of its
rights and interests in the proceeds of its non-governmental accounts receivable
(or the revenue it receives) and grants to the Company the right to collect and
retain the proceeds of governmental accounts receivable (or revenue) for the
Company's account to be applied in accordance with the agreement. Although such
proceeds of the accounts receivable (or revenue) are collected by the Company on
behalf of the practice, the practice grants to the Company the right to grant a
security interest and factor such amounts and such receivables will secure
Company borrowings under its credit facility.
Management fees have been calculated based upon the management service
agreements. The Company will be responsible for the payment of operating
expenses of the affiliated practice, including salaries and benefits of
non-medical employees of the practice, lease obligations for office space and
equipment and medical and office supplies, and the non-operating expenses of the
affiliated physician practice, including depreciation, amortization, and
interest. For providing services pursuant to the management services agreements,
the Company will retain a varying percentage of all revenues generated by or on
behalf of physicians practicing at the practice (after adjusting for, among
other things, uncollectible accounts and contractual allowances), subject to
specified maximum annual amounts, as payment for the Company's services under
the management services agreements. In addition, the Company will be entitled to
incentive compensation under the management service agreements upon the receipt
of the specified maximum annual amounts.
(2) Reflects the elimination of physician compensation at the practices in
which the Company does not have an equity ownership. After the Company collects
its management fees pursuant to the management service agreements, the remaining
revenues will be remitted to the affiliated practice to pay physician
compensation and benefits pursuant to employment agreements between the practice
and each individual physician and to pay physician assistant compensation and
benefits.
(3) Reflects the elimination of shared costs between the ENT Networks and
Atlanta ENT.
(4) Reflects the contractual elimination of management fees paid to certain
stockholders related to the ENT Networks.
(5) Reflects the net cost of additional employment contracts entered into
by the Company for certain management positions. The adjustments do not include
bonuses due to their subjective nature and requisite board approval for the
granting of bonuses based upon meeting certain profitability and non-financial
goals.
(6) Reflects a full year of amortization of deferred organization costs of
the Company.
(7) Reflects the establishment of a provision for income taxes at a 39%
effective tax rate. Atlanta ENT, the ENT Networks and two of the Additional
Atlanta Practices, before the Reorganization, are S corporations with such
corporations owing no federal or state taxes and the shareholders of each such
entity being responsible for their payment.
27
<PAGE> 30
(8) Reflects weighted average shares outstanding for common stock and
common stock equivalents (which have been calculated using the treasury stock
method).
(9) As discussed in Note 1 above, physician compensation will be paid to
the physician practices after collection of the Company's management fee. This
adjustment reflects the contribution of the physicians to the Reorganization.
Physicians are paid based upon cash collections and the amount of payment owed
to the physicians on outstanding accounts receivable at the time of the
Reorganization will be contributed to the Company as capital by the physicians.
On a going-forward basis, these physician groups will be compensated based on
the ultimate collection of accounts receivable.
(10) Reflects the establishment of deferred taxes for the Company after the
Reorganization.
28
<PAGE> 31
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following information for the Company, Atlanta ENT, the ENT Networks
and Birmingham ENT has been derived from the financial statements of the
respective entities. The information for the years ended December 31, 1992, 1993
and 1994 for Birmingham ENT and for the years ended December 31, 1992 and 1993
for Atlanta ENT and the ENT Networks has been derived from the unaudited
financial statements which, in the opinion of management, include all normal
recurring adjustments necessary for a fair statement of the results of
operations for unaudited statements. The Company was incorporated in July 1996
and commenced operations in August 1996 through the acquisition of the computer
hardware of the ENT Networks and utilization of the Capitated Network System.
The selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of the Company, Atlanta ENT,
the ENT Networks and Birmingham ENT and notes thereto included elsewhere in this
Prospectus. The entities included in the Reorganization which are required to be
audited and the number of years to be audited have been determined pursuant to
the requirements of Staff Accounting Bulletin No. 80.
PHYSICIANS' SPECIALTY CORP.
<TABLE>
<CAPTION>
FROM INCEPTION
(JULY 31, 1996)
THROUGH
DECEMBER 31, 1996
------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 51
Expenses:
Salaries, wages and benefits.............................. 47
Depreciation and amortization............................. 2
Other expenses............................................ 110
------
Total expenses.............................................. 159
------
Operating loss.............................................. $108
======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $124
Total assets................................................ 613
Total debt.................................................. 505
Stockholders' equity........................................ (10)
</TABLE>
29
<PAGE> 32
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service revenue......................... $5,505 $7,195 $8,124 $10,291 $13,609
Expenses:
Physician owners' compensation.................... 2,887 3,170 3,344 3,961 5,005
Salaries, wages and benefits...................... 1,253 2,277 2,929 3,922 5,209
General and administrative........................ 1,151 1,386 1,474 1,885 2,841
Bad debt expense.................................. 51 61 110 233 197
Depreciation and amortization..................... 148 262 259 275 360
Other expense (income), net....................... 15 39 8 15 (3)
------ ------ ------ ------- -------
Total expenses...................................... 5,505 7,195 8,124 10,291 13,609
------ ------ ------ ------- -------
Operating income.................................... $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4
Total assets................................................ 4,898
Total debt.................................................. 1,111
Owners' equity.............................................. 66
</TABLE>
ENT NETWORKS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Capitation revenue.................................... $1,743 $2,315 $3,510 $4,168 $4,453
Operating expenses.................................... 1,364 1,869 2,629 3,134 3,472
Operating income...................................... 379 446 881 1,034 981
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $828
Total assets................................................ 841
Owner's equity.............................................. 495
</TABLE>
30
<PAGE> 33
W.J. CORNAY, III, M.D., P.C.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service revenue........................... $ 622 $ 719 $1,004 $1,323 $1,339
Expenses:
Physician owners' compensation...................... 188 202 330 470 576
Salaries, wages and benefits........................ 165 206 315 568 356
General and administrative.......................... 224 246 238 293 373
Bad debt expense.................................... 2 3 12 (4) 3
Depreciation and amortization....................... 33 27 26 39 39
Other expense (income), net......................... 5 3 (11) (3) 9
------ ------ ------ ------ ------
Total expenses........................................ 617 687 910 1,363 1,356
------ ------ ------ ------ ------
Operating income (loss)............................... $ 5 $ 32 $ 94 $ (40) $ (17)
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 61
Total assets................................................ 416
Total debt.................................................. 121
Stockholders' equity........................................ 125
</TABLE>
31
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion has been divided into two sections, the first
relating to the historical and pro forma combined operations of the Company, the
entity whose Common Stock is being issued in connection with the Reorganization
and the Offering, and the second relating to the historical operations of
Atlanta ENT, the ENT Networks and Birmingham ENT. The following discussion of
the pro forma combined results of operations and financial position of the
Company and the historical results of operations and financial position of
Atlanta ENT, the ENT Networks, Birmingham ENT, and the Company should be read in
conjunction with the Company's unaudited pro forma combined financial statements
and the audited financial statements of Atlanta ENT, the ENT Networks,
Birmingham ENT, and the Company, and the notes thereto, appearing elsewhere in
this Prospectus.
OVERVIEW
Physicians' Specialty Corp. is a physician practice management company
recently organized to provide comprehensive management services to physician
practices specializing in the treatment and management of diseases and disorders
of the ear, nose and throat, head and neck, including specialists practicing in
the fields of allergy, audiology, oral surgery, plastic surgery and sleep
medicine. Concurrently with the closing of this Offering, the Company will
effect the Reorganization in which the Company will acquire all of the common
stock of the ENT Networks and substantially all of the assets of Atlanta ENT,
the Additional Atlanta Practices and Birmingham ENT. See "The Reorganization."
The Company's revenues will initially be derived (i) under management services
agreements with the physician practices in Atlanta whose assets are being
acquired by the Company in connection with the Reorganization, (ii) from patient
service revenues generated by the Company's wholly-owned subsidiary, PSC
Alabama, which will directly employ the Birmingham ENT physicians, and (iii)
under capitated managed care contracts held by the ENT Networks, which will
become wholly-owned subsidiaries of the Company upon the consummation of the
Reorganization.
Under management services agreements, all of the accounts receivables
relating to non-governmental revenue generated by the practices and the proceeds
of the accounts receivables relating to governmental revenue will be assigned to
the Company, which will (i) be responsible for payment of all operating and non-
operating expenses; (ii) retain a management fee, and (iii) remit to the
physician practices the balance. Under the capitated managed care contracts, the
Company, as owner of the ENT Networks, will be entitled to all of the capitated
fees paid by United HealthCare, Aetna and Cigna and will remit, on a discounted
fee-for-service basis, amounts to each physician practice providing ENT medical
and surgical services to the HMO's enrollees.
Management Service Agreements
The management services agreements, which are generally expected to have a
term of 40 years, delineate the responsibilities and obligations of the
physician practice and the Company. In connection with the Reorganization, the
Company will enter into management services agreements with Atlanta ENT (which
will include the physicians of the Additional Atlanta Practices) and the
stockholder physicians at Atlanta ENT and the Additional Atlanta Practices, and
with PSC Alabama (which will directly employ the physicians of Birmingham ENT).
These management services agreements provide for the affiliated practice to
assign to the Company all of its non-governmental accounts receivable and all of
its right and interest in the proceeds of its governmental accounts receivable
and grant to the Company the right to collect and retain the proceeds of the
accounts receivable for the Company's account to be applied in accordance with
the agreement. Although such proceeds of the accounts receivable are collected
by the Company on behalf of the practice, the practice grants to the Company the
right to grant a security interest and factor such accounts receivable and such
receivables will secure Company borrowings under the Credit Facility.
The Company will be responsible for the payment of operating expenses of
the affiliated physician practice, including salaries and benefits of
non-medical employees of the practice, lease obligations for office space and
equipment, medical and office supplies, and the non-operating expenses of the
affiliated physician practice, including depreciation, amortization and
interest. The Company will pay for all such expenses
32
<PAGE> 35
directly out of the proceeds of the accounts receivable assigned to the Company
by the affiliated physician practice. In addition, the Company will retain an
amount equal to a stipulated percentage of all revenues (after adjustment for
contractual allowances) generated by or on behalf of physicians practicing at
the practice, subject to specified maximum annual amounts, as payment for the
Company's management services and non-allocable costs incurred by the Company
attributable to the provision of management services. The Company will remit the
remaining revenues to the affiliated practice to pay compensation and benefits
to physicians pursuant to employment agreements between the practice and each
physician, and to physician assistants.
In the event that revenues of the affiliated physician practice decrease,
accounts receivable of the affiliated physician practice are not collected or
third-party payors reduce reimbursement rates, the management fees to be
retained by the Company will decrease and as a result, the Company's financial
condition and operating results will be adversely affected. Although the Company
is unable to control the variability of revenues generated by affiliated
practices, the Company will rely on the experience of its management to control
the operating costs at affiliated practices.
Capitated Managed Care Contracts
The ENT Networks hold capitated managed care contracts with Cigna, Aetna,
and United HealthCare which require the ENT Networks to contract for the
provision of substantially all of the ENT medical and surgical services required
by the enrollees of these HMOs in the Atlanta region. The ENT Networks have
contracted with participating physicians, including those of Atlanta ENT, and
will contract with the physicians at the Additional Atlanta Practices upon
consummation of the Reorganization, to provide substantially all of such medical
services in exchange for compensation on a discounted fee-for-service basis.
Capitation fees under the contracts with Cigna and Aetna are renegotiated
annually. Under the contract with United HealthCare, capitation rates are
increased annually based upon the percentage change, in the Atlanta region, of a
consumer index identified in the contract. Representatives of Aetna Inc. have
indicated a desire to convert the contract with Aetna from a capitated ENT
managed care contract to an expanded panel (non-capitated) modified shared risk
arrangement. Although the Company is unable to determine if and when such
modification will occur, the Company does not believe that it should have a
material adverse effect on the Company's business, financial condition or
results of operations.
Because the Company will incur costs based on medical services provided by
the participating physicians to the HMO's enrollees, if capitation amounts to be
received by the Company are reduced by the managed care payors or if enrollees
covered by capitated contracts require more frequent or more extensive care than
is anticipated, operating margins may be reduced or the revenues derived from
such contracts may be insufficient to cover the costs of the services provided
by participating physicians to enrollees under the contracts, requiring the
Company to adjust its discounted fee-for-service rates paid to participating
physicians. As a result, the Company's financial condition and operating results
may be adversely affected, particularly if the Company is unable to renegotiate
compensation levels paid to participating physicians under the participation
agreements on a timely or favorable basis or negotiate capitated managed care
contracts on terms favorable to the Company.
Prior to entering into a capitated managed care contract, the Company
intends to analyze the costs of managing such contract including a study of the
number of lives to be covered, the geographic region to be covered and the
historical utilization patterns of enrollees. The Company will then determine
the capitation fee (generally, a fixed amount per enrollee per month), necessary
to generate acceptable returns under the contract and will negotiate the
capitation rate with the HMO. The Company expects the capitated managed care
contracts to provide for annual renegotiation of the capitation fees and
adjustments in such capitation fees based upon changes in the number of
enrollees under the contracts, changes in the types of services to be provided
under the contracts and changes in the geographic areas to be covered under the
contracts.
In order to monitor and control expenses under capitated managed care
contracts held by the Company, the Company will utilize the Capitated Network
System, a comprehensive capitation administration and utilization management
system utilized by the ENT Networks to administer and manage its contracts. The
33
<PAGE> 36
Company believes the Capitated Network System will enable it to effectively
analyze clinical and cost data necessary to monitor and control expenses and
manage profitability under capitated arrangements, and to accurately anticipate
the costs participating physicians will incur in providing services under such
contracts so that the Company undertakes contracts under which it can expect to
realize adequate profit margins or otherwise meet its objectives.
PHYSICIANS' SPECIALTY CORP.
Physicians' Specialty Corp. was incorporated in July 1996 and has conducted
only limited activities to date, primarily consisting of acquiring computer
hardware of the ENT Networks and negotiating the agreements relating to the
Reorganization, and will not conduct significant operations until the closing of
the Reorganization and the Offering. The Company has incurred and will continue
to incur various legal, accounting and auditing costs in connection with the
Reorganization and the Offering. As of December 31, 1996, $485,000 of such
expenses had been funded by loans provided by Atlanta ENT, officers of the
Company and affiliates of former directors of the Company. In February 1997, the
ENT Networks and Bock, Benjamin & Co., Partners, L.P. loaned the Company an
additional aggregate of $170,000 and the Company repaid approximately $77,000 of
the loans made by affiliates of the former directors. The outstanding balance of
all such loans will be repaid from the proceeds of the Offering. See "Use of
Proceeds" and "Certain Transactions." The Company incurred approximately $96,000
of non-cash compensation expense related to certain stock purchases by executive
officers of the Company in November and December 1996.
The pro forma combined results of operations reflect the operations of the
Company as if the Reorganization had occurred on January 1, 1996. The ENT
Networks and PSC Alabama will be wholly-owned subsidiaries of the Company.
Atlanta ENT and the Additional Atlanta Practices will be affiliated with the
Company through a management services agreement. Therefore, the Company, on a
pro forma combined basis, has three sources of revenue: (1) patient service
revenue generated by Birmingham ENT (whose physicians will be employed directly
by PSC Alabama), (2) capitated revenue received by the ENT Networks, and (3)
management fees earned from Atlanta ENT (including the physicians at the
Additional Atlanta Practices who will be employed by Atlanta ENT following the
consummation of the Reorganization). Management fees are calculated pursuant to
the management service agreements. Under the management service agreements, the
Company will act as exclusive manager and administrator of an affiliated
practice and will assume substantially all operating expenses of affiliated
practices. In exchange for assuming these expenses and providing management
services, the Company will receive management fees in amounts equal to these
expenses plus a varying percentage of the revenues of the affiliated physician
practices. The affiliated physician practices are solely responsible for the
payment of compensation to physicians and physician assistants.
The Company generated revenues of approximately $18.5 million on a pro
forma combined basis for the year ended December 31, 1996, consisting of $12.7
million of management fees, $1.3 million of patient service revenues and $4.5
million of capitated revenue. The number of covered lives under capitated plans
was approximately 361,000 at December 31, 1996.
The Company incurred approximately $15.4 million of operating expenses on a
pro forma combined basis for the year ended December 31, 1996, consisting
largely of salaries and wages, general and administrative expenses and provider
claims. Both salaries and wages and general and administrative expenses will
vary with the opening of new clinic locations by the Company. The Company had
136 employees and operated 19 clinical locations on a pro forma combined basis
as of December 31, 1996.
Provider claims are amounts paid to participating physician practices,
including Atlanta ENT, on a discounted fee for service basis. Provider claims
amounted to approximately $3.2 million on a pro forma combined basis for the
year ended December 31, 1996. Because the ENT Networks will be wholly-owned
subsidiaries of the Company, the Company will have the ownership and the
ultimate risk related to these contracts. The Company will monitor claims
expense incurred to provide services under these contracts, as has been the
historical practice of the ENT Networks.
34
<PAGE> 37
Income tax expense of approximately $1.2 million, on a pro forma combined
basis for the year ended December 31, 1996, has been calculated at an effective
tax rate of 39%.
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Patient service revenues increased by $3,318,000 or 32.2% to $13,609,000
for the year ended December 31, 1996 from $10,291,000 for the year ended
December 31, 1995 attributable to the opening of three additional clinic office
locations and the addition of three affiliated physicians.
Physician owners' compensation of $5,006,000 and $3,961,000 for the years
ended December 31, 1996 and 1995, respectively, includes all compensation and
benefits paid or payable to physician owners during the period. The physician
owners determined such payments based on cash earnings available for
distribution, including cash to be realized from the collection of accounts
receivable.
Salaries, wages and benefits increased by $1,287,000 or 32.8% to $5,209,000
for the year ended December 31, 1996 from $3,922,000 for the year ended December
31, 1995. This increase resulted primarily from the addition of three employee
physicians and 30 support staff during the year ended December 31, 1996 in
conjunction with the opening of three additional clinic office locations.
General and administrative expenses increased by $956,000 or 50.7% to
$2,841,000 for the year ended December 31, 1996 from $1,885,000 for the year
ended December 31, 1995. The increase related to the opening of additional
clinic office locations and the expansion of administrative infrastructure
required to support anticipated practice growth. The Company typically incurs
expenses related to the opening of new facilities prior to generating revenues.
Bad debt expense decreased by $36,000 or 15.5% to $197,000 for the year
ended December 31, 1996 from $233,000 for the year ended December 31, 1995. This
decrease was attributable largely to improved collection of patient self-pay and
per visit co-payment amounts.
Depreciation and amortization expense increased by $86,000 or 31.3% to
$361,000 for the year ended December 31, 1996 from $275,000 for the year ended
December 31, 1995 reflecting no material changes in the composition of the
Company's fixed assets or depreciation methods.
Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Patient service revenues increased by $2,167,000 or 26.7% to $10,291,000
for the year ended December 31, 1995 from $8,124,000 for the year ended December
31, 1994 attributable to the opening of three additional clinic office locations
and the addition of six affiliated physicians.
Physician owners' compensation of $3,961,000 and $3,344,000 for the years
ended December 31, 1995 and 1994 respectively, includes all compensation and
benefits paid or payable to physician owners during the period. The physician
owners determined such payments based on cash earnings available for
distribution, including cash realized from the collection of accounts
receivable.
Salaries, wages and benefits increased by $993,000 or 33.9% to $3,922,000
for the year ended December 31, 1995 from $2,929,000 for the year ended December
31, 1994. This increase resulted primarily from the addition of six employee
physicians and 17 support staff in 1995 in conjunction with the opening of three
additional clinic office locations.
General and administrative expenses increased by $411,000 or 27.9% to
$1,885,000 for the year ended December 31, 1995 from $1,474,000 for the year
ended December 31, 1994. The increase related to the opening of three clinic
office locations and the expansion of administrative infrastructure required to
support anticipated practice growth.
Bad debt expense increased by $123,000 or 111.8% to $233,000 for the year
ended December 31, 1995 from $110,000 for the year ended December 31, 1994. This
increase was attributable largely to uncollectible patient self-pay and per
visit co-payment amounts.
35
<PAGE> 38
Depreciation and amortization expense increased by $16,000 or 6.2% to
$275,000 for the year ended December 31, 1995 from $259,000 for the year ended
December 31, 1994, reflecting no material changes in the composition of the
Company's fixed assets or depreciation methods.
THE ENT NETWORKS
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Capitated revenues increased by $285,000 or 6.8% to $4,453,000 for the year
ended December 31, 1996 from $4,168,000 for the year ended December 31, 1995 due
to a 16.5% increase in the number of lives under capitated plans, which was
offset in part by an 8.4% decrease in capitation rates resulting from a
renegotiation of a managed care contract.
Salaries, wages and benefits increased by $20,000 or 30.8% to $85,000 for
the year ended December 31, 1996 from $65,000 for the year ended December 31,
1995.
General and administrative expenses decreased by $4,000 or 2.3% to $167,000
for the year ended December 31, 1996 from $171,000 for the year ended December
31, 1995. General and administrative expenses consisted largely of amounts paid
to the Company's sole stockholder and an associated physician related to Medical
Director stipends.
Provider claims increased by $324,000 or 11.2% to $3,217,000 for the year
ended December 31, 1996 from $2,893,000 for the year ended December 31, 1995 due
largely to the aforementioned increase in covered lives under capitated plans.
Provider claims represented 72.2% and 69.4% of capitated revenues for the years
ended December 31, 1996 and 1995, respectively.
Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Capitated revenues increased by $657,000 or 18.7% to $4,168,000 for the
year ended December 31, 1995 from $3,511,000 for the year ended December 31,
1994 due to a 13.2% increase in the number of lives under capitated plans which
was offset in part by an 11.2% decrease in capitation rates resulting from a
renegotiation of a managed care contract.
Salaries, wages and benefits increased by $36,000 or 124.1% to $65,000 for
the year ended December 31, 1995 from $29,000 for the year ended December 31,
1994.
General and administrative expenses increased by $34,000 or 24.8% to
$171,000 for the year ended December 31, 1995 from $137,000 for the year ended
December 31, 1994. General and administrative expenses consisted largely of
amounts paid to the Company's sole stockholder and an associated physician
related to Medical Director stipends.
Provider claims increased by $437,000 or 17.8% to $2,893,000 for the year
ended December 31, 1995 from $2,456,000 for the year ended December 31, 1994 due
largely to the aforementioned increase in covered lives under capitated plans.
Provider claims represented 69.4% and 69.9% of capitated revenues for the years
ended December 31, 1995 and 1994, respectively.
W.J. CORNAY III, M.D. , P.C.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Patient services revenues increased by $16,000 or 1.2% to $1,339,000 for
the year ended December 31, 1996 from $1,323,000 for the year ended December 31,
1995.
Salaries, wages and benefits decreased by $212,000 or 37.3% to $356,000 for
the year ended December 31, 1996 from $568,000 for the year ended December 31,
1995. This decrease was largely attributable to a physician employee becoming a
stockholder of the practice in 1996.
Compensation to physician owners increased by $106,000 or 22.5% to $576,000
for the year ended December 31, 1996 from $470,000 for the year ended December
31, 1995 relating to the increase in the number of stockholders of the practice.
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<PAGE> 39
General and administrative expenses increased by $69,000 or 23.7% to
$360,000 for the year ended December 31, 1996 from $291,000 for the year ended
December 31, 1995. The majority of the increase related to professional fees
incurred.
Depreciation and amortization expenses remained unchanged for the year
ended December 31, 1996 compared to the year ended December 31, 1995 reflecting
no change in the composition of the Company's fixed assets or depreciation
methods.
Deferred tax expense was recorded to provide for the temporary differences
between financial statement and income tax reporting of various items,
principally revenue recognition.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth a summary of the significant components of
historical cash flows for Atlanta ENT, the ENT Networks and Birmingham ENT for
the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
-------------------------
1994 1995 1996
------- ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flow from Operating Activities
Atlanta ENT............................................... $ 378 $ 455 $ 346
The ENT Networks.......................................... 1,190 960 918
Birmingham ENT............................................ * 66 37
Cash Flow (Deficit) from Investing Activities
Atlanta ENT............................................... $ (162) $ (541) $ (875)
The ENT Networks.......................................... (11) (6) (12)
Birmingham ENT............................................ * (69) (23)
Cash Flow (Deficit) from Financing Activities
Atlanta ENT............................................... $ (242) $ 464 $ 132
The ENT Networks.......................................... (1,000) (943) (380)
Birmingham ENT............................................ * 81 (38)
</TABLE>
- ---------------
* Birmingham ENT data not available for the year ended December 31, 1994.
Net cash provided by operating activities of Atlanta ENT, the ENT Networks
and Birmingham ENT for the year ended December 31, 1996 was $346,000, $918,000,
and $37,000, respectively. Cash utilized for investing activities by Atlanta
ENT, the ENT Networks and Birmingham ENT for the year ended December 31, 1996
was $875,000, $12,000 and $23,000, respectively, in each case consisting
entirely of capital expenditures. Borrowings, net of repayments, by Atlanta ENT
and Birmingham ENT for the year ended December 31, 1996 were $132,000 and
$(38,000), respectively. Cash distributions by the ENT Networks to the owner in
the year ended December 31, 1996 were $380,000.
Net cash provided by operating activities of Atlanta ENT, the ENT Networks
and Birmingham ENT for the year ended December 31, 1995 was $455,000, $960,000
and $66,000, respectively. Cash utilized for investing activities by Atlanta
ENT, the ENT Networks and Birmingham ENT for the year ended December 31, 1995
was $541,000, $6,000 and $69,000, respectively, in each case, consisting
entirely of capital expenditures. Borrowings, net of repayments, by Atlanta ENT
and Birmingham ENT for the year ended December 31, 1995 were $464,000 and
$81,000, respectively. Cash distributions by the ENT Networks to the owner for
the year ended December 31, 1995 were $943,000.
Net cash provided by operating activities of Atlanta ENT and the ENT
Networks for the year ended December 31, 1994 was $378,000 and $1,190,000,
respectively. Cash utilized for investing activities by Atlanta ENT and the ENT
Networks for the year ended December 31, 1994 was $162,000 and $11,000,
respectively, in each case, consisting entirely of capital expenditures. Net
repayments of borrowings by Atlanta ENT for the year ended December 31, 1994 was
$242,000. Cash distributions by the ENT Networks to the owner for the year ended
December 31, 1994 was $1,000,000.
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<PAGE> 40
Upon consummation of the Reorganization, the operating cash flows generated
by Atlanta ENT and Birmingham ENT will no longer be suppressed by the payment of
bonus compensation to physician owners in amounts sufficient to eliminate
operating income as has historically been the practice of Atlanta ENT and
Birmingham ENT. In addition, the payment of S corporation distributions to the
stockholder of the ENT Networks will cease upon consummation of the
Reorganization.
The Company has received a commitment letter for a credit facility of
$20,000,000 with NationsBank, N.A. (South) primarily to provide financing for
the acquisition of assets of physician practices and for working capital
purposes. The closing of the Credit Facility is conditioned upon the completion
of the Offering and the repayment of all indebtedness of the Company. Borrowings
under the Credit Facility will (i) be secured by the assignment to the bank of
the Company's stock in all of its subsidiaries, including the ENT Networks upon
consummation of the Reorganization, and the Company's accounts receivable,
including the accounts receivable assigned to the Company by affiliated
practices pursuant to management services agreements, (ii) be guaranteed by all
subsidiaries (including future subsidiaries) and (iii) restrict the Company from
pledging its assets to any other party. Advances for working capital will be
governed by a borrowing base related primarily to the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA"). Based on the
borrowing base at December 31, 1996 after giving effect to the Offering and the
Reorganization, the maximum availability under the Credit Facility would have
been $8,700,000. Advances will bear interest at the Company's option of either a
prime-based rate or a LIBOR-based rate and interest-only payments will be
required for the first two years from the date of the closing of the Credit
Facility, with maturity in five years from the advance date.
The Credit Facility will contain affirmative and negative covenants which
will, among other things, require the Company to maintain certain financial
ratios (including maximum indebtedness to pro forma EBITDA ratio, maximum
indebtedness to capital ratio, minimum net worth, minimum current ratio, and
minimum fixed charges coverage), limit the amounts of additional indebtedness,
dividends, advances to officers, shareholders and physicians, investments and
advances to subsidiaries, and restrict changes in management and the Company's
business.
The Company intends to acquire the assets of additional ENT physician
practices and Related Specialty practices and to fund this growth in part with
the net proceeds of this Offering and borrowings under the Credit Facility, as
well as through equity issuances. The Company is currently evaluating and is in
various stages of discussions in connection with the potential acquisition of
assets or equity of additional ENT physician practices and Related Specialty
practices. However, the Company has no agreements or arrangements with respect
to the terms of any other specific acquisitions (other than agreements with
Atlanta ENT, the ENT Networks, the Additional Atlanta Practices and Birmingham
ENT) and, accordingly, there can be no assurance that any of the acquisitions
under evaluation will be completed, as to the terms of any such acquisition or
as to the Company's ability to complete future acquisitions. See "Risk
Factors -- Risks Related to Acquisitions and Managing Growth; Need for
Additional Funds; Potential Substantial Leverage."
The Company believes that the net proceeds of the Offering and borrowings
under the Credit Facility, if obtained, together with cash flow expected to be
generated from operations, will be sufficient to fund the Company's anticipated
acquisition, expansion and working capital needs for approximately the next 18-
24 months. There can be no assurance that borrowings under the Proposed Credit
Facility will be available or that alternative financing will be available for
future acquisitions or expansion of the Company's business.
Upon completion of the Offering, the Company will be a party to employment
agreements with five executive officers providing for initial aggregate
anticipated annual salaries of $810,000 plus performance related bonuses. See
"Management -- Employment Agreements."
SEASONALITY
The Company's business is subject to seasonal patient visits to affiliated
physicians. Fee-for-service revenues are typically lower during the third
quarter of the Company's fiscal year. This lower level of patient visits is
attributable to physician vacations, patients returning to school and seasonal
illness patterns. Capitated revenues, however, are not susceptible to seasonal
influences. Quarterly results also may be materially affected by the timing of
acquisitions and the timing and magnitude of costs related to acquisitions.
Results for any quarter, therefore, may not necessarily be indicative of the
results that the Company may achieve for any subsequent fiscal quarter or for a
full fiscal year.
38
<PAGE> 41
BUSINESS
GENERAL
The Company was recently organized to provide comprehensive physician
practice management services to physician practices and health care providers
specializing in the treatment and management of diseases and disorders of the
ear, nose and throat, head and neck. The Company's primary objective is to
develop, manage and integrate ENT physician and Related Specialty practices
which will provide high quality, cost effective medical and surgical services to
fee-for-service patients and capitated managed care enrollees. The Company will
provide financial and administrative management, enhancement of clinical
operations, network development and payor contracting services, including the
negotiation and administration of capitated arrangements. Following the
Reorganization, the Company will be affiliated with 23 physicians, one dentist
and 26 allied health care professionals operating 19 clinical locations.
Concurrently with the closing of the Offering, the Company will effect the
Reorganization in which the Company will acquire (i) substantially all of the
assets of Atlanta ENT, which was founded in 1979 and is today, the largest ENT
group practice in the State of Georgia, three additional ENT practices in the
metropolitan Atlanta area and one ENT practice in Birmingham, Alabama; and (ii)
the common stock of the ENT Networks which hold, manage and administer capitated
ENT managed care contracts covering an aggregate of approximately 361,000
enrollees of HMOs sponsored by United HealthCare, Aetna and Cigna. In connection
with the Reorganization, the Company will enter into management services
agreements with the physician practices providing for the comprehensive
management of the practices by the Company, while enabling the practices to
retain authority over the provision of medical care.
The Company's revenues will initially be derived (i) under a management
services agreement with Atlanta ENT (including the Additional Atlanta
Practices), substantially all of the assets of which will be acquired by the
Company in the Reorganization; (ii) from patient services revenues generated by
the physicians of Birmingham ENT (who will be employed directly by a
wholly-owned subsidiary of the Company); and (iii) under capitated management
care contracts held by the ENT Networks (which will become wholly-owned
subsidiaries of the Company in connection with the Reorganization). Under the
management services agreement, all non-governmental accounts receivables and
proceeds of governmental accounts receivables relating to fee-for-service
revenues generated by the practice will be assigned to the Company, which will
(i) be responsible for payment of all operating and non-operating expenses of
the physician practice, (ii) retain a management fee based upon a percentage of
the revenues and (iii) remit to the physician practice the balance to pay
physician and physician assistant compensation and benefits. The Company's
revenues under the management services agreements will be derived from amounts
equal to these expenses plus a varying percentage of the revenues of the
affiliated physician practices. The affiliated physician practices are solely
responsible for the payment of compensation to physicians and physician
assistants. In states where the Company can employ physicians, such as Alabama,
the Company's revenues will equal all of the fee-for-service revenues generated
by the practice. Under the managed care contracts, the Company, as owner of the
ENT Networks, will be entitled to all of the capitated fees received from the
HMOs. The Company will bear the capitation risk under these agreements, as it
will compensate each participating physician providing ENT medical and surgical
services to the HMO's enrollees on a discounted fee-for-service basis.
HEALTH CARE INDUSTRY OVERVIEW
General
Health care is one of the largest industries in the United States,
representing total expenditures exceeding $900 billion in 1994, with
approximately $180 billion directly attributable to physician services,
according to the Federal Health Care Financing Administration. Health care in
the United States historically has been delivered by a fragmented system of
health care providers, including hospitals, individual physicians and small
groups of specialist and primary care physicians. A 1996 American Medical
Association study estimates that there are over 110,000 physicians practicing in
4,300 multi-specialty group practices of three or more
39
<PAGE> 42
physicians and over 86,000 physicians practicing in 13,600 single specialty
group practices in the United States.
According to the Academy, there were approximately 8,400 ENT specialists in
the United States as of December 31, 1995. The Company estimates that
approximately 70% of all ENT practices consist of individual practitioners or
small (less than four physician) group practices. Although the Company's initial
operations will be located in the Southeastern United States, the Company
intends to expand its physician practice management services to ENT physician
practices and Related Specialty practices throughout the United States. The
Company believes that, upon completion of the Offering, it will be the leading
physician practice management company focusing solely or substantially on
acquiring assets of and managing ENT physician practices.
Trends in the Health Care Industry
Increasing concern over the rising cost of health care in the United States
has led to the emergence and increasing prominence of managed care. Because many
fee-for-service arrangements for compensating health care providers fail to
create incentives for the efficient utilization of resources and are therefore
generally believed to contribute to health care cost increases at rates
significantly higher than inflation, many payors are rapidly moving to replace
fee-for-service reimbursement with alternative reimbursement methods, including
capitated and other fixed-fee arrangements. The growth in enrollment in programs
provided by payors using these new reimbursement methods is shifting the
financial risk of delivering health care from payors to providers.
Health care cost containment pressures have increased physician management
responsibilities while lowering reimbursement rates to physicians. While the
acceptance of greater responsibility and risk under capitated arrangements
provides physicians with the opportunity to retain and enhance market share and
operate at a more predictable level of profitability, the acceptance of
capitation also carries with it significant requirements for infrastructure,
information systems, capital, network resources and financial and medical
management. Because most physicians practice individually or in two-person
groups, their negotiating leverage with payors and access to economies of scale
are limited. Individual physicians and small group practices also tend to have
limited administrative capacity, limited ties to other health care providers
(restricting their ability to coordinate care across a variety of specialties),
limited capital to invest in new clinical equipment and technologies and limited
purchasing power with vendors of medical supplies. In addition, individual
physicians and small group practices typically lack the information systems
necessary to manage sophisticated risk-sharing contracts with payors and to
efficiently implement disease management programs.
In response to the foregoing factors, individual physicians and small group
practices are increasingly affiliating with larger group practices and physician
practice management companies. Physician practice management companies offer
physicians access to information and management systems, leverage with vendors
and payors and capital resources. In addition, many payors and their
intermediaries, including governmental entities and HMOs, are increasingly
looking to outside providers of physician services to develop and maintain
quality outcomes, management programs and patient care data. Such payors and
intermediaries seek to share the risk of providing health care services through
capitation arrangements which provide for fixed payments for patient care over a
specified period of time.
Otolaryngology
Otolaryngology, the management of diseases of the ear, nose, nasal
passages, sinuses, larynx, mouth and throat, as well as structures of the neck
and face, is the oldest medical specialty in the United States. An
otolaryngologist, a physician trained in the medical and surgical fields of ear,
nose and throat, head and neck disorders, is commonly referred to as an Ear,
Nose and Throat Specialist. According to the Academy, more than 50% of all U.S.
physician office visits are directly related to ENT problems frequently treated
by primary care physicians, pediatricians, allergists and otolaryngologists.
Based upon a 1994 American Group Practice Association study, the Company
estimates that 1994 revenues generated by ENTs in the United States exceeded $6
billion. ENT services in the United States are delivered largely through
individual and small
40
<PAGE> 43
single specialty group practices and multi-specialty clinics. In the early
1900s, ENT and eye care specialists generally practiced jointly in group
practices. While a select number of large, combined eye, ear, nose and throat
practices exist, most ENT and eye care professionals migrated toward single
specialty group practices as specialization occurred. The Academy reports that
there were approximately 8,400 ENT specialists in the United States as of
December 31, 1995 and, based upon membership in the Academy, the Company
estimates that approximately 70% of all ENT practices consist of individual
practitioners or small (less than four physician) group practices. In general,
physician practice management companies have captured only a small percentage of
total medical service revenues. The Company's operations will initially be
located in the Southeastern United States, and, accordingly, there can be no
assurance that the Company will be able to capture a significant amount of the
revenues generated by ENT practices throughout the United States.
Otolaryngology subspecialties include the following:
Pediatric Otolaryngology which includes the medical and surgical
treatment of diseases of the ear, nose and throat in children.
Head and Neck Surgery which includes the surgical and medical
treatment of cancerous and noncancerous tumors in the head and neck,
including thyroid and parathyroid surgery.
Rhinology which includes the medical and surgical treatment of
disorders of the nose and sinuses.
Allergy which includes the medical treatment of inhalant allergies
affecting the upper respiratory system.
Facial Plastics and Reconstructive Surgery which includes the
treatment of cosmetic, functional and reconstructive abnormalities of the
face and neck.
Otology/Neurotology which includes the medical and surgical treatment
of diseases of the ear, including traumatic and cancerous disorders of the
external, middle and inner ear, as well as the nerve pathways which affect
hearing and balance.
Laryngology which includes medical and surgical treatment of disorders
of the throat, including the voice.
STRATEGY
The Company's primary objective is to develop, manage and integrate ENT
physician and Related Specialty practices into comprehensive networks for the
provision of high quality, cost-effective ENT medical and surgical services to
capitated managed care enrollees and fee-for-service patients. The key elements
of the Company's implementation strategy are to:
Acquire and Affiliate with ENT and Related Specialty Practices. The
Company intends to develop significant market presence by acquiring assets
or equity of practices of, or contracting with, established specialty
physicians or other health care providers with established reputations in
select markets for providing quality medical care in ENT and the Related
Specialties. The Company believes this will increase its market share in
target regions while ensuring appropriate quality treatment and maintaining
patient satisfaction. As the Company acquires the practices of, and
affiliates with, additional ENT and Related Specialties, the Company will
be able to provide a wide range of management, support and ancillary
services frequently unavailable to independent specialty practitioners.
Develop Provider Networks. The Company intends to integrate
associated physicians into multi-site ENT and related specialty provider
networks. In addition to physicians employed by practices whose assets are
acquired by the Company, the Company intends to enter into network
administration agreements with independent ENT and other specialty
physicians providing for their inclusion in managed care provider panels in
targeted geographic markets. By employing demographic, utilization and
economic analysis tools, the Company believes it can effectively develop
specialty provider networks responsive to the demands and desires of
managed care payors seeking capitated provider relationships. In addition,
the Company believes that the managed care arrangements in place at Atlanta
ENT or at
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<PAGE> 44
future practices managed by the Company will be attractive to
newly-affiliating physicians joining the provider panels developed by the
Company.
Implement and Expand Information Systems. The Company believes that
access to clinical patient data is critical to cost containment and quality
outcomes, which are fundamental to negotiating appropriate capitation
contracts. Since clinical decisions made by physicians impact overall
health care expenditures, the Company believes that opportunities exist to
reduce practice costs by providing physician practices with data from
information systems designed to assist in managing the clinical aspects of
ENT and Related Specialty practices. The Company intends to use the
management information systems developed and maintained by Atlanta ENT and
intends to expand these systems so as to effectively manage capitated
contracts for additional ENT physicians and physicians and other health
care providers practicing in the Related Specialties. These systems collect
and analyze clinical and administrative data, facilitating automation of
many routine clinical functions, and provide access to the clinical and
financial data necessary to perform outcome studies, cost analyses,
utilization management and utilization reviews. The Company believes that
the Capitated Network System will enable it to effectively manage the
utilization of medical services provided by affiliated practices to managed
care enrollees.
Shift to Shared-Risk Capitated Payment Arrangements. The Company
believes that a key success factor in the management of ENT specialty
practices lies in the development and management of capitated payor
arrangements which address the administrative demands of managed care. The
Company believes that the current ENT market presence of Atlanta ENT and
the ENT Networks, as well as their experience in capitated managed care
arrangements and the development of the Capitated Network System, will
enhance the Company's ability to market to managed care payors the services
of Atlanta ENT, as well as other practices affiliating with the Company,
and negotiate risk sharing arrangements with additional managed care
payors. In addition, the Company intends to expand and diversify network
provider panels by affiliating with additional ENT physicians and
specialists practicing in the Related Specialties, thereby enhancing the
marketability of the such network provider panels to managed care payors.
ATLANTA ENT AND THE ENT NETWORKS
Atlanta ENT is the largest otolaryngology group practice in the State of
Georgia. Founded in 1979, the practice has grown to include 16 physicians, one
dentist, 15 audiologists, seven physician assistants and one clinical
esthetician. The practice offers a wide range of ENT subspecialty services,
including pediatric otolaryngology, head and neck surgery, rhinology, facial
plastics, otology and neurotology and laryngology. Additionally, the practice
provides audiology services, hearing aid sales, TMJ diagnostics and laser
snoring and sleep apnea surgical services. Serving infants, children and adults,
the practice has 14 clinical locations and its affiliated physicians maintain
privileges at 18 hospitals and two ambulatory surgical centers throughout
metropolitan Atlanta. Ramie A. Tritt, M.D., Chairman of the Board and President
and a principal stockholder of the Company, is the President and a principal
stockholder of Atlanta ENT. See "Certain Transactions."
Atlanta ENT began providing ENT medical and surgical services under a
capitated managed care contract in 1982 covering approximately 50,000 enrollees.
At December 31, 1996, Atlanta ENT served as the primary ENT provider panel for
three capitated managed care contracts covering an aggregate of approximately
361,000 enrollees. Each managed care contract is administered by separate
corporations owned by Dr. Tritt and formed solely for the purpose of holding,
managing and administering such contract. These three corporations together
comprise the ENT Networks and will become wholly-owned subsidiaries of the
Company upon the consummation of the Reorganization. The ENT Networks have
agreed to provide, on a capitated basis, substantially all of the ENT medical
and surgical services required by enrollees of HMOs sponsored by United
HealthCare, Cigna and Aetna in the greater Atlanta market. In turn, the ENT
Networks have contracted with Atlanta ENT and independent physicians to provide
such services to these enrollees. The
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<PAGE> 45
three capitated managed care contracts administered by the ENT Networks covered
the following respective number of enrollees, or covered lives, at December 31,
1996:
<TABLE>
<CAPTION>
CAPITATED COVERED LIVES
-----------------------
<S> <C>
United HealthCare of Georgia................................ 154,997
Cigna HealthCare of Georgia................................. 163,755
Aetna Health Plans of Georgia............................... 41,785
-------
360,537
=======
</TABLE>
The following chart illustrates the increase from December 31, 1991 to
December 31, 1996 in the number of enrollees covered under capitated managed
care contracts pursuant to which Atlanta ENT provided ENT medical and surgical
services:
BAR GRAPH
In conjunction with the recent acquisition of U.S. HealthCare by Aetna
Inc., representatives of Aetna Inc. have indicated a desire to convert the Aetna
capitated ENT managed care contract to an expanded panel (non-capitated)
modified shared risk arrangement which may be expanded to include the facility
component (inpatient and ambulatory surgery center services) as well as the
professional component (physician services) of ENT care. Although the Company is
unable to determine if and when such modification will occur, the Company does
not believe that it would have a material adverse effect on the Company's
business, financial condition or results of operations.
Affiliated physicians at Atlanta ENT and independent physicians provide ENT
medical and surgical services to enrollees under the capitated managed care
contracts held by the ENT Networks pursuant to a participation agreement with
each of the ENT Networks. Pursuant to the participation agreements, each of the
ENT Networks compensate the physicians on a discounted fee-for-service basis.
For the years ended December 31, 1994, 1995 and 1996, approximately 22%, 25% and
22%, respectively, of the net revenues of Atlanta ENT were attributable to ENT
services rendered pursuant to the managed care contracts of the ENT Networks.
The participating physicians must follow established administrative procedures,
such as referring enrollees to participating providers and obtaining prior
authorization for certain medical procedures, and must participate in
utilization management and quality management programs. Under the participation
agreements, the physicians are required to procure and maintain medical
malpractice and general liability insurance. The participation agreements may be
terminated (i) by the respective ENT Network without cause upon 60 days notice
or with cause upon 30 days notice and (ii) by a physician, with or without
cause, upon 60 days notice. In addition, the participation agreements
automatically terminate upon the termination of the relevant capitated managed
care contract.
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Based on its experience in providing ENT services to enrollees under the
capitated contracts of the ENT Networks, Atlanta ENT, in conjunction with an
independent software vendor, developed the Capitated Network System, a
comprehensive capitated administration and utilization management system which
the Company believes will enable it to effectively analyze clinical and cost
data necessary to manage capitated arrangements and assist associated physicians
in improving quality outcomes. See "-- Information Systems."
THE ADDITIONAL ATLANTA PRACTICES
In connection with the Reorganization, the Company will acquire
substantially all the assets of the Additional Atlanta Practices, which are
comprised of three practices with an aggregate of five physicians at seven
clinical locations in the metropolitan Atlanta area. The Additional Atlanta
Practices provide a wide range of ENT subspecialty services including head and
neck surgery, rhinology, facial plastics, otology and laryngology to infants,
children and adults. Metropolitan Ear, Nose & Throat, P.C., founded in 1976, is
comprised of two ENT physicians operating four clinical offices; Atlanta Head
and Neck Surgery, P.C., founded in 1977, is comprised of one ENT physician
operating two clinical offices; and Ear, Nose & Throat Associates, P.C., founded
in 1976, is comprised of two ENT physicians operating two clinical offices. In
connection with the Reorganization, the Additional Atlanta Practices will become
parties to the management services agreement between the Company and Atlanta
ENT. The physicians at the Additional Atlanta Practices will enter into
employment agreements with Atlanta ENT and participation agreements with each of
the ENT Networks. Certain of the clinical offices of the Additional Atlanta
Practices are expected to be consolidated with clinical offices of Atlanta ENT.
See "The Reorganization."
BIRMINGHAM ENT
In connection with the Reorganization, the Company will acquire all of the
assets of Birmingham ENT, which was founded in 1988 and is comprised of two ENT
physicians operating one clinical office. Birmingham ENT provides a wide range
of ENT subspecialty services, including allergy testing, head and neck surgery,
rhinology, facial plastics, otology and neurotology and laryngology to adults
and children in the metropolitan Birmingham area. The physicians of Birmingham
ENT are trained in and the practice is equipped for all aspects of ENT related
laser surgery. In connection with the Reorganization, Birmingham ENT will enter
into a management services agreement with the Company which will be
substantially similar to the management services agreement between the Company
and Atlanta ENT. The physicians at Birmingham ENT will enter into employment
agreements with PSC Alabama, a wholly-owned subsidiary of the Company. See "The
Reorganization."
MANAGED CARE CONTRACTS
The ENT Networks entered into capitated managed care contracts with United
HealthCare, Cigna and Aetna in 1991, 1992 and 1994, respectively. The current
contract with United HealthCare is a renewal of an earlier contract and expires
in May 1998. The current contracts with Cigna and Aetna are the original
contracts and provide for automatic annual renewals. Pursuant to its capitated
managed care agreements, the ENT Networks, which will become wholly-owned
subsidiaries of the Company upon consummation of the Offering and the
Reorganization, receive a pre-determined capitation fee per enrollee per month
from the respective payors in exchange for agreeing to provide ENT medical
services required by enrollees. These medical services are provided by
physicians pursuant to participation agreements with the ENT Networks under
which the ENT Networks are responsible for compensating the physicians on a
discounted fee-for-service basis. Therefore, if the revenues derived by the
Company from capitated managed care contracts are insufficient to cover the
costs of the services provided by associated physicians, the Company's business,
financial condition and operating results may be materially adversely affected.
The contracts with Cigna and Aetna provide for an annual renegotiation of
the capitation fees. Under the contract with United HealthCare capitation fees
are automatically increased annually based upon the percentage change, in the
Atlanta region, of a consumer index identified in the contract. In addition,
under the Cigna and Aetna managed care contracts the ENT Networks are reimbursed
for providing certain non-capitated services. In conjunction with the recent
acquisition of U.S. HealthCare by Aetna Inc.,
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<PAGE> 47
representatives of Aetna Inc. have indicated a desire to convert the contract
with Aetna from a capitated ENT managed care contract to an expanded panel
(non-capitated) modified shared risk arrangement which may be expanded to
include the facility component (inpatient and ambulatory surgery center
services) as well as the professional component (physician services) of ENT
care. Although the Company is unable to predict if and when such modification
will occur, the Company does not believe that it would have a material adverse
effect on the Company's business, financial condition or results of operations.
Under the managed care agreements, the ENT Networks and the participating
affiliated physicians and independent physicians are obligated, except under
certain circumstances, to refer enrollees to physicians and hospitals that have
a contractual arrangement with the payor under each contract. In addition, the
ENT Networks, the participating Founding Practice physicians and the independent
physicians are required to participate in quality management and utilization
management programs established by each payor. Quality management is the process
established by the payor to improve the quality of covered services and
utilization management is the process established to review whether certain
health care services provided to enrollees are in accordance with the
requirements established by each payor.
The managed care contracts may be terminated by either party (i) for cause,
including a material breach of the contract, generally upon 30 to 60 days notice
by the terminating party or (ii) without cause generally upon 90 to 120 days
notice by the terminating party.
NETWORK DEVELOPMENT AND MANAGEMENT
In addition to expanding through ENT and Related Specialty practice asset
acquisitions, the Company intends to develop ENT specialty provider networks
designed to enter into or provide greater access to capitated managed care
contracts with payors. These networks are expected to be comprised of ENT
physicians and specialists practicing in the Related Specialties, as well as
other health care providers. The networks are expected to include practices
managed by the Company and, eventually, independent physicians and other health
care providers engaged in ENT and the Related Specialties and contracting with
the Company under network administration agreements. These agreements are
generally expected to provide for management of the provider panel, negotiation
of managed care agreements and performance of utilization management functions.
The Company anticipates working with specialty group practices in developing
capitated contract proposals, evaluating and assembling provider panels,
negotiating contract rate schedules and exclusions, managing utilization, and
developing provider compensation methodologies.
In order to provide ENT medical and surgical services under its capitated
managed care contracts with United HealthCare, Aetna and Cigna, the ENT Networks
developed an ENT specialty provider network consisting of Atlanta ENT and 20
independent physicians. Upon completion of the Offering and the Reorganization,
the Company will hold, manage and administer these capitated managed care
contracts through its wholly-owned subsidiaries, the ENT Networks, and will
manage the existing provider panel and perform utilization management under each
contract. In addition, the Company intends to expand the provider panel
currently providing ENT medical and surgical services under each contract by
entering into network administration agreements with additional independent
physicians and other health care providers.
While the Company anticipates deriving revenue from its network development
and management activities, the Company believes the principal benefits from
including affiliated as well as independent physicians in provider networks will
be the expansion and diversification of provider panels available to HMO
enrollees, as increasingly required by HMOs, and the ability of the Company to
more effectively evaluate a specialty practice prior to committing to an
acquisition of the assets of such practice.
INFORMATION SYSTEMS
The Company will support the free-standing practice management systems
utilized by Atlanta ENT to facilitate patient scheduling, billing and
collection, accounts receivable, management, provider productivity analysis and
select cash disbursement functions. Rather than superseding systems utilized by
future affiliated practices, the Company intends to develop software to bridge
(or interface) an affiliated practice's systems with the Company's system in
order to streamline consolidated financial reporting, accounts receivable
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management and productivity analysis functions. Additionally, the Company
anticipates providing and is evaluating the individual patient electronic
medical record system utilized by Atlanta ENT for possible implementation at
future affiliated physician practices. The Company believes that the use of this
system may enhance operating efficiency through automation of many routine
functions, as well as the capacity to link "procedure specific" treatment
protocols, thereby enhancing the physician's ability to provide cost-effective
patient care.
The Company believes that effective and efficient access to key clinical
patient data is critical in controlling costs and improving quality outcomes as
the Company and the ENT Networks renew and enter into additional capitated
managed care contracts. The Company currently utilizes the Capitated Network
System, developed and enhanced by Atlanta ENT in collaboration with an
unaffiliated software vendor. The Company is currently negotiating a license to
any rights held by the vendor. The Capitated Network System integrates the
following five functions:
- Tracking referrals from primary care physicians
- Issuing and managing authorization for surgeries and tracking diagnoses,
procedures and admissions
- Processing claims for physician payment
- Providing extensive customized management reports (including diagnosis
and procedure utilization data)
- Maintaining support files
The emergence of managed care has increased the need for specific and
extensive information collection, analysis and management so that providers can
better demonstrate outcomes and quantify the revenues and expenses associated
with managed care contracts. The Company believes that the Capitated Network
System will allow physicians, at the point of care and on a real-time basis, to
(i) access patient-specific medical and payor information, (ii) provide
extensive customized management reports and utilization reviews, (iii) issue and
manage authorization for surgeries and (iv) track diagnoses, procedures and
admissions. As a result, the Company believes that the Capitated Network System
will provide the Company with a competitive advantage in procuring and
administering specialty capitated managed care contracts.
COMPANY OPERATIONS
The Company intends to provide management and administrative services to
associated physicians, including access to integrated management information
systems, lower cost professional liability insurance, employee benefit programs,
and capital equipment, as well as access to marketing resources and the
Capitated Network System. The Company believes its services can provide
physicians relief from administrative burdens, access to economies of scale, and
access to capital, while allowing them to focus on providing high quality and
cost-effective medical care. The Company further believes that it can enhance
growth in ENT and Related Specialty practices affiliating with the Company
pursuant to management services agreements by expanding managed care
arrangements, assisting in the recruiting of new physicians and expanding and
adding services that have historically been performed outside of such practices.
Affiliated Physicians
The relationship between the Company and its affiliated physicians will be
set forth in asset or stock acquisition agreements, management services
agreements and employment agreements. Through an asset or stock acquisition
agreement, the Company will, depending on regulatory and other factors, either
(i) acquire substantially all of the assets utilized in the practice and assume
certain liabilities, leases and other contracts of such practice or (ii) acquire
the equity of the practice. The medical practice will enter into a management
services agreement with the Company, generally having an initial term of 40
years, and providing for the Company to manage the affiliated practice while
enabling the affiliated physicians to retain their autonomy through their
professional corporations, thereby maintaining governance of physician-specific
clinical issues. Typically, the physicians in a medical practice, the assets or
equity of which are acquired by the Company, will sign employment agreements
with the medical group providing for an initial term of five years and
containing noncompetition covenants and other terms acceptable to the Company.
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Acquisition Agreements
Pursuant to acquisition agreements, including the Company's acquisition
agreements with Atlanta ENT, each of the Additional Atlanta Practices and
Birmingham ENT (the "Acquisition Agreements"), the Company, generally through
PSC Management, will either (i) acquire substantially all of the assets utilized
in a practice (other than certain excluded assets such as employment agreements
and patient charts, records and files) and assume certain liabilities, leases
and other contracts of the practice group or (ii) acquire the equity of the
practice. The practice will remain liable for the payment of excluded
liabilities under the acquisition agreement. The Acquisition Agreements provide
that the medical practice and the stockholders of such practice, if any, will
not, for a period of time following the closing of the acquisition, compete with
the Company within a specified geographic area, will not solicit patients of the
Company within such geographic area and will not solicit employees of the
Company. The Acquisition Agreements also contain representations and warranties
and indemnification provisions by each of the parties to the agreement. In
addition, the closing of the acquisition will be conditioned upon, among other
things, the execution and delivery of (i) an employment agreement between select
physicians affiliated with the practice whose equity or assets are to be
acquired and such practice and (ii) a management services agreement between the
Company, such practice and, in some cases, certain of the practices' shareholder
physicians. See "Certain Transactions."
Management Services Agreements
Pursuant to management services agreements, the Company, through PSC
Management, will act as the exclusive manager and administrator of an affiliated
practice. Upon the closing of the Offering, the Company will enter into a
management services agreement with Atlanta ENT (which will include the
physicians practicing at the Additional Atlanta Practices) and the stockholder
physicians at Atlanta ENT and the Additional Atlanta Practices, and will enter
into a separate management services agreement with Birmingham ENT (collectively,
the "Management Services Agreements"). The Management Services Agreements
provide for the affiliated practice to assign to the Company all or
substantially all of its non-governmental accounts receivable and all of its
rights and interest in the proceeds of its governmental accounts receivable (or
the revenue it receives)and grants to the Company the right to collect and
retain the proceeds of the accounts receivable (or revenue) for the Company's
account to be applied in accordance with the agreement. Although such proceeds
of the accounts receivable (or revenue) are collected by the Company on behalf
of the practice, the practice grants to the Company the right to grant a
security interest and factor such accounts receivable and such receivables will
secure Company borrowings under the Credit Facility.
The Company will be responsible for the payment of operating expenses of
the affiliated physician practice, including salaries and benefits of
non-medical employees of the practice, lease obligations for office space and
equipment and medical and office supplies, and the non-operating expenses of the
affiliated physician practice, including depreciation, amortization and
interest. The Company will pay for all such expenses directly out of the
proceeds of the accounts receivable (or revenues) assigned to the Company by the
affiliated physician practice. For providing services pursuant to the Management
Services Agreements, the Company will retain a management fee equal to a
stipulated percentage of all revenues generated by or on behalf of physicians
practicing at the practice (after adjustment for contractual allowances),
subject to specified maximum annual amounts, as payment for the Company's
services and non-allocable costs incurred by the Company attributable to the
provision of management services under the Management Services Agreement. In
addition, the Company will be entitled to incentive compensation under the
Management Services Agreements upon the receipt of the specified maximum annual
amounts. The remaining revenues will be remitted to the affiliated practice to
pay compensation and benefits to (i) physicians pursuant to employment
agreements between the practice and each physician and (ii) physician
assistants. See "Certain Transactions."
Under the Management Services Agreements, the Company, among other things,
will (i) act as the exclusive manager and administrator relating to all
(non-clinical) operations of the affiliated practice, (ii) bill patients,
insurance companies and other third-party payors and collect on behalf of the
affiliated practice the fees for professional medical services and other
services and products rendered or sold by the affiliated practice, (iii)
provide, as necessary, clerical, accounting, purchasing, payroll, legal,
bookkeeping and computer
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services and personnel and information management services to the affiliated
practice, (iv) supervise and maintain custody of all files and records of the
affiliated practice, (v) provide facilities, furniture and equipment for the
affiliated practice, (vi) prepare all annual and capital operating budgets of
the affiliated practice, (vii) order and purchase inventory and supplies as
reasonably required by the affiliated practice, (viii) market the services
provided by the affiliated practice, (ix) provide financial and business
assistance to the affiliated practice, in the negotiation, establishment,
evaluation and administration of contracts and relationships with managed care
and other similar providers and payors and (x) perform administrative services
relating to the recruitment of physicians for the affiliated practice.
The affiliated practice will retain the responsibility for, among other
things, (i) compensating physician employees and physician assistants, (ii)
paying insurance premiums and deductibles for professional liability insurance
policies, (iii) ensuring that affiliated physicians have the required licenses,
credentials, approvals and other certifications needed to perform their duties
and (iv) complying with certain federal and state laws and regulations
applicable to the practice of medicine. In addition, the affiliated practice
will retain exclusive control over all aspects of the practice of medicine and
the delivery of medical services.
The Company will establish an advisory board at each affiliated practice
comprised of physicians at the affiliated practice and Company management
personnel whose responsibilities will be advisory in nature. The advisory board
will review, evaluate and make recommendations to the officers of the affiliated
practice and the officers of the Company with respect to strategic and
operational planning, physician employment and recruitment, patient fees and
collection policies, quality review and the establishment and maintenance of
relationships with managed care and other similar providers and payors.
Notwithstanding recommendations of the advisory board, the Company will have
ultimate control over all decisions relating to the non-clinical operations of
the affiliated practice, and the affiliated practice will have ultimate control
over all decisions relating to the practice of medicine.
The Management Services Agreements will be for an initial term of 40 years,
which may be extended for separate and successive five-year terms. The
Management Services Agreements may be terminated by either party if the other
party (i) files a petition in bankruptcy or other similar events occur or (ii)
defaults on the performance of a material duty or obligation, which default
continues without cure for a specified term after notice.
During the term of the Management Services Agreements, the affiliated
practice will agree, with respect to management services, not to compete with
the Company and the other practices for which the Company provides management
services within a specified geographic area. In addition, during the term of the
Management Services Agreements and for a period following the termination of
such agreement, the affiliated practice will agree not to solicit any employee
of the Company or persons affiliated with the Company and for a period following
the termination of such agreement the affiliated practice will not contract with
any entity for the provision of comprehensive management services substantially
of the kind contemplated by the management services agreement. The affiliated
practice will also agree not to disclose certain confidential and proprietary
information relating to the Company and the affiliated practice.
Physician Employment Agreements
Physicians in medical practices which enter into management services
agreements with the Company, including physicians at Atlanta ENT and the
Additional Atlanta Practices, will typically enter into employment agreements
with the affiliated medical practice or, in the case of Birmingham ENT,
employment agreements with a wholly-owned subsidiary of the Company. Physician
employment agreements will generally provide, and the employment agreements with
the physicians at Atlanta ENT and the Additional Atlanta Practices provide, for
an initial term of five years, which will be automatically renewed for
successive one year terms unless an affiliated physician or the medical practice
elects not to renew the term by providing at least 90 days written notice of
such election or such agreement is otherwise terminated for cause or the death
or disability of an affiliated physician. The employment agreements to be
entered into between the physicians of Birmingham ENT and PSC Alabama, a
wholly-owned subsidiary of the Company, provide for an initial term of six years
and six months, which will be automatically renewed for successive one year
terms unless the physician or PSC Alabama elects not to renew. Affiliated
physicians will be paid based upon either
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productivity or other negotiated formulas agreed upon between the affiliated
physician and the medical practice, and the medical practice will provide the
affiliated physicians with health, death and disability insurance and other
benefits. Affiliated physicians will be obligated to obtain and maintain
professional liability insurance coverage which may be procured on behalf of the
affiliated physicians by the Company. Pursuant to the employment agreements,
affiliated physicians will agree not to compete with the medical practice, not
to solicit patients of the medical practice and not to interfere with employees
of the medical practice for a certain period following the termination of such
employment agreement unless the agreement is terminated by the affiliated
physician for cause. In addition, affiliated physicians will agree not to
disclose any confidential and proprietary information of the medical practice
during the term of the agreement and for a certain period following the
termination of the agreement. Furthermore, under the employment agreements,
affiliated physicians will assign to the medical practice all contracts with
HMOs or other managed care arrangements and will grant an irrevocable power of
attorney to the medical practice to enter into such contracts on behalf of the
physician. The employment agreements also provide that the affiliated physicians
exercise independent professional and ethical judgment in all patient care
responsibilities.
COMPETITION
The physician practice management industry in the United States generally,
and in the Southeastern United States specifically, is highly competitive. The
restructuring of the United States health care system is leading to rapid
consolidation of the existing highly-fragmented health care delivery system into
larger and more organized groups and networks of health care providers. The
Company expects competition to increase as a result of this consolidation and
ongoing cost containment pressures among other factors. The Company will compete
with management services organizations, for-profit and nonprofit hospitals, HMOs
and other competitors seeking to form strategic alliances with physicians or
provide management services to physicians. The Company believes that the quality
of its management services, experience in developing, managing and administering
capitated managed care contracts, the breadth of the ENT medical and surgical
services provided by physicians practicing at affiliated practices and the
utility of the Capitated Network System positions it to compete favorably for
affiliation with additional ENT and complementary group practices.
The Company is unable to predict the extent of future competition because
of changing competitive conditions, changes in laws and regulations, government
budgeting, technological and economic developments and other factors. However,
there are certain companies, including hospitals and insurers, that are
expanding their presence in the health care industry and are significantly
larger, provide a wider variety of services, have greater experience in
providing health care management services, have longer established relationships
with customers for these services and have access to substantially greater
financial resources than the Company.
The Company believes that competition for fee-for-service revenue is
dependent upon, among other things, the geographic coverage of affiliated
practices, the reputation and referral patterns of affiliated physicians, the
breadth of ENT medical and surgical services provided by physicians practicing
at affiliated practices and the composition of the physicians at such practices.
The Company's ability to compete successfully for specialty capitated managed
care contracts may depend upon, among other things, the Company's ability to
increase the number of associated physicians and other health care professionals
included in its network provider panel through asset or equity acquisitions of
additional specialty practices and by entering into network agreements with
independent physicians. There can be no assurance that suitable acquisitions can
be accomplished on terms favorable to the Company or that financing, if
necessary, can be obtained for such acquisitions. In addition, there can be no
assurance that the Company would be able to operate profitably any facilities,
businesses or other assets it may acquire, effectively integrate the operations
of such acquisition or otherwise achieve the intended benefits of such
acquisition.
Associated physicians also compete in certain markets, including the
Atlanta market, with substantial numbers of other ENT specialists as well as
general practitioners. The success of the Company is dependent upon the ability
of the Company or practices managed by the Company to recruit, train and retain
qualified health care professionals in new and existing markets. The Company
faces competition for these personnel from other health care providers, research
and academic institutions, government entities and other organizations. The
availability of such personnel is limited, and the inability to recruit and
maintain relationships with these individuals in certain geographic areas could
have a material adverse effect on the
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Company's future growth and operations. There can be no assurance that
sufficient numbers of qualified health care professionals can be hired and
retained. The inability to hire and retain such health care professionals could
have a material adverse effect on the Company's operations. In addition, a
shortage of skilled personnel or the delay resulting from a need to train
personnel could have a material adverse effect on the Company's business,
financial condition or operating results.
The health care industry as a whole, is facing the challenge of continuing
to provide quality patient care while dealing with rising costs, strong
competition for patients and a general reduction of reimbursement rates by both
private and government payors. As both private and government payors are
reducing the scope of what may be reimbursed and reducing reimbursement levels
for covered services, national and state efforts to reform the United States
health care system may further impact reimbursement rates. Changes in medical
technology, existing and future legislation, regulations and interpretations and
competitive contracting for provider services by private and government payors
may require changes in the Company's facilities, equipment, personnel, rates
and/or services in the future.
GOVERNMENT REGULATION
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates and intends to
operate will not change significantly and adversely in the future. In general,
regulation of the health care industry, including scrutiny of the methods and
levels of payment to health care providers is increasing. The Company believes
that health care legislation, regulations and interpretations will continue to
change and, as a result, plans to routinely monitor developments in health care
law. The Company expects to modify its agreements and operations from time to
time as the business and regulatory environments change. While the Company
believes it will be able to structure all of its agreements and operations in
accordance with applicable law, the lack of definitive interpretations of many
statutory and regulatory provisions means that there can be no assurance that
the Company's arrangements are in compliance with such provisions or will not be
successfully challenged. See "Risk Factors -- Government Regulation."
Government Reimbursement Programs
Under the federal Medicare program, payment for physician services (other
than under Medicare risk contracts) is based on an annually adjusted fixed fee
schedule known as the Resource-Based Relative Value Scale ("RBRVS"). This
payment system, derived from historically customary and prevailing charge data,
is intended to reflect the relative resources required to provide a given
service as compared to another service. Fee schedule amounts are also based upon
a geographic adjustment factor and certain national conversion factors. The
RBRVS system is undergoing continual modifications and the Company anticipates
that the RBRVS fee schedule will continue to result in reductions from
historical levels in the per patient payment from the Medicare program. Because
the Company anticipates that approximately 10% of its revenues will be derived
from government-funded health care programs (principally, Medicare and
Medicaid), the Company does not believe that such reductions will result in a
material adverse change in the results of operations of the Company. The
Medicaid program is a partially federal-funded state administered program for
the indigent. Payment to physicians under state Medicaid programs is generally
based upon fee schedules. Both the Medicare and Medicaid programs are subject to
statutory and regulatory changes, retroactive and prospective rate adjustments,
administrative rulings, interpretations of policy, intermediary/carrier
determinations and government funding restrictions, all of which may materially
increase or decrease the rate of program payments to physicians and other health
care practitioners.
Stark Legislation and Fraud and Abuse Laws
The Company is subject to a variety of laws and regulations governing the
referral of patients to facilities with which the referring physician has a
financial relationship. Significant prohibitions against physician referrals
were enacted by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" by dramatically enlarging the field
of physician-owned or physician-interested entities to which the referral
prohibitions apply. Effective January 1, 1995, Stark II prohibits, subject to
certain exceptions, a physician (or a member of the physician's immediate
family) from referring Medicare or Medicaid patients for "designated
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health services" to an entity with which the physician has a financial
relationship. Financial arrangements include both ownership arrangements and
compensation arrangements, including such an arrangement with the physician's
own group practice. The designated health services include clinical laboratory
services, radiology services, radiation therapy services, physical and
occupational therapy services, durable medical equipment, parenteral and enteral
nutrients, equipment and supplies, prosthetics, orthotics, outpatient
prescription drugs, home health services and inpatient and outpatient hospital
services. The penalties for violating Stark II include a prohibition on payment
by Medicare or Medicaid for services resulting from prohibited referrals, and
civil penalties of as much as $15,000 for each violative referral and $100,000
for participation in a "circumvention scheme." The Company believes that its
activities are not in violation of Stark I or Stark II. However, the Stark
legislation is broad and ambiguous. Interpretative regulations clarifying the
provisions have only been issued with respect to Stark I (clinical laboratory
services), and have not yet been issued with respect to Stark II (the other
designated health services). In addition, a number of states have enacted
similar laws which apply to referrals made for services reimbursed by all
payors, and not simply Medicare or Medicaid. Future regulations could require
the Company to modify the form of its relationships with physician
organizations. Moreover, the violation of Stark I or II by the Company's
affiliated physician organizations could result in significant fines and loss of
reimbursement which could materially adversely affect the Company.
The Company is also subject to federal and state fraud and abuse laws.
These laws include the Medicare and Medicaid anti-kickback statute, which
prohibits, among other things, the offer, payment, solicitation or receipt of
any remuneration, directly or indirectly in return for the referral of patients,
or arranging for the furnishing of items and services that are paid for in whole
or in part by Medicare, Medicaid or other federally-funded programs. The courts
and the Office of Inspector General of The Department of Health and Human
Services have stated that the anti-kickback statute is violated if one purpose,
as opposed to a primary or sole purpose, of the arrangement is to induce
referrals. Violations of the anti-kickback statute are punishable by criminal or
civil penalties, and/or exclusion of the provider from future participation in
the Medicare, Medicaid and other federally-funded programs. The federal
government has published exemptions, or "safe harbors," for business
transactions that will be deemed not to violate the anti-kickback statute.
Although satisfaction of the requirements of these safe harbors provides
protection from enforcement action under the anti-kickback legislation, failure
to meet the safe harbors does not necessarily mean that the activity violates
the statutory prohibitions. Rather, the legality of a particular business
arrangement will be assessed by comparing the particular facts of the
transaction to the proscriptions of the statute. In addition, a number of states
have enacted similar laws, which vary from state to state, prohibiting
remuneration or fee-splitting arrangements between health care providers for the
referral of patients to a particular provider, regardless of the payor source.
Also, under separate statutes, submission of claims for payment that are "not
provided as claimed" may lead to civil money penalties, criminal fines and
imprisonment and/or exclusion from participation in the Medicare, Medicaid and
other federally-funded health care programs. These false claims statutes include
the Federal False Claims Act, which allows any person to bring suit alleging
false or fraudulent Medicare or Medicaid claims or other violations of the
statute and to share in any amounts paid by the entity to the government in
fines or settlement. Such qui tam actions have increased significantly in recent
years and have increased the risk that a health care company will have to defend
a false claims action, pay fines or be excluded from participation in the
Medicare and/or Medicaid programs as a result of an investigation arising out of
such an action. Recently, Congress enacted the Health Insurance Portability and
Accounting Act of 1996, which includes an expansion of certain fraud and abuse
provisions to other federal health care programs. Due to the breadth of the
statutory provisions of the Fraud and Abuse Laws and the absence of definitive
regulations or court decisions addressing the type of arrangements by which the
Company and its affiliated entities conduct and will conduct their business,
from time to time certain of their practices may be subject to challenge under
these laws.
The Company has attempted to structure its business relations to comply
with the Stark Legislation, the Fraud and Abuse Laws and all other applicable
health care laws and regulations. However, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices.
There can be no assurance that challenges under such laws or regulations or new
laws or regulations will not require the Company or its affiliated entities to
change their practices or will not have a material adverse effect on the
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Company's business, financial condition or operating results. In addition, state
legislatures and other governmental entities are considering additional measures
restricting or regulating referrals, and there can be no assurance that new laws
or regulations will not be enacted which will require restructuring of the
Company's operations or otherwise have a material adverse effect on the
Company's business, financial conditions or operating results.
Health Care Reform
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Changes in the law,
new interpretations of existing laws, or changes in payment methodology or
amounts, may have a dramatic effect on the relative costs associated with doing
business and the amount of reimbursement by government and other third party
payors. In addition to specific health care legislation, both the President and
the Congress have expressed an interest in controlling the escalation of health
care expenditures and using health care reimbursement policies to help control
the federal deficit. In recent years, there have been numerous initiatives on
the federal and state levels for comprehensive reforms affecting the payment for
and availability of health care services. For example, in 1995, Congress passed
legislation to reduce significantly Medicare and Medicaid expenditures over
seven years, which would have cut payments to health care providers
participating in the Medicare and Medicaid programs. Although President Clinton
vetoed this legislation, the administration's counterproposal would have
included similar, although less drastic, Medicare and Medicaid payment
reductions. The Company anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies, and public debate of these issues will likely continue in
the future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company, and there can be no
assurance that the adoption of reform proposals will not have a material adverse
effect on the Company's business, operating results or financial conditions. In
addition, the actual announcement of reform proposals and the investment
community's reaction to such proposals, as well as announcements by competitors
and third-party payors of their strategies to respond to such initiatives, could
produce volatility in the trading and market price of the Common Stock. In
addition, some states in which the Company may operate in the future are
considering various health care reform proposals.
Other Licensing Requirements
Every state imposes licensing requirements on individual physicians, and
some regulate facilities and services operated by physicians. In addition, many
states require physicians to obtain regulatory approval, including certificates
of need, before establishing certain types of health care facilities, offering
certain services, or making certain capital expenditures in excess of statutory
thresholds for health care equipment, facilities or services. To date, none of
the Company or the Initial Practices have been required to obtain certificates
of need or similar approvals for their activities. In connection with the
expansion of its operations into new markets and contracting with managed care
companies, the Company and its affiliated practices may become subject to
compliance with additional regulations. In addition, the Company and its
affiliated practices are subject to federal, state and local laws dealing with
issues such as occupational safety, employment, medical leave, insurance
regulation, civil rights and discrimination, medical waste and other
environmental issues. Increasingly, federal, state and local governments are
expanding the regulatory requirements for businesses, including medical
practices. The imposition of these regulatory requirements may have the effect
of increasing operating costs and reducing the profitability of the Company's
operations.
Restrictions on Corporate Practice of Medicine
The laws of certain states in which the Company operates or may operate in
the future prohibit nonphysician entities from practicing medicine, exercising
control over physicians or engaging in certain practices such as fee-splitting
with physicians. In Georgia, there is also case law which could be interpreted
as prohibiting a corporation from employing physicians, but the continued
viability of such doctrine in Georgia is
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unclear. In Alabama, recent interpretations by state authorities have indicated
that a corporation may employ physicians as long as the physicians exercise
their independent professional judgment in rendering medical decisions
concerning the treatment and diagnosis of patients. Although the Company has
structured its affiliations with physician groups so that the associated
physicians maintain exclusive authority regarding the delivery of medical care
and exercise their independent professional judgment in rendering medical
decisions, there can be no assurance that these laws will be interpreted in a
manner consistent with the Company's practices or that other laws or regulations
will not be enacted in the future that could have a material adverse effect on
the Company's business. If a corporate practice of medicine law is interpreted
in a manner that is inconsistent with the Company's practices, the Company would
be required to restructure or terminate its relationship with the applicable
physician group in order to bring its activities into compliance with such law.
The termination of, or failure of the Company to successfully restructure, any
such relationship could result in fines or a loss of revenue that could have a
material adverse effect on the Company's business, financial condition or
operating results.
LIABILITY AND INSURANCE
The provision of health care services entails the risk of potential claims
of medical malpractice and similar claims. The Company does not, itself, engage
in the practice of medicine or have responsibility for compliance with
regulatory requirements directly applicable to physicians and requires
affiliated physicians performing medical services at its facilities to maintain
medical malpractice insurance. Nevertheless, there can be no assurance that
malpractice will not be asserted against the Company directly in the event that
services or procedures performed at one of the Company's facilities are alleged
to have resulted in injury or other adverse effects. Although the Company
intends, upon consummation of the Reorganization, to obtain liability insurance
that it believes will be adequate as to both risk and amounts, successful
malpractice claims could exceed the limits of the Company's insurance and could
have a material adverse effect on the Company's business, financial condition or
operating results. Moreover, a malpractice claim asserted against the Company
could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, there can be no assurance that
the Company will be able to obtain such insurance on commercially reasonable
terms in the future or that any such insurance will provide adequate coverage
against potential claims. See "Risk Factors -- Potential Liability and
Insurance; Legal Proceedings."
The Company will require each associated physician or group to obtain and
maintain professional liability insurance coverage. Such insurance would provide
coverage, subject to policy limits in the event the Company were held liable as
a co-defendant in a lawsuit for professional malpractice against a physician. In
addition, the Company generally is indemnified under the management agreements
by the affiliated physician groups for liabilities resulting from the
performance of medical services.
EMPLOYEES
Upon the closing of the Offering and the consummation of the
Reorganization, the Company will have approximately 136 full-time employees,
including two physicians and 19 allied health care professionals. The Company
intends to hire additional management and administration personnel. None of the
Company's employees is represented by a labor union and the Company believes its
relations with its employees are satisfactory.
PROPERTIES
The Company currently shares office space with Atlanta ENT pursuant to an
oral agreement under which the Company does not pay rent. The Company
anticipates leasing approximately 2,500 square feet of office space for its
executive office in Atlanta, Georgia. The lease will provide for annual rent of
approximately $50,000 during 1997, subject to specified annual increases. Upon
closing of the Offering and consummation of the Reorganization, the Company will
assume the leases for the 13 facilities currently used by Atlanta ENT which have
varying remaining terms ranging from one month to 13 years and three months and
aggregate annual rent of approximately $830,000. In addition, Atlanta ENT has
entered into a five-year lease for an
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<PAGE> 56
additional facility, the construction of which is expected to be completed by
July 1997. The lease provides for annual rent of approximately $55,000 and will
be assumed by the Company upon closing of the Offering and the Reorganization.
Upon the closing of the Offering and consummation of the Reorganization, the
Company will also assume the leases of six facilities operated in the aggregate
by the Additional Atlanta Practices and Birmingham ENT, which have varying
remaining terms ranging from one month to three years and six months and
aggregate annual rent of approximately $152,688. The Company believes that the
shared office space, together with the office space it anticipates leasing and
the assumed leases will be suitable for the current and anticipated needs of the
Company.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE> 57
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company and the persons expected to
become executive officers or directors of the Company upon completion of the
Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ramie A. Tritt, M.D........................ 47 Chairman of the Board and President
Gerald R. Benjamin(2)...................... 39 Vice Chairman of the Board, Secretary and
Director
Richard D. Ballard(1)...................... 48 Chief Executive Officer and Director
Lawrence P. Kraska......................... 32 Vice President -- Operations(3)
Robert A. DiProva.......................... 49 Executive Vice President and Chief
Financial Officer(3)
Edward R. Casas, M.D.(1)(2)................ 36 Director
Sidney Kirschner(2)........................ 62 Director(3)
Steven L. Posar, M.D.(1)(2)................ 47 Director(3)
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Effective upon completion of the Offering
Ramie A. Tritt, M.D. has served as the Chairman of the Board and President
of the Company since its inception in July 1996. Dr. Tritt serves as President
of Atlanta ENT, a multi-site otolaryngology group practice which is a successor
to a practice founded by Dr. Tritt in 1979. Dr. Tritt also serves as President
and Medical Director of the ENT Center of Atlanta, Inc., Atlanta ENT Center for
Physicians, Inc., and Atlanta AHP, Inc., three otolaryngology provider networks
(comprising the ENT Networks) established to contract with HMOs in greater
Atlanta. Dr. Tritt was a founding Member and currently serves as President of
Georgia Multi-Specialty Group, L.L.C., a consortium of 15 specialty group
practices, encompassing approximately 650 physicians, which contracts with
payors for specialty medical services throughout metropolitan Atlanta. Dr. Tritt
has served on the Medical Advisory Board of Healthsource of Georgia since June
1996 and the ENT Physician Advisory Board of the Ambulatory Surgery Division of
Columbia HCA since January 1997. Dr. Tritt received his M.D. degree from McGill
University.
Gerald R. Benjamin has served as Vice Chairman and Secretary of the Company
since its inception in July 1996. Mr. Benjamin serves as Chief Executive Officer
of Premier HealthCare, a division of Bock, Benjamin & Co., a boutique health
care investment banking concern which Mr. Benjamin co-founded in 1993. Prior to
founding Bock, Benjamin & Co., Mr. Benjamin served as Chief Executive Officer of
Premier HealthCare, Inc., a health care venture development and management firm
which Mr. Benjamin co-founded in 1991. Prior to co-founding Premier HealthCare,
Inc., Mr. Benjamin served for ten years as Managing Partner and Director of
Corporate Finance Services for Williams, Benjamin, Benator & Libby, an Atlanta,
Georgia-based Certified Public Accounting firm. Prior to forming Williams,
Benjamin, Benator & Libby in 1982, Mr. Benjamin was a member of the Atlanta
office of Ernst & Young. Mr. Benjamin received his Bachelor of Science degree in
accounting from the University of Kentucky, where he was named a Cooper &
Lybrand scholar.
Richard D. Ballard has served as the Chief Executive Officer and a director
of the Company since November 1996. Prior to joining the Company, Mr. Ballard
served as Vice President of Recruiting for Physicians' Online, Inc., founding an
intranet physician recruiting service. Prior to joining Physicians' Online in
September 1995, Mr. Ballard served as Executive Vice President, President and
Chief Executive Officer of Allegiant Physician Services, Inc. (formerly Premier
Anesthesia, Inc.), an anesthesia contracting and physician practice management
company. Prior to joining Premier Anesthesia in 1988, Mr. Ballard served for
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<PAGE> 58
six years as Executive Vice President of Jackson & Coker Inc., a national
physician recruiting firm and for seven years as director of national recruiting
for Spectrum Emergency Care Inc.
Lawrence P. Kraska will become the Vice President-Operations of the Company
concurrently with the completion of the Offering. Mr. Kraska has served as the
Administrator of Atlanta ENT, since June 1994. Prior to joining Atlanta ENT, Mr.
Kraska provided hospital administration, physician recruiting and practice
management services as the Regional Director of Professional Relations for the
Atlanta division of National Medical Enterprises from July 1993 to May 1994, for
Charter Medical Corporation -- Charter Peachford Hospital from September 1992 to
June 1993 and as the Administrator for The Center For Psychiatry, a large
multi-specialty mental health group practice, from March 1990 to August 1992.
Mr. Kraska received his Masters in Business Administration from Kennesaw State
University.
Robert A. DiProva will become an Executive Vice President and the Chief
Financial Officer of the Company concurrently with the completion of the
Offering. Mr. DiProva served as Vice President-Administration, Chief Financial
Officer, Secretary and Treasurer of A.D.A.M. Software, Inc., a publicly traded
medical software company, from September 1995 to February 1997. Prior to joining
A.D.A.M. Software in 1995, Mr. DiProva served for six years as Vice President,
Chief Financial Officer and Treasurer of DATEQ Information Network, Inc., a
publicly traded data management company. Mr. DiProva is a Certified Public
Accountant and received his Masters in Business Administration from Emory
University.
Edward R. Casas, M.D. has served as a director of the Company since
November 1996. Dr. Casas is President of PrimeCare International, Inc., a
California-based multi-site primary care physician practice management concern.
Prior to joining PrimeCare in September of 1996, Dr. Casas served as Vice
President of Mergers and Acquisitions for the Physician Practice Management
Division of Caremark International Inc. Prior to joining Caremark International
in December 1992, Dr. Casas completed his active duty service as a designated
Flight Surgeon in support of Marine special operations and as a clinical
Departmental Head in Aerospace Medicine in the United States Navy. Prior to
completing his medical training, Dr. Casas was Executive Vice President of CES
Corporation, an investment banking concern. Dr. Casas is a graduate of
Northwestern University's Medical School and Kellogg Graduate School of
Management where he concurrently earned a Medical Doctorate, a Masters of
Management and a Masters in Public Health.
Sidney Kirschner will become a director of the Company concurrently with
the completion of the Offering. Since 1992, Mr. Kirschner has served as the
President and Chief Executive Officer of Northside Hospital, a 455 bed tertiary
care facility located in Atlanta, Georgia. Prior to joining Northside Hospital,
Mr. Kirschner served in numerous executive capacities, including President,
Chief Executive Officer and Chairman of the Board, of National Service
Industries, Inc. a publicly listed diversified manufacturing and industrial
services concern. Mr. Kirschner currently serves as a member of the Board of
Directors of two public companies: American Brands, Inc. and Superior Surgical
Manufacturing Company, Inc.
Steven L. Posar, M.D. will become a director of the Company concurrently
with the completion of the Offering. Dr. Posar currently serves as Senior Vice
President, Operations Group of AHI HealthCare Systems, Inc., a publicly traded
independent physician management company. Prior to joining AHI in 1991, Dr.
Posar served as Medical Director of Blue Cross of California, a managed care
payor with approximately 2.5 million enrollees in sponsored HMO and preferred
provider organization plans. Prior to joining Blue Cross of California, Dr.
Posar spent three years as Chief of Cigna Medical Center, and staff medical
director of Cigna Healthplan of Los Angeles, a staff model HMO with
approximately 450,000 enrollees. Dr. Posar received his M.D. degree from
Michigan State University.
Dr. Tritt and Mr. Benjamin were elected as directors of the Company
pursuant to an agreement entered into in connection with the formation of the
Company. See "Certain Transactions."
All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified; vacancies and any additional
positions created by board action are filled by action of the existing Board of
Directors. Officers are elected to serve, subject to the discretion of the Board
of Directors, until their successors are appointed.
The Board of Directors has established a Compensation Committee and an
Audit Committee. Upon completion of the Offering, the Compensation Committee
will consist of three directors. The Compensation
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Committee reviews and recommends to the Board of Directors the compensation and
benefits of all officers of the Company, reviews general policy matters relating
to compensation and benefits of employees of the Company and administers the
Company's stock option plans.
Upon completion of the Offering, the Audit Committee will consist of four
directors. The Audit Committee is authorized to review, with the Company's
independent accountants, the scope and timing of audit services and any other
services that the accountants are asked to perform, their report on the
Company's financial statements following completion of their audit and the
Company's policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee makes annual
recommendations to the Board of Directors for the appointment of independent
public accountants for the ensuing year.
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company ("Independent
Directors") are entitled to compensation of $1,500 for each Board of Directors
meeting attended and are reimbursed for expenses actually incurred in connection
with attending such meetings. Independent Directors are also awarded initial
grants of non-qualified stock options to purchase 7,500 shares of Common Stock
upon joining the Board of Directors and annual grants of non-qualified stock
options to purchase 2,500 shares of Common Stock. All options are granted at the
then fair market value. See "-- Stock Option Plans" and "Certain Transactions."
LIMITATION ON LIABILITY; INDEMNIFICATION AGREEMENTS
The General Corporation Law of the State of Delaware permits a corporation
through its Certificate of Incorporation to eliminate the personal liability of
its directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty of loyalty and care as a director, with certain
exceptions. The exceptions include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declarations of dividends, and transactions
from which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors from monetary liability to
the fullest extent permitted by this statutory provision but does not restrict
the availability of non-monetary and other equitable relief. The Company's By-
Laws provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by Delaware Law. See "Description of Capital Stock."
The Company also intends to enter into Indemnification Agreements with each
of its directors and executive officers. Each such Indemnification Agreement
will provide that the Company will indemnify the indemnitee against expenses,
including reasonable attorney's fees, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of the
performance of his duties as an officer, director, employee or agent of the
Company. Such indemnification will be available if the acts of the indemnitee
were in good faith, if the indemnitee acted in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal proceeding, the indemnitee had no reasonable cause to believe
his conduct was unlawful.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation paid
or accrued by the Company for services rendered by Richard D. Ballard, the
Company's Chief Executive Officer and Ramie A.
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Tritt, M.D., the Company's Chairman of the Board and President, for the fiscal
year ended December 31, 1996 (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
NAME AND ------------------- OTHER ANNUAL COMPENSATION SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS COMPENSATION
- ------------------ ---- -------- ------ ------------ ----------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Ballard......... 1996 $10,385(1) -- -- 171,576 --
Chief Executive Officer
Ramie A. Tritt, M.D........ 1996 $ 0(2) -- $61,732(3) -- --
Chairman of the Board
and President
</TABLE>
- ---------------
(1) Mr. Ballard's employment commenced as of November 26, 1996, and accordingly,
represents amounts accrued from November 26, 1996 to December 31, 1996, all
of which was paid in 1996. Pursuant to an Employment Agreement effective
November 26, 1996 between the Company and Mr. Ballard, Mr. Ballard is
entitled to an annual salary of $150,000, plus a performance related bonus.
See "- Employment Agreements."
(2) No compensation was paid or accrued by the Company during 1996 to Dr. Tritt,
who received compensation in the form of distributions from the ENT Networks
and Atlanta ENT. Pursuant to an Employment Agreement effective as of the
closing of the Offering between the Company and Dr. Tritt, Dr. Tritt will be
entitled to an initial annual salary from the Company of $350,000, subject
to adjustments, plus a performance related bonus. See "- Employment
Agreements." In addition, Dr. Tritt will receive compensation from Atlanta
ENT pursuant to a formula based upon medical services provided by Dr. Tritt
as a physician at Atlanta ENT.
(3) Represents the fair market value, on the date acquired, of an aggregate of
30,945 shares of Common Stock purchased by Dr. Tritt in November and
December 1996, less the actual purchase price paid by Dr. Tritt for such
shares.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to the named executive officers during the fiscal year ended December 31,
1996. No stock appreciation rights were granted to these individuals during such
year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM (3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Ballard............. 165,000 68.8% $6.80 11/25/06 $681,450 $1,720,950
14,968 6.2% $6.80 12/31/06 $ 27,422 $ 69,433
Ramie A. Tritt, M.D............ -- -- -- -- -- --
</TABLE>
- ---------------
(1) 25% of the options listed in the table are immediately exercisable. The
remaining 75% vest over three years from the date of grant in equal yearly
installments on a cumulative basis.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
the fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchase shares. The Company may
also finance the option exercise by loaning the optionee sufficient funds to
pay the exercise price for the purchased shares, together with any federal
and state income tax liability incurred by the optionee in connection with
such exercise.
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<PAGE> 61
(3) Calculated by multiplying the exercise price by the annual appreciation rate
shown (as prescribed by the Securities and Exchange Commission rules) and
compounded for the term of the options, subtracting the exercise price per
share and multiplying the gain per share by the number of shares covered by
the options. These amounts are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock. The actual
value realized upon exercise of the options will depend on the fair market
value of the Company's Common Stock on the date of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES VALUE (#) (#)
ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Ballard......... -- -- 42,894 128,682 -- --
Ramie A. Tritt, M.D........ -- -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
On November 26, 1996, the Company entered into employment agreements with
Ramie A. Tritt, M.D., Richard D. Ballard and Gerald R. Benjamin (effective as of
the date of this Prospectus with respect to each of Dr. Tritt and Mr. Benjamin).
Pursuant to the employment agreements, Dr. Tritt, Mr. Ballard and Mr. Benjamin
have agreed to serve as the Company's President, Chief Executive Officer and
Vice-Chairman, respectively. The employment agreements with Dr. Tritt, Mr.
Ballard and Mr. Benjamin, provide for an initial term of five, three and three
years, respectively, with automatic renewals for successive one year terms
unless terminated by either party.
The employment agreement with Dr. Tritt provides for an initial annual base
salary of $350,000 plus an annual performance related bonus of up to 50% of his
base salary, to be approved by the Board of Directors, in consideration of his
devoting approximately 50% of his business time each week to serving as the
President of the Company. The employment agreement with Dr. Tritt provides for
increases in Dr. Tritt's annual base salary, subject to approval of the Board of
Directors, if the amount of time he devotes as President of the Company is
greater than anticipated. The agreement acknowledges that the remaining 50% of
Dr. Tritt's business time each week will be spent performing ENT medical and
surgical services at Atlanta ENT and upon the consummation of the
Reorganization, Dr. Tritt will also enter into an employment agreement with
Atlanta ENT. Pursuant to this employment agreement, Dr. Tritt will receive
compensation from Atlanta ENT pursuant to a formula based upon medical services
provided by Dr. Tritt as a physician at Atlanta ENT; provided, however, that Dr.
Tritt will not continue to receive compensation for providing services as a
Medical Director under the capitated managed care contracts held by the ENT
Networks. In February 1997, the Company and Dr. Tritt entered into an amended
and restated employment agreement which provides that Dr. Tritt's annual base
salary to be received from the Company in any year will be reduced, dollar for
dollar, if, in such year, his annual compensation from Atlanta ENT exceeds
$970,000.
The employment agreement with Mr. Ballard provides for an annual base
salary of $150,000 plus an annual performance related bonus of up to 50% of his
base salary, to be approved by the Board of Directors. The employment agreement
with Mr. Benjamin provides that he will work part-time for the Company and will
receive an annual base salary of $60,000 plus an annual performance related
bonus of up to 50% of his base salary, to be approved by the Board of Directors.
Each employment agreement provides for termination of the executive's
employment by the Company prior to the expiration of its term in the event of
the executive's death or disability or for cause. Each employment agreement also
provides that either party may terminate the employment agreement, effective at
the end of the term or any renewal term, upon 60 days notice of termination. The
Company may terminate each employment agreement without cause and the executive
may terminate the agreement upon a change of
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<PAGE> 62
control of the Company by providing at least 30 days notice of termination and,
upon termination in either case, the executive will be entitled to receive his
base salary for a period of one year following the date of termination (subject
to a 100% offset for salary received from subsequent employment during such one
year period (subject to certain exclusion in the case of Dr. Tritt and Mr.
Benjamin)). In addition, each employment agreement provides that upon
termination of the employment agreement by the Company or its successor
following a change of control, the executive will be entitled to severance
compensation in the amount of two times his taxable compensation for the most
recently concluded fiscal year.
In January 1997, the Company entered into an employment agreement with
Robert A. DiProva, effective upon the closing of the Offering. The employment
agreement provides for an initial term of three years from the effective date,
with automatic renewals for successive one year terms unless terminated by
either party, and provides for an annual base salary of $120,000 plus an annual
performance related bonus of up to 50% of Mr. DiProva's base salary, to be
approved by the Board of Directors. In addition to the terms contained in the
agreements with Dr. Tritt, Mr. Ballard and Mr. Benjamin, Mr. DiProva's agreement
permits termination by Mr. DiProva if his responsibilities are materially
diminished or if his base salary is reduced by 10% or more. If the agreement is
terminated for either of these reasons, Mr. DiProva will be entitled to receive
his base salary for a period of one year following the date of termination
(subject to 100% offset for salary received from subsequent employment during
such one year period).
In February 1997, the Company entered into an employment agreement with
Lawrence P. Kraska, effective upon the closing of the Offering. The employment
agreement provides for an initial term of three years from the effective date,
with automatic renewals for successive one year terms unless terminated by
either party, and provides for an annual base salary of $130,000 plus an annual
performance related bonus of up to 50% of Mr. Kraska's base salary, to be
approved by the Board of Directors. The employment agreement provides for
termination of Mr. Kraska's employment by the Company prior to the expiration of
its term in the event of Mr. Kraska's death or disability or for cause. The
employment agreement also provides that either party may terminate the
employment agreement, effective at the end of the term or any renewal term, upon
60 days notice of termination. The Company may terminate the employment
agreement without cause and, upon termination, Mr. Kraska will be entitled to
receive his base salary for a period of one year following the date of
termination (subject to a 100% offset for salary received from subsequent
employment during such one year period). In addition, the employment agreement
provides that upon termination of the employment agreement by the Company or its
successor following a change of control, Mr. Kraska will be entitled to
severance compensation in the amount of two times his taxable compensation for
the most recently concluded fiscal year.
Pursuant to the employment agreements, each of the executives has agreed
not to compete with the Company, solicit any of the Company's customers or
employees or disclose any confidential information or trade secrets during the
term of their employment agreement and for certain periods of time following the
termination of such employment agreement.
STOCK OPTION PLANS
1996 STOCK OPTION PLAN
GENERAL
In November 1996, the Board of Directors adopted and the Company's
stockholders approved the 1996 Stock Option Plan (the "1996 Plan"), under which
550,000 shares of the Company's authorized but unissued Common Stock are
authorized for issuance pursuant to the grant by the Company of options to
officers, directors, employees, consultants and independent contractors of the
Company. The purposes of the 1996 Plan are to ensure the retention of existing
executive personnel, key employees, directors and consultants of the Company, to
attract and retain competent new executive personnel, key employees, directors
and consultants and to provide additional incentive to all such persons by
permitting them to participate in the ownership of the Company. The 1996 Plan
terminates in November 2006.
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<PAGE> 63
The 1996 Plan will be administered by the Board of Directors or a committee
of the Board of Directors. The 1996 Plan provides for automatic grants of
options to certain directors in the manner set forth below under "Directors'
Options."
Options granted under the 1996 Plan may be either incentive options or
non-qualified options. Incentive options granted under the 1996 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive option granted under the
Plan to a stockholder owning more than 10% of the outstanding voting power of
the Company may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
To the extent that the aggregate fair market value, as of the date of grant, of
the shares for which incentive options become exercisable for the first time by
an optionee during the calendar year exceeds $100,000, the portion of such
option which is in excess of the $100,000 limitation will be treated as a
non-qualified option. Only employees of the Company or a subsidiary of the
Company shall be eligible to receive incentive options. Additionally, the
aggregate number of shares of Common Stock that may be subject to options
granted to any person in a calendar year shall not exceed 35% of the maximum
number of shares of Common Stock which may be issued from time to time under the
1996 Plan. Options granted under the 1996 Plan to officers, directors or
employees of the Company may be exercised only while the optionee is employed or
retained by the Company or within 90 days of the date of termination of the
employment relationship or directorship. However, options which are exercisable
at the time of termination by reason of death or permanent disability of the
optionee may be exercised within 12 months of the date of termination of the
employment relationship or directorship. Upon the exercise of an option, payment
may be made by cash or by any other means that the Board of Directors or the
committee determines.
As of January 31, 1996, the number of employees, officers and directors of
the Company eligible to receive grants under the 1996 Plan was approximately
eight persons. The number of consultants and advisors to the Company eligible to
receive grants under the 1996 Plan is not determinable. An optionee may be
granted more than one option under the 1996 Plan. The Board of Directors or the
committee will, in its discretion, determine (subject to the terms of the 1996
Plan) who will be granted options, the time or times at which options shall be
granted, the number of shares subject to each option and whether the options are
incentive options or non-qualified options. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its subsidiaries and such other factors deemed relevant in
accomplishing the purpose of the 1996 Plan.
Under the 1996 Plan, the optionee has none of the rights of a stockholder
with respect to the shares until such shares are issued upon the exercise of the
option. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date of exercise, except as
provided in the 1996 Plan. During the lifetime of the optionee, an option shall
be exercisable only by the optionee. No option may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of decent and distribution.
The Board of Directors may amend or terminate the 1996 Plan except that
stockholder approval is required for certain amendments to the 1996 Plan. No
action taken by the Board may materially and adversely affect any outstanding
option grant without the consent of the optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the 1996 Plan. Upon exercise of a
non-qualified option, the excess of the fair market value of the shares subject
to the option over the option price (the "Spread") at the date of exercise is
taxable as ordinary income to the optionee in the year it is exercised and is
deductible by the Company as compensation for Federal income tax purposes, if
Federal income tax is withheld on the Spread. However, if the shares are subject
to vesting restrictions conditioned on future employment or the holder is
subject to the short-swing profits liability restrictions of Section 16(b) of
the Securities and Exchange Act of 1934 (the "Exchange Act") of (i.e., is an
executive officer, director or 10% stockholder of the Company) then taxation and
measurement of the Spread is deferred
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until such restrictions lapse, unless a special election is made under Section
83(b) of the Code to report such income currently without regard to such
restrictions. The optionee's basis in the shares will be equal to the fair
market value on the date taxation is imposed and the holding period commences on
such date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received upon exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of such option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is deemed long-term or short-term capital
gain or loss, depending upon the holding period. The holding period for
long-term capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the 1996 Plan. For instance,
the treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
As of December 31, 1996, 247,460 options have been granted under the 1996
Plan at an exercise price of $6.80 per share, of which 179,968, 59,992 and 7,500
options were granted to Mr. Ballard, Mr. Kraska and Dr. Casas, respectively. As
of December 31, 1996, 44,992 and 14,998 of the options granted to Mr. Ballard
and Mr. Kraska, respectively, were immediately exercisable and all of the
options granted to Dr. Casas were immediately exercisable. 7,500 options have
been granted to each of Dr. Posar and Mr. Kirschner, effective upon the closing
of the Offering, at an exercise price equal to the initial public offering
price, all of which will become immediately exercisable and 119,980 options have
been granted to Mr. DiProva, effective upon the closing of the Offering, at an
exercise price of $6.80 per share, 29,995 of which will be immediately
exercisable. In addition, 45,000 options have been granted to non-medical
employees of Atlanta ENT, effective upon the closing of the Offering, at an
exercise price equal to the initial public offering price, none of which will
become exercisable until the first anniversary of the closing of the Offering.
DIRECTORS' OPTIONS
The 1996 Plan provides for the automatic grant of non-qualified stock
options to purchase shares of Common Stock ("Director Options") to directors of
the Company who are not employees or principal stockholders of the Company
("Eligible Directors"). Eligible Directors of the Company elected after the date
hereof will be granted Director Options to purchase 7,500 shares of Common Stock
on the date they are first elected or appointed a director (an "Initial Director
Option"). Further, commencing on the day immediately following the date of the
annual meeting of stockholders for the Company's fiscal year ending December 31,
1997, each Eligible Director, other than directors who received an Initial
Director Option since the last annual meeting, will be granted Director Options
to purchase 2,500 shares of Common Stock ("Automatic Grant") on the day
immediately following the date of each annual meeting of stockholders, as long
as such director is a member of the Board of Directors. The exercise price for
each share subject to a Director Option shall be
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equal to the fair market value of the Common Stock on the date of grant.
Director Options will expire the earlier of 10 years after the date of grant or
90 days after the termination of the director's service on the Board of
Directors.
1996 HEALTH CARE PROFESSIONALS STOCK OPTION PLAN.
In November 1996, the Company adopted the 1996 Health Care Professionals
Stock Option Plan (the "1996 Professionals Plan"), under which 275,000 shares of
the Company's authorized but unissued Common Stock are authorized for issuance
pursuant to the grant by the Company of options to physicians or dentists who
are employed by the Company's affiliated practices or who provide medical and
surgical services to enrollees of managed care contracts held by the Company.
The purposes of the 1996 Professionals Plan are to ensure the retention of
existing physicians and dentists, to attract and retain competent new physicians
and to provide additional incentive to all such persons by permitting them to
participate in the ownership of the Company. The 1996 Professionals Plan
terminates in November 2006.
The 1996 Professionals Plan will be administered by the Board of Directors
or a committee of the Board of Directors. Options granted under the 1996
Professionals Plan will be non-qualified options and will vest over a period of
five years. Generally, such options will expire upon the termination of
employment or the advisory or consultant relationship with the Company or on the
day prior to the 10th anniversary of the date of grant, whichever occurs first.
The options granted under the 1996 Professionals Plan will be exercisable at an
exercise price which is not less than the fair market value of the Common Stock
on the date of grant.
The Company has granted options to purchase 25,000 shares of Common Stock
under the 1996 Professionals Plan to a physician at one of the Additional
Atlanta Practices, effective upon the closing of the Offering, at an exercise
price equal to the initial public offering price, none of which will become
exercisable until the first anniversary of the closing of the Offering.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock for (i) each person known by the Company to own beneficially
more than five percent of the outstanding voting stock, (ii) each director and
named executive officer of the Company and (iii) all executive officers and
directors of the Company as a group, prior to the Offering and as adjusted to
give effect to the sale of the Common Stock offered hereby and the issuance of
the Common Stock in connection with the Reorganization.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF SHARES BENEFICIALLY
BENEFICIALLY OWNED(2) OWNED(2)
NAME AND ADDRESS --------------------- -------------------
OF BEFORE AFTER BEFORE AFTER
BENEFICIAL OWNER(1) OFFERING OFFERING OFFERING OFFERING
------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Ramie A. Tritt, M.D.(3)............................... 305,945 1,719,686 51.0% 29.2%
Bock, Benjamin & Co., Partners, L.P.(4)............... 293,948 293,948 49.0 5.0
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
Gerald R. Benjamin(4)................................. 293,948 293,948 49.0 5.0
Richard D. Ballard(5)................................. 44,992 44,992 7.5 *
Lawrence P. Kraska(6)................................. 14,998 14,998 2.4 *
Robert A. DiProva(7).................................. -- 29,995 -- *
Edward R. Casas, M.D.(8).............................. 7,500 7,500 1.2 *
Steven L. Posar, M.D.(9).............................. -- 7,500 -- *
Sidney Kirschner(9)................................... -- 7,500 -- *
All executive officers and directors of the Company as
a group (8 persons)(10)............................. 667,383 2,126,119 100.0% 36.1%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Physicians' Specialty Corp.,
The Medical Quarters, 5555 Peachtree Dunwoody Road, Suite 235, Atlanta,
Georgia 30342. Except as otherwise indicated, each of the parties listed
above has sole voting and investment power over the shares owned.
(2) In computing the number and percentage ownership of shares beneficially
owned by a person, shares of Common Stock subject to options held by that
person that are exercisable within 60 days of the date of this Prospectus
are deemed outstanding. Such shares, however, are not deemed outstanding
for purposes of computing the percentage ownership of stockholders other
than such person.
(3) Includes 1,413,741 shares to be issued or distributed to Dr. Tritt, the
Chairman of the Board and President of the Company, in connection with the
Reorganization, based upon an assumed initial public offering price of
$8.50 per share. The Company will issue an aggregate of 3,086,559 shares of
Common Stock in connection with the Reorganization and the number of shares
to be issued to Atlanta ENT and the ENT Networks, and accordingly, to be
issued or distributed to Dr. Tritt, are subject to adjustment. See "The
Reorganization" and "Certain Transactions."
(4) Mr. Benjamin, the Vice Chairman of the Board and Secretary of the Company,
is a partner in Bock, Benjamin & Co., Partners, L.P. Mr. Benjamin may be
deemed to own beneficially the shares of Common Stock owned by Bock,
Benjamin & Co., Partners, L.P.
(5) Represents shares of Common Stock issuable upon exercise of options that
are immediately exercisable. Excludes 134,976 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days
of the date of this Prospectus.
(6) Represents shares of Common Stock issuable upon exercise of options that
are immediately exercisable. Excludes 44,994 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days
of the date of this Prospectus.
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(7) Represents shares of Common Stock issuable upon exercise of options that
are immediately exercisable. Excludes 89,985 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days
of the date of this Prospectus.
(8) Represents shares of Common Stock issuable upon exercise of options that
are immediately exercisable.
(9) Represents shares of Common Stock issuable upon exercise of options which
have been granted, effective upon the closing of the Offering, that are
immediately exercisable.
(10) Includes 67,490 shares of Common Stock issuable upon exercise of options
that are currently exercisable and an aggregate of 44,995 shares of Common
Stock issuable upon exercise of options granted to Mr. DiProva, Dr. Posar
and Mr. Kirschner effective on the closing of the Offering that are
immediately exercisable. Excludes 269,955 shares of Common Stock issuable
upon exercise of options which are not exercisable within 60 days of the
date of this Prospectus.
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CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS
In connection with the formation of the Company in July 1996, Ramie A.
Tritt, M.D. and Bock, Benjamin & Co., Partners, L.P., a partnership in which
Gerald R. Benjamin, the Company's Vice Chairman and Secretary, is a partner,
each purchased 275,000 shares of Common Stock at a purchase price of
approximately $.0018 per share. In November 1996, Dr. Tritt purchased an
additional 11,225 shares of Common Stock at a purchase price of approximately
$.0042 per share. In December 1996, Dr. Tritt and Bock, Benjamin & Co.,
Partners, L.P. purchased an additional 19,720 and 18,948 shares of Common Stock,
respectively, at purchase prices of approximately $.0056 and $.0081,
respectively, per share. Dr. Tritt and Bock, Benjamin & Co., Partners have
"piggyback" registration rights with respect to the shares of Common Stock held
by them.
In July 1996, Atlanta ENT, Dr. Tritt, Mr. Benjamin and two entities whose
principal stockholders were former directors of the Company (the "Former
Directors") loaned $170,500, $33,500, $33,500 and an aggregate of $247,500,
respectively, to the Company for legal, accounting and other fees in connection
with the formation of the Company, the Offering and the Reorganization. The
loans are evidenced by promissory notes bearing interest at a prime rate as
announced by NationsBank, and payable on the closing of the Offering. In
February 1997, the Company entered into a termination agreement pursuant to
which approximately $77,472 of the loans made by affiliates of the Former
Directors were repaid and the outstanding balance of such loans will be paid at
the closing of the Offering. In addition, in February 1997, the ENT Networks and
Bock, Benjamin & Co., Partners, L.P., loaned the Company approximately $168,108
and $1,892, respectively, evidenced by promissory notes bearing interest at the
NationsBank prime rate and payable on the closing of the Offering. In addition,
at the closing of the Offering, the Company will pay $250,000 to Premier
HealthCare, a corporation of which Mr. Benjamin is a principal, for consulting
services in connection with the formation of the Company, the Offering and the
Reorganization. See "Use of Proceeds."
THE REORGANIZATION
Concurrently with the closing of the Offering, the Company will acquire
substantially all of the assets of Atlanta ENT and will acquire all of the
outstanding shares of common stock of ENT Networks from Dr. Tritt (the
"Seller"). In connection with the Reorganization, the Company will issue an
aggregate of 2,767,500 shares of Common Stock to Atlanta ENT and to the Seller.
The allocation of such shares between Atlanta ENT and the Seller will be based
upon the initial public offering price of the Common Stock, with the number of
shares of Common Stock issuable to the Seller to equal $7,750,000 divided by the
initial public offering price and the remainder issuable to Atlanta ENT. Based
upon an assumed initial public offering price of $8.50 per share, the Seller
will receive 911,765 shares of Common Stock and Atlanta ENT will receive
1,855,735 shares of Common Stock (of which 501,976 will be distributed to Dr.
Tritt, based on his percentage ownership of Atlanta ENT).
The assets of Atlanta ENT will be acquired pursuant to an Asset Acquisition
Agreement, dated as of November 25, 1996 (the "Atlanta ENT Asset Acquisition
Agreement"), by and among PSC Management, the Company, Atlanta ENT and the
stockholders of Atlanta ENT (the "Atlanta ENT Stockholders"). The Atlanta ENT
Asset Acquisition Agreement provides for the Company, through PSC Management, to
acquire, on the closing date of the Offering, substantially all of the assets
(other than certain excluded assets such as employment agreements and patient
charts, records and files) and liabilities (other than certain excluded
liabilities) of Atlanta ENT. Atlanta ENT will remain liable for the payment of
excluded liabilities, if any, under the Atlanta ENT Asset Acquisition Agreement.
The Atlanta ENT Asset Acquisition Agreement provides that, other than physicians
and physician assistants, all employees of Atlanta ENT will be offered
employment with PSC Management upon the closing of the acquisition. Under the
Atlanta ENT Asset Acquisition Agreement, Atlanta ENT and the Atlanta ENT
Stockholders have agreed that for a period of five years following the closing
of the acquisition they will not compete with the Company within an eight mile
radius of any of the primary offices of Atlanta ENT (the "Geographic
Territory"), will not solicit customers of
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the Company within the Geographic Territory and will not solicit employees of
the Company to leave the employ of the Company.
The Atlanta ENT Asset Acquisition Agreement contains representations and
warranties and indemnification by each of the parties to the agreement. The
closing of the acquisition is conditioned upon, among other things, the
execution and delivery of (i) an employment agreement between each of the
Atlanta ENT Stockholders and Atlanta ENT, (ii) a management services agreement
between PSC Management, the Company and Atlanta ENT and (iii) a registration
rights agreement between the Company and each of Atlanta ENT Stockholders,
pursuant to which the Atlanta ENT Stockholders will have "piggyback"
registration rights with respect to their shares of Common Stock.
In addition, pursuant to the Acquisition Agreement, dated as of November
25, 1996, by and among PSC Acquisition, the Company, the Seller and the ENT
Networks (the "Stock Acquisition Agreement"), the Company, through PSC
Acquisition, will acquire, on the closing date of the Offering, all of the
outstanding shares of common stock of the corporations comprising the ENT
Networks. The Stock Acquisition Agreement contains representations and
warranties and indemnification by each of the parties to the agreement. The
closing of the Stock Acquisition Agreement is conditioned upon, among other
things, the execution of a registration rights agreement between the Company and
the Seller pursuant to which the Seller will have "piggyback" registration
rights with respect to the shares of Common Stock received by him pursuant to
such agreement. In August 1996, the Company, through PSC Management, acquired
certain assets (primarily computer hardware) of and entered into a management
agreement with the ENT Networks, which agreement will terminate upon the
consummation of the Reorganization, and began utilizing the Capitated Network
System. In connection with the acquisition of these assets, the Company executed
a promissory note payable to the ENT Networks in the principal amount of
$20,000, and bearing interest at a prime rate as announced by NationsBank which
note will be paid, and the proceeds distributed to Dr. Tritt upon consummation
of the Reorganization. See "The Reorganization," "Business -- Atlanta ENT and
The ENT Networks" and "-- Company Operations -- Management Services Agreements."
The Company intends to use a portion of the net proceeds of this Offering
to repay outstanding indebtedness, including accrued interest, of Atlanta ENT
which at December 31, 1996 aggregated approximately $1,118,000. In connection
with the repayment of this indebtedness a guarantee made by Dr. Tritt, for 45%
of such indebtedness will be cancelled. See "Risk Factors -- Benefits of the
Offering to Insiders" and "Use of Proceeds."
Concurrently with the closing of the Offering, the Company will also
acquire substantially all of the assets of the Additional Atlanta Practices in
exchange for an aggregate of 202,353 shares of Common Stock and substantially
all of the assets of Birmingham ENT in exchange for 116,706 shares of Common
Stock, based upon an assumed initial public offering price of $8.50 per share.
The assets of each of the Additional Atlanta Practices will be acquired
pursuant to Asset Acquisition Agreements (the "Additional Atlanta Acquisition
Agreements"), by and among PSC Management, the Company, the respective practice
and the stockholders of each of the Additional Atlanta Practices (the
"Additional Atlanta Stockholders"). The Additional Atlanta Acquisition
Agreements provide for the Company, through PSC Management, to acquire, on the
closing date of the Offering, substantially all of the assets (other than
certain excluded assets such as employment agreements and patient charts,
records and files) and liabilities (other than certain excluded liabilities) of
each of the Additional Atlanta Practices. The Additional Atlanta Practices will
remain liable for the payment of excluded liabilities, if any, under the
Additional Atlanta Practice Acquisition Agreements. The Additional Atlanta
Acquisition Agreements provide that all of the non-physician employees of each
of the Additional Atlanta Practices will be offered employment with PSC
Management upon the closing of the acquisition. Under each of the Additional
Atlanta Acquisition Agreements, the respective Additional Atlanta Practice and
each of the respective Additional Atlanta Stockholders have agreed that for a
period of five years following the closing of the acquisition they will not
compete with the Company within an eight mile radius of any of the primary
offices of the Additional Atlanta Practices and Atlanta ENT (the "Additional
Geographic Territory"), will not solicit customers of the
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Company within the Additional Geographic Territory and will not solicit
employees of the Company to leave the employ of the Company.
The Additional Atlanta Acquisition Agreements contain representations and
warranties and indemnification by each of the parties to the agreement. The
closing of the acquisitions is conditioned upon, among other things, the
execution and delivery of (i) an employment agreement between each of the
Additional Atlanta Stockholders and Atlanta ENT, (ii) a management services
agreement between PSC management, the Company and Atlanta ENT and (iii) a
registration rights agreement between the Company and each of the Additional
Atlanta Stockholders, pursuant to which the Additional Atlanta Stockholders will
have "piggyback" registration rights with respect to their shares of Common
Stock.
The assets of Birmingham ENT will be acquired pursuant to an Asset
Acquisition Agreement (the "Birmingham Acquisition Agreement"), by and among PSC
Alabama, a wholly-owned subsidiary of the Company, the Company, Birmingham ENT
and the stockholders of Birmingham ENT (the "Birmingham Stockholders"). The
Birmingham Acquisition Agreement provides for the Company, through PSC Alabama,
to acquire, on the closing date of the Offering, all of the assets and
liabilities (other than certain excluded liabilities) of Birmingham ENT.
Birmingham ENT will remain liable for the payment of excluded liabilities, if
any, under the Birmingham Acquisition Agreement. The Birmingham Acquisition
Agreement provides that, other than physicians and physician assistants, all
employees of Birmingham ENT will be offered employment with PSC Management upon
the closing of the acquisition. Under the Birmingham Acquisition Agreement,
Birmingham ENT and each of the Birmingham Stockholders have agreed that for a
period of five years following the closing of the acquisition they will not
compete with the Company within a certain defined radius of the office of
Birmingham ENT, (the "Birmingham Geographic Territory"), will not solicit
customers of the Company within the Birmingham Geographic Territory and will not
solicit employees of the Company to leave the employ of the Company.
The Birmingham Acquisition Agreement contains representations and
warranties and indemnification by each of the parties to the agreement. The
closing of the acquisition is conditioned upon, among other things, the
execution and delivery of (i) an employment agreement between each of the
Birmingham Stockholders and PSC Alabama, (ii) a management services agreement
between PSC Management, the Company and PSC Alabama and (iii) a registration
rights agreement between the Company and each of the Birmingham Stockholders,
pursuant to which the Birmingham Stockholders will have "piggyback" registration
rights with respect to their shares of Common Stock. See "The Reorganization,"
"Business -- The Additional Atlanta Practices," " -- Birmingham ENT" and
" -- Company Operations -- Management Services Agreements."
LEASES
Atlanta ENT leases its administrative offices and one clinical location
from Dr. Tritt. The lease is for approximately 19,700 square feet and provides
for monthly rental payments of approximately $40,500, subject to annual
increases. Upon consummation of the Reorganization, the Company will assume
Atlanta ENT's obligations under this lease.
Atlanta ENT leases one clinical location from Eastside Physicians Center,
L.P., a Georgia limited partnership, of which Dr. Tritt is a limited partner.
The lease is for approximately 3,500 square feet and provides for monthly rental
payments of approximately $5,750, subject to annual increases. Upon consummation
of the Reorganization, the Company will assume Atlanta ENT's obligations under
this lease.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be subject to approval by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors of
the Board of Directors.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the terms of the capital stock of the
Company. Such summary is qualified in its entirety by reference to the Company's
Certificate of Incorporation (the "Charter"), attached as an exhibit hereto and
to the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
The Company's authorized capital stock currently consists of 50,000,000
shares of Common Stock, $.001 par value, and 10,000 shares of Preferred Stock,
$1.00 par value.
COMMON STOCK
Immediately prior to the date hereof, there were 599,893 shares of Common
Stock outstanding held by two stockholders of record. Holders of shares of
Common Stock are entitled to one vote at all meetings of stockholders for each
share held by them and are not entitled to cumulative voting. Holders of Common
Stock have no preemptive rights, no other rights to subscribe for additional
shares of the Company, and no conversion rights or rights of redemption. Subject
to preferences that may be applicable to any outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation, all holders of Common Stock are entitled to
participate pro rata in the assets of the Company available for distribution,
subject to the rights of any class of preferred stock then outstanding. All of
the outstanding shares of Common Stock are, and the shares to be issued pursuant
to the Offering will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
None of the 10,000 shares of Preferred Stock authorized by the Company's
Charter will be issued or outstanding upon completion of the Offering. The Board
of Directors has the authority to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series of the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock, including the loss of
voting control to others.
REPRESENTATIVES' OPTIONS
The Company has agreed to grant to the Representatives, upon the closing of
the Offering, the Representatives' Options to purchase up to 220,000 shares of
Common Stock. The Representatives' Options cannot be transferred, sold, assigned
or hypothecated for one year, except to any successor, officer or partner of
each of the Representatives. The Representatives' Options are exercisable during
the four-year period commencing one year from the date of this Prospectus at an
exercise price of $ per share of Common Stock (120% of the initial
public offering price) subject to adjustment in certain events to protect
against dilution. The holders of the Representatives' Options have certain
demand and piggyback registration rights. See "Underwriting."
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER, BY-LAWS AND CERTAIN OTHER
AGREEMENTS
Stockholders' rights and related matters are governed by the DGCL, the
Charter and the By-Laws. Certain provisions of the DGCL, the Charter and the
By-Laws, which are summarized below, may discourage or make more difficult a
takeover attempt that a stockholder might consider in its best interest. Such
provisions may also adversely affect prevailing market prices for the Common
Stock.
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Advance Notice Requirements for Stockholder Proposals and Director Nominations
The By-Laws contain advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors of the
Company. These procedures provide that notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of the Company no later than 60 days
nor more than 90 days prior to such annual meeting (or if less than 70 days'
notice of a meeting of stockholders is given, stockholder proposals and
nominations must be delivered to the Secretary of the Company no later than the
close of business on the tenth day following the day notice was mailed). The
notice of stockholder nominations must set forth certain information with
respect to each nominee who is not an incumbent director.
Business Combination Provisions
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under such statute a corporation
may not engage in any business combination with any interested stockholder for a
period of three years after the date such person became an interested
stockholder unless certain conditions are satisfied. The statute contains
provisions enabling a corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute, and, therefore,
upon closing of the Offering and the registration of its shares of Common Stock
under the Exchange Act, the restrictions imposed by such statute will apply to
the Company.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
The Charter provides that a director or officer of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director or officer, except for liability (i) for
any breach of the director's or officer's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL which concerns unlawful payment of dividends, stock purchases or
redemptions or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
While the Charter provides directors and officers with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Charter will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's or officer's breach of his duty of care.
The Company intends to enter into Indemnification Agreements with each of
its directors and executive officers. Each such Indemnification Agreement will
provide that the Company will indemnify the indemnitee against expenses,
including reasonable attorney's fees, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of the
performance of his duties as an officer, director, employee or agent of the
Company. Such indemnification will be available if the acts of the indemnitee
were in good faith, if the indemnitee acted in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal proceeding, the indemnitee had no reasonable cause to believe
his conduct was unlawful. See "Management -- Limitation on Liability;
Indemnification Agreements."
TRANSFER AGENT AND REGISTRAR
SunTrust Corp. will act as transfer agent and registrar for the Common
Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,886,452 shares of
Common Stock outstanding, assuming that the Underwriters' over-allotment option
is not exercised. Of these shares, the 2,200,000 shares offered hereby will be
freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act ("Rule 144") described below. The
remaining 3,686,452 shares outstanding upon completion of the Offering
(including the shares of Common Stock issued in connection with the
Reorganization) are "restricted securities" as that term is defined under Rule
144 (the "Restricted Shares") and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. 550,000, 11,225 and 38,668 Restricted Shares issued
in connection with the formation of the Company will become eligible for sale
pursuant to Rule 144 commencing July 1998, November 1998 and December 1998,
respectively.
Beginning 90 days after the date of this Prospectus, certain shares
issuable upon exercise of options granted by the Company prior to the date of
this Prospectus will also be eligible for sale in the public market pursuant to
Rule 701 under the Securities Act. In general, Rule 701 permits resales of
shares issued pursuant to certain compensatory benefit plans and contracts
commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144. If all the requirements of
Rule 701 are met, an aggregate of approximately 67,490 shares of Common Stock
issuable upon exercise of outstanding options will be eligible for sale pursuant
to Rule 701 and Rule 144 beginning 90 days after the date of this Prospectus.
Notwithstanding the foregoing, all stockholders of the Company prior to the
Offering (including all individuals receiving Common Stock in the
Reorganization), have agreed not to sell, transfer or otherwise dispose of any
shares of the Company's Common Stock without the prior written consent of
Southcoast, on behalf of the Underwriters for a period of 12 months after the
date of this Prospectus. See "Underwriting."
In general under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including persons who may be deemed to be "affiliates" of the Company, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock or (ii) the average weekly trading volume in the Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned for at least three years the
shares proposed to be sold, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
The Commission has proposed certain amendments to Rule 144 that would
reduce to one year the holding period required prior to restricted securities
becoming eligible for resale in the public market under Rule 144 and would
reduce to two years the holding period required prior to a person becoming
eligible to effect sales under Rule 144(k). This proposal, if adopted, would
result in a substantial number of shares of Common Stock becoming eligible for
resale in the public markets significantly sooner than would otherwise be the
case, which could adversely affect the market price for the Common Stock. No
assurance can be given concerning whether or when such proposal will be adopted
by the Commission.
Holders of the Representatives' Options have certain demand and piggyback
registration rights. In addition, all of the stockholders of the Company prior
to the Offering (including all individuals receiving Common Stock in the
Reorganization) have "piggyback" registration rights with respect to their
shares of Common Stock. See "Certain Transactions," "Description of Capital
Stock -- Representatives' Options" and "Underwriting."
Prior to the Offering, there has been no market for the Common Stock of the
Company, and the Company cannot predict what effect, if any, that sales of
Common Stock or the availability of Common Stock
71
<PAGE> 74
for sale will have on the market price of such securities prevailing from time
to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices and the ability of
the Company to raise equity capital in the future.
72
<PAGE> 75
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
each of the Underwriters named below has severally agreed to purchase from the
Company, and the Company has agreed to sell to such Underwriter, the respective
number of shares of Common Stock set forth opposite the name of such
Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Southcoast Capital Corporation..............................
Barington Capital Group, L.P................................
Total.............................................
---------
2,200,000
</TABLE>
The several Underwriters have agreed to purchase all of the shares of
Common Stock offered hereby (other than shares that may be purchased under the
Over-Allotment Option) if any are purchased. The Underwriters propose initially
to offer the shares to the public at the price set forth on the cover page of
this Prospectus. The Underwriters may allow a selling concession not exceeding
$ per share of Common Stock to certain dealers. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to other dealers. The public offering price and concessions may be
changed by the Underwriters after the initial public offering.
The Company has granted an option to the Underwriters during the 45-day
period after the date of this Prospectus, to purchase up to an aggregate of
330,000 additional shares of Common Stock at the public offering price, less the
underwriting discounts and commissions. The Underwriters may exercise the option
only for the purpose of covering over-allotments made in connection with the
sale of the Common Stock offered hereby. To the extent that the Underwriters
exercise their option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of such additional shares proportionate to such
Underwriter's initial commitment.
73
<PAGE> 76
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. In addition,
pursuant to a Consulting Agreement between Barington and the Company, the
Company has retained Barington to perform consulting services relating to
corporate finance and other financial service matters for a consulting fee of
$487,000, payable on the closing of the Offering.
The Company has also agreed to sell to the Representatives, upon the
closing of the Offering for nominal consideration, the Representatives' Options
to purchase up to 220,000 shares of Common Stock, which will be shared equally
between the Representatives. The Representatives' Options cannot be transferred,
sold, assigned or hypothecated for one year, except to any successor, officer or
partner of each of the Representatives. The Representatives' Options are
exercisable during the four-year period commencing one year from the date of
this Prospectus at an exercise price of $ per share of Common Stock
(120% of the initial public offering price) subject to adjustment in certain
events to protect against dilution. The Company has agreed to register during
the four-year period commencing one year after the date of this Prospectus, on
two separate occasions, the securities issuable upon exercise thereof under the
Securities Act, the initial such registration to be at the Company's expense and
the second at the expense of the holders. The Company has also granted certain
piggyback registration rights to the holders of the Representatives' Options.
The Underwriters have advised the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Company, its directors and officers and the holders of all of the
Company's outstanding Common Stock (including all individuals receiving Common
Stock in the Reorganization) have agreed with the Underwriters not to sell,
contract to sell or otherwise dispose of any of the Company's securities held by
them for a period of 12 months following the date of this Prospectus without the
prior written consent of Southcoast, on behalf of the Underwriters, except for
certain exceptions and under certain circumstances.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the public offering price has been determined by
arms-length negotiation between the Company and the Underwriters and does not
necessarily bear any relationship to the Company's book value, assets, past
operating results, financial condition, or other established criteria of value.
Factors considered in determining such price included an assessment of the
Company's recent financial results and current financial condition, future
prospects of the Company, the qualifications of the Company's management, the
general condition of the securities markets and other relevant factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bachner, Tally, Polevoy & Misher LLP, New York, New
York. The statements in the Prospectus under "Risk Factors -- Government
Regulation," "-- Health Care Reform" and "Business -- Government Regulation"
will be passed on by Reed Smith Shaw & McClay, Washington, D.C., regulatory
counsel to the Company. Certain legal matters will be passed upon for the
Underwriters by Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The audited financial statements of Atlanta Ear, Nose & Throat Associates,
P.C., the ENT Networks and Physicians' Specialty Corp. included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts giving said reports.
The audited financial statements of W.J. Cornay, III, M.D., P.C. included
in this Prospectus and elsewhere in the Registration Statement, to the extent
and for periods indicated in their reports, have been audited by Cade &
Associates, P.C., independent public accountants, and are included herein in
reliance upon the authority of said firm as experts giving said reports.
74
<PAGE> 77
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
Washington, D.C. with respect to the shares of Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Reports and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at the following addresses: New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
75
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheet at December 31, 1996............. F-3
Consolidated Statement of Operations for the Period from
Inception (July 31, 1996) to December 31, 1996............ F-4
Consolidated Statement of Stockholders' Equity for the
Period from Inception (July 31, 1996) to December 31,
1996...................................................... F-5
Consolidated Statement of Cash Flows for the Period from
Inception (July 31, 1996) to December 31, 1996............ F-6
Notes to Consolidated Financial Statements.................. F-7
II. ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
Report of Independent Public Accountants.................... F-10
Balance Sheets at December 31, 1996 and 1995................ F-11
Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994....................................... F-12
Statements of Owners' Equity for the Years Ended December
31, 1996, 1995 and 1994................................... F-13
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994....................................... F-14
Notes to Financial Statements............................... F-15
III. THE ENT NETWORKS
Report of Independent Public Accountants.................... F-19
Combined Balance Sheets at December 31, 1996 and 1995....... F-20
Combined Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-21
Combined Statements of Owner's Equity for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-22
Combined Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-23
Notes to Combined Financial Statements...................... F-24
IV. W.J. CORNAY, III, M.D., P.C.
Report of Independent Public Accountants.................... F-26
Balance Sheets at December 31, 1996 and 1995................ F-27
Statements of Operations for the Years ended December 31,
1996 and 1995............................................. F-28
Statements of Cash Flow for the Years ended December 31,
1996 and 1995............................................. F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Physicians' Specialty Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of PHYSICIANS'
SPECIALTY CORP. AND SUBSIDIARIES (Delaware corporations) as of December 31, 1996
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the period from inception (July 31, 1996) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians' Specialty Corp.
and Subsidiaries as of December 31, 1996 and the results of their operations and
their cash flows for the period from inception (July 31, 1996) to December 31,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 17, 1997
F-2
<PAGE> 80
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $123,540
Accounts receivable due from related party (Note 7)....... 26,976
--------
150,516
--------
EQUIPMENT, net (Notes 2 and 3).............................. 19,897
DEFERRED OFFERING COSTS AND OTHER, net (Note 2)............. 442,567
--------
Total assets...................................... $612,980
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued interest..................... $108,828
Accrued interest due to related party (Note 4)............ 9,442
Short-term debt due to related party (Note 4)............. 257,500
Short-term debt (Note 4).................................. 247,500
--------
623,270
--------
STOCKHOLDERS' EQUITY (Note 6):
Preferred stock, $1.00 par value; 10,000 shares
authorized; no shares issued and outstanding........... 0
Common stock, $0.001 par value; 50,000,000 shares
authorized; 599,893 shares issued and outstanding...... 600
Additional paid-in capital................................ 96,711
Accumulated deficit....................................... (107,601)
--------
Total stockholders' equity........................ (10,290)
--------
Total liabilities and stockholders' equity........ $612,980
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 81
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JULY 31,
1996) TO
DECEMBER 31,
1996
------------
<S> <C>
RELATED PARTY MANAGEMENT FEE REVENUES....................... $ 51,240
---------
OPERATING EXPENSES:
Salaries, wages, and benefits............................. 46,582
General and administrative expenses....................... 110,340
Depreciation and amortization............................. 1,919
---------
158,841
---------
NET LOSS.................................................... $(107,601)
=========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE> 82
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 31, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, inception (July 31, 1996)............ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock.................... 599,893 600 96,711 0 97,311
Net loss.................................... 0 0 0 (107,601) (107,601)
------- ---- ------- --------- --------
BALANCE, December 31, 1996.................... 599,893 $600 $96,711 $(107,601) $(10,290)
======= ==== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-5
<PAGE> 83
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 31, 1996)
TO DECEMBER 31, 1996
--------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(107,601)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,919
Increase in accounts receivable due from related
party................................................. (26,976)
Increase in accounts payable and accrued interest...... 108,828
Increase in accrued interest due to related party...... 9,442
Increase in other assets............................... (1,100)
---------
Total adjustments................................. 92,113
---------
Net cash used in operating activities............. (15,488)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (21,706)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under short-term debt.......................... 505,000
Issuance of common stock.................................. 97,311
Deferred offering costs................................... (441,577)
---------
Net cash provided by financing activities......... 160,734
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 123,540
CASH AND CASH EQUIVALENTS, inception (July 31, 1996)........ 0
---------
CASH AND CASH EQUIVALENTS, December 31, 1996................ $ 123,540
=========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE> 84
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Physicians' Specialty Corp. was organized in July of 1996 to provide
physician practice management services to medical groups specializing in
disorders and diseases of the ear, nose and throat.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Physicians' Specialty Corp. and its subsidiaries, all of which are wholly owned
(collectively, the "Company"). Intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed on the
straight-line method over the estimated service lives of depreciable assets
(five years). Maintenance and repairs are charged to expense as incurred. The
cost of renewals and betterments is capitalized and depreciated over the
applicable estimated useful lives. The cost and accumulated depreciation of
assets sold, retired, or otherwise disposed of are removed from the accounts,
and the related gain or loss is credited or charged to income.
DEFERRED OFFERING COSTS
The Company has capitalized legal and consulting expenses incurred through
December 31, 1996 related to a stock offering. These costs will be offset
against the proceeds upon completion of the stock offering.
ORGANIZATION COSTS
The Company has capitalized legal expenses incurred prior to July 31, 1996
related to the organization and start-up of the Company. These costs are
included in other assets on the balance sheet and are being amortized over a
five-year period.
REVENUE RECOGNITION
The Company recognizes revenue at the date management services are
provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
short-term debt approximated their fair values as of December 31, 1996 due to
the relatively short maturity of these instruments.
F-7
<PAGE> 85
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EQUIPMENT
Equipment at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Equipment................................................... $21,706
Less accumulated depreciation............................... (1,809)
-------
$19,897
=======
</TABLE>
4. SHORT-TERM DEBT
The Company's short-term debt at December 31, 1996 consisted of promissory
notes in principal amounts ranging from $20,000 to $170,500 and bearing simple
interest at a bank prime rate (8.25% at December 31, 1996). Amounts are payable
to various related party organizations and individuals. The short-term debt
matures at the earlier of the completion of a stock offering or June 30, 1997.
Management has the capacity to fund requisite cash operating needs.
5. INCOME TAXES
Deferred income tax assets and liabilities arise from differences between
the tax basis of an asset or liability and its reported amount in the financial
statements. Deferred tax balances are calculated by applying the provisions of
enacted tax law to determine the amount of taxes payable or refundable currently
or in future years.
Deferred tax assets for the Company arise mainly as a result of net
operating losses deductible for income tax purposes. The Company evaluates the
need for a valuation allowance related to the deferred tax assets based on
recent earnings, anticipated future operating profits, and the anticipated
reversal of taxable temporary differences, if any. Income tax net operating loss
carryforwards totaled approximately $11,600 as of December 31, 1996. A valuation
allowance was recorded at December 31, 1996 for approximately $4,400 to offset
this net deferred tax asset.
6. STOCKHOLDERS' EQUITY
Stockholders' equity includes the respective capital stock, additional
paid-in capital and accumulated deficit of the Company. During the period ended
December 31, 1996, the Company declared a .6875 to 1 reverse stock split. All
financial information has been restated to reflect for the stock split. In
connection with certain stock issuances in November and December of 1996, the
Company recorded a charge to compensation of approximately $96,000.
7. RELATED-PARTY TRANSACTIONS
The Company is currently providing management services to the ENT Networks,
a related party. This three-year agreement provides for monthly reimbursement of
cost plus management fees.
The Company utilizes office space of a related party for which no rent or
other consideration is charged.
8. STOCK OPTION PLANS
In November 1996, the Company adopted two stock option plans, the 1996
Stock Option Plan (the "1996 Plan") and the 1996 Health Care Professionals Stock
Option Plan (the "Health Care Professionals Plan"). The Company accounts for
these plans under APB Opinion No. 25, under which no compensation cost has been
recognized. Had compensation cost for these plans been determined consistent
with FASB Statement No. 123, the Company's net loss would have been increased to
$396,924 for the pro forma amount instead of the reported amount of $107,601.
F-8
<PAGE> 86
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company may grant options for up to 825,000 shares under two plans, the
1996 Plan and the Health Care Professionals Plan. The Company has granted
options for up to 247,460 shares through December 31, 1996 under the 1996 Plan
and no options under the Health Care Professionals Plan through December 31,
1996. The plans' options vest over periods ranging from three to five years and
all expire after ten years. A summary of the status of the Company's two stock
option plans at December 31, 1996 and changes during the period from inception
(July 31, 1996) during the period then ended is presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning at inception (July 31,
1996)................................................ 0 $ 0
Granted................................................ 247,460 6.80
Exercised.............................................. 0
Forefeited............................................. 0
Expired................................................ 0
------- ----
Outstanding at end of period........................... 247,460 6.80
------- ----
Exercisable at end of period........................... 67,490 6.80
Weighted average fair value of options granted......... $ 6.80
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with expected volatility of 65
percent.
F-9
<PAGE> 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlanta Ear, Nose, and Throat Associates, P.C.:
We have audited the accompanying balance sheets of ATLANTA EAR, NOSE, AND
THROAT ASSOCIATES, P.C. (a Georgia corporation) as of December 31, 1996 and 1995
and the related statements of operations, owners' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atlanta Ear, Nose, and
Throat Associates, P.C. as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 17, 1997
F-10
<PAGE> 88
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 4,409 $ 401,517
Accounts receivable, less estimated allowances for
uncollectible accounts of $56,014 and $66,317, in 1996
and 1995, respectively (Note 2)........................ 2,967,772 1,615,556
Account receivable due from related party (Notes 2 and
9)..................................................... 309,222 388,078
Note receivable due from related party (Note 9)........... 170,500 0
Prepayments and other..................................... 76,851 23,180
---------- ----------
3,528,754 2,428,331
PROPERTY AND EQUIPMENT, net (Notes 2 and 3)................. 1,329,915 986,094
OTHER ASSETS................................................ 39,649 21,735
---------- ----------
Total assets...................................... $4,898,318 $3,436,160
========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable (Note 4)................. $ 242,496 $ 178,000
Accounts payable.......................................... 240,012 112,473
Accrued compensation to owners............................ 2,553,194 1,564,396
Other accrued liabilities................................. 775,422 713,769
---------- ----------
3,811,124 2,568,638
---------- ----------
NONCURRENT LIABILITIES:
Deferred rent............................................. 152,708 0
Notes payable, net of current portion (Note 4)............ 868,964 802,000
---------- ----------
1,021,672 802,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
OWNERS' EQUITY (Note 2):
Common stock, $1 par value; 10,000 shares authorized;
1,000 shares issued and outstanding.................... 1,000 1,000
Additional paid-in capital................................ 64,522 64,522
Retained earnings......................................... 0 0
---------- ----------
Total owners' equity.............................. 65,522 65,522
---------- ----------
Total liabilities and owners' equity.............. $4,898,318 $3,436,160
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-11
<PAGE> 89
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
NET PATIENT SERVICE REVENUES (Note 2):
Related party (Note 9)................................. $ 2,969,202 $ 2,619,165 $1,823,651
Other.................................................. 10,639,910 7,671,384 6,300,002
----------- ----------- ----------
13,609,112 10,290,549 8,123,653
----------- ----------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits.......................... 5,208,972 3,922,240 2,928,834
Compensation to owner-physicians....................... 5,005,696 3,961,310 3,343,812
Bad debt expense....................................... 196,567 233,069 109,694
General and administrative expenses:
Related party....................................... 519,830 276,235 219,023
Other............................................... 2,320,777 1,608,378 1,254,782
Depreciation and amortization.......................... 360,594 275,072 258,818
----------- ----------- ----------
13,612,436 10,276,304 8,114,963
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS............................ (3,324) 14,245 8,690
OTHER (INCOME) EXPENSE, net (Note 10).................... (3,324) 14,245 8,690
----------- ----------- ----------
NET INCOME............................................... $ 0 $ 0 $ 0
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 90
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.......................... 1,000 $1,000 $64,522 $0 $65,522
Net income.......................................... 0 0 0 0 0
----- ------ ------- -- -------
BALANCE, December 31, 1995.......................... 1,000 1,000 64,522 0 65,522
Net income.......................................... 0 0 0 0 0
----- ------ ------- -- -------
BALANCE, December 31, 1996.......................... 1,000 $1,000 $64,522 $0 $65,522
===== ====== ======= == =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 91
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 0 $ 0 $ 0
----------- ---------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 360,594 275,072 258,818
(Increase) decrease in assets:
Accounts receivable................................ (1,273,360) (410,896) (266,738)
Prepayments and other assets....................... (71,585) (17,371) (1,650)
Increase (decrease) in liabilities:
Accounts payable................................... 127,539 (58,853) (98,659)
Accrued liabilities and deferred rent.............. 1,203,159 667,066 486,267
----------- ---------- ----------
Total adjustments............................... 346,347 455,018 378,038
----------- ---------- ----------
Net cash provided by operating activities....... 346,347 455,018 378,038
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable due from related party................. (170,500) 0 0
Capital expenditures.................................... (704,415) (541,143) (162,435)
----------- ---------- ----------
Net cash provided by (used in) investing activities..... (874,915) (541,143) (162,435)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable..................... (368,540) (286,000) (241,810)
Borrowings under notes payable.......................... 500,000 749,810 0
----------- ---------- ----------
Net cash provided by (used in) financing
activities.................................... 131,460 463,810 (241,810)
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (397,108) 377,685 (26,207)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 401,517 23,832 50,039
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 4,409 $ 401,517 $ 23,832
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................. $ 87,641 $ 33,666 $ 40,379
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 92
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. THE COMPANY AND BASIS OF PRESENTATION
Atlanta Ear, Nose, and Throat Associates, P.C. (the "Company") was
organized in 1988. The Company currently has seventeen physicians, fifteen
audiologists, seven physician assistants, and over one hundred total employees.
The physicians within the group deal with a wide variety of ear, nose, and
throat specialties, including general otolaryngology, pediatric otolaryngology,
head and neck surgery, neuro-otology, and facial plastic surgery. The group also
provides comprehensive audiology services. There are currently fourteen office
locations throughout the metropolitan Atlanta area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged by
the physicians for services performed and the amounts allowed by the Medicare
and Medicaid programs and other public and private insurers. An allowance for
uncollectible accounts has been established to provide for losses on
uncollectible accounts based on management's estimates and historical
collection.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods over the estimated service lives of depreciable assets (life
of the lease for leasehold improvements, five to seven years for equipment, and
seven years for furniture and fixtures). Maintenance and repairs are charged to
expense as incurred. The cost of renewals and betterments is capitalized and
depreciated over the applicable estimated useful lives. The cost and accumulated
depreciation of assets sold, retired, or otherwise disposed of are removed from
the accounts, and the related gain or loss is credited or charged to income.
OWNERS' EQUITY
Owners' equity includes the respective common stock, additional paid-in
capital and retained earnings of the Company. Various types of agreements exist
among the owners which call for the transfer of a physician's ownership interest
by the continuing owners in the case of certain events such as the owner's
retirement or death.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
debt, approximated their fair values as of each balance sheet date because of
the relatively short maturity of these instruments.
F-15
<PAGE> 93
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET PATIENT SERVICE REVENUES
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and others
for services rendered. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.
CONCENTRATION OF CREDIT RISK
The Company extends credit to patients covered by insurance programs such
as governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Leasehold improvements............................. $ 321,870 $ 152,905
Equipment.......................................... 2,000,194 1,588,376
Furniture and fixtures............................. 346,708 225,519
----------- ----------
2,668,772 1,966,800
Less accumulated depreciation...................... (1,338,857) (980,706)
----------- ----------
$ 1,329,915 $ 986,094
=========== ==========
</TABLE>
4. NOTES PAYABLE
The Company's notes payable at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Note payable to bank dated December 23, 1993; principal of
$848,000 and interest (at Prime) due monthly through June
22, 1998; secured by all property and equipment........... $ 0 $230,000
Note payable to bank dated December 26, 1995; principal of
$750,000 and interest (at Prime less 0.25%) due monthly
beginning December 26, 1995 through March 25, 1996 based
on terms of refinancing; secured by all property and
equipment................................................. 0 750,000
Note payable to bank dated July 11, 1996; principal of
$1,212,500 and interest (at Prime less 0.25%) due monthly
through July 10, 2001; secured by accounts receivable and
property and equipment.................................... 1,111,460 0
---------- --------
1,111,460 980,000
Less current portion........................................ 242,496 178,000
---------- --------
Notes payable due after one year............................ $ 868,964 $802,000
========== ========
</TABLE>
F-16
<PAGE> 94
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of notes payable at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 242,496
1998........................................................ 242,496
1999........................................................ 242,496
2000........................................................ 242,496
2001 and thereafter......................................... 141,476
----------
$1,111,460
==========
</TABLE>
5. INCOME TAXES
The Company has elected to be taxed as an S corporation as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable entity,
and separately stated items of income, loss, deduction, and credit are passed
through to and taken into account by the individual owners in computing their
federal and state individual income tax liabilities.
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering substantially all employees. The plan
requires that the Company provide a 25% matching contribution for up to 6% of an
employee's contribution base up to specified limitations. The total cost of the
Company's plan was $15,767, $9,755, and $5,991 in 1996, 1995, and 1994,
respectively.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases facilities under operating leases which expire at
various dates through December 2010. Future minimum lease payments under these
leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 925,382
1998........................................................ 866,591
1999........................................................ 722,956
2000........................................................ 652,659
2001 and thereafter......................................... 4,599,171
</TABLE>
Lease expense for the years ended December 31, 1996, 1995, and 1994,
totaled approximately $1,004,000 and $597,000, and $471,000, respectively.
INSURANCE
The Company is insured with respect to medical malpractice risks on a
claims made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance policy
limits. Management is not aware of any claims against it or its affiliated
medical practices which might have a material impact on the Company's financial
position or results of operations.
F-17
<PAGE> 95
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS
Certain management personnel and physician employees are covered by
employment agreements that vary in length from one to five years, which include,
among other terms, salary and benefits provisions. Future minimum payments under
these agreements as of December 31, 1996 are approximately:
<TABLE>
<S> <C>
1997........................................................ $950,000
1998........................................................ 540,000
1999........................................................ 140,000
2000 and thereafter......................................... 0
</TABLE>
8. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and third party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not materially
affect the Company's financial position or results of operations.
9. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1996, 1995, and 1994, the Company expensed
approximately $430,000, $215,000, and $199,000, respectively, in annual rent for
its location at the Medical Quarters to a certain stockholder who owns this
location.
For the years ended December 31, 1996 and 1995, the Company expensed
approximately $68,000 and $39,000, respectively, in rent for its Snellville
location to a partnership in which certain stockholders are partners.
For the years ended December 31, 1996, 1995, and 1994, the Company expensed
approximately $22,000, $22,000, and $20,000, respectively, in annual rent for
its Duluth location to a partnership in which a certain stockholder is partner.
For the years ended December 31, 1996, 1995, and 1994, the Company recorded
revenue of approximately $2,969,000 $2,619,000 and $1,824,000, respectively, in
discounted fee-for-service payments from three companies which are solely owned
by a certain stockholder of the Company. In addition for the years ended
December 31, 1996, 1995, and 1994 the Company recorded approximately $48,000,
$65,000, and $29,000, respectively, in salary and expense reimbursements from
these three companies for work performed by two employees of the Company.
During 1996, the Company loaned $170,500 to a related party organization.
This unsecured note receivable is due the earlier of the closing of a stock
offering or June 30, 1997, bearing interest at prime.
10. OTHER INCOME AND EXPENSE
Other (income) expense, net for the years ended December 31, 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Recruiting fee revenue............................. $(72,223) $ 0 $ 0
Interest expense................................... 87,641 33,666 40,379
Interest income.................................... (10,619) (8,863) (7,661)
Miscellaneous income............................... (8,123) (10,558) (24,028)
-------- -------- --------
$ (3,324) $ 14,245 $ 8,690
======== ======== ========
</TABLE>
F-18
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlanta-AHP, Inc.,
ENT Center of Atlanta, Inc., and
Atlanta ENT Center, Inc.:
We have audited the accompanying combined balance sheets of ATLANTA-AHP,
INC., ENT CENTER OF ATLANTA, INC., AND ATLANTA ENT CENTER, INC. (Georgia
corporations) (collectively, the "ENT Networks") as of December 31, 1996 and
1995 and the related combined statements of operations, owner's equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the ENT Networks' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the ENT Networks as of
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 17, 1997
F-19
<PAGE> 97
ENT NETWORKS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $827,649 $302,054
EQUIPMENT, net.............................................. 13,084 4,041
-------- --------
Total assets...................................... $840,733 $306,095
======== ========
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Claims payable............................................ $ 36,866 $ 47,965
Claims payable due to related party....................... 309,222 388,078
-------- --------
346,088 436,043
COMMITMENTS AND CONTINGENCIES (Note 5)
OWNER'S EQUITY:
Common stock, no par value; 210,000 shares authorized;
2,000 shares issued and outstanding.................... -- --
Additional paid-in capital................................ 2,000 2,000
Retained earnings......................................... 492,645 (131,948)
-------- --------
Total owner's equity.............................. 494,645 (129,948)
-------- --------
Total liabilities and owner's equity.............. $840,733 $306,095
======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-20
<PAGE> 98
ENT NETWORKS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CAPITATION REVENUE (Note 2)................................ $4,452,995 $4,168,279 $3,510,747
---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits:
Related party......................................... 48,379 64,600 28,802
Other................................................. 36,121 0 0
General and administrative expenses:
Related party......................................... 167,397 170,792 124,289
Other................................................. 0 0 12,468
Depreciation............................................. 2,672 6,395 7,795
Provider claims:
Related party......................................... 2,969,202 2,619,165 1,823,651
Other................................................. 247,751 273,481 632,263
---------- ---------- ----------
3,471,522 3,134,433 2,629,268
---------- ---------- ----------
INCOME FROM OPERATIONS..................................... 981,473 1,033,846 881,479
OTHER INCOME, net.......................................... 23,470 33,476 25,388
---------- ---------- ----------
NET INCOME................................................. $1,004,943 $1,067,322 $ 906,867
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-21
<PAGE> 99
ENT NETWORKS
COMBINED STATEMENTS OF OWNER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994................... 2,000 $0 $2,000 $ (255,930) $ (253,930)
Distributions.............................. 0 0 0 (943,340) (943,340)
Net income................................. 0 0 0 1,067,322 1,067,322
----- -- ------ ----------- -----------
BALANCE, December 31, 1995................... 2,000 0 2,000 (131,948) (129,948)
Distributions.............................. 0 0 0 (380,350) (380,350)
Net income................................. 0 0 0 1,004,943 1,004,943
----- -- ------ ----------- -----------
BALANCE, December 31, 1996................... 2,000 $0 $2,000 $ 492,645 $ 494,645
===== == ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-22
<PAGE> 100
ENT NETWORKS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $1,004,943 $1,067,322 $ 906,867
---------- ---------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 2,672 6,395 7,795
Increase (decrease) in claims payable................ (89,955) (113,957) 275,000
---------- ---------- -----------
Total adjustments............................... (87,283) (107,562) 282,795
---------- ---------- -----------
Net cash provided by operating activities....... 917,660 959,760 1,189,662
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (11,715) (5,862) (11,059)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to owners................................. (380,350) (943,340) (1,000,000)
---------- ---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................. 525,595 10,558 178,603
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 302,054 291,496 112,893
---------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 827,649 $ 302,054 $ 291,496
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-23
<PAGE> 101
ENT NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
Atlanta-AHP, Inc. ("AHP"), ENT Center of Atlanta, Inc. ("ENT Center"), and
Atlanta ENT Center, Inc. ("Atlanta ENT") (collectively "ENT Networks" or the
"Company") were organized as Georgia S corporations. The ENT Networks have
contracts to administer capitated specialty services in the greater Atlanta area
through affiliated physicians and other independent physicians.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of AHP,
ENT Center, and Atlanta ENT and have been combined because of common control and
ownership. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed using accelerated
methods over the estimated service lives of depreciable assets (five to seven
years). Maintenance and repairs are charged to expense as incurred. The cost of
renewals and betterments is capitalized and depreciated over the applicable
estimated useful lives. The cost and accumulated depreciation of assets sold,
retired, or otherwise disposed of are removed from the accounts, and the related
gain or loss is credited or charged to income.
PROVIDER CLAIMS
The cost of providing healthcare services is accrued for in the period in
which it is provided to a member based in part on estimates, including an
accrual for medical services provided but not reported to the ENT Networks.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents and accounts payable, approximated their
fair values as of each balance sheet date because of the relatively short
maturity of these instruments.
CAPITATION REVENUE
Membership contracts are on a yearly basis and are subject to cancellation.
Premiums are due monthly and are recognized as revenue during the period in
which the ENT Networks is obligated to provide services to members.
F-24
<PAGE> 102
ENT NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. EQUIPMENT
Equipment at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Equipment................................................... $ 31,363 $ 19,648
Less accumulated depreciation............................... (18,279) (15,607)
-------- --------
$ 13,084 $ 4,041
======== ========
</TABLE>
4. INCOME TAXES
The ENT Networks have elected to be taxed as S corporations as permitted by
the Internal Revenue Code. As an S corporation, ENT Networks is not a taxable
entity, and separately stated items of income, loss, deduction, and credit are
passed through to and taken into account by the individual owners in computing
their federal and state individual income tax liabilities.
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and third party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not materially
affect ENT Networks' financial position or results of operations.
6. RELATED-PARTY TRANSACTIONS
For the years ended December 31, 1996, 1995, and 1994, the ENT Networks
expensed approximately $2,969,000, $2,619,000, and $1,824,000, respectively, in
discounted fee-for-service payments to a company in which an owner is the
shareholder. In addition, for the years ended December 31, 1996, 1995, and 1994,
the ENT Networks recorded approximately $48,000, $65,000, and $29,000,
respectively, in salary and expense reimbursements to this related company for
work performed by two of its employees.
For the years ended December 31, 1996, 1995, and 1994, the ENT Networks
expensed approximately $167,000, $171,000, and $124,000, respectively, to its
owner and a related physician in administrative and management fees.
F-25
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
W.J. Cornay, III, M.D., P.C.
We have audited the accompanying balance sheets of W.J. Cornay, III, M.D.,
P.C. as of December 31, 1996 and 1995, and the related statements of operations
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of W.J. Cornay, III, M.D., P.C.
as of December 31, 1996 and 1995, the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
CADE & ASSOCIATES, P.C.
January 17, 1997
F-26
<PAGE> 104
W. J. CORNAY, III, M.D., P.C.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 60,960 $ 99,928
Accounts Receivable, less Estimated Allowances for
Doubtful Accounts of $10,864 and $7,576 in 1996 and
1995, Respectively..................................... 223,860 188,088
Prepaid Expenses.......................................... 15,650 28,376
-------- --------
Total Current Assets.............................. 300,470 316,392
PROPERTY AND EQUIPMENT, NET................................. 115,266 130,710
-------- --------
TOTAL ASSETS...................................... $415,736 $447,102
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt......................... $ 36,911 $ 53,460
Current Portion of Capital Lease Obligations.............. 4,562 4,153
Bank Overdraft............................................ -- 14,203
Accounts Payable.......................................... 41,330 23,782
Accrued Expenses.......................................... 59,463 38,896
Deferred Taxes............................................ 67,066 65,510
-------- --------
Total Current Liabilities......................... 209,332 200,004
LONG-TERM DEBT, less current portion........................ 76,220 93,821
CAPITAL LEASE OBLIGATIONS, less current portion............. 3,288 7,851
DEFERRED TAXES -- LONG-TERM................................. 2,000 1,850
-------- --------
TOTAL LIABILITIES................................. 290,840 303,526
======== ========
STOCKHOLDERS' EQUITY:
Common Stock, Par Value $10 per Share; 1,000 Shares
Authorized; 100 Shares Issued and Outstanding.......... 1,000 1,000
Additional Paid-In Capital................................ 50,206 50,206
Retained Earnings......................................... 73,690 92,370
-------- --------
Total Stockholders' Equity........................ 124,896 143,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $415,736 $447,102
======== ========
</TABLE>
The accompanying notes and independent auditor's report
are an integral part of these financial statements.
F-27
<PAGE> 105
W. J. CORNAY, III, M.D., P.C.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
NET PATIENT SERVICE REVENUES................................ $1,338,981 $1,322,788
---------- ----------
OPERATING EXPENSES:
Salaries, Wages and Benefits.............................. 355,723 567,534
Compensation to Owner-Physicians.......................... 576,280 470,259
Owner-Physician Expenses.................................. 13,113 2,262
General and Administrative Expenses....................... 359,558 290,683
Bad Debt Expense.......................................... 3,288 (3,929)
Depreciation.............................................. 38,846 38,862
---------- ----------
Total Operating Expenses.......................... 1,346,808 1,365,671
---------- ----------
INCOME (LOSS) FROM OPERATIONS............................... (7,827) (42,883)
OTHER INCOME (EXPENSE), NET................................. (9,147) 3,286
DEFERRED TAX EXPENSE........................................ 1,706 (13,140)
---------- ----------
NET INCOME (LOSS)........................................... (18,680) (26,457)
BEGINNING RETAINED EARNINGS................................. 92,370 118,827
---------- ----------
ENDING RETAINED EARNINGS.................................... $ 73,690 $ 92,370
========== ==========
</TABLE>
The accompanying notes and independent auditor's report
are an integral part of these financial statements.
F-28
<PAGE> 106
W. J. CORNAY, III, M.D., P.C.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Patients and Third Party Payors........ $ 1,300,622 $ 1,365,806
Cash Paid to Suppliers and Employees...................... (1,253,833) (1,296,550)
Interest Received......................................... 2,233 3,631
Interest Paid............................................. (12,080) (7,287)
----------- -----------
Net Cash from Operating Activities................ 36,942 65,600
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment..................... (23,403) (69,065)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Activity in Line of Credit............................ -- (45,000)
Proceeds from Long-Term Debt.............................. -- 134,107
Repayment of Long-Term Debt............................... (34,151) (20,038)
Proceeds from Capitalized Lease........................... -- 15,785
Repayment of Capitalized Lease............................ (4,153) (3,781)
----------- -----------
Net Cash from Financing Activities................ (38,304) 81,073
----------- -----------
NET CHANGE IN CASH.......................................... (24,765) 77,608
CASH -- BEGINNING OF YEAR................................... 85,725 8,117
----------- -----------
CASH -- END OF YEAR......................................... $ 60,960 $ 85,725
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING
ACTIVITIES:
Net Income (Loss)......................................... $ (18,680) $ (26,457)
Adjustments:
Depreciation........................................... 38,846 38,862
Deferred Tax Expense................................... 1,706 (13,140)
(Increase) Decrease in Assets:
Accounts Receivable, Net............................... (35,772) 31,566
Prepaid Expenses....................................... 12,726 (1,942)
Other.................................................. -- 581
Increase (Decrease) in Liabilities:
Accounts Payable....................................... 17,549 8,581
Accrued Expenses....................................... 20,567 27,549
----------- -----------
NET CASH FROM OPERATING ACTIVITIES.......................... $ 36,942 $ 65,600
=========== ===========
</TABLE>
The accompanying notes and independent auditor's report
are an integral part of these financial statements.
F-29
<PAGE> 107
W.J. CORNAY, III, M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
W.J. Cornay, III, M.D., P.C. (the Company) was incorporated in 1988 in the
state of Alabama. The Company is a medical practice which specializes in
treatment of the ear, nose, and throat.
Patient Service Revenue. Patient service revenue is reported at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered.
Revenue under third-party payor agreements is subject to audit and
retroactive adjustment. Provisions for estimated third-party settlements are
provided in the period the related services are rendered. Differences between
the estimated amounts accrued and interim and final settlements are reported in
the year of settlement.
Property and Equipment. The cost of property and equipment is depreciated
over the estimated lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes.
The useful lives of property and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Leasehold Improvements...................................... 31 Years
Equipment................................................... 5-7 Years
Vehicles.................................................... 5 Years
Furniture & Fixtures........................................ 5-7 Years
Computer System............................................. 5 Years
Software.................................................... 3-5 Years
</TABLE>
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are sold
or otherwise disposed of, the asset account and related accumulated depreciation
account are relieved, and any gain or loss is included in operations.
Income Taxes. The provision for income taxes are based on net income
reported for financial reporting purposes. Deferred income taxes arise from
temporary differences between financial and income tax reporting of various
items (principally revenue recognition).
NOTE 2 -- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment (stated at cost), less
accumulated depreciation:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Equipment (Including Medical Equipment)..................... $ 214,752 $ 203,209
Computer System (See Note 4)................................ 56,153 46,371
Vehicle..................................................... 52,180 52,180
Furniture and Fixtures...................................... 48,304 47,159
Software.................................................... 3,634 2,702
Leasehold Improvements...................................... 689 689
--------- ---------
375,712 352,310
Accumulated Depreciation.................................... (260,446) (221,600)
--------- ---------
Property and Equipment, net................................. $ 115,266 $ 130,710
========= =========
</TABLE>
Depreciation expense charged to operations was $38,846 and $38,862 in 1996
and 1995, respectively.
A vehicle with a cost of $52,180 is pledged as collateral on a bank loan
(See Note 3).
F-30
<PAGE> 108
W.J. CORNAY, III, M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to bank due December, 1998, payable in equal
monthly installments at a fixed rate of 7.25%, secured by
a vehicle................................................. $ 13,581 $ 22,939
Note payable to stockholder due March, 2000, payable in
equal monthly installments at a fixed rate of 8%,
unsecured................................................. 99,550 124,342
-------- --------
113,131 147,281
Less: Current portion....................................... 36,911 53,460
-------- --------
$ 76,220 $ 93,821
======== ========
</TABLE>
Scheduled annual principal maturities for each of the next 4 years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
- ----------
<S> <C>
1997...................................................... $ 36,911
1998...................................................... 32,596
1999...................................................... 31,491
2000...................................................... 12,133
--------
$113,131
========
</TABLE>
The Company maintains a $25,000 revolving line of credit with a Bank which
expires in February 1997. Any funds drawn under the credit facility accrue
interest at the Bank's prime rate. At December 31, 1996 and 1995 there was $0
outstanding under the line of credit.
NOTE 4 -- LEASES
Capital Lease -- The Company is the lessee of a computer system under a
capital lease expiring in 1998. The asset and related liability were recorded at
fair market value as of the inception date of the lease. The computer system is
being depreciated over its estimated economic life of five years.
Minimum future lease payments under the capital lease as of December 31,
1996 for each of the next two years and in the aggregate are:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Year Ended December 31, 1996:
1997...................................................... $5,109
1998...................................................... 3,405
------
Total Minimum Lease Payments................................ 8,514
Less: Amount Representing Interest.......................... 664
------
Present Value of Net Minimum Lease Payments................. $7,850
======
</TABLE>
The interest rate on the capital lease is 9.43% imputed based on the
lessor's implicit rate of return. Upon expiration of the lease, the lessee has
the option to purchase the computer system for a nominal amount.
Operating Leases -- The company leases its office location and a vehicle
under operating leases expiring during 1997. Total rent expense under these
leases was $52,600 and $46,613 in 1996 and 1995, respectively.
F-31
<PAGE> 109
W.J. CORNAY, III, M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PENSION PLAN
The Company sponsors a defined contribution pension plan under Code Section
401(k) that covers all employees who have been employed for at least one year
and are at least 21 years of age. Annual matching contributions to the plan are
set at a 14 to 1 ratio based on each employee's elective deferral percentage not
to exceed 1% of eligible salary. Each employee's right to their respective
matching contribution is subject to a vesting percentage schedule as designated
by management. Under the current schedule, employees become 100% vested after
six years of service. Total pension expense was $49,942 and $38,988 in 1996 and
1995, respectively.
NOTE 6 -- CONTINGENCIES
The Company is currently in negotiations with a third party regarding the
possibility of a merger. As of January 17, 1997, the parties were conducting due
diligence and no further actions had yet been taken. Thus, no estimation can be
made as to the effects, if any, of the negotiations on the financial statements.
F-32
<PAGE> 110
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
The Reorganization..................... 9
Risk Factors........................... 11
Use of Proceeds........................ 21
Dividend Policy........................ 22
Capitalization......................... 23
Dilution............................... 24
Unaudited Pro Forma Combined Financial
Data................................. 25
Selected Financial Data................ 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 32
Business............................... 39
Management............................. 55
Principal Stockholders................. 64
Certain Transactions................... 66
Description of Capital Stock........... 69
Shares Eligible for Future Sale........ 71
Underwriting........................... 73
Legal Matters.......................... 74
Experts................................ 74
Additional Information................. 75
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,200,000 SHARES
(LOGO) PHYSICIANS' SPECIALTY CORP.
PHYSICIANS'
SPECIALTY CORP.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
SOUTHCOAST CAPITAL
CORPORATION
BARINGTON CAPITAL GROUP, L.P.
, 1997
======================================================
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC Registration Fee........................................ $ 8,775
NASD Filing Fee............................................. 3,396
Nasdaq Listing Fee.......................................... 30,822
Printing and Engraving Expenses............................. 125,000
Accounting Fees and Expenses................................ 250,000
Legal Fees and Expenses..................................... 350,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent's Fees and Expenses.......................... 10,000
Miscellaneous Expenses...................................... 112,007
--------
Total............................................. $900,000
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provides
that the Company shall indemnify any person to the full extent permitted by the
General Corporation Law of the State of Delaware (the "DGCL"). Section 145 of
the DGCL, relating to indemnification, is hereby incorporated herein by
reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Certificate of Incorporation, By-Laws and the DGCL, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and directors of the Company
are to be indemnified against certain liabilities. The Company's Certificate of
Incorporation also limits, to the fullest extent permitted by Delaware law, a
director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care.
In accordance with Section 102(a)(7) of the DGCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
The Registrant also intends to enter into indemnification agreements with
each of its executive officers and directors, the form of which is filed as
Exhibit 10.15 hereto and reference is hereby made to such form.
Reference is made to the Underwriting Agreement (Exhibit 1.1) which
provides for indemnification by the Underwriters of the Registrant, its officers
and directors.
II-1
<PAGE> 112
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Registrant in July 1996, Ramie A.
Tritt, M.D. and Bock, Benjamin & Co., Partners were each issued 275,000 shares
of Common Stock of the Registrant at a purchase price of approximately $.0018
per share. In November 1996, Dr. Tritt purchased an additional 11,225 shares of
Common Stock at a purchase price of approximately $.0042 per share. In December
1996, Dr. Tritt and Bock, Benjamin & Co., Partners purchased an additional
19,720 and 18,948 shares of Common Stock, respectively, at purchase prices of
approximately $.0056 and $.0081, respectively, per share. The shares were issued
pursuant to an exemption from registration pursuant to Section 4(2) of the
Securities Act.
In connection with the acquisition of (i) substantially all of the assets
and liabilities of Atlanta Ear, Nose & Throat Associates, P.C., (ii) the
outstanding shares of capital stock of ENT Center of Atlanta, Inc., Atlanta ENT
Center, Inc. and Atlanta-AHP, Inc., (iii) substantially all of the assets of
Metropolitan Ear, Nose & Throat, P.C., (iv) substantially all of the assets of
Atlanta Head and Neck Surgery, P.C., (v) substantially all of the assets of Ear,
Nose & Throat Associates, P.C. and (vi) substantially all of the assets of W.J.
Cornay, III, M.D., P.C. the Registrant has agreed to issue an aggregate of
3,086,559 shares of Common Stock.
The above transactions were or will be private transactions not involving a
public offering and were or will be exempt from the registration provisions of
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
sale of securities was without the use of an underwriter, and the certificates
evidencing the shares bear a restrictive legend permitting the transfer thereof
only upon registration of the shares or an exemption under the Securities Act of
1933, as amended.
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of the Registrant*
3.2 -- Amended and Restated By-laws of the Registrant*
4.1 -- Form of Representatives' Option Agreement
5.1 -- Opinion of Bachner, Tally, Polevoy & Misher LLP**
10.1 -- Asset Acquisition Agreement dated November 26, 1996 between
the Registrant, PSC Management Corp. and Atlanta Ear, Nose &
Throat Associates, P.C. ("Atlanta ENT")*
10.2 -- Acquisition Agreement dated November 26, 1996 between the
Registrant, PSC Acquisition Corp. and Ramie A. Tritt, M.D.*
10.3 -- Amended and Restated Employment Agreement between the
Registrant and Ramie A. Tritt, M.D. dated as of February 10,
1997
10.4 -- Employment Agreement between the Registrant and Richard D.
Ballard dated as of November 26, 1996*
10.5 -- Employment Agreement between the Registrant and Gerald R.
Benjamin dated as of November 26, 1996*
10.6 -- Form of Management Services Agreement to be entered into
between the Registrant, PSC Management Corp. and Atlanta
ENT*+
10.7 -- Asset Purchase Agreement dated August 1, 1996 among PSC
Management Corp. ("PSC Management") and ENT Center of
Atlanta, Inc., Atlanta ENT Center for Physicians, Inc. and
Atlanta-AHP, Inc. (the "ENT Networks")*
10.8 -- Form of Registration Rights Agreement*
10.9 -- Promissory Note payable by PSC Management to the ENT
Networks in the principal amount of $20,000*
10.10 -- Lease Agreement for office space located at The Medical
Quarters, 5555 Peachtree Dunwoody Road, Suite 235, Atlanta,
Georgia dated October 1, 1988 between Atlanta ENT and Ramie
A. Tritt, M.D., as amended*
10.11 -- Lease Agreement for office space located at the Gwinnett
Medical Building, 3540 Duluth Park Lane, Duluth Georgia
dated December 29, 1989 between Duluth Professional Center,
L.P., Gwinnett Pulmonology, P.C. and Atlanta ENT as amended*
</TABLE>
II-2
<PAGE> 113
<TABLE>
<C> <C> <S>
10.12 -- Lease Agreement for office space located at Eastside
Physicians Center, 1700 Tree Lane, Snellville, Georgia dated
July 11, 1994 and effective June 1, 1995 between Atlanta ENT
and Eastside Physicians Center, L.P.*
10.13 -- 1996 Stock Option Plan*
10.14 -- 1996 Health Care Professionals Stock Option Plan*
10.15 -- Form of Indemnification Agreement*
10.16 -- Group Practice Managed Care Agreement dated September 1,
1992 by and between CIGNA HealthCare of Georgia, Inc. and
The ENT Center of Atlanta, Inc.+*
10.17 -- Physician Network Participation Agreement dated as of July
1, 1994 by and between Atlanta-AHP, Inc. and Aetna Health
Management, Inc.+*
10.18 -- Agreement dated June 1, 1995 by and between United
HealthCare of Georgia, Inc. and Atlanta ENT Center for
Physicians, Inc.+*
10.19 -- Non-Negotiable Promissory Note payable by the Registrant to
Gerald R. Benjamin in the principal amount of $33,500 (one
in a series of identical notes in the aggregate amount of
$485,000)*
10.20 -- Non-Negotiable Promissory Note payable by the Registrant to
Ramie A. Tritt, M.D. in the principal amount of $33,500 (one
in a series of identical notes in the aggregate amount of
$485,000)*
10.21 -- Termination Agreement effective as of October 7, 1996 by and
among Kevin Thomas, M.D., Stephen B. Levine, M.D., various
affiliated professional corporations affiliated with Thomas
and Levine, Ramie A. Tritt, M.D., Atlanta ENT, Rande H.
Lazar, M.D., Otolaryngology of Memphis, P.C., Gerald R.
Benjamin, Premier HealthCare and the Registrant.
10.22 -- Commitment Letter from NationsBank, N.A. to the Registrant
10.23 -- Employment Agreement between the Registrant and Robert A.
DiProva dated as of January 6, 1997
10.24 -- Employment Agreement between the Registrant and Lawrence P.
Kraska dated as of February 11, 1997
10.25 -- Acquisition Agreement dated February 13, 1997 between the
Registrant, PSC Acquisition Corp. and Metropolitan Ear, Nose
& Throat, P.C.
10.26 -- Acquisition Agreement dated February 13, 1997 between the
Registrant, PSC Acquisition Corp. and Atlanta Head and Neck
Surgery, P.C.
10.27 -- Acquisition Agreement dated February 13, 1997 between the
Registrant, PSC Acquisition Corp. and Ear, Nose & Throat
Associates, P.C.
10.28 -- Acquisition Agreement dated February 20, 1997 between the
Registrant, PSC Acquisition Corp. and W.J. Cornay, III,
M.D., P.C.
10.29 -- Non-Negotiated Promissory Note payable by the Registrant to
ENT Center of Atlanta, Inc. in the principal amount of
$168,108.46
10.30 -- Non-Negotiable Promissory Note payable by the Registrant to
Bock, Benjamin & Co., Partners, L.P. in the principal amount
of $1,891.54
10.31 -- Form of physician employment agreement to be entered into
between the physicians of W.J. Cornay, III, M.D., P.C. and
PSC Alabama, Corp.**
10.32 -- Form of Management Services Agreement to be entered into
between the Registrant, PSC Management Corp. and PSC
Alabama, Corp.**
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Bachner, Tally, Polevoy & Misher LLP (Exhibit
5.1)**
23.2 -- Consent of Reed Smith Shaw & McClay -- Included on page II-6
23.3 -- Consent of Arthur Andersen LLP -- Included on page II-7
23.4 -- Consent of Cade & Associates, P.C. -- Included on page II-8
23.5 -- Consent of Steven L. Posar, M.D.*
23.6 -- Consent of Sidney Kirschner -- Included on page II-9
</TABLE>
II-3
<PAGE> 114
24.1 -- Power of Attorney*
27.1 -- Financial Data Schedule
- ---------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
* Previously Filed.
** To be filed by amendment
ITEM 17. UNDERTAKINGS
Undertakings Required by Regulation S-K, Item 512(f)
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Undertaking Required by Regulation S-K, Item 512(h)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Undertakings required by Regulation S-K, Item 512(i)
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia on the 20th day of February, 1997.
PHYSICIANS' SPECIALTY CORP.
By: /s/ RAMIE A. TRITT, M.D.
------------------------------------
Ramie A. Tritt, M.D.,
Chairman of the Board and President
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAMIE A. TRITT, M.D. Chairman of the Board and February 20, 1997
- ----------------------------------------------------- President (principal
Ramie A. Tritt, M.D. executive officer)
* Chief Executive Officer and February 20, 1997
- ----------------------------------------------------- Director
Richard D. Ballard
* Vice Chairman of the Board February 20, 1997
- ----------------------------------------------------- and Secretary (principal
Gerald R. Benjamin accounting and financial
officer)
* Director February 20, 1997
- -----------------------------------------------------
Edward R. Casas, M.D.
/s/ RAMIE A. TRITT, M.D. February 20, 1997
- -----------------------------------------------------
* By: Ramie A. Tritt, M.D.
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 116
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Legal Matters" included in the
Registration Statement and to the incorporation by reference of this consent
pursuant to Rule 439(b) under the Securities Act of 1933, as amended (the "Act")
into any subsequent registration statement for the same offering that may be
filed pursuant to Rule 462(b) under the Act.
Reed Smith Shaw & McClay
Washington, D.C.
February 13, 1997
II-6
<PAGE> 117
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated January 17, 1997 and to all references to our firm included in or
made a part of this Registration Statement.
Arthur Andersen LLP
Atlanta, Georgia
February 14, 1997
II-7
<PAGE> 118
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated January 17, 1997 and to all references to our firm included in or
made a part of this Registration Statement.
Cade & Associates, P.C.
Birmingham, Alabama
February 14, 1997
II-8
<PAGE> 119
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated under the
Securities Act of 1933, as amended, to his being named as about to become a
director of Physicians' Specialty Corp. in such Company's Registration Statement
on Form S-1.
/s/ Sidney Kirschner
--------------------------------------
Sidney Kirschner
II-9
<PAGE> 1
EXHIBIT 1.1
2,200,000 Shares of Common Stock
PHYSICIANS' SPECIALTY CORP.
UNDERWRITING AGREEMENT
_________ __, 1997
SOUTHCOAST CAPITAL CORPORATION
BARINGTON CAPITAL GROUP, L.P.
c/o Southcoast Capital Corporation
277 Park Avenue
New York, N.Y. 10172
Ladies and Gentlemen:
Physicians' Specialty Corp., a Delaware corporation ("PSC"), proposes,
subject to the terms and conditions stated herein, to issue and sell to
Southcoast Capital Corporation and Barington Capital Group, L.P. (the
"Underwriters") an aggregate of 2,200,000 shares (the "Firm Shares") of its
common stock, par value $0.001 per share (the "Common Stock"). In addition, for
the sole purpose of covering over-allotments in connection with the sale of the
Firm Shares, PSC proposes to sell to the Underwriters, at the option of the
Underwriters, up to an additional 330,000 shares (the "Additional Shares") of
Common Stock. The Firm Shares and any Additional Shares purchased by the
Underwriters are referred to herein as the "Shares." The Shares are more fully
described in the Registration Statement referred to below.
1. Representations and Warranties of the Company Entities. PSC and each
of the Subsidiaries (as defined below) (PSC and each Subsidiary each a "Company
Entity" and together, the "Company Entities"), jointly and severally,
represents and warrants to, as of the date hereof, the Closing Date and the
Additional Closing Date (as defined below in Section 2(b) and 2(c),
respectively), and agree with, the Underwriters that:
(a) PSC has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, and may have filed one or more
amendments thereto, on Form S-1 (No. 333-17091), for the registration under the
Securities Act of 1933, as amended (the "Act") of (i) the Firm Shares, (ii) the
Additional Shares, (iii) the Underwriters' options to purchase an aggregate of
220,000 shares of Common Stock (the
<PAGE> 2
"Underwriters' Options"), and (iv) the shares of Common Stock issuable upon
exercise of the Underwriters' Options (the "Underwriters' Stock"). Such
registration statement, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as a part thereof, as amended
at the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A or pursuant to Rule 434 of the Rules and
Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or filed as part
of the Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus." The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement and
the effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
or Rule 434 of the Regulations, when any supplement to or amendment of the
Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any, each of the Registration Statement and the
Prospectus and any amendments thereof and supplements thereto complied and will
comply in all material respects with the applicable provisions of the Act and
the Regulations and does not and will not contain an untrue statement of a
material fact and does not and will not omit to state any material fact required
to be stated or necessary in order to make the statements therein not
misleading. No stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof, preventing or suspending the
use of any preliminary prospectus, the Prospectus, the Registration Statement,
or any amendment or supplement thereto, refusing to permit the effectiveness of
the Registration Statement, or suspending the registration or qualification of
any of the securities, has been issued by the Commission or the "blue sky" or
securities authority of any jurisdiction and to the knowledge of any Company
Entity, no proceedings therefor have been initiated or threatened by the
Commission and all filings required by Rule 424(b) of the Regulations have been
made. When any related preliminary prospectus was first filed with the
Commission (whether filed as part of the registration statement for the
registration of the Shares or any amendment thereto or pursuant to Rule 424(a)
of the Regulations), and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto when filed with the Commission complied in all
material respects with the applicable provisions of the Act and the Regulations
and did not contain an untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they were
made not misleading. No representation and warranty is made in this subsection
(b), however, with respect to any information contained in or omitted from the
Registration Statement or the Prospectus or any related preliminary prospectus
or any amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to PSC by or on behalf of any
Underwriter through the Underwriters expressly for
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use therein. If Rule 434 of the Regulations is used, PSC will comply with the
requirements of Rule 434.
(c) Arthur Anderson, LLP, who have certified the financial statements
and supporting schedules included in the Registration Statement, are independent
certified public accountants as required by the Act and the Regulations.
(d) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the financial position of the entities purported to be
represented thereby as of the dates indicated and the results of operations for
the periods specified. Except as otherwise stated in the Registration Statement,
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, are correct and
complete, and are in accordance with the books and records of the Company
Entities. The supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The "pro forma"
and "as adjusted" financial information included in the Prospectus, fairly
present the information purported to be shown therein at the dates thereof and
for the respective periods covered thereby and all adjustments have been
properly applied. No other financial statements are required by Form S-1, or
otherwise, to be included in the Registration Statement or the Prospectus other
than those included therein.
(e) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as set forth in the
Registration Statement and the Prospectus, there has been no material adverse
change or any development involving a prospective material adverse change in the
business, prospects, properties, operations, condition (financial or other) or
results of operations of any Company Entities, individually or in the aggregate,
whether or not arising from transactions in the ordinary course of business.
Since the date of the latest balance sheet presented in the Registration
Statement and the Prospectus, and except as described in the Registration
Statement and the Prospectus, no Company Entity has (i) issued any securities or
incurred or undertaken any liabilities or obligations, direct or contingent,
that are, individually or in the aggregate, material to such Company Entity or
(ii) entered into any transaction or transactions not in the ordinary course of
business that are, individually or in the aggregate, material to such Company
Entity; (iii) declared or paid any dividend on or made any distribution of or
with respect to any shares of capital stock or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or otherwise acquire any shares of
capital stock.
(f) PSC has no subsidiaries, as defined in Rule 1-02(x) of Regulation
S-X promulgated under the Act, other than PSC Management Corp., PSC Acquisition
Corp., PSC Alabama, Inc., Atlanta Ear, Nose & Throat Associates, P.C., New
Atlanta Ear, Nose & Throat Associates, P.C., ENT Center of Atlanta, Inc.,
Atlanta ENT Center for Physicians, Inc., Atlanta-AHP, Inc., Atlanta Head & Neck
Surgery, P.C., Ear, Nose & Throat Associates, P.C., Metropolitan Ear, Nose &
Throat, P.C. and W.J. Cornay, III, M.D., P.C. (each individually, a
"Subsidiary", and collectively, the "Subsidiaries"). All of the capital stock of
the Subsidiaries is owned by a Company Entity free and clear of all liens,
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<PAGE> 4
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts or other defects of title whatsoever. Each Company Entity has been
duly organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each Company Entity is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which would not,
individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, assets, liabilities, operations, condition
(financial or other) or, results of operations of any Company Entities,
individually, or in the aggregate (a "Material Adverse Effect").
(g) As of the Closing Date and taking into account the .6875 for 1
reverse stock split effected on November __, 1996 which has been fully and
accurately described in the Prospectus (the "Reverse Split"), the authorized
capital stock of PSC consists of 50,000,000 shares of Common Stock, of which
3,317,500 shares are outstanding and 10,000 shares of preferred stock, par value
$1.00 per share (the "Preferred Stock") of which no shares are outstanding.
(h) All of the outstanding securities of PSC and all of the outstanding
securities of the Subsidiaries have been duly and validly authorized and issued,
are fully paid and nonas-sessable without any personal liability attaching to
the ownership thereof and were not issued and are not now in violation of or
subject to any preemptive rights. Each of the Shares to be delivered on the
Closing Date or any Additional Closing Date have been duly and validly
authorized and, when delivered and sold by PSC in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not have been issued and will not be owned or held in
violation of or be subject to any preemptive rights. The Underwriters will
receive good title to the Shares purchased by them, respectively, free and clear
of all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, voting trusts or other defects of title whatsoever.
(i) The Common Stock, the Preferred Stock, the Firm Shares, the
Additional Shares, the Underwriters' Options and the Underwriters' Stock conform
to the descriptions thereof contained in the Registration Statement and the
Prospectus.
(j) There is no commitment, plan or arrangement to issue, and no
outstanding option, warrant or other right calling for the issuance of, any
shares of capital stock (or similar interests) of any Company Entity or any
security or other instrument that by its terms is convertible into, exchangeable
for or evidencing the right to purchase capital stock (or similar interests) of
any Company Entity, except as described in the Registration Statement and the
Prospectus. There is outstanding no material indebtedness, individually or in
the aggregate, of any Company Entities, except as described in the Registration
Statement and the Prospectus.
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<PAGE> 5
(k) Each Company Entity has all requisite corporate power and authority
to execute, deliver and perform its respective obligations under each of (i)
this Agreement, (ii) the certificates evidencing the Underwriters' Options (the
"Underwriters' Option Agreement" and, together with this Agreement, the "Company
Documents"), and (iii) the Physician Agreements (as defined below), to which it
is a party, and PSC has all requisite corporate power and authority to issue,
sell and deliver the Shares in accordance with the terms and conditions hereof.
All necessary corporate proceedings of each Company Entity have been duly taken
to authorize the execution, delivery, and performance by each Company Entity,
respectively, of each of the Company Documents and Physician Agreements, to
which it is or is to be a party. This Agreement has been duly and validly
executed and delivered by each Company Entity and is a legal and binding
obligation of each Company Entity, enforceable against each Company Entity in
accordance with its terms. Each of the other Company Documents and each of the
Physician Agreements has been and the transactions contemplated thereby have
been duly and validly authorized by each Company Entity party thereto and is or,
when executed and delivered by each such Company Entity, will be the legal,
valid, and binding obligation of each such Company Entity, enforceable against
each such Company Entity in accordance with its terms, subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally and subject to general principles of equity. The
"Physician Agreements" shall include the Management Services Agreement by and
among PSC, New Atlanta Ear, Nose & Throat Associates and PSC Management Corp.
(the "Management Services Agreement"), the Asset Acquisition Agreement by and
among PSC, Atlanta Ear, Nose & Throat Associates, P.C. and PSC Management Corp.
(the "Asset Acquisition Agreement"), the Asset Acquisition Agreement by and
among PSC, PSC Acquisition Corp., the ENT Networks (as defined in the
Registration Statement) and Ramie A. Tritt, M.D. (the "Network Acquisition
Agreement"), any other agreement entered into in connection with the
Reorganization (as such term is defined in the Registration Statement) and any
other contract, agreement, instrument, lease, license, arrangement or
understanding to which any Company Entity is party that is material to the
business or operations of any Company Entity, which agreements shall be listed
in Exhibit A hereto.
(l) The execution, delivery, and performance of the Company Documents
or any of the Physician Agreements and the consummation of the transactions
contemplated thereby do not and will not (i) conflict with or result in a breach
of any of the terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute a default) under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of any Company Entity pursuant to, any agreement,
instrument, franchise, license or permit to which any Company Entity is a party,
or which has been assumed by any Company Entity or by which their properties or
assets may be bound or (ii) violate or conflict with any provision of the
certificate of incorporation or by-laws of any Company Entity or any law,
statute, rule or regulation or any judgment, decree, or order of any court or
any public, governmental or regulatory agency or body having jurisdiction over
any Company Entity or any of their respective properties or assets.
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<PAGE> 6
(m) No Company Entity is in violation or breach of, or in default with
respect to, any term of its certificate of incorporation (or other charter
document) or by-laws.
(n) Each Company Entity has all requisite power and authority and all
necessary consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits of and from all public, governmental or
regulatory agencies and bodies, to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus and to execute and deliver and to perform, upon
entry into such agreements, its obligations under the Company Documents and the
Physician Agreements, or to consummate the transactions contemplated thereby,
except for the registration of the Shares under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the authorization of the
Shares for quotation in the National Association of Securities Dealers Automated
Quotation National Market System ("NASDAQ-NMS") and such filings and
registrations as may be required under state securities or "Blue Sky" laws in
connection with the purchase and distribution of the Shares by the Underwriters,
all of which will be completed or obtained prior to the Closing. No consent of
any party to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which any Company Entity is a party, or to which any of
their respective properties or assets are subject, is required for the
execution, delivery, or performance of the Company Documents or any of the
Physician Agreements.
(o) No Company Entity has received any notification from any regulatory
authority, including, without limitation, any health care regulatory authority,
to the effect that any additional approval is required to be obtained by any
Company Entity, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and the
Prospectus. No Company Entity has received any notice of proceedings relating to
revocation or modification of any such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses or permits.
(p) The Underwriters' Stock is duly and validly authorized and reserved
for issuance and, when issued and delivered upon exercise of the Underwriters'
Options in accordance with the Underwriters' Option Agreement, will be validly
authorized, duly and validly issued and outstanding, fully paid and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Underwriters' Options will received good
title to the securities purchased by them, respectively, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, voting trusts or other defects of title whatsoever.
(q) No Company Entity nor to the best knowledge of any Company Entity,
any other party, is, in violation or breach of, or in default under (nor has an
event occurred that with notice, lapse of time or both, would constitute a
default under), any contract which is material to the business of any Company
Entity (a "Material Contract"), including, without limitation any Physician
Agreements in effect as of the making of this representation. Each
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<PAGE> 7
Material Contract is in full force and effect and is the legal, valid, and
binding obligation of any Company Entity party thereto and is enforceable as to
such Company Entity in accordance with its terms, subject to applicable
bankruptcy, insolvency and other laws affecting the enforceability of creditors'
rights generally and subject to general principles of equity.
(r) There is no litigation, arbitration, claim or governmental or other
action, suit, proceeding or investigation before any court or before or by any
public, regulatory or governmental agency or body pending or threatened against,
or involving the properties or business of, any Company Entities which
individually or in the aggregate might result in a Material Adverse Effect or
which is of a character required to be disclosed in the Registration Statement
and the Prospectus which has not been properly disclosed therein.
(s) Except as contemplated herein or therein or as may have been
waived, no person or entity has any right of first refusal, preemptive right,
right to any compensation, or other similar right or option, in connection with
the proposed offering of the Shares for sale to the public as set forth in the
Prospectus (the "Offering"), this Agreement, the Underwriters' Options or any of
the transactions contemplated hereby or thereby.
(t) Except for such violations or failures of compliance that,
individually or in the aggregate, would not have a Material Adverse Effect, no
Company Entity is, nor, to the best knowledge of the Company Entities, with the
giving of notice or lapse of time or both will any Company Entity be, in
violation of or non-compliance with the requirements of any permit material to
the operation of the business of any Company Entity or the provisions of any
law, rule, regulation, order, judgment or decree, including, but not limited to,
all applicable federal, state and local laws and regulations relating to (i)
zoning, land use, protection of the environment, human health and safety or the
use, disposal or release of hazardous or toxic substances, wastes, pollutants or
contaminants or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "Environmental
Laws"); (ii) employee or occupational safety, discrimination in hiring,
promotion or pay of employees, employee hours and wages or employee benefits;
and (iii) the manufacture, packaging and marketing of foods and drugs including
the Federal Food, Drug and Cosmetic Act, the Nutrition Labeling and Education
Act of 1990 and the Dietary Supplement Health and Education Act of 1994, nor is
any Company Entity required to take any action in order to avoid any such
violation or default.
(u) There is no pending or, to the best knowledge of the Company
Entities, threatened, civil or criminal litigation, notice of violation, or
administrative proceeding relating in any way to the Environmental Laws
(including notices, demand letters, or claims under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and
similar foreign, state, or local laws) involving any Company Entity. There have
not been and there are not any past, present, or foreseeable future events,
conditions, circumstances, activities, practices, incidents, actions, or plans
which may interfere with or prevent continued compliance, or which may give rise
to any common law
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or legal liability, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, study, or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release, or threatened
release into the environment, of any pollutant, contaminant, chemical, or
industrial, hazardous, or toxic material or waste, including, without
limitation, any liability arising, or any claim, action, demand, suit,
proceeding, hearing, study, or investigation which may be brought, under RCRA,
CERCLA, or similar foreign, state or local laws, which individually or in the
aggregate would have a Material Adverse Effect.
(v) Except as described in the Registration Statement and the
Prospectus, no Company Entity owns or operates any real property contaminated
with any substance that is subject to any Environmental Laws, is liable for any
off-site disposal or contamination pursuant to any Environmental Laws or is
subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim would individually, or in the aggregate result
in a Material Adverse Effect and no Company Entity is aware of any pending
investigation which might lead to such a claim.
(w) Except as described in the Registration Statement and the
Prospectus, each Company Entity has, (i) good and marketable title to all real
and personal properties owned by such Company Entity, free and clear of all
liens, security interests, pledges, charges, encumbrances, and mortgages, and
(ii) valid, subsisting and enforceable leases for all real and personal
properties leased by them, respectively, in each case, subject to such
exceptions as, individually or in the aggregate, would not have a Material
Adverse Effect. No real property owned, leased, licensed or used by any Company
Entity is located in an area that is, or to the best knowledge of the Company
Entities will be, subject to zoning, use, or building code restrictions that
would prohibit, and no state of facts relating to the actions or inaction of
another person or entity or his, her or its ownership, leasing, licensing, or
use of any real or personal property exists that would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company Entities as presently conducted or as the Prospectus
indicates is contemplated to be conducted, subject to such exceptions as,
individually or in the aggregate, would not have a Material Adverse Effect.
(x) Each Company Entity owns or possesses, all patents, patent rights,
licenses, inventions, copyrights, trademarks, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), service marks and trade names
(collectively, "Intellectual Property") necessary to conduct its business as now
conducted and proposed to be conducted as disclosed in the Registration
Statement and as shall be disclosed in the Prospectus, except where the failure
to own or possess such Intellectual Property, individually or in the aggregate,
would not have a Material Adverse Effect. No Company Entity is aware of any
infringement of, or conflict with, the asserted rights of others with respect to
any Intellectual Property. To the best knowledge of the Company Entities, there
is no infringement by others of any Intellectual Property of any Company Entity
that, individually or in the aggregate, would have a Material Adverse Effect.
Except as described in the Registration Statement and the Prospectus, each
Company Entity has registered the rights to each trademark, trade name and
related logo
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disclosed in the Registration Statement and the Prospectus as possessed by it,
in all jurisdictions in which such trademarks and logos are currently being or
are contemplated to be used and in which such registration is currently
permitted.
(y) Each contract, agreement, instrument, lease, license or other item
required to be described in the Registration Statement or the Prospectus or
filed as an exhibit to the Registration Statement has been so described or
filed, as the case may be and each such description is complete and accurate in
all material respects.
(z) Except as described in the Registration Statement and the
Prospectus, no person or entity has the right, by contract or otherwise, to
require registration under the Act of shares of capital stock or other
securities of any Company Entity because of the filing or effectiveness of the
Registration Statement or otherwise in connection with the sale of the Shares
contemplated hereby, except for such rights as have been legally and effectively
waived.
(aa) No Company Entity is, and upon consummation of the transactions
contemplated hereby, none of them will be, subject to registration as an
"investment company" as defined pursuant to the Investment Company Act of 1940.
(ab) The Shares have been duly authorized for quotation on the
NASDAQ-NMS, subject to notice of issuance.
(ac) No Company Entity is a party to or bound by any contract,
agreement, instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had, or may in the future have,
individually or in the aggregate, a Material Adverse Effect.
(ad) Except as may be set forth in the Prospectus, no Company Entity
has incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(ae) Each Company Entity maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles ("GAAP")
and to maintain accountability for assets; (iii) the access to the assets of
each Company Entity is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(af) Each Company Entity has filed all necessary Federal, state and
foreign income and franchise tax returns and has paid all taxes shown as due
thereon. No Company Entity
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has knowledge of any tax deficiency which has been or could be asserted against
it which, individually or in the aggregate, would have a Material Adverse
Effect.
(ag) Other than as disclosed in the Registration Statement and the
Prospectus, no labor dispute with the employees of any Company Entity exists or,
to the best knowledge of the Company Entities, is threatened that, individually
or in the aggregate, would have a Material Adverse Effect and no Company Entity
is aware of any existing or threatened labor disturbance by the employees of any
of its principal suppliers or contractors that, individually or in the
aggregate, would have a Material Adverse Effect.
(ah) Each Company Entity is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the business in which the Company Entities are engaged. No
Company Entity has reason to believe that it will not be able to renew existing
insurance coverage from similar insurers, except as disclosed in the
Registration Statement and the Prospectus.
(ai) Except as disclosed in the Registration Statement and in the
Prospectus, there are no business relationships or related party transactions of
the nature described in Item 404 of Regulation S-K of the Commission involving
any Company Entity or any other persons referred to in such Item 404, except for
such transactions that would be considered immaterial under such Item 404.
(aj) No Company Entity has, nor, to the best knowledge of any Company
Entity, has any director, officer or employee of any Company Entity, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(ak) No Company Entity nor any officer, director, or affiliate (as
defined in the Regulations) of any Company Entity has taken, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares.
(al) No Company Entity nor any affiliate of any Company Entity does
business with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075 Florida Statutes and PSC agrees to
comply, and shall cause each Subsidiary to comply, with such Section if prior to
the completion of the distribution of the Shares any Company Entity commences
doing such business.
(am) PSC has obtained from each director, officer and affiliate (as
defined in the Regulations) of each Company Entity, and from each other person
or entity who beneficially owned as of the effective date of the Registration
Statement shares of Common Stock of PSC
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or any security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock or other securities
of PSC (each an "Original Stockholder"), enforceable written agreements, in form
and substance satisfactory to counsel for the Underwriters, that for a period of
12 months from the effective date of the Registration Statement he will not,
without your prior written consent, offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or other securities of PSC or any shares of capital stock
or other securities of any Subsidiary (or securities or other instruments
convertible into, exchangeable for, or evidencing the right to purchase shares
of Common Stock or such capital stock or other securities of any Company Entity,
including, without limitation, any shares of Common Stock or securities issuable
under any outstanding stock options).
(an) No Company Entity has, or will, offer, issue, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other securities of PSC or any shares
of capital stock or other securities of any Subsidiary (or any securities or
other instruments convertible into, exchangeable for, or evidencing the right to
purchase shares of Common Stock or such capital stock or other securities of any
Company Entity, including, without limitation, any shares of Common Stock or
securities issuable under any outstanding stock options).
(ao) The businesses of the Company Entities, assuming the consummation
of the Reorganization pursuant to the terms of the Entities' Agreements (as
defined below) and the entry into such Entities' Agreements by each Company
Entity party thereto and each of the other parties thereto, and the conduct of
such businesses as contemplated therein, do not violate, and no Company Entity
is otherwise in violation of, any health care statute, law, ordinance, decree,
administrative or governmental rule or regulation applicable to it, including,
without limitation, 42 U.S.C. Section 1395nn; 42 U.S.C. Section 1396b(s); 42
U.S.C. Section 1320a-7b(b), and those relating to reimbursement by government
agencies and fraudulent or wrongful billings or any health care judgment,
injunction, order or decree of any court or government entity or instrumentality
of the United States of America having jurisdiction over any Company Entity. The
"Entities Agreements" shall include the Management Services Agreement, the Asset
Acquisition Agreement, the Network Acquisition Agreement, each of the physician
participation agreements and each other agreement between any Company Entity and
any physician, physician practice, health maintenance organization, provider
network, managed care payor or any other health care provider, physician
practice management company, managed care organization or payor (government or
private), including those agreements entered into in connection with the
Reorganization.
(ap) Except as disclosed in the Prospectus, no Company Entity nor any
employee or agent of any Company Entity has made any payment of funds or
received or retained any funds in violation of any law, rule or regulation,
including, without limitation, any law, rule or regulation prohibiting
fee-splitting or fees for the referral of patients.
(aq) The businesses of the Company Entities as currently conducted and
as proposed to be conducted pursuant to the description thereof in the
Prospectus (i) do not
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involve the offer, payment, solicitation or receipt of remuneration in exchange
for the referral or arranging for the referral of patients, or the referral of
patients by physicians to entities in which such physicians have an ownership
interest or compensation arrangement ("self-referral") in violation of the
federal law, the laws of the State of Georgia or the laws of the State of
Alabama, as such laws are presently in effect and interpreted by regulatory
authorities in such jurisdictions, (b) do not constitute an arrangement subject
to regulation under the insurance laws of the State of Georgia, as such laws are
presently interpreted by regulatory authorities in such jurisdictions and (c) do
not constitute the unauthorized practice of medicine under the laws of the State
of Georgia, as such laws are presently interpreted by regulatory authorities in
such jurisdictions. No individual with an ownership or control interest, as
defined in 42 U.S.C. Section 1320a-3(a)(3), in any of the Company Entities or
who is an officer, director or managing employee as defined in 42 U.S.C. Section
1320a-5(b), of any Company Entity is a person described in 42 U.S.C. Section
1320a-7(b)(8)(B).
(ar) The businesses of the Company Entities as presently conducted, and
the conduct of such businesses as contemplated by the terms of the Management
Services Agreement, the Asset Acquisition Agreement, the Network Acquisition
Agreement, each physician participation agreement and each of the Entities'
Agreements and the performance thereof by each Company Entity party thereto and
each of the other parties thereto, do not violate any statute, administrative or
governmental rule or regulation applicable to such Company Entities or laws
prohibiting the corporate practice of medicine, fee-splitting or fees for the
referral of patients, or any ruling, judgment, injunction, order or decree of
any court or government entity or instrumentality having jurisdiction over such
Company Entities.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, PSC agrees to issue and sell to the Underwriters an aggregate of
2,200,000 shares of Common Stock and each Underwriter agrees, severally and not
jointly, to purchase from PSC, the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto, all at a purchase price per share
of $_________ (the "Purchase Price").
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Kramer, Levin, Naftalis &
Frankel, 919 Third Avenue, New York, New York 10022, or at such other place as
shall be agreed upon by the Underwriters and PSC, at 10:00 A.M. on the third or
fourth business day (as permitted under Rule 15c6-1 under the Exchange Act)
following the date of the effectiveness of the Registration Statement (or, if
PSC has elected to rely upon Rule 430A of the Regulations, the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such other
time as shall be agreed upon by the Underwriters and PSC (such time and date of
payment and delivery being herein called the "Closing Date"). Payment shall be
made to PSC by certified or official bank check or checks drawn in New York
Clearing House funds or similar next day funds payable to the order of PSC, as
the case may be, against delivery to the Underwriters for the respective
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<PAGE> 13
accounts of the Underwriters of certificates for the Shares to be purchased by
them. Certificates for the Shares shall be registered in such name or names and
in such authorized denominations as the Underwriters may request in writing at
least two full business days prior to the Closing Date. PSC will permit the
Underwriters to examine and package such certificates for delivery at least one
full business day prior to the Closing Date.
(c) In addition, PSC hereby grants to the Underwriters the option to
purchase up to 330,000 Additional Shares at the same purchase price per share to
be paid by the Underwriters to PSC for the Firm Shares as set forth in this
Section 2, for the sole purpose of covering over-allotments in the sale of Firm
Shares by the Underwriters. This option may be exercised at any time, in whole
or in part, on or before the forty-fifth day following the date of the
Prospectus, by written notice by the Underwriters to PSC. Such notice shall set
forth the aggregate number of Additional Shares as to which the option is being
exercised and the date and time, as reasonably determined by the Underwriters,
when the Additional Shares are to be delivered (such date and time being herein
sometimes referred to as the "Additional Closing Date"); provided, however, that
the Additional Closing Date shall not be earlier than the Closing Date or
earlier than the second full business day after the date on which the option
shall have been exercised nor later than the eighth full business day after the
date on which the option shall have been exercised (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof).
Certificates for the Additional Shares shall be registered in such name or names
and in such authorized denominations as the Underwriters may request in writing
at least two full business days prior to the Additional Closing Date. PSC will
permit the Underwriters to examine and package such certificates for delivery at
least one full business day prior to the Additional Closing Date.
(d) The number of Additional Shares to be purchased by each Underwriter
shall be the number which bears the same ratio to the aggregate number of
Additional Shares being purchased as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the total number of Firm
Shares, subject, however, to such adjustments to eliminate any fractional shares
as the Underwriters in their sole discretion shall make.
(e) Payment of the purchase price for, and delivery of certificates for
the Additional Shares shall be made at the location for the Closing specified
above or at such other location as may be agreed upon by the Underwriters and
PSC. Payment shall be made to PSC by certified or official bank check or checks,
in New York Clearing House or similar next day funds, payable to the order of
PSC against delivery to the Underwriters for the respective accounts of the
Underwriters of certificates for the Additional Shares to be purchased by them.
Certificates for the Additional Shares shall be registered in such name or names
and in such authorized denominations as the Underwriters may request in writing
at least two full business days prior to the Additional Closing Date.
3. Offering. It is understood by the parties hereto that after the
Registration Statement becomes effective, the Underwriters propose to offer the
Shares for sale to the public as set forth in the Prospectus.
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<PAGE> 14
4. Covenants of the Company Entities. PSC and each Subsidiary, to the
extent that the act or omission required or prohibited under such covenant is
an act or omission of such Subsidiary, covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared effective
PSC will use its best efforts to cause the Registration Statement and any
amendments thereto to become effective as promptly as possible and to maintain
its effectiveness. If Rule 430A is used or the filing of the Prospectus is
otherwise required under Rule 424(b) or Rule 434, PSC will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period and will provide evidence satisfactory to
the Underwriters of such timely filing. If PSC elects to rely on Rule 434, it
will prepare and file a term sheet that complies with the requirements of Rule
434.
PSC will promptly notify the Underwriters of any proposal to amend or
supplement the registration statement as filed or the related prospectus or the
Registration Statement or the Prospectus and will not effect such amendment or
supplementation without the Underwriters' consent.
PSC will promptly notify the Underwriters (and, if requested by the
Underwriters, will confirm such notice in writing) (i) when the Registration
Statement and any amendments thereto become effective, (ii) of any request by
the Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for any additional information, (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto or of the initiation, or the threatening,
of any proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by PSC of any notification with respect to
the suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for that purpose. If the
Commission shall propose to enter, or enter, a stop order at any time, PSC will
make every reasonable effort to prevent the issuance of any such stop order and,
if issued, to obtain the lifting of such order as soon as possible.
(b) If at any time when a prospectus relating to the Shares is required
to be delivered under the Act any event shall have occurred as a result of which
the Prospectus as then amended or supplemented would, in the judgment of the
Underwriters or PSC include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the Act or
the Regulations, PSC will promptly notify the Underwriters and prepare and file
with the Commission an appropriate amendment or supplement (in form and
substance satisfactory to the Underwriters) which will correct such statement or
omission and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
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<PAGE> 15
(c) PSC will promptly deliver to the Underwriters three signed copies
of the Registration Statement, including exhibits and all amendments thereto,
and PSC will promptly deliver to each of the Underwriters such number of copies
of any preliminary prospectus, the Prospectus, the Registration Statement, and
all amendments of and supplements to such documents, if any, as the Underwriters
may reasonably request.
(d) PSC will endeavor in good faith, in cooperation with the
Underwriters and Underwriters' Counsel (as defined in Section 6), at or prior to
the time of effectiveness of the Registration Statement, to qualify the Shares
for offering and sale under the securities laws relating to the offering or sale
of the Shares in such jurisdictions as the Underwriters may designate and to
maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall PSC be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process.
(e) PSC will make generally available (within the meaning of Section
11(a) of the Act) to its security holders and to the Underwriters as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) For a period of 12 months from the effective date of the
Registration Statement, no Company Entity shall, without the prior written
consent of the Underwriters, offer, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or other securities of any Company Entity (or any
securities or other instruments convertible into, exchangeable for or evidencing
the right to purchase shares of Common Stock or such capital stock or other
securities) other than (A) PSC's issuance and sale of Shares in accordance with
this Agreement, (B) the grant of options under PSC's 1996 Stock Option Plan
which is properly described in the Prospectus, (C) the grant of options under
PSC's 1996 Health Care Professionals Plan which is properly described in the
Prospectus, (D) the issuance of Common Stock issuable upon the exercise of stock
options and pursuant to the plans described in clauses (B) and (C) hereof, (D)
the issuance of the Underwriters' Options, (E) the issuance of the Underwriters'
Stock and (F) the issuance of shares in connection with any acquisition, to the
extent that any such acquisition has been approved by PSC's Board of Directors
and the Underwriters.
(g) During a period of five years from the effective date of the
Registration Statement, PSC will furnish to the Underwriters copies of (i) all
reports to its stockholders; (ii) all reports, financial statements and proxy or
information statements filed by PSC with the Commission or any national
securities exchange; and (iii) such other information concerning PSC and its
affairs as the Underwriters may reasonably request from time to time.
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<PAGE> 16
(h) PSC will apply the proceeds from the sale of the Shares as set
forth under "Use of Proceeds" in the Prospectus.
(i) PSC will use its best efforts to cause the Shares to be included
for quotation on the NASDAQ-NMS.
(j) PSC shall comply with all registration, filing and reporting
requirements of the Exchange Act and the rules and regulations thereunder, which
may from time to time be applicable to PSC. PSC will file with the Commission
such reports on Form SR as may be required pursuant to Rule 463 of the
Regulations.
(k) PSC shall comply with all provisions of all undertakings contained
in the Registration Statement.
(l) PSC will not take, and will not allow any Subsidiary to take,
directly or indirectly, prior to the termination of the offering of the Shares
contemplated by this Agreement, any action designed to stabilize or manipulate
the price of the Common Stock, or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock.
(m) On or prior to the Closing Date, PSC shall sell to the Underwriters
(or their designees) the Underwriters' Options to purchase an aggregate of
220,000 shares of Common Stock, which Underwriters' Options shall be evidenced
by the Underwriters' Option Agreement in the form set forth as an exhibit to the
Registration Statement.
(n) Until expiration of the Underwriters' Options, PSC shall keep
reserved sufficient shares of Common Stock for issuance upon exercise of the
Underwriters' Options.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, PSC hereby
agrees to pay all costs and expenses incident to the performance of the
obligations of PSC hereunder, including those in connection with (i) preparing,
printing, duplicating, filing and distributing the Registration Statement, as
originally filed and all amendments thereof (including all exhibits thereto),
any preliminary prospectus, the Prospectus and any amendments or supplements
thereto, the underwriting documents (including this Agreement and the
Underwriters' Option Agreement) and all other documents related to the public
offering of the Shares (including those supplied to the Underwriters in
quantities as hereinabove stated), (ii) the issuance, sale, transfer and
delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) the registration and qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Survey" and the fees of
counsel for the Underwriters and such counsel's disbursements in relation
thereto (up to a maximum of $30,000), (iv) quotation of the Shares on the
NASDAQ-NMS, (v) the reasonable fees and disbursements of the Underwriters in
their sole discretion relating to all filings with the NASD, the Commission and
the jurisdictions in which qualification is sought, (vi) the cost of printing
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<PAGE> 17
certificates representing the Shares; (vii) the cost and charges of any transfer
agent or registrar; (viii) the fees and expenses of PSC's legal counsel and
accountants; (ix) the fees of an investigative search firm designated by the
Underwriters to conduct a background check of the principals of PSC; (x) the
costs (up to a maximum of $15,000) of placing "tombstone" advertisements in the
national edition of The Wall Street Journal and other publications; and (xi) the
costs of preparing a reasonable number of transaction "bibles" or "mementos."
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject, in their discretion, to the accuracy of
the representations and warranties of each Company Entity, herein contained, as
of the date hereof and as of the Closing Date (for purposes of this Section 6
"Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters
furnished to the Underwriters or to Kramer, Levin, Naftalis & Frankel
("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or
omission, to the performance by PSC of its obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or at such
later time and date as shall have been consented to in writing by the
Underwriters. All post-effective amendments to the Registration Statement shall
have become effective. If PSC shall have relied upon Rule 430A of the
Regulations, the Prospectus shall have been filed with the Commission in a
timely fashion in accordance with Section 4(a) hereof. All filings required by
Rule 424 of the Regulations shall have been made. No stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued by the Commission or any state securities
commission and no proceedings therefor shall have been initiated or threatened
by the Commission or any state securities commission.
(b) At the Closing Date and any Additional Closing Date, the
Underwriters shall have received the opinion of Bachner, Tally, Polevoy &
Misher, LLP, counsel for PSC, dated the date of delivery, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel, to
the effect that:
(i) At the time of the effectiveness of the Registration
Statement and the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the
Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when
any supplement to or amendment of the Prospectus is filed with the
Commission and at the date hereof, each of the Registration Statement
and the Prospectus, and any amendments thereof or supplements thereto
(other than the financial statements and schedules and other financial
data included or incorporated by reference therein, as to which no
opinion need be rendered) complied and comply in all material respects
with the applicable provisions of the Act and the Regulations.
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<PAGE> 18
(ii) The Registration Statement is effective under the Act,
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof preventing or suspending the use of any preliminary
prospectus, the Prospectus, the Registration Statement, or any
amendment or supplement thereto, refusing to permit the effectiveness
of the Registration Statement, or suspending the registration or
qualification of any of the securities, has been issued by the
Commission or the "blue sky" or securities authority of any
jurisdiction and to the knowledge of any Company Entity, no proceedings
therefor have been initiated or threatened by the Commission and all
filings required by Rule 424(b) of the Regulations have been made.
(iii) When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the registration
statement for the registration of the Shares or any amendment thereto
or pursuant to Rule 424(a) of the Regulations), and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements
thereto when filed with the Commission complied in all material
respects with the applicable provisions of the Act and the Regulations.
(iv) All of the capital stock of the Subsidiaries is owned by
a Company Entity free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, voting trusts
or other defects of title whatsoever. Each Company Entity has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each Company
Entity is duly qualified and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except where the failure
to be so qualified or in good standing will not, individually or in the
aggregate, have a Material Adverse Effect.
(v) As of the Closing Date and taking into account the Reverse
Split, the authorized capital stock of PSC consists of 50,000,000
shares of Common Stock, of which 3,317,500 shares are outstanding and
10,000 shares of Preferred Stock of which no shares are outstanding.
All of the outstanding securities of PSC, and all of the outstanding
securities of the Subsidiaries, are duly and validly authorized and
issued, are fully paid and nonassessable without any personal liability
attaching to the ownership thereof and were not issued and were or are
not owned or held in violation of or subject to any preemptive rights.
Each of the Shares to be issued, delivered and sold on the Closing Date
or any Additional Closing Date have been duly and validly authorized
and, when delivered by PSC in accordance with this Agreement, will be
duly and validly issued and outstanding, fully paid and nonassessable,
without any personal liability attaching to the ownership thereof, and
will not have been issued and will not be owned or held in violation of
or subject to any preemptive rights. Upon delivery of and payment for
the Shares by the Underwriters in accordance with this Agreement, each
Underwriter will receive good title to the Shares purchased by
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<PAGE> 19
it, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, voting trusts or other defects
of title whatsoever. The Common Stock, the Preferred Stock, the Firm
Shares, the Additional Shares, the Underwriters' Options and the
Underwriters' Stock conform to the descriptions thereof contained in
the Registration Statement and the Prospectus.
(vi) To such counsel's knowledge, there is no commitment,
plan, or arrangement to issue and no outstanding option, warrant or
other right calling for the issuance of any share of capital stock (or
similar interests) of any Company Entity, or any security or other
instrument that by its terms is convertible into, exchangeable for, or
evidencing the right to purchase capital stock or other securities of
any Company Entity, except as described in the Registration Statement
and the Prospectus.
(vii) Each Company Entity has all requisite corporate power
and authority to execute, deliver and perform its respective
obligations under each of the Company Documents and each of the
Physician Agreements to which it is a party, and PSC has all requisite
corporate power and authority, to issue, sell and deliver the Shares in
accordance with the terms and conditions hereof. All necessary
corporate proceedings of each Company Entity have been duly taken to
authorize the execution, delivery, and performance by each Company
Entity, respectively, of each of the Company Documents and Physician
Agreements, to which it is or is to be a party. This Agreement has been
duly and validly executed and delivered by each Company Entity and is a
legal and binding obligation of each Company Entity, enforceable
against each Company Entity in accordance with its terms.
(viii) Each Company Document and each of the Physician
Agreements entered into as of the date hereof has been, and the
transactions contemplated thereby have been duly and validly
authorized, executed and delivered by each Company Entity party
thereto, and is a legal, valid and binding obligation of each such
Company Entity, enforceable against each such Company Entity in
accordance with its terms, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally and subject to general principles of equity.
(ix) The execution, delivery, and performance of the Company
Documents or any of the Physician Agreements and the consummation of
the transactions contemplated thereby do not and will not (i) conflict
with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time,
or both, would constitute a default) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of any Company Entity pursuant to, any agreement, instrument,
franchise, license or permit to which any Company Entity is a party, or
which has been assumed by any Company Entity or by which their
properties or assets may be bound or (ii) violate or conflict with any
provision of the certificate of incorporation or by-laws of any Company
Entity or any law, statute, rule or regulation or any judgment, decree,
or order of any
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court or any public, governmental or regulatory agency or body having
jurisdiction over any Company Entity or any of their respective
properties or assets.
(x) No Company Entity is in violation or breach of, or in
default with respect to, any term of its certificate of incorporation
(or other charter document) or by-laws.
(xi) Each Company Entity has all requisite power and authority
and all necessary consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits of and
from all public, governmental or regulatory agencies and bodies, to
own, lease and operate its properties and conduct its business as now
being conducted and as described in the Registration Statement and the
Prospectus and to execute and deliver and to perform, upon entry into
such agreements, its obligations under the Company Documents and the
Physician Agreements, or to consummate the transactions contemplated
thereby, except for (1) such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters (as to which such counsel need express
no opinion) and (2) such as have been made or obtained under the Act
and the Exchange Act and from NASDAQ-NMS. No consent of any party to
any contract, agreement, instrument, lease, license, arrangement or
understanding known to such counsel and listed as an Exhibit to the
Registration Statement, to which any Company Entity is a party, or to
which any of their respective properties or assets are subject, is
required for the execution, delivery, or performance of any of the
Company Documents or any of the Physician Agreements.
(xii) No Company Entity has received any notification from any
regulatory authority, including, without limitation, any health care
regulatory authority, to the effect that any additional approval is
required to be obtained by any Company Entity, and no such consent,
approval, authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not adequately
disclosed in the Registration Statement and the Prospectus. To such
counsel's knowledge, no Company Entity has received any notice of
proceedings relating to revocation or modification of any such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses or permits.
(xiii) the Underwriters' Stock is duly and validly authorized
and reserved for issuance, and when issued and delivered upon exercise
of the Underwriters' Options in accordance with the Underwriters'
Option Agreement, will be validly authorized, duly and validly issued
and outstanding, fully paid, and nonassessable, without any personal
liability attaching to ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders; and the holders of
the Underwriters' Options will receive good title to the securities
purchased by them, respectively, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts or other defects of title whatsoever.
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(xiv) To such counsel's knowledge, no Company Entity nor any
other party, is, in violation or breach of, or in default under (nor
has an event occurred that with notice, lapse of time or both, would
constitute a default under), any Material Contract, including, without
limitation any Physician Agreements in effect as of the date hereof.
Each Material Contract is in full force and effect and is the legal,
valid, and binding obligation of any Company Entity party thereto and
is enforceable as to such Company Entity in accordance with its terms,
subject to applicable bankruptcy, insolvency and other laws affecting
the enforceability of creditors' rights generally and subject to
general principles of equity.
(xv) To such counsel's knowledge, there is no litigation,
arbitration, claim or governmental or other action, suit, proceeding or
investigation before any court or before or by any public, regulatory
or governmental agency or body pending or threatened against, or
involving the properties or business of, any Company Entities which
individually or in the aggregate might result in a Materially Adverse
Effect or which is of a character required to be disclosed in the
Registration Statement and the Prospectus which has not been properly
disclosed therein.
(xvi) Any right of first refusal, preemptive right, right to
compensation, or other similar right or option, in connection with the
Offering, this Agreement or the Underwriters' Options or any of the
transactions contemplated hereby or thereby known to such counsel and
not contemplated by the Offering, this Agreement or the Underwriters'
Options has been effectively waived.
(xvii) Except for such violations or failures of compliance
that, individually or in the aggregate, would not have a Material
Adverse Effect, no Company Entity is, nor, to such counsel's knowledge,
with the giving of notice or lapse of time or both will any Company
Entity be, in violation of or non-compliance with the requirements of
any permit material to the operation of the business of any Company
Entity or the provisions of any law, rule, regulation, order, judgment
or decree, including, but not limited to, all applicable federal, state
and local laws and regulations relating to Environmental Laws; (ii)
employee or occupational safety, discrimination in hiring, promotion or
pay of employees, employee hours and wages or employee benefits; and
(iii) the manufacture, packaging and marketing of foods and drugs
including the Federal Food, Drug and Cosmetic Act, the Nutrition
Labeling and Education Act of 1990 and the Dietary Supplement Health
and Education Act of 1994, nor is any Company Entity required to take
any action in order to avoid any such violation or default.
(xviii) There is no pending or, to such counsel's knowledge,
threatened, civil or criminal litigation, notice of violation, or
administrative proceeding relating in any way to the Environmental Laws
(including notices, demand letters, or claims under the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar foreign, state, or local laws)
involving any
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Company Entity. There have not been and there are not any past,
present, or foreseeable future events, conditions, circumstances,
activities, practices, incidents, actions, or plans which may interfere
with or prevent continued compliance, or which may give rise to any
common law or legal liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study, or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, release, or threatened release
into the environment, of any pollutant, contaminant, chemical, or
industrial, hazardous, or toxic material or waste, including, without
limitation, any liability arising, or any claim, action, demand, suit,
proceeding, hearing, study, or investigation which may be brought,
under RCRA, CERCLA, or similar foreign, state or local laws, which
individually or in the aggregate would have a Material Adverse Effect.
(xix) Except as described in the Registration Statement and
the Prospectus, no Company Entity owns or operates any real property
contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to
any Environmental Laws or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim
would, individually or in the aggregate, result in a Material Adverse
Effect and no Company Entity is aware of any pending investigation
which might lead to such a claim.
(xx) Except as described in the Registration Statement and the
Prospectus, each Company Entity has, (i) good and marketable title to
all real and personal properties owned by such Company Entity, free and
clear of all liens, security interests, pledges, charges, encumbrances,
and mortgages, and (ii) valid, subsisting and enforceable leases for
all real and personal properties leased by them, respectively, in each
case, subject to such exceptions as, individually or in the aggregate,
would not have a Material Adverse Effect. No real property owned,
leased, licensed or used by any Company Entity is located in an area
that is, or to the best knowledge of such counsel will be, subject to
zoning, use, or building code restrictions that would prohibit, and no
state of facts relating to the actions or inaction of another person or
entity or his, her or its ownership, leasing, licensing, or use of any
real or personal property exists that would prevent, the continued
effective ownership, leasing, licensing, or use of such real property
in the business of the Company Entities as presently conducted or as
the Prospectus indicates is contemplated to be conducted, subject to
such exceptions as, individually or in the aggregate, would not have a
Material Adverse Effect.
(xxi) Each Company Entity owns or possesses, all Intellectual
Property necessary to conduct its business as now conducted and
proposed to be conducted as disclosed in the Registration Statement and
as shall be disclosed in the Prospectus, except where the failure to
own or possess such Intellectual Property, individually or in the
aggregate, would not have a Material Adverse Effect. To such counsel's
knowledge, such Intellectual Property does not infringe, or conflict
with, the asserted
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rights of others. To the best of such counsel's knowledge, there is no
infringement by others of any Intellectual Property of any Company
Entity that, individually or in the aggregate, would have a Material
Adverse Effect. Except as described in the Registration Statement and
the Prospectus, each Company Entity has registered the rights to each
trademark, trade name and related logo disclosed in the Registration
Statement and the Prospectus as possessed by it, in all jurisdictions
in which such trademarks and logos are currently being or are
contemplated to be used and in which such registration is currently
permitted.
(xxii) To such counsel's knowledge, each contract, agreement,
instrument, lease, license or other item required to be described in
the Registration Statement or the Prospectus or filed as an exhibit to
the Registration Statement has been so described or filed, as the case
may be and each such description is complete and accurate in all
material respects.
(xxiii) To such counsel's knowledge, except as described in
the Registration Statement and the Prospectus, no person or entity has
the right, by contract or otherwise, to require registration under the
Act of shares of capital stock or other securities of any Company
Entity because of the filing or effectiveness of the Registration
Statement or otherwise in connection with the sale of the Shares
contemplated hereby, except for such rights as have been legally and
effectively waived.
(xxiv) No Company Entity is, and upon the consummation of the
transactions contemplated by this Agreement none of them will be, an
"investment company" as defined pursuant to the Investment Company Act
of 1940.
(xxv) The Shares are duly authorized for quotation on the
NASDAQ-NMS, subject to notice of issuance.
(xxvi) The form of certificates for the Shares conforms to the
requirements of the applicable laws of the State of Delaware.
(xxvii) Other than statements summarizing the provisions of
laws, rules, regulations orders, judgments or decrees relating to the
regulation by federal, state and local governmental and regulatory
bodies of the physician practice management business and the practice
of medicine contained in the sections of the Prospectus captioned
______________, which are the subject of the opinion of Reed Smith Shaw
& McCloy, described in Section 6(c) below, insofar as statements in the
Prospectus purport to summarize the nature and status of litigation or
the provisions of laws, rules, regulations, orders, judgments or
decrees, legal proceedings or the terms of any contracts or permits,
such statements have been prepared or reviewed by such counsel and are
correct in all material respects and are fair summaries of the matters
referred to therein.
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In addition, such opinion shall also contain a statement that such
counsel has participated in conferences with officers and representatives of the
Company Entities, representatives of the independent public accountants for the
Company Entities and the Underwriters at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, no facts
have come to the attention of such counsel which would lead such counsel to
believe that either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable),
or any amendment thereof made prior to the Closing Date (or the Additional
Closing Date, as the case may be) as of the date of such amendment, contained an
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date (or any amendment thereof or
supplement thereto made prior to the Closing Date (or the Additional Closing
Date, as the case may be) as of the date of such amendment or supplement) and as
of the Closing Date (or the Additional Closing Date, as the case may be)
contained or contains an untrue statement of a material fact or omitted or omits
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief or opinion with respect to the financial statements and schedules and
other financial data included or incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States, laws
of the State of Delaware, laws of the State of New York and jurisdictions in
which they are admitted, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' Counsel) of other
counsel acceptable to Underwriters' Counsel, familiar with the applicable laws,
which opinion or opinions shall be addressed to the Underwriters; (B) as to
matters of fact, to the extent they deem proper, on certificates of responsible
officers of the Company Entities and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company Entities,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' Counsel. The opinion of such counsel for the Company Entities
shall state that the opinion of any such other counsel is in scope, form and
substance satisfactory to such counsel and, in their opinion, the Underwriters
and they are justified in relying thereon.
(c) At the Closing Date and any Additional Closing Date, the
Underwriters shall have received the opinion of Reed Smith Shaw & McCloy,
regulatory counsel for the Company Entities, dated the date of delivery,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The businesses of the Company Entities, assuming the
consummation of the Reorganization, as contemplated by the terms of the
Entities' Agreements and the entry into such Entities' Agreements by
each Company Entity party thereto and each
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of the other parties thereto, and the conduct of such businesses as
contemplated therein, do not violate, and no Company Entity is
otherwise in violation of, any health care statute, law, ordinance,
decree, administrative or governmental rule or regulation applicable to
it, including, without limitation, 42 U.S.C. Section 1395nn; 42 U.S.C.
Section 1396b(s); 42 U.S.C. Section 1320a-7b(b), and those relating to
reimbursement by government agencies and fraudulent or wrongful
billings or any health care judgment, injunction, order or decree of
any court or government entity or instrumentality of the United States
of America having jurisdiction over any Company Entity.
(ii) Except as disclosed in the Registration Statement and the
Prospectus, no Company Entity nor any employee or agent of any Company
Entity has made any payment of funds or received or retained any funds
in violation of any law, rule or regulation, including, without
limitation, any law, rule or regulation prohibiting fee-splitting or
fees for the referral of patients.
(iii) The businesses of the Company Entities as currently
conducted and as proposed to be conducted pursuant to the description
thereof in the Prospectus (i) do not involve the offer, payment,
solicitation or receipt of remuneration in exchange for the referral or
arranging for the referral of patients, or the referral of patients by
physician to entities in which such physicians have an ownership
interest or compensation arrangement in violation of the federal law,
the laws of the State of Georgia or the laws of the State of Alabama,
as such laws are presently in effect and interpreted by regulatory
authorities in such jurisdictions, (b) do not constitute an arrangement
subject to regulation under the insurance laws of the State of Georgia,
as such laws are presently interpreted by regulatory authorities in
such jurisdictions and (c) do not constitute the unauthorized practice
of medicine under the laws of the State of Georgia, as such laws are
presently interpreted by regulatory authorities in such jurisdictions.
No individual with an ownership or control interest, as defined in 42
U.S.C. Section 1320a-3(a)(3), in any Company Entity or who is an
officer, director or managing employee as defined in 42 U.S.C. Section
1320a-5(b), of any Company Entity is a person described in 42 U.S.C.
Section 1320a-7(b)(8)(B).
(iv) The businesses of the Company Entities as presently
conducted, and the conduct of such businesses as contemplated by the
terms of the Management Services Agreement, the Asset Acquisition
Agreement, the Network Acquisition Agreement, each physician
participation agreement and each of the Entities' Agreements and the
performance thereof by each Company Entity party thereto and each of
the other parties thereto, do not violate any statute, administrative
or governmental rule or regulation applicable to such Company Entities
or laws prohibiting the corporate practice of medicine, fee-splitting
or fees for the referral of patients, or any ruling, judgment,
injunction, order or decree of any court or government entity or
instrumentality having jurisdiction over such Company Entities.
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(v) To such counsel's knowledge, there is no legal or
governmental proceeding pending or threatened against, or involving the
properties or business of, any Company Entities is of a character
required to be disclosed in the Registration Statement and the
Prospectus which has not been properly disclosed therein.
(vi) Each Company Entity is duly licensed or authorized in
each jurisdiction where it is required to be so licensed or authorized
to conduct its business; each Company Entity has all other necessary
consents, approvals, permits, licenses, franchises and authorizations
of and from all regulatory authorities to conduct its business as
presently conducted and to perform its obligations under the Management
Services Agreement, the Asset Acquisition Agreement, the Network
Acquisition Agreement, each of the physician participation agreements
and each of the Entities' Agreements and, to the knowledge of such
counsel after reasonable inquiry, no Company Entity has received any
notification from any regulatory authority, including, without
limitation, any health care regulatory authority, to the effect that
any additional approval is required to be obtained by any Company
Entity.
(vii) The statements in the Registration Statement or any
amendment or supplement thereto or the Prospectus or any amendment or
supplement thereto or the Rule 430A Prospectus or any amendment or
supplement thereto, insofar as they refer to legal statutes, other
statements of law or legal conclusions relating to the health care
industry, are accurate and present fairly the information required to
be shown.
In addition, such opinion shall also contain a statement that
such counsel has participated in conferences with officers and representatives
of the Company Entities, representatives of the independent public accountants
for the Company Entities and the Underwriters at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, no facts have come to the attention of such counsel which would lead such
counsel to believe that either the Registration Statement at the time it became
effective (including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if
applicable), or any amendment thereof or supplement thereto, made prior to the
Closing Date (or the Additional Closing Date, as the case may be) as of the date
of such amendment or supplement, contained an untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
as of its date (or any amendment thereof or supplement thereto made prior to the
Closing Date (or the Additional Closing Date, as the case may be) as of the date
of such amendment or supplement) and as of the Closing Date (or the Additional
Closing Date, as the case may be) contained or contains an untrue statement of a
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial data included or
incorporated by reference therein).
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(d) All proceedings taken in connection with the sale of the Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and to Underwriters' Counsel, and the Underwriters shall have
received from said Underwriters' Counsel a favorable opinion, dated as of the
Closing Date, with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as the
Underwriters may reasonably require, and PSC shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(e) At the Closing Date, and any Additional Closing Date, the
Underwriters shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of PSC, and to the extent clauses (ii), (iii) and
(iv) apply to any Subsidiary, a certificate of the chief executive officer and
of the chief financial officer of such Subsidiary, in each case dated the
Closing Date to the effect that (i) the condition set forth in subsection (a) of
this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company Entities set
forth in Section 1 hereof are accurate, (iii) as of the Closing Date the
obligations of each Company Entity to be performed hereunder on or prior thereto
have been duly performed and (iv) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company Entities, either individually or in the aggregate, have not sustained
any material loss or interference with their business or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a material adverse change, in the business prospects, properties, operations,
condition (financial or otherwise), or results of operations of the Company
Entities, individually, or in the aggregate, except in each case as described in
or contemplated by the Registration Statement and the Prospectus.
(f) At the time this Agreement is executed, at the Closing Date and as
of any Additional Closing Date, the Underwriters shall have received a letter,
from Arthur Anderson, LLP, independent public accountants for the Company
Entities, dated, respectively, as of the date of this Agreement, as of the
Closing Date and as of any Additional Closing Date addressed to the Underwriters
and in form and substance satisfactory to the Underwriters, to the effect that:
(i) they are independent certified public accountants with respect to the
Company Entities within the meaning of the Act and the Regulations and stating
that the answer to Item 10 of the Registration Statement is correct insofar as
it relates to them; (ii) stating that, in their opinion, the financial
statements and schedules of the Company Entities included in the Registration
Statement and the Prospectus and covered by their opinion therein comply as to
form in all material respects with the applicable accounting requirements of the
Act and the applicable published rules and regulations of the Commission
thereunder; (iii) on the basis of procedures consisting of an audit for the year
ended December 31, 1996 of the consolidated financial statements of the Company
Entities as of December 31, 1996, a reading of the latest available unaudited
consolidated financial statements of the Company Entities, a reading of the
minutes of meetings and consents of the stockholders and boards of directors of
the Company Entities and the committees of such
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boards subsequent to ___________, 199_, inquiries of officers and other
employees of the Company Entities who have responsibility for financial and
accounting matters of the Company Entities with respect to transactions and
events subsequent to __________, 199_, and other specified procedures and
inquiries to a date not more than five days prior to the date of such letter,
nothing has come to their attention that would cause them to believe that: (A)
the consolidated financial statements and schedules of the Company Entities
presented in the Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting requirements of the
Act and, if applicable, the Exchange Act and the applicable published rules and
regulations of the Commission thereunder or that such consolidated financial
statements are not fairly presented in conformity with generally accepted
accounting principles, (B) with respect to the period subsequent to December 31,
1996 there were, as of the date of the most recent available monthly unaudited
consolidated financial statements of the Company Entities, if any, and as of a
specified date not more than five days prior to the date of such letter, any
changes in the capital stock or long-term indebtedness of the Company Entities
or any decrease in the net current assets or stockholders' equity of the Company
Entities, in each case as compared with the amounts shown in the most recent
balance sheet presented in the Registration Statement and the Prospectus, except
for changes or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter, (C)
during the period from January 1, 1997 to the date of the most recent available
monthly unaudited consolidated financial statements of the Company Entities, if
any, and to a specified date not more than five days prior to the date of such
letter, there was any decrease, as compared with the corresponding period in the
prior fiscal year, in total revenues, or total or per share net income, except
for decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or (D) the unaudited
pro forma consolidated financial information of the Company Entities included in
the Registration Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of such financial information; and (iv) stating that they have
compared specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company Entities set
forth in the Registration Statement and the Prospectus, which have been
specified by the Underwriters prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company Entities or from
schedules furnished by the Company Entities, and excluding any questions
requiring an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by the Underwriters set forth in such letter, and found them to be in
agreement.
(g) Prior to the Closing Date or any Additional Closing Date, the
Company Entities shall have furnished to the Underwriters such further
information, certificates, opinions, and documents as the Underwriters may
reasonably request.
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(h) The Underwriters shall have received from each person who is a
director, officer or affiliate (as defined in the Regulations) of any Company
Entity, and from each Original Stockholder, enforceable written agreements, in
form and substance satisfactory to counsel for the Underwriters, to the effect
that for a period of 12 months from the effective date of the Registration
Statement, such person will not, without the Underwriters' prior written
consent, offer, issue, sell, contract to sell, grant any option for the sale of
or otherwise dispose of (or announce any offer, sale, grant of an option to
purchase or other disposition), directly or indirectly, any shares of Common
Stock or other securities of any Company Entity (or securities or other
instruments convertible into, exchangeable for, or evidencing the right to
purchase shares of Common Stock or such capital stock or other securities of any
Company Entity, including without limitation, any shares of Common Stock or
securities issuable under any outstanding stock option).
(i) At the Closing Date, the Shares shall have been approved for
quotation on the NASDAQ-NMS.
(j) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Firm Shares and the Additional Shares shall be
satisfactory in form and substance to you and to counsel for the Underwriters,
and the Underwriters shall have received from such counsel for the Underwriters
a favorable opinion, dated as of the Closing Date and the Additional Closing
Date, as the case may be, with respect to such of the matters set forth under
Sections 6(b) and 6(c), respectively, and with respect to such other related
matters, as you may reasonably request.
(k) The NASD, upon review of the terms of the public offering of the
Firm Shares and the Additional Shares, shall not have objected to the
Underwriters' participation in such offering.
(l) Prior to or on the Closing Date, the PSC shall have entered into
the Underwriters' Option Agreement with the Underwriters.
(m) Prior to or on the Closing Date, PSC shall have provided to you
copies of the agreements referred to in Section 1(aj).
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Underwriters or to Underwriters' Counsel pursuant to this Section 6 shall not be
satisfactory in form and substance to the Underwriters and to Underwriters'
Counsel, all obligations of the Underwriters hereunder may be cancelled by the
Underwriters at, or at any time prior to, the Closing Date and the obligations
of the Underwriters to purchase the Additional Shares may be cancelled by the
Underwriters at, or at any time prior to, the Additional Closing Date. Notice of
such cancellation shall be given to PSC in writing, or by telephone, telex or
telegraph, confirmed in writing and shall specify the reason for such
cancellation.
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7. Indemnification.
(a) PSC, and each Subsidiary, jointly and severally, agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all losses, liabilities, claims, damages and
expenses whatsoever as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Shares as originally filed, or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company Entities will not be liable in any such case to the extent but only
to the extent that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to PSC by or on behalf of any Underwriter
through the Underwriters expressly for use therein. This indemnity agreement
will be in addition to any liability which the Company Entities may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company Entities, each of the directors of the Company
Entities, each of the officers of the Company Entities who shall have signed the
Registration Statement, and each other person, if any, who controls the Company
Entities within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
severally, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares as originally filed,
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to PSC by or
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on behalf of any Underwriter through the Underwriters expressly for use therein;
provided, however, that in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder. This indemnity will be in
addition to any liability which any Underwriter may otherwise have including
under this Agreement. The Company Entities acknowledge that for all purposes of
this Agreement, the statements set forth in the last paragraph of the cover page
and in the ______ paragraph under the caption "Underwriting" in the Prospectus
constitute the only information furnished in writing to PSC by or on behalf of
any Underwriter through the Underwriters expressly for use in the Registration
Statement as originally filed or in any amendment thereof, any related
preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 or otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified there-under, the Company Entities, on the one
hand, and the Underwriters, on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any
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action, suit or proceeding or any claims asserted, but after deducting in the
case of losses, claims, damages, liabilities and expenses suffered by the
Company Entities any contribution received by the Company Entities from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control any Company Entity within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, officers of PSC who signed the
Registration Statement and directors of any Company Entity) as incurred to which
the Company Entities and one or more of the Underwriters may be subject, in such
proportions as are appropriate to reflect the relative benefits received by the
Company Entities and the Underwriters from the offering of the Shares or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
PSC and the respective Subsidiaries, on the one hand, and the Underwriters, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
Entities, on the one hand, and the Underwriters, on the other hand, shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received in the case of the Company Entities and (y) the underwriting discounts
and commissions received in the case of the Underwriters, respectively, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company Entities, on the one hand, and of the Underwriters, on the
other hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by any Company
Entity, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company Entities and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8 and the
preceding sentence, (i) in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8,
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 8, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as such Underwriter, and each person,
if any, who controls any Company Entity within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of PSC
32
<PAGE> 33
who shall have signed the Registration Statement and each director of each
Company Entity shall have the same rights to contribution as such Company
Entity, as the case may be, subject in each case to clauses (i) and (ii) of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties, notify each party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Shares with respect to which such default relates do not (after giving effect to
arrangements, if any, made by the Underwriters pursuant to subsection (c) below)
exceed, in the aggregate, 10% of the number of Firm Shares or Additional Shares,
as the case may be, such Firm Shares or Additional Shares to which the default
relates shall be purchased by the non-defaulting Underwriter in proportion to
the respective proportion which the numbers of Firm Shares set forth opposite
its name in Schedule I hereto bears to the aggregate number of Firm Shares set
forth opposite the names of the non-defaulting Underwriter.
(b) If a default by any Underwriter or Underwriters relates to more
than 10% of the Firm Shares or Additional Shares, as the case may be, the
Underwriters may in their discretion arrange for the Underwriters or for another
party or parties to purchase such Firm Shares or Additional Shares, as the case
may be, to which such default relates on the terms contained herein. In the
event that within five calendar days after such a default the Underwriters do
not arrange for the purchase of the Firm Shares or Additional Shares, as the
case may be, to which such default relates as provided in this Section 9, this
Agreement or, in the case of a default with respect to the Additional Shares,
the obligations of the Underwriters to purchase and of PSC to sell the
Additional Shares shall thereupon terminate, without liability on the part of
PSC with respect thereto (except in each case as provided in Section 5, 7(a) and
8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a
defaulting Underwriter of its liability, if any, to the other Underwriter and
PSC for damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which the
default relates are to be purchased by the non-defaulting Underwriter, or are to
be purchased by another party or parties as aforesaid, the Underwriters or PSC
and the respective Subsidiaries shall have the right to postpone the Closing
Date or Additional Closing Date, as the case may be for a period, not exceeding
five business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and PSC agrees to file promptly any amendment or
33
<PAGE> 34
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Additional Shares.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
Entities contained in this Agreement, including the agreements contained in
Section 5, the indemnity agreements contained in Section 7 and the contribution
agreements contained in Section 8, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person thereof or by or on behalf of the Company Entities,
and any of their officers and directors or any controlling person thereof, and
shall survive delivery of and payment for the Shares to and by the Underwriters.
The representations contained in Section 1 and the agreements contained in
Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this
Agreement, including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when (i)
the Underwriters and PSC shall have received notification of the effectiveness
of the Registration Statement or (ii) the execution of this Agreement. If either
the initial public offering price or the purchase price per Share has not been
agreed upon prior to 5:00 P.M., New York time, on the fifth full business day
after the Registration Statement shall have become effective, this Agreement
shall thereupon terminate without liability to PSC or the Underwriters except as
herein expressly provided. Until this Agreement becomes effective as aforesaid,
it may be terminated by PSC by notifying the Underwriters or by the Underwriters
notifying PSC. Notwithstanding the foregoing, the provisions of this Section 11
and of Sections 1, 5, 7 and 8 hereof shall at all times be in full force and
effect.
(b) The Underwriters shall have the right to terminate this Agreement
at any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (i) any domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters opinion will in the
immediate future materially disrupt, the market for PSC's securities or
securities in general; or (ii) if trading on the New York or American Stock
Exchanges or in the NASDAQ-NMS or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York or American Stock Exchanges by the New York or American Stock Exchanges, or
on the NASDAQ-NMS by the NASDAQ-NMS or by order of the Commission or any other
governmental authority having jurisdiction; (iii) trading in the Shares shall
have been suspended by the Commission, by any exchange that lists the Shares or
by the NASDAQ-NMS; (iv) if a banking moratorium has been declared by a state or
federal authority or if any new restriction materially ad-
34
<PAGE> 35
versely affecting the distribution of the Firm Shares or the Additional Shares,
as the case may be, shall have become effective; or (v) (A) if the United States
becomes engaged in hostilities or there is an escalation of hostilities
involving the United States or there is a declaration of a national emergency or
war by the United States or (B) if there shall have been such change in
political, financial or economic conditions and if the effect of any such event
in (A) or (B) in the Underwriters' judgment makes it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Firm Shares
or the Additional Shares, as the case may be, on the terms contemplated by the
Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone or telecopy, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the
Underwriters as provided in Section 11(a) hereof or (ii) Section 9 or 11(b)
hereof), or if the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part of any
Company Entity to perform any agreement herein or comply with any provision
hereof, the Company Entities will, jointly and severally, subject to demand by
the Underwriters, reimburse the Underwriters for all out-of-pocket expenses
(including the fees and expenses of their counsel), incurred by the Underwriters
in connection herewith, up to an aggregate of $125,000, and, for a period of one
year subsequent to such termination, if any Company Entity, or any affiliate or
successor to the Company Entities is involved in any private placement, merger,
acquisition or sale of any securities (other than pursuant to a public
offering), acquisition or sale of assets not in the ordinary course of business,
joint venture or other similar transaction (any of the foregoing, a
"Transaction"), or enters into an agreement with respect thereto, the Company
Entities shall pay to Barington Capital Group, L.P. a fee equal to the sum of
(i) 5% of the first five million dollars of consideration paid in any
Transaction, (ii) 4% of the next two million dollars of consideration paid in
any Transaction, (iii) 3% of the next two million dollars of consideration paid
in any Transaction, (iv) 2% of the next two million dollars of consideration
paid in any Transaction, and (v) 1% of any consideration paid in any Transaction
in excess of eleven million dollars, such fee to be paid at the closing of the
Transaction to which it relates. The amount of consideration paid in a
Transaction shall include, for purposes of calculating such fee, all forms of
consideration paid to any Company Entity, affiliate or successor, or received by
any Company Entity, its or their stockholders, or affiliate, including, but not
limited to, cash, stock or evidences of indebtedness, or any combination
thereof.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Southcoast Capital Corporation, 277 Park
Avenue, New York, NY 10172, Attention:_____________; if sent to any Company
Entity, shall be mailed, delivered, or telegraphed and confirmed in writing to
Physicians Specialty Corp., 5555 Peachtree Dunwoody Road, Suite 235, Atlanta,
Georgia 30342.
35
<PAGE> 36
13. Parties. This Agreement shall insure solely to the benefit of, and shall be
binding upon, the Underwriters, the Company Entities and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
36
<PAGE> 37
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company Entities please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
PHYSICIANS' SPECIALTY CORP.
By:
---------------------------------
Name:
Title:
PSC MANAGEMENT CORP.
By:
---------------------------------
Name:
Title:
PSC ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
PSC ALABAMA, INC.
By:
---------------------------------
Name:
Title:
37
<PAGE> 38
ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
By:
---------------------------------
Name:
Title:
NEW ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
By:
---------------------------------
Name:
Title:
ENT CENTER OF ATLANTA, INC.
By:
---------------------------------
Name:
Title:
ATLANTA ENT CENTER, INC.
By:
---------------------------------
Name:
Title:
ATLANTA AHP, INC.
By:
---------------------------------
Name:
Title:
38
<PAGE> 39
ATLANTA HEAD & NECK SURGERY, P.C.
By:
---------------------------------
Name:
Title:
EAR, NOSE & THROAT ASSOCIATES, P.C.
By:
---------------------------------
Name:
Title:
METROPOLITAN EAR NOSE & THROAT,
P.C.
By:
---------------------------------
Name:
Title:
W.J. CORNAY, III, M.D., P.C.
By:
---------------------------------
Name:
Title:
39
<PAGE> 40
Accepted as of the date first above written.
New York, New York
SOUTHCOAST CAPITAL CORPORATION
By:
-----------------------------
Calvin L. Chrisman, Managing
Director
BARINGTON CAPITAL GROUP, L.P.
By: LNA CAPITAL CORP.,
General Partner
By:
-----------------------------
Marc Cooper, Executive Vice-
President
40
<PAGE> 41
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Shares to be
Name of Underwriter Purchased
- ------------------- ---------
<S> <C>
Southcoast Capital Corporation...............................................................
Barington Capital Group, L.P.................................................................
-------------
Total...................................................................... 2,200,000
</TABLE>
41
<PAGE> 1
EXHIBIT 4.1
THE SHARES ISSUABLE UPON EXERCISE OF THE OPTION
REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "REGISTRATION
STATEMENT"). HOWEVER, NEITHER THIS OPTION NOR SUCH
SHARES MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT
UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS
OPTION IS RESTRICTED AS
DESCRIBED HEREIN.
PHYSICIANS' SPECIALTY CORP.
OPTION FOR THE PURCHASE OF
COMMON STOCK
No. _ ____ Shares
THIS CERTIFIES that, for receipt in hand of $___ and other value
received, BARINGTON CAPITAL GROUP, L.P., 888 Seventh Avenue, New York, New York
10019 (the "Holder"), is entitled to subscribe for and purchase from
Physicians' Specialty Corp., a Delaware corporation (the "Company"), upon the
terms and conditions set forth herein, at any time or from time to time after
the date hereof, and before 5:00 P.M. on___, 2002, New York time (the "Exercise
Period"), up to 220,000 shares (the "Option Shares") of the Company's common
stock, par value $.001 per share ("Common Stock") at a price of $___ (120% of
the public offering price) per Option Share (the "Exercise Price"). This Option
is the option or one of the options (collectively, including any options issued
upon
<PAGE> 2
the exercise or transfer of any such options in whole or in part, the
"Options") issued pursuant to the Underwriting Agreement, dated___, 1997,
between the Company and Southcoast Capital Corporation and Barington Capital
Group, L.P., as underwriters (the "Underwriting Agreement"). As used herein the
term "this Option" shall mean and include this Option and any Option or Options
hereafter issued as a consequence of the exercise or transfer of this Option in
whole or in part. This Option may not be sold, transferred, assigned or
hypothecated until one year after the effective date of the Registration
Statement (the "Effective Date") except that it may be transferred, in whole or
in part, to (i) one or more officers or partners of the Holder (or the officers
or partners of any such partner); (ii) any other member of the selling group
which participated in the public offering of 2,200,000 shares of the Company's
Common Stock which commenced on___, 1997 (or the officers or partners of any
such firm); (iii) a successor to the Holder, or the officers or partners of
such successor; (iv) a purchaser of substantially all of the assets of the
Holder; or (v) by operation of law; and the term the "Holder" as used herein
shall include any transferee to whom this Option has been transferred in
accordance with the above.
1. (a) This Option may be exercised during the Exercise Period,
as to the whole or any lesser number of whole Option Shares, by the surrender
of this Option (with the election at the end hereof duly executed) to the
Company at its office at 5555 Peachtree Dunwoody Road, Suite 235, Atlanta,
Georgia 30342 (Attention: Ramie A. Tritt, M.D.), or at such other place as is
designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
Exercise Price multiplied by the number of Option Shares for which this Option
is being exercised.
(b) All or any part of this Option may be exercised on a
"cashless" basis, by stating in the exercise notice such intention, and the
maximum number (the "Maximum Number") of shares of Common Stock the optionee
elects to purchase pursuant to such exercise. The number of shares of Common
Stock the optionee shall receive (the "Cashless Exercise Number") shall equal
the Maximum Number minus the quotient that is obtained when the product of the
Maximum Number and the then current Exercise Price is divided by the then
Current Market Price per share (as hereinafter defined).
2. Upon each exercise of the Holder's rights to purchase Option
Shares, the Holder shall be deemed to be the holder of record of the Option
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Option
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Option, the Company shall issue
and deliver to the Holder a certificate or certificates
-2-
<PAGE> 3
for the Option Shares issuable upon such exercise, registered in the name of the
Holder or its designee. If this Option should be exercised in part only, the
Company shall, upon surrender of this Option for cancellation, execute and
deliver a new Option evidencing the right of the Holder to purchase the balance
of the Option Shares (or portions thereof) subject to purchase hereunder.
3. Any Options issued upon the transfer or exercise in part of
this Option shall be numbered and shall be registered in an Option Register as
they are issued. The Company shall be entitled to treat the registered holder
of any Option on the Option Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Option on the part of any other person, and shall not be
liable for any registration or transfer of Options which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Option shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Option or Options to the person
entitled thereto. This Option may be exchanged, at the option of the Holder
thereof, for another Option, or other Options of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Option Shares (or portions thereof), upon surrender to the Company or
its duly authorized agent. Notwithstanding the foregoing, the Company shall
have no obligation to cause Options to be transferred on its books to any
person if, in the opinion of counsel to the Company, such transfer does not
comply with the provisions of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the Options, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this
Option, upon receipt by the Company of the full payment therefor, shall be
validly issued, fully paid, nonassessable, and free of preemptive rights.
5. (a) Subject to the provisions of this Section 5, the
Exercise Price in effect from time to time shall be subject to
- 3 -
<PAGE> 4
adjustment, as follows:
(i) In case the Company shall at any time after the date hereof
(A) declare a dividend on the outstanding Common Stock payable in
shares of its capital stock, (B) subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock into a smaller number
of shares, or (D) issue any shares of its capital stock by
reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the
Exercise Price, and the number of shares of Common Stock issuable upon
exercise of the Options in effect at the time of the record date for
such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so
that the holders of the Options after such time shall be entitled to
receive the aggregate number and kind of shares which, if such Options
had been exercised immediately prior to such time, such holders would
have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification, at such
aggregate price as the holders of such Options would have paid for such
exercise immediately prior to such time. Such adjustment shall be made
successively whenever any event listed above shall occur.
(ii) In case the Company shall issue or fix a record date for
the issuance to all holders of Common Stock of rights, options, or
warrants to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) at a price per share
(or having a conversion or exchange price per share, if a security
convertible into or exchangeable for Common Stock) less than the
Current Market Price per share of Common Stock (as determined pursuant
to Subsection 5(b) hereof) on such record date, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
of Common Stock so to be offered (or the aggregate initial conversion
or exchange price of the convertible or exchangeable securities so to
be offered) would purchase at such Current Market Price and the
denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which
the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become
effective at the close of business on such record date;
-4-
<PAGE> 5
provided, however, that, to the extent the shares of Common
Stock (or securities convertible into or exchangeable for shares of
Common Stock) are not delivered, the Exercise Price shall be readjusted
after the expiration of such rights, options, or warrants (but only
with respect to Options exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights, options, or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock)
actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by
the board of directors of the Company, whose determination shall be
conclusive absent manifest error. Shares of Common Stock owned by or
held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such
computation.
(iii) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the shareholders
of the Company in connection with a consolidation or merger in which
the Company is the continuing corporation) evidences of its
indebtedness, cash (other than any cash dividend which, together with
any cash dividends paid within the 12 months prior to the record date
for such distribution, does not exceed 5% of the Current Market Price
at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or
rights, options, or warrants to subscribe for or purchase Common Stock,
or securities convertible into or exchangeable for shares of Common
Stock (excluding those with respect to the issuance of which an
adjustment of the Exercise Price is provided pursuant to Section
5(a)(ii) hereof), then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior
to the record date for the determination of shareholders entitled to
receive such distribution by a fraction, the numerator of which shall
be the Current Market Price per share of Common Stock on such record
date, less the fair market value (as determined in good faith by the
board of directors of the Company, whose determination shall be
conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the
amount of such cash, applicable to one share, and the denominator of
which shall be such Current Market Price per share of Common Stock.
Such adjustment shall become effective at the close of business on such
record date.
-5-
<PAGE> 6
(iv) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock,
or securities convertible into or exchangeable for Common Stock
(excluding shares, rights, options, warrants, or convertible or
exchangeable securities issued or issuable (A) in any of the
transactions with respect to which an adjustment of the Exercise Price
is provided pursuant to Section 5(a)(i), 5(a)(ii) or 5(a)(iii) above,
(B) upon any issuance of securities pursuant to the Underwriting
Agreement, (C) upon exercise of the Option, (D) upon the grant or
exercise of options to purchase up to 550,000 shares of Common Stock
pursuant to the Company's 1996 Stock Option Plan (the "1996 Plan"), and
(E) upon the grant or exercise of options to purchase up to 275,000
shares of Common Stock pursuant to the Company's 1996 Health Care
Professionals Stock Option Plan (the "1996 Professionals Plan")), at a
price per share (determined, in the case of such rights, options,
warrants, or convertible or exchangeable securities, by dividing (x)
the total amount received or receivable by the Company in consideration
of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate
consideration payable to the Company upon exercise, conversion, or
exchange thereof, by (y) the maximum number of shares covered by such
rights, options, warrants, or convertible or exchangeable securities)
lower than the Current Market Price per share of Common Stock in effect
immediately prior to such issuance, then the Exercise Price shall be
reduced on the date of such issuance to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price in effect
immediately prior to such issuance by a fraction, (a) the numerator of
which shall be an amount equal to the sum of (A) the number of shares
of Common Stock outstanding immediately prior to such issuance plus (B)
the quotient obtained by dividing the aggregate consideration received
by the Company upon such issuance by such Current Market Price, and (b)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such issuance. For the purposes of
such adjustments, the maximum number of shares which the holders of any
such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to initially subscribe for or purchase or
convert or exchange such securities into shall be deemed to be issued
and outstanding as of the date of such issuance, and the consideration
received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares
covered thereby. No further adjustment of the Exercise Price shall be
made as a result of the actual issuance of shares of Common Stock on
exercise of such rights,
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<PAGE> 7
options, or warrants or on conversion or exchange of such
convertible or exchangeable securities. On the expiration or the
termination of such rights, options, or warrants, or the termination of
such rights to convert or exchange, the Exercise Price shall be
readjusted (but only with respect to Options exercised after such
expiration or termination) to such Exercise Price as would have been
obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities been made
upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options, or
warrants or upon the conversion or exchange of any such securities; and
on any change of the number of shares of Common Stock deliverable upon
the exercise of any such rights, options, or warrants or conversion or
exchange of such convertible or exchangeable securities or any change
in the consideration to be received by the Company upon such exercise,
conversion, or exchange, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Exercise Price,
as then in effect, shall forthwith be readjusted (but only with respect
to Options exercised after such change) to such Exercise Price as would
have been obtained had an adjustment been made upon the issuance of
such rights, options, or warrants not exercised prior to such change,
on the basis of such change. In case the Company shall issue shares of
Common Stock or any such rights, options, warrants, or convertible or
exchangeable securities for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then the "price
per share" and the "consideration received by the Company" for purposes
of the first sentence of this Section 3(a)(iv) shall be as determined
in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of
Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.
(b) For the purpose of any computation under this Section 5 the
Current Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
NASDAQ National Market ("NASDAQ")) on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the highest reported bid price for the
Common Stock as furnished by the National
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<PAGE> 8
Association of Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If on any such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by NASDAQ or any similar organization, the fair value
of a share of Common Stock on such date as determined in good faith by the board
of directors of the Company, whose determination shall be conclusive absent
manifest error shall be used.
(c) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest one thousandth of
a share, as the case may be.
(d) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holders of the Option, if any holder has exercised an
Option after such record date, the shares of Common Stock, if any, issuable upon
such exercise over and above the shares of Common Stock, if any, issuable upon
such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such exercising
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares upon the occurrence of the event requiring
such adjustment.
(e) Upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 5(a)(ii), 5(a)(iii) or 5(a)(iv) hereof the
Option shall thereafter evidence the right to purchase, at the adjusted Exercise
Price, that number of shares (calculated to the nearest thousandth) obtained by
dividing (A) the product obtained by multiplying the number of shares
purchasable upon exercise of the Option prior to adjustment of the number of
shares by the Exercise Price in effect prior to adjustment of the Exercise Price
by (B) the Exercise Price in effect after such adjustment of the Exercise Price.
(f) In case of any capital reorganization, other than in the
cases referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclas-sification of the outstanding shares of Common Stock or the
conversion of such outstanding shares of Common Stock into shares of other stock
or other securities or property), or the sale of the property of the Company as
an entirety or substantially as an
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<PAGE> 9
entirety (collectively such actions being hereinafter referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of any
Option (in lieu of the number of shares of Common Stock theretofore deliverable)
the number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of such Option would have been entitled upon such
Reorganization if such Option had been exercised in full immediately prior to
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the board of directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of Option holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of Options. Any such
adjustment shall be made by and set forth in a supplemental agreement between
the Company, or any successor thereto, and [Continental] Stock Transfer & Trust
Company and shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment. The Company shall not effect any such Reorganization,
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the registered holder of the Options such shares of
stock, securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of sale or
conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise any Option shall terminate 30 days after the Company gives written
notice to each registered holder of a Option Certificate that such sale or
conveyance of other transfer has been consummated.
(g) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of the Options (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), the holders of the Options shall have the
right thereafter to receive upon exercise of the Options solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification or change by a holder
of the number of shares of Common Stock for which the Options might have been
exercised immediately prior to such reclassification or change. Thereafter,
appropriate provision shall be as nearly equivalent as practicable to the
adjustments in Section 5. The above provisions of this subsection 5(a) shall
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<PAGE> 10
similarly apply to successive reclassifications and changes of shares of Common
Stock.
(h) Whenever the Exercise Price is adjusted as provided in this
Section 5, the Company will promptly obtain a certificate of a firm of
independent public accountants of recognized standing selected by the board of
directors (who may be the regular auditors of the Corporation) setting forth the
exercise price as so adjusted and a brief statement of the facts accounting for
such adjustment, and will make available a brief summary thereof to the holders
of the Option Certificates, at their addresses listed on the register maintained
for the purpose by the Company.
(i) Whenever any adjustment is made pursuant to this Section 5,
the Company shall cause notice of such adjustment to be mailed to each
registered holder of an Option Certificate within 15 Business Days (as
hereinafter defined) thereafter, such notice to include in reasonable detail (i)
the events precipitating the adjustment, (ii) the computation of any
adjustments, and (iii) the Exercise Price, the number of shares or the
securities or other property purchasable upon exercise of each Option after
giving effect to such adjustment. For purposes hereof, "Business Day" shall mean
any day other than a Saturday, a Sunday, or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive order
to close.
(j) Irrespective of any adjustments pursuant to this Section 5,
Option Certificates theretofore or thereafter issued need not be amended or
replaced, but certificates thereafter issued shall bear an appropriate legend or
other notice of any adjustments.
(k) The Company shall not be required upon the exercise of any
Option to issue fractional shares of Common Stock which may result from
adjustments in accordance with this Section 5 to the Exercise Price or number of
shares of Common Stock purchasable under each Option. If more than one Option is
exercised at one time by the same registered holder, the number of full shares
of Common Stock which shall be deliverable shall be computed based on the number
of shares deliverable in exchange for the aggregate number of Options exercised.
With respect to any final fraction of a share called for upon the exercise of
any Option or Options, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the Current
Market Price of a share of Common Stock calculated in accordance with Subsection
5(b).
6. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any
sale, lease, or conveyance to
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<PAGE> 11
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety, such successor, leasing, or
purchasing corporation, as the case may be, shall (i) execute with the Holder an
agreement providing that the Holder shall have the right thereafter to receive
upon exercise of this Option solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such consolidation, merger, sale, lease, or conveyance by a holder of the number
of shares of Common Stock for which this Option might have been exercised
immediately prior to such consolidation, merger, sale, lease, or conveyance and
(ii) make effective provision in its certificate of incorporation or otherwise,
if necessary, to effect such agreement. Such agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments provided for in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Option (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Option solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Option might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such
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<PAGE> 12
cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of
outstanding shares of Common Stock, or any consolidation, merger, sale, lease,
or conveyance of property, described in Section 6; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company; or
(e) to take any other action which would cause an
adjustment to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Option Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price pursuant to Section 5 hereof.
8. The issuance of any shares or other securities upon the
exercise of this Option, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
9. (a) If, at any time prior to, _______ 2004 (seven years from
the Effective Date), the Company shall file a registration
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<PAGE> 13
statement (other than on Form S-4, Form S-8, or any successor form) with the
Securities and Exchange Commission (the "Commission") while this Option or any
Underwriters' Securities (as hereinafter defined) are outstanding, the Company
shall give all the then holders of this Option or any Underwriters' Securities
(collectively, the "Eligible Holders") at least 45 days prior written notice of
the filing of such registration statement. If requested by any Eligible Holder
in writing within 30 days after receipt of any such notice, the Company shall,
at the Company's sole expense (other than the fees and disbursements of counsel
for the Eligible Holders and the underwriting discounts, if any, payable in
respect of the Underwriters' Securities sold by any Eligible Holder), register
or qualify all or, at each Eligible Holder's option, any portion of the
Underwriters' Securities of any Eligible Holders who shall have made such
request, concurrently with the registration of such other securities, all to the
extent requisite to permit the public offering and sale of the Underwriters'
Securities through the facilities of all appropriate securities exchanges and
the over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Underwriters'
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his or its
Underwriters' Securities shall delay the offering and sale of such Underwriters'
Securities (or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Underwriters' Securities if any securities of the Company are included in
such registration statement and eligible for sale during the Delay Period for
the account of any person other than the Company and any Eligible Holder unless
the securities included in such registration statement and eligible for sale
during the Delay Period for such other person shall have been reduced pro rata
to the reduction of the Underwriters' Securities which were requested to be
included and eligible for sale during the Delay Period in such registration. As
used herein, "Underwriters' Securities" shall mean the Option Shares issued upon
exercise of the Underwriters' Options, which have not been previously sold
pursuant to a registration statement or Rule 144 promulgated under the Act.
(b) If, at any time during the five-year period commencing one
year after the Effective Date, the Company shall receive a written request, from
Eligible Holders who in the
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aggregate own (or upon exercise of all Options then outstanding would own) a
majority of the total number of shares of Common Stock then included (or upon
such exercises that would be included) in the Underwriters' Securities (the
"Majority Holders"), to register the sale of all or part of such Underwriters'
Securities, the Company shall, as promptly as practicable, prepare and file with
the Commission a registration statement sufficient to permit the public offering
and sale of the Underwriters' Securities through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file one such
registration statement for which all expenses incurred in connection with such
registration (other than the fees and disbursements of counsel for the Eligible
Holders and underwriting discounts, if any, payable in respect of the
Underwriters' Securities sold by the Eligible Holders) shall be borne by the
Company and one additional such registration statement for which all such
expenses shall be paid by the Eligible Holders. Within three business days after
receiving any request contemplated by this Section 9(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Underwriters' Securities,
provided that the Company receives a written request to do so from such Eligible
Holder within 30 days after receipt by him or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall use its best efforts to cause the
Underwriters' Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not be required to qualify to do business in any state by reason of this Section
9(c) in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Underwriters' Securities covered thereby. The Company shall in
no event be required to keep any such registration or qualification in effect
for a period in excess of nine months from the date on which the Eligible
Holders are first free to sell such Underwriters' Securities; provided, however,
that, if the Company is required to keep any such registration or qualification
in effect with respect
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<PAGE> 15
to securities other than the Underwriters' Securities beyond such period, the
Company shall keep such registration or qualification in effect as it relates to
the Underwriters' Securities for so long as such registration or qualification
remains or is required to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish to each Eligible Holder such number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Underwriters' Securities included in such
registration.
(f) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish each Eligible Holder of any
Underwriters' Securities so registered with an opinion of its counsel
(reasonably acceptable to the Eligible Holders) to the effect that (i) the
registration statement has become effective under the Act and no order
suspending the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary prospectus,
any final prospectus, or any amendment or supplement thereto has been issued,
nor has the Commission or any securities or blue sky authority of any
jurisdiction instituted or threatened to institute any proceedings with respect
to such an order, (ii) the registration statement and each prospectus forming a
part thereof (including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with the Act and the rules and
regulations thereunder, and (iii) such counsel has no knowledge of any material
misstatement or omission in such registration statement or any prospectus, as
amended or supplemented. Such opinion shall also state the jurisdictions in
which the Underwriters' Securities have been registered or qualified for sale
pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of
this Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Underwriters'
Securities.
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<PAGE> 16
(h) The Company agrees that until all the Underwriters'
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Underwriters' Securities to sell such securities under Rule 144.
(i) Except for rights granted to holders of the Options and
rights existing prior to the issuance of the Options, the Company will not,
without the written consent of the Majority Holders, grant to any persons the
right to request the Company to register any securities of the Company, provided
that the Company may grant such registration rights to other persons so long as
such rights are subordinate to the rights of the Eligible Holders.
10. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 10,
but not be limited to, attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Underwriters' Securities or (B) in any application or
other document or communication (in this Section 10 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Underwriters' Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Option. The foregoing agreement to indemnify shall be
in addition to any
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<PAGE> 17
liability the Company may otherwise have, including liabilities arising under
this Option. The Company shall not be liable for losses based on untrue
statements incorporated in a Preliminary Prospectus or Prospectus, if such
information was provided in writing to the Company by the Holder for inclusion
in such Preliminary Prospectus or Prospectus at the written request of the
Company. The Company shall not be liable for losses based on untrue statements
or omissions contained in Preliminary Prospectuses if an Underwriter failed to
deliver a final Prospectus prior to or simultaneously with the delivery of
written confirmation of any public sale of the Underwriters' Securities and a
court of competent jurisdiction in a judgment not subject to appeal or final
review shall have determined that such final Prospectus would have corrected
such untrue statement or omission.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
10 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement,
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<PAGE> 18
compromise, consent, or termination includes an unconditional release of each
indemnified party from all liability in respect of such action. The Company
agrees promptly to notify the Eligible Holders of the commencement of any
litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of any Underwriters' Securities or any
preliminary prospectus, prospectus, registration statement, or amendment or
supplement thereto, or any application relating to any sale of any Underwriters'
Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Underwriters' Securities held by
the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Company to the Holder in Section 10(a), but only with respect to statements
or omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon
and in conformity with written information furnished to the Company with respect
to the Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 10(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Underwriters' Securities included in such registration in the
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<PAGE> 19
aggregate (including for this purpose any contribution by or on behalf of an
indemnified party), as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, on the basis of relevant equitable considerations such as the
relative fault of the Company and such Eligible Holders in connection with the
facts which resulted in such losses, liabilities, claims, damages, and expenses.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company or by such Eligible Holders, and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation of
the aggregate losses, liabilities, claims, damages, and expenses (even if the
Holder and the other indemnified parties were treated as one entity for such
purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 10(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned (or which would be owned upon exercise of
all Underwriters' Securities) by it and included in such registration as
compared to the number of shares of Common Stock owned (or which would be owned
upon exercise of all Underwriters' Securities) by all Eligible Holders and
included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 10(c), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of each such Eligible Holder or control person shall have the
same rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company, and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 10(c).
Anything in this Section 10(c) to the contrary notwithstanding, no party shall
be liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 10(c) is intended to
supersede any right to contribution under the Act, the Exchange Act or
otherwise.
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<PAGE> 20
11. Unless registered pursuant to the provisions of Section 9 hereof,
the Option Shares issued upon exercise of the Options shall be subject to a stop
transfer order and the certificate or certificates evidencing such securities
shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Option (and upon surrender of any
Option if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Option of like date, tenor, and denomination.
13. The Holder of any Option shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Option.
14. This Option shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Option, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Option, or a breach of this Option or any such document
or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 12 of the Underwriting Agreement.
Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint or
other process.
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<PAGE> 21
Dated: , 1997
------------
PHYSICIANS' SPECIALTY CORP.
By:
---------------------------------
Ramie Tritt, M.D., President
- --------------------------
Secretary
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<PAGE> 22
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Option.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ an Option to purchase __________ shares of
common stock of the Company, par value $0.001 per share, together with all
right, title, and interest therein, and does hereby irrevocably constitute and
appoint ___________ attorney to transfer such Option on the books of the
Company, with full power of substitution.
Dated:
------------------
Signature
--------------------------
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<PAGE> 23
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Option in every particular, without alteration
or enlargement or any change whatsoever.
To: Physicians' Specialty Corp.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
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<PAGE> 24
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_______ Option Shares covered by the within Option and tenders payment herewith
in the aggregate amount of $_________ including (i) $_________ by certified or
bank cashier's check, and (ii) cancellation of Options to purchase Option
Shares, based upon a Maximum Number (as therein defined) of ________, in
accordance with the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Option Shares shall not be all the Option Shares covered
by the within Option, that a new Option for the balance of the Option Shares
covered by the within Option be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated:
------------------------
Name
--------------------------
(Print)
Address:
(Signature)
-24-
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), is entered into this
10th day of February, 1997, by and between RAMIE A. TRITT, M.D., an individual
resident of the State of Georgia (hereinafter referred to as "Executive"), and
PHYSICIANS' SPECIALTY CORP., a corporation organized under the laws of the
State of Delaware (hereinafter referred to as "Company") to amend, restate and
replace the agreement entered into November 26, 1996 (the "Prior Agreement");
W I T N E S S E T H:
WHEREAS, the parties wish to amend, restate and replace the Prior
Agreement in its entirety with this Agreement;
WHEREAS, Company is engaged in the business (the "Business") of
providing management and business services to, and acquiring assets of,
physician practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on the
terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish
to enter into an employment agreement on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
<PAGE> 2
SECTION 1. SCOPE OF EMPLOYMENT.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to the
employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the offices of
Chairman and President and, as such, shall perform the executive-level services
(collectively, "Services") described in Company's Bylaws and as delegated to him
by the Board of Directors. Such duties shall include, among others, initiating,
evaluating and consummating strategic acquisitions on behalf of Company. Company
agrees to nominate Executive for membership on the Board of Directors (and as
Chairman of the Board) for the duration of the Term, and, if Executive is
elected as a director, he shall be entitled to serve on the Compensation and
Executive Committees of the Board of Directors (if such committees are
established). Executive's serving on the Board of Directors shall be deemed to
be part of the "Services". Executive shall initially devote approximately fifty
percent (50%) of Executive's business time, energy and skill (subject to
increases as outlined in Section 3 as approved by the Company's Board of
Directors) to performing his obligations hereunder and shall perform his
obligations hereunder diligently, faithfully and to the best of his abilities.
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be based in
Atlanta, Georgia at the principal executive offices of Company, except for
reasonably required travel on business.
1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this Agreement,
during the Term Executive shall comply in all material respects with all
policies and procedures applicable to senior executives of Company generally and
to Executive specifically.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall be a five (5) year period commencing on the
date when the registration statement for the issuance of shares of common stock
of the Company is declared effective by the Securities and Exchange Commission
(the "Effective Date"). If the Effective Date shall not have occurred by March
31, 1997, either Executive or Company may terminate this Agreement on written
notice to the other. After the Initial Term, Executive's employment under this
Agreement shall automatically renew for successive additional one (1) year
("Renewal Terms") terms (the Initial Term and any Renewal Terms being
collectively referred to as the "Term"). The Term shall be subject to
termination in accordance with Section 2.2.
2.2 TERMINATION.
(a) DEATH. This Agreement shall automatically and immediately
terminate upon the death of Executive.
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<PAGE> 3
(b) DISABILITY. This Agreement may be terminated by either
party hereto upon written notice to the other in the event Executive becomes
"Disabled" (as hereinafter defined). For purposes of this Agreement, "Disabled"
shall be defined as either: (a) the reasonable, good faith determination by an
independent physician selected by the Board of Directors of Company that due to
a mental or physical impairment or disability, Executive has been incapable or
unable, even with reasonable accommodations, to fully perform the material
duties performed by Executive for Company immediately prior to such disability
for a period of at least one hundred eighty (180) days in the aggregate
(although not necessarily consecutively) within any consecutive three hundred
sixty-five (365)-day period; or (b) a determination that Executive is disabled
pursuant to the terms of any long-term disability insurance policy which Company
or Executive has purchased and which covers Executive.
(c) CAUSE. In addition to any other rights or remedies
available to Company at law, in equity or pursuant hereto, Company may, in its
sole discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to Executive. For
purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of
any material restriction or limitation on Executive's ability
to perform his services hereunder;
(ii) (A) Executive has committed an act constituting
fraud, deceit or intentional material misrepresentation with
respect to Company or any client, customer or supplier of
Company; (B) Executive has embezzled funds or assets from
Company or any client or customer of Company; or (C) Executive
has engaged in willful misconduct or gross negligence;
(iii) Executive's breach or default in the
performance of any material provision of this Agreement which
Executive has not cured or corrected to Company's reasonable
satisfaction within thirty (30) days after receiving notice of
such breach or default (provided that any breach by Executive
of any obligation under Section 5.4 shall be grounds for
immediate termination "For Cause" without any notice or right
to cure or correct); or
(iv) Executive's conduct is materially detrimental to
the reputation, character or standing of Company which
Executive has not cured or corrected to Company's reasonable
satisfaction within ten (10) days after receiving notice
thereof.
(d) DISCRETIONARY TERMINATION.
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<PAGE> 4
(i)Either Company or Executive may terminate the Term
effective as of the end of the Initial Term or the
then-current Renewal Term by providing the other with written
notice of termination at least sixty (60) days prior to the
end of the Initial Term or then current Renewal Term, as the
case may be. In the event of Termination under this Section
2.2(d)(i), Executive shall not be entitled to any severance
benefit under Section 6.
(ii) The Company shall have the right to terminate
the Term and Executive's employment hereunder without cause at
any time upon notice to Executive. In such event, Executive
shall be entitled to the severance benefit provided in Section
6(b), unless such termination without cause follows a Change
of Control, in which event Executive shall be entitled to the
severance benefit provided in Section 6(c).
(E) CHANGE OF CONTROL. Executive may terminate the Term following a
Change of Control (as defined in Section 6(c)), by providing Company at least
thirty (30) days prior written notice of termination.
(F) GOOD REASON. Executive shall have the right to terminate this
Employment Agreement for "Good Reason." For purposes hereof, Good Reason shall
be limited to the repeated material breach by the Company of its material
obligations to Executive which the Company fails to correct or cure within a
period of forty-five (45) days after being provided with written notice by
Executive of such material breach.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Subject to the limitation set forth in Section 3.3,
Executive shall be paid a base salary (the "Base Salary") during the Term at an
initial rate of Three Hundred Fifty Thousand Dollars ($350,000) per twelve (12)
month period. The Base Salary shall be (a) payable in equal installments on the
schedule that Company may implement from time to time for general payroll
purposes, and (b) subject to any withholdings and deductions required by
applicable law. The $350,000 Base Salary assumes that Executive will devote
approximately fifty percent (50%) of his business time each week (2.5 days) to
performing the Services (as opposed to performing clinical work). If Executive,
with the approval of the Board of Directors, increases the proportion of
business time devoted to performing the Services, then subject to the limitation
in Section 3.3, his Base Salary shall be increased as follows:
<TABLE>
<CAPTION>
Executive Work
Base Salary % Services Week Days
----------- ---------- ---------
<S> <C> <C>
$350,000 50% 2.5
$410,000 70% 3.5
$470,000 90% 4.5
$500,000 100% 5.0
</TABLE>
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<PAGE> 5
In the event Executive provides full time (100%) services to the Company and the
Company has achieved quarterly pre-tax income of $1.750 million, Executive's
Base Salary for full-time services will be increased to $600,000 per annum.
3.2 BONUS. During the Term, Executive shall be eligible to be
considered for a periodic bonus (the "Bonus") of up to 50% of his Base Salary
per annum, based on Company's meeting certain milestones relating to such
matters as practice acquisitions, consolidated operating income levels,
consummation of follow-on financings and management team development; provided,
however, that the Bonus shall be subject to the Compensation Committee of the
Board of Directors adopting and ratifying such a bonus program and approving the
periodic Bonus grants to Executive.
3.3 COMPENSATION LIMIT. Notwithstanding the foregoing, in the event
Executive receives compensation from New Atlanta Ear, Nose & Throat Associates,
P.C. ("NAENT") in excess of Nine Hundred Seventy Thousand Dollars ($970,000) in
any 12-month period commencing with the Effective Date or any anniversary of the
Effective Date, Executive's Base Salary for such 12-month period under Section
3.1 of this Agreement shall be reduced dollar for dollar in the amount of such
excess.
SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled to
participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) for
participation by Executive subject to the terms and conditions of such plans
(collectively, the "Benefit Plans"). Company shall have the right to purchase in
Executive's name a "key man" life insurance policy naming Company as sole
beneficiary under the policy. Company shall be the sole owner of such policy.
4.2 VACATION. Executive shall be entitled to three (3) paid weeks of
vacation per year during the Term, to be accrued and taken in accordance with a
policy that is consistent with Company's normal vacation policy applicable to
senior executive employees.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following terms
shall have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or
indirect equity ownership (excluding ownership of less than 5% of the
equity of an entity whose equity
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<PAGE> 6
is listed on a major U.S. exchange or traded on the NASDAQ
over-the-counter market) or control of all or any portion of a
"Competitor" (as hereinafter defined), or (ii) any employment,
consulting, partnership, advisory, directorship, agency, promotional or
independent contractor arrangement between Executive and any Competitor
whereby Executive is required to perform services substantially similar
to those that he is to perform for Company hereunder. A Competitive
Position shall not include, however, Executive's employment by New
Atlanta Ear, Nose & Throat Associates, P.C. ("NAENT") to the extent his
services are limited to practicing medicine and administering NAENT's
practice as an employee of NAENT.
(b) "Competitor" shall refer to any person or entity engaged,
wholly or partly, in the Business.
(c) "Confidential Information" shall mean any and all
proprietary and confidential data or information of Company or any of
its affiliates, other than "Trade Secrets" (as hereinafter defined),
which is of tangible or intangible value to Company or any of its
affiliates and is not public information or is not generally known or
available to Company's competitors but is known only to Company or its
affiliates and their employees, independent contractors or agents to
whom it must be confided in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within a
twenty (20) mile radius of the Company's principal office in Atlanta,
Georgia. The Parties intend for the "Restricted Territory" during the
entire Term to include a twenty (20) mile radius of all other United
States cities where Company is engaged in the Business, throughout
which territory the parties acknowledge Executive will be performing
his employment responsibilities on behalf of Company. As of the
Effective Date, those cities include Atlanta, Georgia. If applicable
law permits a deemed or automatic amendment to the definition of
"Restricted Territory," then as soon as Company begins to engage in the
Business in any additional city, the definition of "Restricted
Territory" under this Agreement shall be deemed automatically amended
to include the city limits of any such additional cities and a twenty
(20) mile radius of those cities. If applicable law does not permit a
deemed or automatic amendment to the definition of "Restricted
Territory" under those circumstances, then the Parties agree that when
Company begins to engage in Business in additional cities, they will
promptly execute amendments to this Agreement to include those
additional cities in the definition of "Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and
information of Company or any of its affiliates which is defined as a
"trade secret" under applicable law.
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<PAGE> 7
(f) "Work Product" shall mean all work product, property,
data, documentation, "know-how", concepts, plans, inventions,
improvements, techniques, processes or information of any kind,
prepared, conceived, discovered, developed or created by Executive in
connection with the performance of his services hereunder.
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that
during the term of this Agreement (i) Executive will frequently be exposed to
certain Trade Secrets and Confidential Information; (ii) Executive's
responsibilities on behalf of Company will extend to all geographical areas of
the Restricted Territory; and (iii) any competitive activity on Executive's part
during the Term, or any competitive activity on Executive's part in the
Restricted Territory for a reasonable period thereafter, would necessarily
involve Executive's use of Company's Trade Secrets and Confidential Information
and would unfairly threaten Company's legitimate business interests, including
its substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of the
termination of this Agreement, Executive would have sufficient skills to find
alternative, commensurate work in his field of expertise that would not involve
a violation of any of the provisions of this Section 5. Therefore, Executive
acknowledges and agrees that it is reasonable for Company to require Executive
to abide by the covenants set forth in this Section 5. The parties acknowledge
and agree that if the nature of Executive's responsibilities for or on behalf of
Company or the geographical areas in which Executive must fulfill such
responsibilities materially change, the parties will execute appropriate
amendments to the scope of the covenants in this Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its legitimate
business interests, Executive hereby covenants and agrees that: (A)
with regard to each item constituting a Trade Secret, at all times
during which such item shall constitute a Trade Secret (before or after
the Term); and (B) with regard to any Confidential Information, at all
times during the term of this Agreement and for a period of three (3)
years following the expiration or termination of the Term for any
reason, Executive shall regard and treat each item constituting a Trade
Secret and all Confidential Information as strictly confidential and
wholly owned by Company and will not, for any reason, in any fashion,
either directly or indirectly, use, sell, lend, lease, distribute,
license, give, transfer, assign, show, disclose, disseminate,
reproduce, copy, misappropriate or otherwise communicate any such item
or information to any third party for any purpose other than in
connection with his performance of services for the Company or as
required by applicable law.
(b) Executive shall immediately notify Company of any intended
or unintended, unauthorized disclosure or use of any Trade Secrets or
Confidential Information by Executive or any other person or entity of
which Executive becomes
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<PAGE> 8
aware. Executive shall cooperate fully with Company in the procurement
of any protection of Company's rights to or in any of the Trade Secrets
or Confidential Information.
(c) Immediately upon expiration or termination of the Term for
any reason, or if notice of termination is required hereunder, upon
receipt of such notice, or at any time after such termination or notice
upon the specific request of Company, Executive shall return to Company
all written or descriptive materials of any kind in Executive's
possession or to which Executive has access that constitute or contain
any Confidential Information or Trade Secrets, and the confidentiality
obligations described in this Agreement shall continue until their
expiration under the terms of this Agreement.
(d) To the greatest extent possible, any Work Product shall be
deemed to be "work made for hire" (as defined in the Copyright Act, 17
U.S.C.A. ss. 101 et seq., as amended) and owned exclusively by Company.
Executive hereby unconditionally and irrevocably transfers and assigns
to Company all rights, title and interest Executive currently has or in
the future may have, by operation of law or otherwise, in or to any
Work Product, including, without limitation, all patents, copyrights,
trademarks, service marks and other intellectual property rights.
Executive agrees to execute and deliver to Company any transfers,
assignments, documents or other instruments which Company may deem
necessary or appropriate to vest complete title and ownership of any
Work Product, and all rights therein, exclusively in Company.
5.4 NON-COMPETITION. In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees that during
the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive receives an offer of a Competitive
Position within eighteen (18) months following expiration or termination of the
Term for any reason, and such notice shall describe all salient terms of such
offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and
agrees that (i) during the Term, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, solicit, divert or
appropriate or attempt to solicit, divert or appropriate any medical practice
managed by Company (a "Managed Practice") or actively sought prospective Managed
Practice for the purpose of providing such Managed Practice or actively sought
-8-
<PAGE> 9
prospective Managed Practice with management services competitive with those
offered by Company; and (ii) for a period of two (2) years following expiration
or termination of the Term for any reason other than termination by Executive
for Good Reason, Executive will not, either directly or indirectly, alone or in
conjunction with a Competitor or any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any Managed Practice
or actively sought prospective Managed Practice for the purpose of providing (or
having a Competitor or any other person provide) such Managed Practice or
actively sought prospective Managed Practice with management services
competitive with those offered by Company. Executive shall promptly notify
Company in writing if: (A) during the two (2) years following the expiration or
termination of the Term for any reason, Executive is contacted by any Managed
Practice or actively sought prospective Managed Practice with a request that
Executive provide Managed Practice with any management services; and (B)
provision of such services, as requested, would constitute a violation of
Executive's covenants in this Section 5. Such notice shall include all salient
information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NONSOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees that
during the Term, except to the extent that he is required to do so in connection
with his responsibilities hereunder, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor or other personnel of Company to
terminate, alter or lessen such party's affiliation with Company or to violate
the terms of any agreement or understanding between such party and Company.
Executive further agrees that during the two (2) year period following
expiration or termination of the Term for any reason other than termination by
Executive for Good Reason, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
"key" (as that term is hereinafter defined) employee, consultant, contractor or
other personnel of Company located in the Restricted Territory to terminate,
alter or lessen that party's affiliation with Company or to violate the terms of
any agreement or understanding between such party and Company. For purposes of
the preceding sentence "key" employees, consultants, contractors or other
personnel of Company are those with knowledge of or access to Company's Trade
Secrets or Confidential Information.
5.7 REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 5 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Company or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation.
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<PAGE> 10
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Company from unfair
competition. Company, however, agrees that, if the scope of enforceability of
any of these restrictive covenants is in any way disputed at any time, a court
or other trier of fact may modify and enforce such covenant to the extent that
it believes to be reasonable under the circumstances existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 5 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond the
termination of this Agreement.
SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is
terminated for Cause, or dies or is terminated due to becoming
Disabled, Executive shall be entitled only to receive any salary and
bonus amounts that have accrued prior to the effective date of
termination of the Term (the "Termination Date").
(b) If Company terminates the Term pursuant to Section
2.2(d)(ii), or if Executive terminates the Term following a Change of
Control pursuant to Section 2.2(e), Executive shall be entitled to: (a)
all salary and bonus amounts accrued through the Termination Date, and
(b) payment, for a period of twelve (12) months following the
Termination Date, of an amount equal to: (i) Executive's base salary as
of the Termination Date (with such payments to be made at such times as
they would be made if Executive's employment continued for an
additional year) LESS (ii) any salary or other amounts that Executive
is paid by any other person during that twelve month period other than
salary or amounts paid to Executive by NAENT (and in the event
Executive does not increase his work time at NAENT, Executive hereby
agrees to take reasonably diligent action to secure employment as soon
as practicable after any such termination from Company and to otherwise
mitigate his losses resulting from the loss of salary from Company).
Executive's rights to any of the compensation or benefits identified in
the preceding sentence shall be subject to Executive's compliance in
all respects of each of Executive's obligations under this Agreement.
(c) In the event that Company (or Company's successor)
following a Change of Control (as defined below) terminates Executive's
employment other than pursuant to an express termination right under
Sections 2.2(a), (b) or (c) of this Agreement, Executive shall be
entitled to severance compensation in the form of a lump sum payment in
an amount equal to two (2) times the taxable compensation received by
Executive during the most recently concluded fiscal year of Company.
For purposes of
-10-
<PAGE> 11
this Agreement, "Change of Control" shall mean the acquisition by any
single person or entity or related persons or entities of more than
fifty percent (50%) of the outstanding and issued common stock of
Company following an initial public offering of Company's common stock.
-11-
<PAGE> 12
SECTION 7. MISCELLANEOUS.
7.1 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
representatives, heirs, and permitted assigns.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
7.3 HEADINGS. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended to
be a part of or to affect in any way the meaning or interpretation of this
Agreement.
7.4 NOTICES.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified or
registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Company: Physicians' Specialty Corporation
3414 Peachtree Road, Suite 238
Atlanta, Georgia 30326
Fax No.: (404) 816-1456
Attn: Gerald R. Benjamin
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
If to Executive: Ramie A. Tritt, M.D.
5555 Peachtree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
with a copy to: Robert Goldberg, Esq.
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Fax No.: (404) 233-2188
-12-
<PAGE> 13
(b) Notices delivered pursuant to this Section 7.4(a) hereof shall be
deemed given: at the time delivered, if personally delivered, three (3) business
days after being deposited in the mail, if mailed; one (1) business day after
being sent, if faxed; and one (1) business day after timely delivery to the
courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this Section
7.4
7.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute the same Agreement. Any signature page of any
such counterpart, or any electronic facsimile thereof, may be attached or
appended to any other counterpart to complete a fully executed counterpart of
this Agreement, and any telecopy or other facsimile transmission of any
signature shall be deemed an original and shall bind such party.
7.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto. This Amended and Restated Agreement
amends, restates and replaces the Prior Agreement in its entirety.
7.7 SEVERABILITY. The unenforceability or invalidity of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions hereof, but such remaining provisions shall be construed
and interpreted in such a manner as to carry out fully the intent of the parties
hereto; provided, however, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties hereto that such
judicial body, to the greatest extent possible, reduce the breadth of such
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
7.8 WAIVER. No waiver, termination or discharge of this Agreement, or
any of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
-13-
<PAGE> 14
7.9 INTERPRETATION. Should a provision of this Agreement require
judicial interpretation, it is agreed that the judicial body interpreting or
construing the Agreement shall not apply the assumption that the terms hereof
shall be more strictly construed against one party by reason of the rule of
construction that an instrument is to be construed more strictly against the
party which itself or through its agents prepared the agreement, it being agreed
that all parties and/or their agents have participated in the preparation of
this Agreement equally.
7.10 APPLICABLE LAW. Should any provision of this Agreement, including,
without limitation, any provision relating to compensation, be found to be in
violation of any applicable law, rule or regulation, the parties hereto agree to
execute an amendment to this Agreement to bring such provision into compliance
with any such law, rule or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By: /s/ Gerald R. Benjamin
------------------------------
Name: Gerald R. Benjamin
------------------------------
Its: Vice Chairman
------------------------------
"Executive"
RAMIE A. TRITT, M.D.
/s/ Ramie A. Tritt
------------------------------
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<PAGE> 1
EXHIBIT 10.21
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT made this 12th day of February, 1997
effective as of October 7, 1996 (the "Effective Date"), by and among KEVIN
THOMAS, M.D., ("Thomas"), STEPHEN B. LEVINE, M.D. ("Levine"), PINNACLE EYE CARE,
INC., a Georgia corporation ("Pinnacle Eye Care") which Pinnacle Eye Care is
affiliated with Thomas and Levine (collectively, with Thomas and Levine, the
"Pinnacle Group"), RAMIE A. TRITT, M.D., ("Tritt"), ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C. ("Atlanta ENT"), RANDE H. LAZAR, M.D. ("Lazar"), OTOLARYNGOLOGY
OF MEMPHIS, P.C. ("Otolaryngology of Memphis" and, together with Lazar, the
"Memphis Group"), GERALD R. BENJAMIN ("Benjamin"), PREMIER HEALTHCARE
("Premier") and PHYSICIANS' SPECIALTY CORP. (the "Company") (each a "Party" and
all collectively hereafter referred to as the "Parties").
W I T N E S S E T H :
WHEREAS, the Parties hereto (other than the Company) entered into an
agreement dated June 26, 1996, as amended by the Addendum to such agreement (the
"Formation Agreement") in connection with the proposed formation of the Company
(and the Parties agree that the reference in the Formation Agreement to "various
professional corporations affiliated with Thomas and Levine" refers to Pinnacle
Eye Care); and
WHEREAS, the Parties hereto desire to amend or terminate the Formation
Agreement, as set forth below;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Termination of Parties to the Formation Agreement. Effective as of
the Effective Date, the Formation Agreement shall terminate with respect to the
Pinnacle Group and the Memphis Group (the "Terminating Parties") and, except as
specifically set forth herein, neither the Pinnacle Group nor the Memphis Group
shall have any further rights or obligations under the Formation Agreement. The
Parties hereto understand that Tritt, Atlanta ENT, Benjamin, Premier and the
Company (the "Non-Terminating Parties") shall remain as parties to the Formation
Agreement which, except as specifically set forth herein, shall remain in full
force and effect with respect to the Non-Terminating Parties, subject to such
further changes or amendments thereto as the Non-Terminating Parties may agree
to.
2. Resignations from Boards of Directors. Each of Thomas and Lazar
hereby confirm their resignations from the Board of Directors of each of the
Company, PSC Management Corp. and PSC Acquisition Corp. effective as of August
1, 1996.
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<PAGE> 2
3. Payment of Outstanding Loans. The promissory notes issued by the
Company on July 22, 1996 in connection with loans made to the Company by Atlanta
ENT, the Memphis Group, the Pinnacle Group, Tritt and Benjamin in the aggregate
principal amount of $485,000 (the "Original Principal") shall remain in full
force and effect provided, however, that the promissory notes issued to the
Pinnacle Group and to the Memphis Group (collectively, the "Note(s)") are hereby
amended and subject to the following provisions:
(a) Of the Remaining Funds (as defined in subparagraph (b)
below), the amounts corresponding to the percentages set forth below opposite
the respective Holder of the Notes shall be paid by the Company upon execution
of this Termination Agreement as a pre-payment of a portion of the principal
amount of such Note, by certified check:
<TABLE>
<CAPTION>
Percentage of Amount of
Holder Remaining Funds Prepayment
------ --------------- ----------
<S> <C> <C>
Pinnacle Group 31.92% $48,459.77
Memphis Group 19.11% $29,012.10
</TABLE>
(b) Remaining Funds shall mean $151,816.31, which equals the
Original Principal less all expenses incurred by the Company, including accrued
but unpaid expenses, through October 7, 1996 in connection with the organization
of the Company, a proposed initial public offering of Company securities
("IPO"), and related matters.
(c) The outstanding principal amount of the Notes, after
giving effect to the pre-payments made pursuant to sub paragraph (a) above,
together with accrued interest, shall be payable pursuant to the terms of the
Notes (with the term "IPO" contained in the Notes to be defined herein).
(d) Contemporaneously with the closing of an IPO, the Company
shall reimburse the Pinnacle Group and the Memphis Group for out-of-pocket
travel expenses incurred by them in connection with the proposed IPO in the
maximum amount of $5,000 for the Pinnacle Group and in the maximum amount of
$5,000 for the Memphis Group upon submission of appropriate invoices and
evidences of payment.
(e) The Company shall provide representatives of the Memphis
Group and the Pinnacle Group, upon reasonable notice and at the expense of the
Pinnacle Group and the Memphis Group, with access to such financial and
accounting information of the Company as is necessary to verify the amount of
Remaining Funds, subject to confidentiality restrictions.
4. Access to Financial Information The Company hereby authorizes Arthur
Andersen & Co. to release to the Pinnacle Group and to the Memphis Group,
respectively, copies of the draft financial statements, to the extent completed,
of the respective entity that were prepared in contemplation of an IPO and the
work papers relating to such financial statements.
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<PAGE> 3
5. Release. Each Party hereby releases and forever discharges
each other Party and each of his/its agents, successors, owners, assigns,
employees, officers, affiliates, subsidiaries, parent entities, and any entity
or person which directly or indirectly controls, is controlled by, or is under
common control with it, from any actions, causes of action, suits, liabilities,
claims, demands, damages or causes of any kind or nature whatsoever, in
connection with any thing or matter from the beginning of time through the date
hereof, whether presently existing or arising in the future, whether known or
unknown, including but not limited to those which arise out of the Formation
Agreement, except to the extent of any obligation specifically incurred under
this Termination Agreement or the Notes. Each releasing Party shall indemnify
and hold each other Party harmless from any and all loss, cost or liability
resulting from the assertion of the released claims by, through or under the
releasing Party or any party affiliated with the releasing Party.
6. Miscellaneous.
(a) This Termination Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Georgia without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Georgia or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Georgia.
(b) Each of the parties submits to the jurisdiction of any
state or federal court sitting in Atlanta, Georgia, in any action or proceeding
arising out of or relating to this Termination Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
(c) Each of the Pinnacle Group and the Memphis Group
understands that, although the Company has a letter of intent from an investment
banking firm and is preparing a registration statement intended to be filed with
the Securities and Exchange Commission relating to an IPO, none of the other
Parties hereto makes any representation that any IPO will ever occur, or as to
the size or valuation of any such IPO.
(d) This Termination Agreement shall be binding upon and inure
to the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Termination Agreement sets forth
the entire agreement and understanding among the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them, except as specifically set
forth herein.
(e) This Termination Agreement may be executed in
counterparts. Upon the execution and delivery of this Termination Agreement by
any Party and payment to such Party of the amounts set forth in Subparagraph
3(a) hereof, this Agreement shall become a binding
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<PAGE> 4
obligation of such Party with respect to such Party's rights and obligations as
herein provided; subject, however, to the right hereby reserved to the Company
to enter into this Termination Agreement with other Parties hereto.
(f) The Company, Tritt, Atlanta ENT, Benjamin and Premier
agree that if on or before December 31, 1997 (the "Completion Date"), the IPO is
not completed but the Company or Atlanta ENT (or an affiliate thereof) (referred
to in this sub-paragraph (f) as collectively, a "Company Successor"), completes
a public offering, private financing or other sale of securities, or obtains a
loan, in which it receives net cash proceeds or other non-cash consideration
from third parties of at least $250,000 (a "Third Party Financing") or receives
aggregate net cash proceeds or other non-cash consideration from a series of
Third Party Financings of at least $250,000, then contemporaneously with the
receipt by the Company Successor of such proceeds or non-cash consideration of
the Third Party Financing, and notwithstanding anything contained in the Notes
or in this Agreement (other then the provisions of this Section (f)) to the
contrary, the Company Successor shall pay to the Pinnacle Group and the Memphis
Group the outstanding principal amount, together with accrued interest, of their
respective Notes (after giving effect to any pre-payments received by the
Pinnacle Group or the Memphis Group, as applicable), in accordance with the
terms of the Notes, and any amounts owed under Section 3(d) of this Agreement,
provided that:
(i) in the event a Company Successor obtains
non-cash consideration in connection with a Third Party Financing on or before
the Completion Date, payment under this Section (f) of the Notes and any amounts
owed under Section 3(d) of this Agreement may be deferred, to the extent that
the net cash proceeds received are less than the amount necessary to pay such
obligations, until such time as the Company Successor is able (giving effect to
legal and contractual restrictions on resale) to sell such portion of such
non-cash consideration as is necessary to result in net cash proceeds sufficient
to pay such obligations;
(ii) notwithstanding the foregoing, a Third Party
Financing shall not include (x) any sale of the assets or stock of Atlanta ENT
to a third party which is engaged in the physician practice management business;
(y) any financing obtained by Atlanta ENT in the ordinary course of business,
such as receivables, equipment or similar financing; or (z) any personal loan or
loan secured by real or personal property of any Company Successor who is an
individual; and
(iii) unless and until the amounts payable under the
Notes and Section 3(d) of this Agreement have been paid, nothing contained in
this Section (f) shall relieve the Company from its obligations under the Notes
and said Section 3(d).
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<PAGE> 5
IN WITNESS WHEREOF, the Parties hereto have executed this Termination
Agreement as of the day and year first above written.
THE PINNACLE GROUP
<TABLE>
<S> <C>
/s/ Kevin Thomas, M.D. By: /s/ Kevin Thomas
- ------------------------------------- ---------------------------------
KEVIN THOMAS, M.D., individually KEVIN THOMAS, Authorized Officer
Pinnacle Eye Care
/s/ Stephen B. Levine, M.D. By: /s/ Stephen B. Levine
- ------------------------------------- -------------------------------------
STEPHEN B. LEVINE, M.D., individually STEPHEN B. LEVINE, Authorized Officer
Pinnacle Eye Care
ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
/s/ Ramie A. Tritt, M.D. By: /s/ Ramie A. Tritt
- ----------------------------------------- --------------------------------------
RAMIE A. TRITT, M.D., individually RAMIE A. TRITT, Authorized Officer
THE MEMPHIS GROUP
/s/ Rande H. Lazar, M.D. By: /s/ Rande H. Lazar
- ------------------------------------------ --------------------------------------
RANDE H. LAZAR, M.D., individually RANDE H. LAZAR, President,
Otolaryngology of Memphis, P.C.
</TABLE>
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<PAGE> 6
PREMIER HEALTHCARE
a Division of BOCK, BENJAMIN & CO.
<TABLE>
<S> <C>
/s/ Gerald R. Benjamin By: /s/ Gerald R. Benjamin
- ------------------------------------------ --------------------------------------
GERALD R. BENJAMIN, individually GERALD R. BENJAMIN, President
PHYSICIANS' SPECIALTY CORP.
By: /s/ Ramie A. Tritt
-------------------------------------
RAMIE A. TRITT, President
</TABLE>
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<PAGE> 1
EXHIBIT 10.22
The following information represents summary indicative terms for a credit
facility for Physicians' Specialty Corp. The terms represent a commitment to
lend by NationsBank, N.A. (South). This information is confidential and may not
be released by you or your representatives or agents, in written or verbal form,
without the prior written consent of NationsBank.
PHYSICIANS' SPECIALTY CORP.
TERMS AND CONDITIONS
JANUARY 30, 1997
<TABLE>
<S> <C> <C>
Borrower: Physicians' Specialty Corp.
Lender: NationsBank, N.A. (South)
Facility: $20,000,000.00 Revolver/Term
Purpose and For acquisitions of physician practices in the Otolaryngology field and
Use of Proceeds: Related Subspecialties, and Complimentary Specialties, and for working
capital purposes.
Working Capital Up to $5,000,000.00 of the Facility may be used for working capital,
Sublimit: based on an advance rate cap of 80% of accounts receivable.
Final Maturity: Five years from closing date.
Closing Date: On or before March 31, 1997.
Facility Fee: An up-front fee of 50 basis points, $10,000.00 of which
is due at commitment acceptance, $15,000.00 of which is due by
February 7, 1997, and $75,000.00 of which is due at time of
loan closing.
Unused A commitment fee of 37.5 basis points on the unused portion of the
Commitment Fee: facility due quarterly in arrears.
Mandatory Date: Mandatory Commitment Reduction:
Commitment ------------------------------------ ------------------------------------
Reductions: 1 year from closing None.
2 years from closing None.
3 years from closing 33%
4 years from closing 33%
5 years from closing 33%
</TABLE>
<PAGE> 2
Interest: Borrower will have the option of NationsBank's Base Rate or
the London Interbank Offered Rate ("LIBOR"), plus the
Applicable Margin below. Applicable margins are based upon
the ratio of Funded Debt to Cash Flow as defined in the
covenants section.
<TABLE>
Applicable Margin
Funded Debt/ ---------------------------
Cash Flow Prime Rate Libor Rate
--------------------- --------------- ----------
<S> <C> <C>
=,> 2.5:1, =,< 3.0:1 50 basis points 200 bps
=,> 2.0:1, < 2.5:1 30 185
=,> 1.0:1, < 2.0:1 0 140
< 1.0:1 0 120
</TABLE>
Interest shall be payable in arrears on the last day of each
month in the case of Base Rate Loans, and on the last day of
each interest period in the case of Libor Rate Loans,
calculated on an actual/365 day basis for Base Rate Loans, and
an actual/360 day basis for Libor Rate Loans.
The Borrower may select interest periods of 1, 2 or 8 months
for Libor Rate Loans, subject to availability. There will be a
maximum of five Libor contracts in place at any one time.
The interest rate will increase 2% per annum upon the
occurrence and during the continuation of an Event of Default
under the Credit Agreement. The Credit Agreement shall include
standard increased cost and yield protection
provisions.
Availability: Under the $5,000,000.00 working capital sublimit: Up to 80%
of accounts receivable, as long as all other covenants are
met.
For Acquisition purposes: Up to $20,000,000.00 of the
Facility is available to fund acquisitions based upon the
following limitations:
Up to 2.5 times Borrower's historical EBITDA on a rolling four
quarters basis. Acquisition EBITDA less any incremental
increase in overhead not included in Borrower's EBITDA may be
included if cash flows are verifiable with financial
statements. However, EBITDA which is acquired in an
acquisition in which the purchase price equals or exceeds
$7,500,000.00 and in which the Facility is not funded for the
acquisition, shall not be included in Acquisition EBITDA for
purposes of calculating availability until Bank has received
quarterly financial reporting which includes a full fiscal
quarter of results of the acquired entity under the Management
Services Agreement.
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<PAGE> 3
Bank approval of an acquisition, regardless of whether funded
with the Facility, shall be required whenever:
1. The acquisition purchase price is
greater than 7 times the Acquisition EBITDA of the
particular acquisition; or
2. Any acquisition which occurs in any 6 month calendar
period in which the total purchase price of all
acquisitions by the Borrower to date in the 6 month
period is equal to or greater than $7,500,000.00; or
3. A Material Acquisition: A Material
Acquisition shall be defined as any acquisition in which
the purchase price of the acquisition equals or exceeds
$5,000,000.00.
At no time shall the balance of the Facility exceed
$20,000,000.00.
Collateral: A first priority lien on all accounts receivable, a double
negative pledge on all of Borrower's assets, and an
assignment of stock of all subsidiaries of Borrower now in
existence, or hereafter created.
Seller Notes may not be collateralized with accounts
receivable or other current assets. All seller notes must be
subordinated to NationsBank.
Financial Standard for transactions of this type, including but not
Covenants: limited to: Maximum Total Funded Debt to sum of Borrower's
EBITDA and Acquisition EBITDA 3:1.
Maximum Total Funded Debt to Consolidated Capital .50:1.
Minimum Current Ratio 1.5:1.
Minimum Debt Service Coverage Ratio 1.5:1.
Minimum Interest Coverage Ratio: 2:.
Minimum Net Worth shall be the Borrower's actual net
worth immediately following the IPO, plus 100% of positive net
income each quarter, plus 100% of all additions to
stockholders' equity from sale or issuance of stock.
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<PAGE> 4
Miscellaneous Those customarily found in transactions of this type and any
Covenants: additional covenants appropriate in the context of this
particular transaction, including without limitation the
following:
Restriction on Debt: the Borrower and its Subsidiaries will be
prohibited from incurring Debt other than the following: (a)
Debt pursuant to the Facility, (b) subordinated seller notes,
(c) certain business expenses and trade accounts payable in
the ordinary course of business, and (d) purchase money debt
in an amount not to exceed $750,000.00 in the aggregate.
Restriction on Contingent Obligation: the Borrower and its
Subsidiaries will be prohibited from incurring contingent
obligations other than permitted contingent obligations not
to exceed $200,000.00 in the aggregate.
Restriction on Liens: the Borrower and its Subsidiaries will
not permit any liens to exist other than liens in favor of the
Bank, and liens to secure Purchase Money Debt not to exceed
$750,000.00 in the aggregate.
Restrictions on Investments: the Borrower and its Subsidiaries
will be prohibited from making advances and loans to, and
equity investments in, any person except for the following:
(a) investments in Cash and Cash Equivalents, (b) loans and
advances to employees for reasonable travel and business
expenses in the ordinary course of business, (c) accounts
receivable created, and prepaid expenses incurred, in the
ordinary course of business, (d) loans to Affiliated
Physicians not to exceed $500,000.00 in the aggregate.
Restrictions on Consolidations and Mergers: the Borrower or
any Subsidiary will be prohibited from entering into any
merger or consolidation with another person except that (a)
any Subsidiary may merge or consolidate with another Person so
long as (i) the Person surviving such merger or consolidation
is the Borrower or wholly-owned Subsidiary, (ii) the
transaction would otherwise constitute a Permitted Acquisition
and (iii) immediately after giving effect thereto, no Default
or Event of Default would exist, and (b) the Borrower may
merge, consolidate or combine with another Person so long as
(i) the Borrower is the surviving corporation, (ii) the
transaction would otherwise constitute a Permitted Acquisition
and (iii) immediately after giving effect thereto, no Default
or Event of Default would exist.
Restricted Payments: the Borrower will not declare or pay
dividends (other than those payable solely in common stock),
or make any other
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<PAGE> 5
stockholder distributions to the shareholders of the Borrower
or redemptions or purchases of the capital stock of the
Borrower if an event of default has occurred or would occur as
a result thereof.
Insurance: the Borrower and its Subsidiaries shall maintain
adequate levels of insurance with companies acceptable with
the Bank. The Borrower shall obtain and maintain Key Man life
insurance on Richard Ballard in the amount of $1,000,000.00,
and on Ramie Tritt in the amount of $5,000,000.00.
Compliance with Laws: the Borrower and its Subsidiaries must
comply with ERISA, environmental and other laws.
Limitation on Sale of Assets: the Borrower and its
Subsidiaries will be prohibited from selling or disposing of
assets except for (a) sale of inventory in the ordinary course
of business, (b) the sale or exchange of used or obsolete
equipment for replacement equipment, (c) the sale, transfer or
conveyance of assets from any Subsidiary to the Borrower or
another Subsidiary if, immediately after giving effect
thereto, no Default or Event of Default exists.
Financial and Business Information: the Borrower will be
required to deliver to the Bank the following financial and
business information: (a) within 45 days after each of the
first three fiscal quarters, for the Borrower, the
consolidated and consolidating balances sheets as of the close
of such fiscal quarter and the related consolidated and
consolidating statements of income, retained earnings and cash
flows for the fiscal quarter then ended and for that portion
of the fiscal year then ended in each case setting forth
comparative figures for the related periods in the fiscal year
and comparable budgeted figures for such period, all of which
shall be certified by the Chief Financial Officer of the
Borrower, subject to normal year-end adjustments; (b) within
120 days after the close of each fiscal year, for the
Borrower, the consolidated and consolidating balance sheets as
of the close of such fiscal year and the related consolidating
and consolidated statements of income, retained earnings, and
cash flows for such fiscal year and setting forth comparative
figures for the preceding fiscal year and comparable budgeted
figures for such period and certified (i) in the case of the
consolidating statements, by the Chief Financial Officer of
the Borrower, and (ii) in the case of the consolidated
financial statements of the Borrower, by Arthur Anderson, or
other independent certified public accountants of nationally
recognized standing reasonably acceptable to the Bank,
together with a signed unqualified opinion of such accounting
firm; (c) concurrently with the delivery of financial
statements described in (a) and (b) above, a certificate of
compliance with the Credit
-5-
<PAGE> 6
Documents signed by the Chief Financial Officer of the
Borrower, together with a covenant calculation worksheet, and
an accounts receivable aging schedule; and (d) SEC reports and
filings, management letters from auditors and other operating
and financial information reasonably requested by the Bank.
Additionally, within 45 days of each fiscal quarter, Borrower
shall provide Bank with a schedule of the management fees
received from each Affiliated Practice.
Additionally, within 45 days prior to the close of the fiscal
year, Borrower shall provide Bank with an operating budget for
the following year.
Within 45 days prior to the close of each fiscal year,
Borrower shall provide Bank with a capital expenditures budget
for the new fiscal year.
Other Covenants: Other affirmative and negative covenants
customarily found in transactions of this type and additional
covenants appropriate in the context of this particular
transaction.
Reporting The following information will be required for each
Requirements on acquisition. This information is required not more than ten
Acquisitions: business days after an acquisition which does not require Bank
approval, and not less than ten business days prior to an
acquisition which requires Bank approval:
(a) A description of the terms of the acquisition (including
the purchase price and method and structure of payment).
(b) A description of the entities to be acquired, including
the number and kinds of physicians, number of employees, and
location of clinics.
(c) Two years of historical financial statements. An audit
will be required whenever an Acquisition purchase price equals
or exceeds $7,500,000.00 and the Facility is funded for the
acquisition.
(d) Certificate indicating compliance with covenants on a
pro-forma basis.
(e) Pro-forma "roll-up" based on prior 12 months of operating
history, showing existing Borrower EBITDA and Acquisition
EBITDA broken out.
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Pro-forma borrowing base will be required for each
acquisition requiring an advance under the credit facility,
showing compliance with all covenants including the
acquisition.
(f) Copies of any loan documentation for seller notes.
Conditions The funding of the Facility will be subject to satisfaction
Precedent: of conditions precedent deemed appropriate by the Lenders for
similar financings, and for this transaction in particular,
including but not limited to the following:
Prior to closing the revolver Physicians' Specialty Corp.
shall have successfully completed an initial public equity
offering raising not less than $13,000,000 in net proceeds and
all outstanding indebtedness shall have been repaid.
The Bank shall have received the following, and they shall be
in form and substance satisfactory to Bank:
- A copy of the final version of the Management Services
Agreement.
- A copy of the Physician Employment Agreement.
The Bank shall have received the Management Succession Plan
for the CEO, CFO, COO and Chairman positions.
All loan documentation for the Facility shall be satisfactory
in form and substance to the Bank.
No material adverse change shall have occurred in the
condition (financial or otherwise), operations, prospects or
business of the Borrower.
The Bank shall have received such other opinions, certificates
and agreements as it shall have requested in connection with
the financing, all in form and substance satisfactory to the
Bank. Other items may be required upon request of
NationsBank's counsel.
Representations Standard for transactions of this type.
and Warranties:
Definitions: Total Funded Debt: All borrowed money including but not
limited to advances under this credit facility, capitalized
leases that are not subordinated to NationsBank's credit
facility, and any seller notes.
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Borrower's EBITDA: Shall be the sum of earnings before
interest, income taxes, depreciation and non-cash
amortization not adjusted for extraordinary gains or losses
less any non-expensed payments to physicians for the prior
four quarters.
Acquisition EBITDA: Shall be the "Management Fee" based on the
prior four quarters revenue, as if the service agreement had
been in effect for the previous four quarters.
Management Fee: As defined in the Service Agreement.
Current Ratio: Current assets divided by current
liabilities.
Debt Service Coverage Ratio: The sum of Borrower's EBITDA plus
Acquisition EBITDA less cash taxes, less dividends, divided by
the sum of : current maturities of long term debt plus
interest expenses for the prior rolling four quarters.
Interest Coverage Ratio: Borrower EBITDA plus Acquisition
EBITDA divided by interest expense for the prior rolling four
quarters.
Consolidated Capital: The sum of consolidated stockholders'
equity and consolidated debt.
Related Subspecialties: Medical practices which are
Subspecialties to the Otolaryngology field. These may
include: Pediatric Otolaryngology, Head and Neck Surgery,
Rhinology, Allergy, Facial Plastics and Reconstructive
Surgery, Otology, Neurotology, and Laryngology.
Complimentary Specialities: Medical practices which are
complimentary to the Otolaryngology field. These may
include: Audiology, Pulmonology, Sleep Medicine, Allergy,
Plastic Surgery, Oral Surgery, Diagnostic Imaging, and
Vascular Testing.
Events of Default:Standard for transactions of this type.
Funding All requests for advances must be received by 2:00 p.m. at
Prerequisites: the NationsBank office. The minimum dollar amount of any
advance shall be $100,000. Advances for funding of
Acquisitions must be pre-approved as explained above under
Availability and Acquisition Reporting Requirements above.
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Commitment This commitment shall expire unless accepted by the Borrower
Expiration: no later than January 31, 1997, or if the transaction
contemplated hereunder has not been consummated on or before
March 15, 1997. In addition, in the sole discretion of
NationsBank, if a material adverse change in the financial
condition of the Borrower has occurred then the Bank may
terminate the commitment.
Expenses: The Borrower shall pay all costs and expenses incurred by
the Bank in connection with the Bank's review, due diligence
and closing of this transaction, including the fees and
expenses of counsel to the Bank in connection with the
negotiation and preparation of documentation for this
transaction, whether or not this transaction closes.
Integration: The terms set forth above represent the entire understanding
between the Borrower and NationsBank with respect to the
subject matter of this commitment, and this commitment
supersedes any prior and contemporaneous agreements,
commitments, discussions and understandings, oral or
written, with respect to the subject matter of this
commitment.
Governing Law: This proposal and the Loan Documents shall be governed by and
construed in accordance with the laws of the State of Georgia
(without regard to choice of law principals.)
Arbitration: The Loan Documents will contain NationsBank's standard
arbitration clause for resolution of all disputes.
We are pleased to have this opportunity to expand our relationship with
Physicians' Specialty Corp.
Sincerely Yours,
NATIONSBANK N.A. (SOUTH)
Laura Gray
Vice President
Accepted this ____ day of
January, 1997.
Physicians' Specialty Corp.
By:
-------------------------
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EXHIBIT 10.23
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
and effective this 6th day of January, 1997 (the "Effective Date"), by and
between ROBERT A. DIPROVA, an individual resident of the State of Georgia
(hereinafter referred to as "Executive"), and PHYSICIANS' SPECIALTY CORP., a
corporation organized under the laws of the State of Delaware (hereinafter
referred to as "Company");
W I T N E S S E T H:
WHEREAS, Company is engaged in the business (the "Business") of providing
practice management and business services to, and acquiring assets of, physician
practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on the
terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
Section 1. Scope of Employment.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to the
employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the office of
Executive Vice President and Chief Financial Officer of Company and, as such,
shall perform the executive-level services (collectively, "Services") described
in Company's Bylaws and as delegated to him from time to time by the Chief
Executive Officer, President and/or the Board of Directors of the Company.
Executive shall devote substantially all of Executive's business time, energy
and skill to performing his
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obligations hereunder and shall perform his obligations hereunder diligently,
faithfully and to the best of Executive's abilities.
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be based in
Atlanta, Georgia at the principal executive offices of Company, except for
reasonably required travel on business.
1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this Agreement,
during the Term Executive shall comply in all material respects with all
policies and procedures applicable to senior executives of Company generally and
to Executive specifically.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this Agreement
(the "Initial Term") shall be a three (3) year period commencing two weeks (14
days) from the date of the "IPO Closing" or as otherwise mutually agreed. The
"IPO Closing" shall be the date of the consummation of the underwritten initial
public offering of the Company's common stock and listing of the Company's
shares on NASDAQ. If the IPO Closing shall not have occurred on or before June
30, 1997, either Executive or Company may terminate this Agreement on written
notice to the other. After the Initial Term, Executive's employment under this
Agreement shall automatically renew for successive additional one (1) year
("Renewal Terms") terms (the Initial Term and any Renewal Terms being
collectively referred to as the "Term"). The Term shall be subject to
termination in accordance with Section 2.2.
2.2 TERMINATION.
(a) DEATH. This Agreement shall automatically and immediately terminate
upon the death of Executive.
(b) DISABILITY. This Agreement may be terminated by either party hereto
upon written notice to the other in the event Executive becomes "Disabled" (as
hereinafter defined). For purposes of this Agreement, "Disabled" shall be
defined as either: (a) the reasonable, good faith determination by an
independent physician selected by the Board of Directors of Company that due to
a mental or physical impairment or disability, Executive has been incapable or
unable, even with reasonable accommodations, to fully perform the material
duties performed by Executive for Company immediately prior to such disability
for a period of at least one hundred eighty (180) days in the aggregate
(although not necessarily consecutively) within any consecutive three hundred
sixty-five (365)-day period; or (b) a determination that Executive
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is disabled pursuant to the terms of any long-term disability insurance policy
which Company or Executive has purchased and which covers Executive.
(c) CAUSE. In addition to any other rights or remedies available to
Company at law, in equity or pursuant hereto, Company may, in its sole
discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to Executive.
For purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of any material
restriction or limitation on Executive's ability to perform his services
hereunder;
(ii) (A) Executive has committed an act constituting fraud, deceit or
intentional material misrepresentation with respect to Company or any
client, customer or supplier of Company; or (B) Executive has embezzled
funds or assets from Company or any client or customer of Company;
(iii) Executive's breach or default in the performance of any
material provision of this Agreement which Executive has not cured or
corrected to Company's reasonable satisfaction within thirty (30) days
after receiving notice of such breach or default (provided that any breach
by Executive of any obligation under Section 5.4 shall be grounds for
immediate termination "For Cause" without any notice or right to cure or
correct); or
(iv) (A) Executive has engaged in willful misconduct or fraud or
gross negligence; or (B) Executive's conduct is materially detrimental to
the reputation, character or standing of Company.
(d) DISCRETIONARY TERMINATION.
(i) Either Company or Executive may terminate the Term effective as
of the end of the Initial Term or the then current Renewal Term by
providing the other with written notice of termination at least sixty (60)
days prior to the end of the Initial Term or then current Renewal Term, as
the case may be. In the event of Termination under this Section 2.2(d)(i),
Executive shall not be entitled to any severance benefit under Section 6.
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(ii)The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice
to Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b), unless such termination without cause
follows a Change of Control, in which event Executive shall be entitled
to the severance benefit provided in Section 6(c).
(e) CHANGE OF CONTROL. Executive may terminate the Term following a Change
of Control (as defined in Section 6(c)), by providing Company at least thirty
(30) days prior written notice of termination.
(f) GOOD REASON; DIMINUTION IN RESPONSIBILITY; REDUCTION IN COMPENSATION.
Executive shall have the right to terminate this Employment Agreement for "Good
Reason." For purposes hereof, Good Reason shall be limited to (i) the repeated
material breach by the Company of its material obligations to Executive under
this Agreement which the Company shall fail to correct or cure within forty-five
(45) days after being provided with written notice thereof by Executive; (ii)
the material diminution by the Board of Directors or Chief Executive Officer of
the Company, without consent of the Executive, of Executive's employment
responsibilities specifically as the Company's Chief Financial Officer
(principal financial officer) under this Agreement; or (iii) the reduction of
Executive's Base Salary, without consent of the Executive, by ten percent (10%)
or more.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Executive shall be paid a base salary (the "Base Salary")
during the Term at an initial rate of One Hundred Twenty Thousand Dollars
($120,000) per twelve (12) month period. The Base Salary shall be (a) payable in
equal installments on the schedule that Company may implement from time to time
for general payroll purposes, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 BONUS. During the Term, Executive shall be eligible to be considered
for a periodic bonus (the "Bonus") of up to 50% of his Base Salary, based on
Company's meeting certain Board of Directors approved milestones relating to
such matters as practice acquisitions, pre-tax profit margins, consolidated
operating income levels, consummation of follow-on financings and management
team development; provided, however, that the Bonus shall be subject to the
Compensation Committee of the Board of Directors adopting and
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ratifying such a bonus program and approving in its sole discretion the periodic
Bonus grants to Executive.
SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled to
participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) in its sole
discretion for participation by Executive subject to the terms and conditions of
such plans (collectively, the "Benefit Plans"). Company shall have the right to
purchase in Executive's name a "key man" life insurance policy naming Company as
sole beneficiary under the policy. Company shall be the sole owner of such
policy. Nothing herein shall require Company to adopt any such employee benefit
plan or program.
4.2 VACATION. Executive shall be entitled to three (3) paid weeks of
vacation per year during the Term, to be accrued and taken in accordance with a
policy that is consistent with Company's normal vacation policy applicable to
senior executive employees.
4.3 MISCELLANEOUS. To the extent consistent with its existing policies and
procedures, Company shall reimburse Executive for reasonable costs incurred by
Executive for continuing professional education and for dues for membership in
appropriate professional organizations and subscriptions for appropriate
business periodicals and publications.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following terms shall
have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or indirect
equity ownership (excluding ownership of less than 2% of the equity of an
entity whose equity is listed on a major U.S. exchange or traded on the
NASDAQ over-the-counter market) or control of all or any portion of a
"Competitor" (as hereinafter defined), or (ii) any employment, consulting,
partnership, advisory, directorship, agency, promotional or independent
contractor arrangement between Executive and any Competitor whereby
Executive is required to perform services substantially similar to those
that he is to perform for Company hereunder.
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(b) "Competitor" shall refer to any person or entity engaged, wholly
or partly, in the Business.
(c) "Confidential Information" shall mean any and all proprietary and
confidential data or information of Company or any of its affiliates,
other than "Trade Secrets" (as hereinafter defined), which is of tangible
or intangible value to Company or any of its affiliates and is not
public information or is not generally known or available to Company's
competitors but is known only to Company or its affiliates and their
employees, independent contractors or agents to whom it must be confided
in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within a twenty (20)
mile radius of the Company's principal office in Atlanta, Georgia. The
Parties intend for the "Restricted Territory" during the entire Term to
include a twenty (20) mile radius of all other United States cities where
Company is engaged in the Business, throughout which territory the parties
acknowledge Executive will be performing his employment responsibilities
on behalf of Company. As of the Effective Date, those cities include
Atlanta, Georgia. If applicable law permits a deemed or automatic
amendment to the definition of "Restricted Territory," then as soon as
Company begins to engage in the Business in any additional city, the
definition of "Restricted Territory" under this Agreement shall be deemed
automatically amended to include the city limits of any such additional
cities and a twenty (20) mile radius of those cities. If applicable law
does not permit a deemed or automatic amendment to the definition of
"Restricted Territory" under those circumstances, then the Parties agree
that when Company begins to engage in Business in additional cities, they
will promptly execute amendments to this Agreement to include those
additional cities in the definition of "Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and information of
Company or any of its affiliates which is defined as a "trade secret"
under applicable law.
(f) "Work Product" shall mean all work product, property, data,
documentation, "know-how", concepts, plans, inventions, improvements,
techniques, processes or information of any kind, prepared, conceived,
discovered, developed or created by Executive in connection with the
performance of his services hereunder.
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<PAGE> 7
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that
during the term of this Agreement (i) Executive will frequently be exposed to
certain Trade Secrets and Confidential Information; (ii) Executive's
responsibilities on behalf of Company will extend to all geographical areas of
the Restricted Territory; and (iii) any competitive activity on Executive's
part during the Term, or any competitive activity on Executive's part in the
Restricted Territory for a reasonable period thereafter, would necessarily
involve Executive's use of Company's Trade Secrets and Confidential Information
and would unfairly threaten Company's legitimate business interests, including
its substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of the
termination of this Agreement, Executive would have sufficient skills to find
alternative, commensurate work in his field of expertise that would not involve
a violation of any of the provisions of this Section 5. Therefore, Executive
acknowledges and agrees that it is reasonable for Company to require Executive
to abide by the covenants set forth in this Section 5. The parties acknowledge
and agree that if the nature of Executive's responsibilities for or on behalf
of Company or the geographical areas in which Executive must fulfill such
responsibilities materially change, the parties will execute appropriate
amendments to the scope of the covenants in this Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its legitimate
business interests, Executive hereby covenants and agrees that: (A) with
regard to each item constituting a Trade Secret, at all times during which
such item shall constitute a Trade Secret (before or after the Term); and
(B) with regard to any Confidential Information, at all times during the
term of this Agreement and for a period of three (3) years following the
expiration or termination of the Term for any reason, Executive shall
regard and treat each item constituting a Trade Secret and all
Confidential Information as strictly confidential and wholly owned by
Company and will not, for any reason, in any fashion, either directly or
indirectly, use, sell, lend, lease, distribute, license, give, transfer,
assign, show, disclose, disseminate, reproduce, copy, misappropriate or
otherwise communicate any such item or information to any third party for
any purpose other than in connection with his performance of services for
the Company or as required by applicable law.
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<PAGE> 8
(b) Executive shall immediately notify Company of any intended or
unintended, unauthorized disclosure or use of any Trade Secrets or
Confidential Information by Executive or any other person or entity of
which Executive becomes aware. Executive shall cooperate fully with
Company in the procurement of any protection of Company's rights to or in
any of the Trade Secrets or Confidential Information.
(c) Immediately upon expiration or termination of the Term for any
reason, or if notice of termination is required hereunder, upon receipt
of such notice, or at any time after such termination or notice upon the
specific request of Company, Executive shall return to Company all
written or descriptive materials of any kind in Executive's possession or
to which Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations
described in this Agreement shall continue until their expiration under
the terms of this Agreement.
(d) To the greatest extent possible, any Work Product shall be deemed
to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A.
Section 101 et seq., as amended) and owned exclusively by Company.
Executive hereby unconditionally and irrevocably transfers and assigns to
Company all rights, title and interest Executive currently has or in the
future may have, by operation of law or otherwise, in or to any Work
Product, including, without limitation, all patents, copyrights,
trademarks, service marks and other intellectual property rights.
Executive agrees to execute and deliver to Company any transfers,
assignments, documents or other instruments which Company may deem
necessary or appropriate to vest complete title and ownership of any Work
Product, and all rights therein, exclusively in Company.
5.4 NON-COMPETITION. In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees that during
the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
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<PAGE> 9
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive receives an offer of a Competitive
Position within eighteen (18) months following expiration or termination of the
Term for any reason, and such notice shall describe all salient terms of such
offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and agrees
that (i) during the Term, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit, divert or appropriate or
attempt to solicit, divert or appropriate any medical practice managed by
Company (a "Managed Practice") or actively sought prospective Managed Practice
for the purpose of providing such Managed Practice or actively sought
prospective Managed Practice with management services competitive with those
offered by Company; and (ii) for a period of two (2) years following expiration
or termination of the Term for any reason other than termination by Executive
for Good Reason, Executive will not, either directly or indirectly, alone or in
conjunction with a Competitor or any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any Managed Practice
or actively sought prospective Managed Practice for the purpose of providing (or
having a Competitor or any other person provide) such Managed Practice or
actively sought prospective Managed Practice with management services
competitive with those offered by Company. Executive shall promptly notify
Company in writing if: (A) during the two (2) years following the expiration or
termination of the Term for any reason, Executive is contacted by any Managed
Practice or actively sought prospective Managed Practice with a request that
Executive provide Managed Practice with any management services; and (B)
provision of such services, as requested, would constitute a violation of
Executive's covenants in this Section 5. Such notice shall include all salient
information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NON-SOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees that
during the Term, except to the extent that he is required to do so in connection
with his responsibilities hereunder, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor or other personnel of Company to
terminate, alter or lessen such party's affiliation with Company or to violate
the terms of any agreement or understanding
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between such party and Company. Executive further agrees that during the two (2)
year period following expiration or termination of the Term for any reason other
than termination by Executive for Good Reason, Executive will not, either
directly or indirectly, alone or in conjunction with any other party, solicit or
attempt to solicit any "key" (as that term is hereinafter defined) employee,
consultant, contractor or other personnel of Company located in the Restricted
Territory to terminate, alter or lessen that party's affiliation with Company or
to violate the terms of any agreement or understanding between such party and
Company. For purposes of the preceding sentence "key" employees, consultants,
contractors or other personnel of Company are those with knowledge of or access
to Company's Trade Secrets or Confidential Information.
5.7 REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 5 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Company or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation.
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Company from unfair
competition. Company, however, agrees that, if the scope of enforceability of
any of these restrictive covenants is in any way disputed at any time, a court
or other trier of fact may modify and enforce such covenant to the extent that
it believes to be reasonable under the circumstances existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 5 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond the
termination of this Agreement.
SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is terminated
for Cause, or dies or is terminated due to becoming Disabled, Executive
shall be entitled only to receive any salary and bonus amounts that have
accrued prior to the
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effective date of termination of the Term (the "Termination Date").
(b) If (i) Company terminates the Term pursuant to Section
2.2(d)(ii); or (ii) Executive terminates the Term pursuant to Section
2.2(f) for Good Reason; or (iii) if Executive terminates the Term
following a Change of Control pursuant to Section 2.2(e), Executive shall
be entitled to: (a) all salary and bonus amounts accrued through the
Termination Date, and (b) payment, for a period of twelve (12) months
following the Termination Date, of an amount equal to: (i) Executive's
base salary as of the Termination Date (with such payments to be made at
such times as they would be made if Executive's employment continued for
an additional year) LESS (ii) any salary or other amounts that Executive
is paid by any other person during that twelve month period (and
Executive hereby agrees to take reasonably diligent action to secure
employment as soon as practicable after any such termination from Company
and to otherwise mitigate his losses resulting from the loss of salary
from Company). Executive's rights to any of the compensation or benefits
identified in the preceding sentence shall be subject to Executive's
compliance in all respects of each of Executive's obligations under this
Agreement.
(c) In the event that Company (or Company's successor) following a
Change of Control (as defined below) terminates Executive's employment
other than pursuant to an express termination right under Sections 2.2(a),
(b) or (c) of this Agreement, Executive shall be entitled to severance
compensation in the form of a lump sum payment in an amount equal to two
(2) times the taxable compensation received by Executive during the most
recently concluded fiscal year of Company. For purposes of this Agreement,
"Change of Control" shall mean the acquisition by any single person or
entity or related persons or entities of more than fifty percent (50%) of
the outstanding and issued common stock of Company following an initial
public offering of Company's common stock.
SECTION 7. REPRESENTATION. Executive represents and warrants to the
Company that he is under no contractual or other restriction which is
inconsistent with his execution of this Agreement, the performance by him
of his duties under this Agreement or the other rights of the Company under
this Agreement.
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SECTION 8. MISCELLANEOUS.
8.1 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors,
representatives, heirs, and permitted assigns.
8.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
8.3 HEADINGS. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended to
be a part of or to affect in any way the meaning or interpretation of this
Agreement.
8.4 NOTICES.
(a) All notices, consents, requests and other communications
hereunder shall be in writing and shall be sent by hand delivery, by
certified or registered mail (return-receipt requested), by facsimile or
by a recognized national overnight courier service as set forth below:
If to Company:
Physicians' Specialty Corporation
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
Attn: Chief Executive Officer
with a copy to:
Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
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If to Executive:
Robert A. DiProva
5555 Peactree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
(b) Notices delivered pursuant to this Section 7.4(a) hereof shall be
deemed given: at the time delivered, if personally delivered, three (3)
business days after being deposited in the mail, if mailed; one (1)
business day after being sent, if faxed; and one (1) business day after
timely delivery to the courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this Section
7.4
8.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute the same Agreement. Any signature page of any
such counterpart, or any electronic facsimile thereof, may be attached or
appended to any other counterpart to complete a fully executed counterpart of
this Agreement, and any telecopy or other facsimile transmission of any
signature shall be deemed an original and shall bind such party.
8.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to
be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
8.7 SEVERABILITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions hereof, but such remaining provisions shall be construed and
interpreted in such a manner as to carry out fully the intent of the parties
hereto; provided, however, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties hereto that such
judicial body, to the greatest extent possible, reduce the breadth of such
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
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8.8 WAIVER. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
8.9 INTERPRETATION. Should a provision of this Agreement require judicial
interpretation, it is agreed that the judicial body interpreting or construing
the Agreement shall not apply the assumption that the terms hereof shall be more
strictly construed against one party by reason of the rule of construction that
an instrument is to be construed more strictly against the party which itself or
through its agents prepared the agreement, it being agreed that all parties
and/or their agents have participated in the preparation of this Agreement
equally.
8.10 APPLICABLE LAW. Should any provision of this Agreement, including,
without limitation, any provision relating to compensation, be found to be in
violation of any applicable law, rule or regulation, the parties hereto agree to
execute an amendment to this Agreement to bring such provision into compliance
with any such law, rule or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By: /s/ Gerald R. Benjamin
---------------------------
Name: Gerald R. Benjamin
Its: Secretary
"Executive"
ROBERT A. DIPROVA
/s/ Robert A. DiProva
-------------------------------
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EXHIBIT 10.24
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
and effective this 11th day of February, 1997 (the "Effective Date"), by and
between LAWRENCE P. KRASKA, an individual resident of the State of Georgia
(hereinafter referred to as "Executive"), and PHYSICIANS' SPECIALTY CORP., a
corporation organized under the laws of the State of Delaware (hereinafter
referred to as "Company");
W I T N E S S E T H:
WHEREAS, Company is engaged in the business (the "Business") of providing
practice management and business services to, and acquiring assets of, physician
practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on the
terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
Section 1. SCOPE OF EMPLOYMENT.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to the
employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the office of
Vice President of Operations of Company and, as such, shall perform the
executive-level services (collectively, "Services") described in Company's
Bylaws and as delegated to him from time to time by the Chief Executive Officer,
President and/or the Board of Directors of the Company, including but not
limited to serving as practice administrator of New Atlanta Ear, Nose & Throat
Associates, P.C.. Executive shall devote substantially all of Executive's
business time, energy and skill to performing his obligations hereunder and
shall perform his obligations hereunder diligently, faithfully and to the best
of Executive's abilities.
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be based in
Atlanta, Georgia at the principal executive offices of Company, except for
required travel on business.
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1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this Agreement,
during the Term Executive shall comply in all material respects with all
policies and procedures applicable to senior executives of Company generally and
to Executive specifically.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this Agreement
(the "Initial Term") shall be a three (3) year period commencing on the date of
the "IPO Closing." The "IPO Closing" shall be the date of the consummation of
the underwritten initial public offering of the Company's common stock and
listing of the Company's shares on NASDAQ. If the IPO Closing shall not have
occurred on or before June 30, 1997, either Executive or Company may terminate
this Agreement on written notice to the other. After the Initial Term,
Executive's employment under this Agreement shall automatically renew for
successive additional one (1) year ("Renewal Terms") terms (the Initial Term and
any Renewal Terms being collectively referred to as the "Term"). The Term shall
be subject to termination in accordance with Section 2.2.
2.2 TERMINATION.
(a) DEATH. This Agreement shall automatically and immediately
terminate upon the death of Executive.
(b) DISABILITY. This Agreement may be terminated by either party hereto
upon written notice to the other in the event Executive becomes "Disabled" (as
hereinafter defined). For purposes of this Agreement, "Disabled" shall be
defined as either: (a) the reasonable, good faith determination by an
independent physician selected by the Board of Directors of Company that due to
a mental or physical impairment or disability, Executive has been incapable or
unable, even with reasonable accommodations, to fully perform the material
duties performed by Executive for Company immediately prior to such disability
for a period of at least one hundred eighty (180) days in the aggregate
(although not necessarily consecutively) within any consecutive three hundred
sixty-five (365)-day period; or (b) a determination that Executive is disabled
pursuant to the terms of any long-term disability insurance policy which
Company or Executive has purchased and which covers Executive.
(c) CAUSE. In addition to any other rights or remedies available to
Company at law, in equity or pursuant hereto, Company may, in its sole
discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to Executive.
For purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of any material
restriction or limitation on Executive's ability to perform his services
hereunder;
(ii)(A) Executive has committed an act constituting fraud, deceit or
intentional material misrepresentation with respect to Company or any client,
customer or supplier of Company;
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or (B) Executive has embezzled funds or assets from Company or any client or
customer of Company;
(iii) Executive's breach or default in the performance of any material
provision of this Agreement which Executive has not cured or corrected to
Company's reasonable satisfaction within thirty (30) days after receiving notice
of such breach or default (provided that any breach by Executive of any
obligation under Section 5.4 shall be grounds for immediate termination "For
Cause" without any notice or right to cure or correct); or
(iv) (A) Executive has engaged in willful misconduct or fraud or gross
negligence; or (B) Executive's conduct is materially detrimental to the
reputation, character or standing of Company.
(D) DISCRETIONARY TERMINATION.
(i) Either Company or Executive may terminate the Term effective as of the
end of the Initial Term or the then current Renewal Term by providing the
other with written notice of termination at least sixty (60) days prior to
the end of the Initial Term or then current Renewal Term, as the case may
be. In the event of Termination under this Section 2.2(d)(i), Executive
shall not be entitled to any severance benefit under Section 6.
(ii)The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b), unless such termination without cause
follows a Change of Control, in which event Executive shall be entitled to
the severance benefit provided in Section 6(c).
(E) GOOD REASON; DIMINUTION IN RESPONSIBILITY; REDUCTION IN COMPENSATION.
Executive shall have the right to terminate this Employment Agreement for "Good
Reason." For purposes hereof, Good Reason shall be limited to the repeated
material breach by the Company of its material obligations to Executive under
this Agreement which the Company shall fail to correct or cure within a period
of thirty (30) days after being provided with written notice thereof by
Executive.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Executive shall be paid a base salary (the "Base Salary")
during the Term at an initial rate of One Hundred Thirty Thousand Dollars
($130,000) per twelve (12) month period. The Base Salary shall be (a) payable in
equal installments on the schedule that Company may implement from time to time
for general payroll purposes, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 BONUS. During the Term, Executive shall be eligible to be considered
for a periodic bonus (the "Bonus") of up to 50% of his Base Salary, based on
Company's meeting
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certain Board of Directors approved milestones relating to such matters as
practice acquisitions, pre-tax profit margins, consolidated operating income
levels, consummation of follow-on financings and management team development;
provided, however, that the Bonus shall be subject to the Compensation Committee
of the Board of Directors adopting and ratifying such a bonus program and
approving in its sole discretion the periodic Bonus grants to Executive.
SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled to
participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) in its sole
discretion for participation by Executive subject to the terms and conditions of
such plans (collectively, the "Benefit Plans"). Company shall have the right to
purchase in Executive's name a "key man" life insurance policy naming Company as
sole beneficiary under the policy. Company shall be the sole owner of such
policy. Nothing herein shall require Company to adopt any such employee benefit
plan or program.
4.2 VACATION. Executive shall be entitled to three (3) paid weeks of
vacation per year during the Term, to be accrued and taken in accordance with a
policy that is consistent with Company's normal vacation policy applicable to
senior executive employees.
4.3 MISCELLANEOUS. To the extent consistent with its existing policies and
procedures, Company shall reimburse Executive for reasonable costs incurred by
Executive for continuing professional education and for dues for membership in
appropriate professional organizations and subscriptions for appropriate
business periodicals and publications.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following terms shall
have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or indirect equity
ownership (excluding ownership of less than 2% of the equity of an entity whose
equity is listed on a major U.S. exchange or traded on the NASDAQ
over-the-counter market) or control of all or any portion of a "Competitor" (as
hereinafter defined), or (ii) any employment, consulting, partnership, advisory,
directorship, agency, promotional or independent contractor arrangement between
Executive and any Competitor whereby Executive is required to perform services
substantially similar to those that he is to perform for Company hereunder.
(b) "Competitor" shall refer to any person or entity engaged, wholly or
partly, in the Business; provided "Competitor" shall not include (i) a hospital
system or (ii) a medical group practicing outside of the field of otolaryngology
and related specialties (regardless of whether such Medical Group was affiliated
with a physician practice management company employing all practice
administrative personnel) which does not provide physician practice management
services to any third party; and provided further, that following a "Change of
Control" (as
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defined in Section 6(c)). "Competitor" shall mean any physician practice
management company focused primarily on providing practice management services
to one or more otolaryngology medical group practices (and related specialties).
(c) "Confidential Information" shall mean any and all proprietary and
confidential data or information of Company or any of its affiliates, other than
"Trade Secrets" (as hereinafter defined), which is of tangible or intangible
value to Company or any of its affiliates and is not public information or is
not generally known or available to Company's competitors but is known only to
Company or its affiliates and their employees, independent contractors or agents
to whom it must be confided in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within a twenty (20) mile
radius of the Company's principal office in Atlanta, Georgia. The Parties intend
for the "Restricted Territory" during the entire Term to include a twenty (20)
mile radius of all other United States cities where Company is engaged in the
Business, throughout which territory the parties acknowledge Executive will be
performing his employment responsibilities on behalf of Company. As of the
Effective Date, those cities include Atlanta, Georgia. If applicable law permits
a deemed or automatic amendment to the definition of "Restricted Territory,"
then as soon as Company begins to engage in the Business in any additional city,
the definition of "Restricted Territory" under this Agreement shall be deemed
automatically amended to include the city limits of any such additional cities
and a twenty (20) mile radius of those cities. If applicable law does not permit
a deemed or automatic amendment to the definition of "Restricted Territory"
under those circumstances, then the Parties agree that when Company begins to
engage in Business in additional cities, they will promptly execute amendments
to this Agreement to include those additional cities in the definition of
"Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and information of
Company or any of its affiliates which is defined as a "trade secret" under
applicable law.
(f) "Work Product" shall mean all work product, property, data,
documentation, "know-how", concepts, plans, inventions, improvements,
techniques, processes or information of any kind, prepared, conceived,
discovered, developed or created by Executive in connection with the performance
of his services hereunder.
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that during
the term of this Agreement (i) Executive will frequently be exposed to certain
Trade Secrets and Confidential Information; (ii) Executive's responsibilities on
behalf of Company will extend to all geographical areas of the Restricted
Territory; and (iii) any competitive activity on Executive's part during the
Term, or any competitive activity on Executive's part in the Restricted
Territory for a reasonable period thereafter, would necessarily involve
Executive's use of Company's Trade Secrets and Confidential Information and
would unfairly threaten Company's legitimate business interests, including its
substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of the
termination of this Agreement, Executive would have sufficient skills to find
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alternative, commensurate work in his field of expertise that would not involve
a violation of any of the provisions of this Section 5. Therefore, Executive
acknowledges and agrees that it is reasonable for Company to require Executive
to abide by the covenants set forth in this Section 5. The parties acknowledge
and agree that if the nature of Executive's responsibilities for or on behalf of
Company or the geographical areas in which Executive must fulfill such
responsibilities materially change, the parties will execute appropriate
amendments to the scope of the covenants in this Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its legitimate business
interests, Executive hereby covenants and agrees that: (A) with regard to each
item constituting a Trade Secret, at all times during which such item shall
constitute a Trade Secret (before or after the Term); and (B) with regard to any
Confidential Information, at all times during the term of this Agreement and for
a period of three (3) years following the expiration or termination of the Term
for any reason, Executive shall regard and treat each item constituting a Trade
Secret and all Confidential Information as strictly confidential and wholly
owned by Company and will not, for any reason, in any fashion, either directly
or indirectly, use, sell, lend, lease, distribute, license, give, transfer,
assign, show, disclose, disseminate, reproduce, copy, misappropriate or
otherwise communicate any such item or information to any third party for any
purpose other than in connection with his performance of services for the
Company or as required by applicable law.
(b) Executive shall immediately notify Company of any intended or
unintended, unauthorized disclosure or use of any Trade Secrets or Confidential
Information by Executive or any other person or entity of which Executive
becomes aware. Executive shall cooperate fully with Company in the procurement
of any protection of Company's rights to or in any of the Trade Secrets or
Confidential Information.
(c) Immediately upon expiration or termination of the Term for any reason,
or if notice of termination is required hereunder, upon receipt of such notice,
or at any time after such termination or notice upon the specific request of
Company, Executive shall return to Company all written or descriptive materials
of any kind in Executive's possession or to which Executive has access that
constitute or contain any Confidential Information or Trade Secrets, and the
confidentiality obligations described in this Agreement shall continue until
their expiration under the terms of this Agreement.
(d) To the greatest extent possible, any Work Product shall be deemed to be
"work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section 101
et seq., as amended) and owned exclusively by Company. Executive hereby
unconditionally and irrevocably transfers and assigns to Company all rights,
title and interest Executive currently has or in the future may have, by
operation of law or otherwise, in or to any Work Product, including, without
limitation, all patents, copyrights, trademarks, service marks and other
intellectual property rights. Executive agrees to execute and deliver to Company
any transfers, assignments, documents or
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other instruments which Company may deem necessary or appropriate to vest
complete title and ownership of any Work Product, and all rights therein,
exclusively in Company.
5.4 NON-COMPETITION. In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees that during
the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive receives an offer of a Competitive
Position within eighteen (18) months following expiration or termination of the
Term for any reason, and such notice shall describe all salient terms of such
offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and agrees
that (i) during the Term, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit, divert or appropriate or
attempt to solicit, divert or appropriate any medical practice managed by
Company (a "Managed Practice") or actively sought prospective Managed Practice
for the purpose of providing such Managed Practice or actively sought
prospective Managed Practice with management services competitive with those
offered by Company; and (ii) for a period of two (2) years following expiration
or termination of the Term for any reason other than termination by Executive
for Good Reason, Executive will not, either directly or indirectly, alone or in
conjunction with a Competitor or any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any Managed Practice
or actively sought prospective Managed Practice for the purpose of providing (or
having a Competitor or any other person provide) such Managed Practice or
actively sought prospective Managed Practice with management services
competitive with those offered by Company. Executive shall promptly notify
Company in writing if: (A) during the two (2) years following the expiration or
termination of the Term for any reason, Executive is contacted by any Managed
Practice or actively sought prospective Managed Practice with a request that
Executive provide Managed Practice with any management services; and (B)
provision of such services, as requested, would constitute a violation of
Executive's covenants in this Section 5. Such notice shall include all salient
information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NON-SOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees that
during the Term, except to the extent that he is required to do so in connection
with his responsibilities hereunder, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor or other personnel of Company to
terminate, alter or lessen such party's affiliation with Company or to violate
the
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terms of any agreement or understanding between such party and Company.
Executive further agrees that during the two (2) year period following
expiration or termination of the Term for any reason other than termination by
Executive for Good Reason, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
"key" (as that term is hereinafter defined) employee, consultant, contractor or
other personnel of Company located in the Restricted Territory to terminate,
alter or lessen that party's affiliation with Company or to violate the terms of
any agreement or understanding between such party and Company. For purposes of
the preceding sentence "key" employees, consultants, contractors or other
personnel of Company are those with knowledge of or access to Company's Trade
Secrets or Confidential Information.
5.7 REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 5 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Company or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation.
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Company from unfair
competition. Company, however, agrees that, if the scope of enforceability of
any of these restrictive covenants is in any way disputed at any time, a court
or other trier of fact may modify and enforce such covenant to the extent that
it believes to be reasonable under the circumstances existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 5 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond the
termination of this Agreement.
SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is terminated for
Cause, or dies or is terminated due to becoming Disabled, Executive shall be
entitled only to receive any salary and bonus amounts that have accrued prior to
the effective date of termination of the Term (the "Termination Date").
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii),
Executive shall be entitled to: (a) all salary and bonus amounts accrued through
the Termination Date, and (b) payment, for a period of twelve (12) months
following the Termination Date, of an amount equal to: (i) Executive's base
salary as of the Termination Date (with such payments to be made at such times
as they would be made if Executive's employment continued for an additional
year) LESS (ii) any salary or other amounts that Executive is paid by any other
person during that twelve month period (and Executive hereby agrees to take
reasonably diligent action to secure
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employment as soon as practicable after any such termination from Company and to
otherwise mitigate his losses resulting from the loss of salary from Company).
Executive's rights to any of the compensation or benefits identified in the
preceding sentence shall be subject to Executive's compliance in all respects of
each of Executive's obligations under this Agreement.
(c) In the event that Company (or Company's successor) following a Change
of Control (as defined below) terminates Executive's employment other than
pursuant to an express termination right under Sections 2.2(a), (b) or (c) of
this Agreement, Executive shall be entitled to severance compensation in the
form of a lump sum payment in an amount equal to two (2) times the taxable
compensation received by Executive during the most recently concluded fiscal
year of Company. For purposes of this Agreement, "Change of Control shall mean
the acquisition by any single person or entity or related persons or entities of
more than fifty percent (50%) of the outstanding and issued common stock of
Company following an initial public offering of Company's common stock.
SECTION 7. MISCELLANEOUS.
7.1 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors,
representatives, heirs, and permitted assigns.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
7.3 HEADINGS. The titles, captions and headings contained in this Agreement
are inserted by convenience of reference only and are not intended to be a part
of or to affect in any way the meaning or interpretation of this Agreement.
7.4 NOTICES.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified or
registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Company: Physicians' Specialty Corporation
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
Attn: Chief Executive Officer
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with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
If to Executive: Lawrence P. Kraska
5555 Peactree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
(b) Notices delivered pursuant to this Section 7.4(a) hereof shall be
deemed given: at the time delivered, if personally delivered, three (3) business
days after being deposited in the mail, if mailed; one (1) business day after
being sent, if faxed; and one (1) business day after timely delivery to the
courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this Section
7.4
7.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute the same Agreement. Any signature page of any
such counterpart, or any electronic facsimile thereof, may be attached or
appended to any other counterpart to complete a fully executed counterpart of
this Agreement, and any telecopy or other facsimile transmission of any
signature shall be deemed an original and shall bind such party.
7.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to
be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
7.7 SEVERABILITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions hereof, but such remaining provisions shall be construed and
interpreted in such a manner as to carry out fully the intent of the parties
hereto; provided, however, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties hereto that such
judicial body, to the greatest extent possible, reduce the breadth of such
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
7.8 WAIVER. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing.
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No waiver by either party hereto of any term or provision of this Agreement or
of any default hereunder shall affect such party's right thereafter to enforce
such term or provision or to exercise any right or remedy in the event of any
other default, whether or not similar.
7.9 INTERPRETATION. Should a provision of this Agreement require judicial
interpretation, it is agreed that the judicial body interpreting or construing
the Agreement shall not apply the assumption that the terms hereof shall be more
strictly construed against one party by reason of the rule of construction that
an instrument is to be construed more strictly against the party which itself or
through its agents prepared the agreement, it being agreed that all parties
and/or their agents have participated in the preparation of this Agreement
equally.
7.10 APPLICABLE LAW. Should any provision of this Agreement, including,
without limitation, any provision relating to compensation, be found to be in
violation of any applicable law, rule or regulation, the parties hereto agree to
execute an amendment to this Agreement to bring such provision into compliance
with any such law, rule or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By: /s/ Ramie A. Tritt, M.D.
--------------------------------
Name: Ramie A. Tritt, M.D.
------------------------------
Its: Chairman and President
-------------------------------
"Executive"
LAWRENCE P. KRASKA
/s/ Lawrence P. Kraska
------------------------------------
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<PAGE> 1
EXHIBIT 10.25
ASSET ACQUISITION AGREEMENT
by and among
Physicians' Specialty Corp.
PSC Management Corp.
and
Metropolitan Ear, Nose & Throat, P.C.
<PAGE> 2
ASSET ACQUISITION AGREEMENT
ASSET ACQUISITION AGREEMENT (this "Agreement"), dated as of February
13, 1997, by and among PSC MANAGEMENT CORP., a Delaware corporation ("PSC");
PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("PARENT"); METROPOLITAN
EAR, NOSE & THROAT, P.C., a Georgia professional corporation ("Seller"); WILLIAM
S. SMITH, M.D. and ANDREW J. DIAMOND, M.D. all individual residents of the State
of Georgia (individually a "Shareholder," and collectively the "Shareholders").
W I T N E S S E T H:
WHEREAS, Seller operates a medical practice which provides
otolaryngology and other medical and surgical services from offices located in
the metropolitan Atlanta, Georgia area ("Business");
WHEREAS, Shareholders are the only shareholders of Seller;
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in the
business of acquiring the assets of and managing medical practices;
WHEREAS, PSC is a wholly-owned subsidiary of Parent;
WHEREAS, Seller wishes to convey to PSC, and PSC wishes to acquire from
Seller, substantially all of the properties and assets of Seller, subject to
certain liabilities set forth herein, all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth, and the contemplated delivery by PSC to
Seller of shares of the Common Stock of Parent, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
Section 1. Terms of the Sale and Acquisition of Assets.
The sale of the assets of Seller hereunder and the acquisition thereof
by PSC shall be made at the Closing (as defined in Section 1.12) based on the
respective representations, warranties and agreements of the parties hereto and
subject to the terms and conditions herein stated.
1.1 Conveyance of Assets. Subject to the provisions of Section 1.2
hereof, at the Closing Seller shall convey, transfer and assign to PSC and PSC
shall acquire from Seller all of Seller's right, title and interest in and to
the properties and assets of Seller as a going concern,
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including, without limitation, all items of personal property and other assets
used in connection with the Business (except as otherwise provided herein),
whether or not any of such assets have any value for accounting purposes
(individually "Asset," and collectively "Assets"), free and clear of all
obligations, security interests, liens, claims and encumbrances whatsoever,
except as specifically assumed by PSC pursuant to Section 1.3(b). Without
limiting the generality of the foregoing, the Assets specifically include:
(a) All real estate, personal property, plant,
furniture, fixtures and equipment owned by Seller which are utilized in or
related to the Business, including, but not limited to, all items owned by
Seller identified on Exhibit 1.1(a) attached hereto.
(b) All contracts, agreements and commitments of
Seller and/or the Shareholders related to the Business identified on Exhibit 2.6
and Exhibit 2.14 attached hereto and set forth on Exhibit 1.3(b) and all
contracts, agreements and commitments of Seller and/or the Shareholders related
to the Business and entered into after the date hereof and prior to the Closing
in the ordinary course of business and not in violation of Section 7.1 hereof
(but excluding this Agreement and the agreements, instruments and documents
executed and delivered by PSC pursuant to this Agreement and also excluding
physician employment agreements of Seller and any contracts with nurse
practitioners and physician assistants of Seller) and all contract rights of
Seller incident thereto, and all general intangibles of Seller.
(c) Subject to applicable laws and regulations, all
inventories maintained by Seller as of the Closing Date as described in Exhibit
1.1(c).
(d) Subject to applicable laws and regulations, all
accounts receivable of Seller, notes receivable and other rights to receive
payments owing to Seller in existence on the Closing Date, and all proceeds and
cash arising from the collection of same from and after the Closing Date.
(e) Subject to applicable laws and regulations, all
patient accounts receivable records of Seller.
(f) The books and records of Seller relating to the
Assets, all of which shall be delivered to PSC, or such person as PSC may
designate, on the Closing Date.
(g) Subject to applicable laws and regulations, all
transferable licenses and other regulatory approvals necessary for or incident
to the operation of the Assets.
(h) Seller's right to use the name "Metropolitan
Ear, Nose & Throat" and all other trade and service marks and names and goodwill
associated therewith, and all customer lists, clinical and administrative policy
and procedure manuals, trade secrets, copyrights, patents, marketing and
promotional materials (including audiotapes, videotapes and printed materials)
and all other property rights required for or incident to the marketing of the
products and services of the Business, and all books and records relating
thereto.
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(i) All of Seller's prepaid expenses, prepaid
insurance, deposits and similar items.
1.2 Excluded Assets. There shall be excluded from the Assets
transferred and conveyed hereunder, and Seller shall retain all of its right,
title and interest in and to, the assets set forth on Exhibit 1.2 attached
hereto and the following assets:
(a) The minute books of Seller and similar
corporate records of Seller.
(b) All considerations to be delivered by PSC on
the Closing Date.
(c) All assets listed in Exhibit 1.2 hereto.
(d) Patient charts, records and files.
1.3 Acquisition PSC Price; Assumption of Liabilities. As consideration
for the sale of the Assets by Seller, at Closing PSC shall provide Seller with
the following considerations:
(a) Parent Shares. At the Closing Parent shall issue
to Seller shares of the Common Stock, par value $.001 per share, of Parent (the
"Parent Common Stock") with a total value equal to $300,000 subject to
adjustments described in Exhibit 1.3(a) (the "Acquisition Price"). The number of
shares of Parent Common Stock which shall constitute the Acquisition Price shall
be determined by dividing the Acquisition Price by the Initial Public Offering
Price of the Parent Common Stock. For purposes of this Section 1.3(a), the
"Initial Public Offering Price" shall mean the price for the shares of Parent
Common Stock as priced and sold on a gross basis before taking into account the
managing underwriters' commissions and costs associated with Parent's initial
public offering (the "IPO"). Assuming an IPO Price of $9.50 per share and no
adjustments pursuant to Exhibit 1.3(a), a total of 31,579 shares of Parent
Common Stock would be issued as the Acquisition Price. The Acquisition Price
shall be allocated to the acquisition of the Assets as set forth on Exhibit
1.3(a)(1) attached hereto. The parties shall use such allocation in completing
Form 8594 and satisfying any and all other reporting requirements of the
Internal Revenue Service or any other state or local taxing authority.
(b) Assumption of Liabilities. Except as otherwise
provided herein, at the Closing PSC shall assume one hundred fifty thousand
dollars ($150,000) of debt and shall perform or discharge on or after the
Closing Date (as defined in Section 1.12), only those contracts, leases,
commitments, obligations and liabilities of Seller which are listed on Exhibit
1.3(b) attached hereto (collectively, the "Obligations"), except to the extent
that such contracts, leases, commitments, obligations and liabilities are
excluded by virtue of the operation of other provisions of this Agreement. PSC
agrees to promptly pay and discharge such Obligations as the same become due and
payable.
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<PAGE> 5
(c) Liabilities Not Assumed. Notwithstanding any
contrary provision contained herein, PSC shall not be deemed to have assumed,
nor shall PSC assume (i) any liability which may be incurred by reason of any
uncured material breach of or any monetary default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of Seller, including,
but not limited to, liabilities arising under any Seller Plan (as defined in
Section 2.21 hereto) and liabilities for accrued sick leave or vacation days;
(iii) any liability based upon or arising out of a violation of any antitrust or
similar restraint-of-trade laws by Seller, including, without limiting the
generality of the foregoing, any such antitrust liability which may arise in
connection with agreements, contracts, commitments or orders for the sale of
goods or provision of services by Seller reflected on the books of Seller at or
prior to the Closing Date; (iv) any liability based upon or arising out of
overpayments due to the Medicare and/or Medicaid programs, any other third party
payor, or any liability based upon or arising out of a violation of any false
claim, anti-kickback, prohibition or self-referral laws or similar fraud and
abuse laws by Seller; (v) any medical malpractice liability associated with the
Business or Seller or any person associated with the Business or Seller; (vi)
any liability based upon or arising out of any tortious conduct or wrongful
actions of Seller or any Shareholder; or (vii) any liability for the payment of
any taxes imposed by law on Seller arising from or by reason of the transactions
contemplated by this Agreement or otherwise.
1.4 Employment Arrangements.
(a) Following the Closing PSC will initially offer
employment as employees-at-will to all persons (other than physicians and such
personnel as are specified in the Management Services Agreement, defined in
Section 1.5 below) who are employees of Seller on the Closing Date; Seller's
employees who become employed by PSC are hereinafter referred to as "Transferred
Employees" and the physicians and such other personnel as are specified in the
Management Services Agreement, but who will not become employed by PSC are
hereafter referred to as the "Practice Employees."
(b) As of the Closing Date, Seller will: (i)
terminate any employment contracts applicable to those persons who are employed
by PSC as Transferred Employees pursuant to Section 1.4(a) hereof; and (ii)
terminate the participation of all such employees in all Seller Plans, such
termination to be effected in accordance with and to the extent permitted by
applicable provisions of the Internal Revenue Code of 1986, as amended, (the
"Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other applicable laws, rules and regulations; and (iii) cause
the Seller Plans to make timely appropriate distributions, to the extent
required, to such employees in accordance with, and to the extent permitted by,
the terms and conditions of such Seller Plans. Seller will provide to PSC such
copies of documents and other information related to the termination of such
employees' participation in the Seller Plans as PSC may request.
(c) At the Closing, the Shareholders agree to become
employees and shareholders of New Atlanta Ear, Nose & Throat Associates, P.C., a
Georgia professional
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corporation ("Practice"), and shall execute the form of employment contract and
shareholders agreement which other shareholder employees of Practice have
executed with Practice.
1.5 Management Services Agreement. Shareholders acknowledge and agree
that Practice and PSC shall execute a Management Services Agreement at the time
of the acquisition of assets of Atlanta Ear, Nose & Throat Associates, P.C.
("AENT") by PSC which shall govern the business relationship between Practice
and PSC.
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1.6 Seller's Financial Information. The agreement between the parties
evidenced by this Agreement has been reached based on financial information
about Seller, the Assets and the Business as of September 30, 1996, all provided
to PSC by Seller. The unaudited Balance Sheet of Seller as of December 31, 1996
("Balance Sheet Date"), is attached hereto as Exhibit 1.6 and is hereinafter
referred to as the "Balance Sheet".
1.7 Each Party to Bear Costs. Each of the parties to this Agreement
shall pay all of the costs and expenses incurred by such party in connection
with the transactions contemplated by this Agreement, except as otherwise
provided herein. Without limiting the generality of the foregoing, and whether
or not such liabilities may be deemed to have been incurred in the ordinary
course of business, neither party shall be liable for or required to pay, either
directly or indirectly, any of the following liabilities or expenses incurred by
the other party: (a) fees and expenses of any person for services as a finder,
or for fees and expenses of any persons for financial services rendered to such
other party in connection with negotiating and closing the sale contemplated by
this Agreement; (b) fees and expenses of legal counsel retained by such other
party for services rendered to such party in connection with negotiating and
closing the sale contemplated by this Agreement; (c) fees and expenses of any
auditors and accountants retained by such other party for services rendered to
such party in connection with negotiating and closing the sale contemplated by
this Agreement; (d) state and federal income taxes or other similar charges on
income incurred by such other party on any gain from the purchase and sale of
Assets hereunder; and (e) expenses and fees relating to feasibility studies,
appraisals and similar valuation services performed on behalf of such other
party in connection with the transactions contemplated hereby.
1.8 Assignment of Contracts and Assets; Consents. Nothing in this
Agreement or delivered pursuant to this Agreement shall be construed as an
attempt to agree to assign any contract, certificate, license or other Asset
which is in law or by agreement nonassignable without the consent of the other
party or parties thereto, or of any governmental authority, as the case may be,
unless such consent shall be given. Seller will use its reasonable good faith
efforts to obtain all such necessary consents of the parties to any such
contracts prior to the Closing. In order, however, that the full value of every
such contract, certificate, license or other Asset included within the Assets
and all claims and demands in such contracts may be realized, Seller and the
Shareholders hereby covenant with PSC and Parent that Seller, by itself or by
its agents, will, at the request and expense and under the direction of PSC, in
the name of Seller or otherwise, as PSC shall specify and as shall be permitted
by law, take all such reasonable actions and do or cause to be done all such
reasonable things as shall, in the opinion of PSC, be necessary or proper (a) in
order that the rights and obligations of Seller under such contracts,
certificates, licenses and other Assets shall be preserved, and (b) for, and to
facilitate, from and after the Closing, the collection of the moneys due and
payable, and to become due and payable, to Seller in and under every such
contract and in respect of every such claim and demand, from and after the
Closing, and Seller shall hold the same for the benefit of, and shall pay the
same over to, PSC.
1.9 Cooperation with Regulatory Approvals. Seller and the Shareholders
shall cooperate with and assist PSC, as PSC shall reasonably request, in
obtaining the approval of all
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regulatory agencies and officials whose approval is required for the transfer of
all licenses and other regulatory approvals required to enable PSC to acquire
the Assets and operate the Business.
1.10 Irrevocable Guaranty by Parent. To induce Seller to execute and
deliver this Agreement, Parent hereby unconditionally and irrevocably guarantees
the Seller and Shareholders the full, prompt and faithful performance by PSC of
all covenants and obligations to be performed by PSC under this Agreement,
including, but not limited to, the payment of all sums and delivery of all
property stipulated to be transferred by PSC pursuant to this Agreement and
PSC's obligation to indemnify the Seller and the Shareholders pursuant to
Section 8.2. This guaranty shall be a guaranty of payment, not merely
collection, and shall be unaffected by any subsequent modification or amendment
of this Agreement whether or not Parent has knowledge of or consented to such
modification or amendment. In the event that PSC fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums or deliver all or any part of such property when due, Parent will
perform all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Seller (or such other payee or transferee as may
be provided in any such agreement) the amount due and unpaid or the property not
delivered, as the case may be, by PSC. In the event of bankruptcy, termination,
liquidation or dissolution of PSC, this unconditional guaranty shall continue in
full force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Parent shall be
required.
1.11 Tax and Accounting Treatment. It is intended by the parties that
the purchase and sale contemplated by this Agreement and related documents
qualify as a reorganization under the provisions of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, and that for accounting purposes, it
is intended that such transaction be accounted for by Parent as a "pooling of
interests".
1.12 Closing.
(a) Closing. Subject to the fulfillment of the
conditions precedent specified in Sections 5 and 6, the transaction contemplated
by this Agreement shall be consummated at a closing (the "Closing") to be held
at 10:00 a.m. local time simultaneously with the closing of the IPO at the
offices of Bachner, Tally, Polevoy, & Misher L.L.P., New York, New York, or at
such other location, as is mutually agreed upon by the Parties. The date on
which the Closing occurs shall be referred to as the "Closing Date."
(b) Documents to be Delivered by Seller. At the
Closing, Seller shall deliver, or cause to be delivered, to PSC the following:
(i) Such bills of sale, endorsements and
assignments as are necessary to vest in PSC good and
valid title to the Purchased Assets;
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(ii) The certificate required to be
delivered pursuant to Section 5.5;
(iii) The legal opinion required to be
delivered pursuant to Section 5.7 of this Agreement;
(iv) The other agreements, documents and
instruments required by Sections 5.8 through 5.14;
(v) Any other documentation required to be
delivered under this Agreement or otherwise requested
to be delivered by PSC that is necessary or
appropriate to consummate the Transaction; and
(vi) Pursuant to 5.18 of this Agreement, a
copy of the bill of sale evidencing that any medical
assets of Seller not acquired by PSC have been
transferred by Seller to Practice.
(c) Documents and Other Items to be Delivered by
Purchaser. At the Closing, PSC shall deliver to Seller the following:
(i) The Acquisition Price, payable by shares
of Parent Common Stock pursuant to Section 1.3;
(ii) The certificate required to be
delivered pursuant to Sections 6.4 of this Agreement;
(iii) The legal opinion required to be
delivered pursuant to Section 6.6 of this Agreement;
(iv) The other agreements, documents and
instruments required by Section 6.7, 6.9 and 6.10;
(v) Any other documentation required to be
delivered under this Agreement or otherwise
reasonably requested to be delivered by Seller or the
Shareholders that is necessary or appropriate to
consummate the transaction.
Simultaneously with such delivery, Seller and Shareholders jointly and
severally agree to use their best efforts and to take all action as may be
reasonably necessary to put PSC in possession and operating control of the
Assets free and clear of all liens or other restrictions or encumbrances,
including the obtaining of such consents of third parties as may be reasonably
necessary to effect the foregoing.
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Section 2. Representations and Warranties of Seller and Shareholders.
The Seller and Shareholders jointly and severally represent
and warrant to PSC and Parent as follows:
2.1 Corporate Existence; Good Standing. Seller is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Seller has all necessary corporate powers to own all of
its assets and to carry on its business as such business is now being conducted.
Seller is not required to qualify to do business as a foreign corporation in any
other state or jurisdiction by reason of its business, properties or activities
in or relating to such other state or jurisdiction.
2.2 Power and Authority for Transactions.
(a) Seller has corporate power to execute, deliver
and perform its obligations under this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all action required by law, its Articles of Incorporation, its Bylaws or
otherwise, to authorize the execution and delivery of and the performance of
this Agreement and such related documents. The execution and delivery of this
Agreement, and the agreements related hereto executed and delivered pursuant to
this Agreement, do not, and, subject to the receipt of consents to assignments
of leases and other contracts where required and the receipt of regulatory
approvals where required, the consummation of the transactions contemplated
hereby will not, violate any provision of the Articles of Incorporation or
Bylaws of Seller or any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which Seller is a party or by which
Seller is bound, or violate any material restrictions of any kind to which
Seller is subject which could have a Material Adverse Effect.
(b) The execution and delivery of this Agreement,
and the agreements related hereto executed and delivered pursuant to this
Agreement, do not, and the consummation of the transactions contemplated hereby
will not, violate any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which any Shareholder is a party or by
which any Shareholder is bound, or violate any material restrictions of any kind
to which any Shareholder is subject and which could have a Material Adverse
Effect.
2.3 Subsidiaries and Affiliates. Seller does not own stock in or
control, directly or indirectly, any other corporation, association or business
organization, nor is Seller a party to any joint venture or partnership. The
Shareholders are the sole shareholders of Seller and own all the capital stock
of Seller in the respective proportionate amounts set forth in Exhibit 2.3.
There are no outstanding (a) securities of Seller convertible into equity
interests in Seller, or (b) commitments, options, rights or warrants to issue
any such equity interests in Seller, or to issue securities of Seller
convertible into such equity interests.
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2.4 Permits, Licenses and Governmental Authorizations. (a) All material
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other material governmental
authorizations and approvals necessary for the conduct of the Business, or
waivers thereof, have been duly obtained and are in full force and effect, and
there are no proceedings pending or, to the knowledge of Seller and
Shareholders, threatened which may result in the revocation, cancellation or
suspension, or any adverse modification, of any thereof. Any and all past
litigation concerning such building or other permits, certificates of occupancy,
concessions, grants, franchises, licenses, certificates of need and other
governmental authorizations and approvals, and all claims and causes of action
raised therein, have been finally adjudicated.
(b) Approvals. Each Shareholder holds in full force and effect all
approvals, authorizations, licenses, and certifications required by law (the
"Approvals") to practice medicine. Evidence of such Approvals has been delivered
to PSC. There has been no lapse, revocation, or suspension of any Approval, or
any formal allegation (including any complaint, indictment or initiation of
proceedings) made before a court of law, licensing or regulatory authority,
professional organization, or the medical staff or committee of a hospital,
regarding any Shareholder's practice or fitness to practice medicine, including
any allegation of the following: alcohol abuse, a violation of any law or
regulation relating to controlled substances, professional malpractice or
misconduct, improper billing practices, or a crime involving moral turpitude.
The foregoing does not include any action taken as a result of failure to timely
complete medical records.
(c) Provider Numbers. Each Shareholder holds a valid Medicare provider
number and valid uniform physician identification numbers. Evidence of such
numbers has been delivered to PSC.
(d) No Conviction. No Shareholder has ever been convicted of a criminal
offense relating to the Medicare or any federally-funded state health care
program. For purposes of this Agreement, the term conviction includes the entry
of a plea of guilty or no contendere and participation in a first offender,
deferred adjudication, or other arrangement or program whereby a judgment of
conviction has been withheld.
2.5 Seller's Financial Information. Seller has heretofore furnished PSC
and Parent with copies of financial information about Seller as set forth on
Exhibit 2.5 attached hereto, including, but not limited to, the Balance Sheet.
All such financial statements have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
indicated, reflect all liabilities of Seller as of their respective dates, and
present fairly the financial position of Seller as of such dates and the results
of operations and cash flows for the period or periods reflected therein.
2.6 Leases. Exhibit 2.6 attached hereto sets forth a list of all leases
pursuant to which Seller leases, as lessor or lessee, real or personal property
used in operating the Business or otherwise; however the parties understand and
agree that only those leases [if any] listed on Exhibit 1.3(b) will be assumed
by PSC. Except as indicated on Exhibit 2.16, all such leases listed on
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Exhibit 2.6 are valid and effective in accordance with their respective terms,
and there is not under any such lease any existing default by Seller, as lessor
or lessee, or any condition or event of which Seller or any Shareholder has
knowledge which with notice or lapse of time, or both, would constitute a
default, in respect of which Seller has not taken adequate steps to cure such
default or to prevent a default from occurring. With respect to any lease not
assumed by PSC, Seller and the Shareholders represent and covenant that they
will honor and discharge all obligations of Seller under such leases.
2.7 Personal Property. Seller owns all of the personal property
reflected on the Balance Sheet and included in the Assets, including, but not
limited to, all items of personal property identified on Exhibit 1.1(a) and
Exhibit 1.1(c) attached hereto, free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those set forth in Exhibit 2.7 attached
hereto. All such personal property that comprises the Assets shall be
transferred to PSC subject to only claims, charges, exceptions or encumbrances
set forth on Exhibit 2.7. Such personal property is in usable condition, normal
wear and tear excepted, and suitable for its purpose and intended use.
2.8 Inventories. The items of Seller's inventory have been acquired in
the ordinary course of the Business and maintained at levels consistent with
past practices and are in all material respects adequate for the reasonable
requirements of the Business.
2.9 Principal Place of Business. The principal places of business of
Seller are, and have been for the previous five (5) years, in those counties
listed in Exhibit 2.9.
2.10 Location of Assets. Except as indicated in Exhibit 2.10, all of
the Assets are located in those counties listed in Exhibit 2.9.
2.11 Intellectual Property Rights. Except as set forth in Exhibit 2.11
attached hereto, Seller has no right, title or interest in or to patents, patent
rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets. Except for off-the-shelf software licenses, Seller is not a licensee in
respect of any patents, trademarks, service marks, trade names, copyrights or
applications therefor, or manufacturing processes, formulas or trade secrets.
Seller owns and possesses adequate licenses or other rights to use all such
patents, trademarks, service marks, trade names, copyrights, manufacturing
processes, inventions, specialized treatment protocols, formulas and trade
secrets necessary to conduct its business as now operated. No claim is pending
or has been made to the effect that the present or past operations of Seller
infringe upon or conflict with the asserted rights of others to such patents,
patent rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets.
2.12 Directors and Officers; Payroll Information. Set forth on Exhibit
2.12 attached hereto is a true and complete list, as of the date of this
Agreement, of: (a) the name of each Director and officer of Seller and the
offices held by each; and (b) the most recent payroll report of Seller, showing
all current employees of Seller and their current levels of compensation other
than bonuses and other extraordinary compensation.
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2.13 Legal Proceedings. Except as set forth in Exhibit 2.13 attached
hereto, neither Seller nor any Shareholder has knowledge of any pending or
threatened litigation, governmental investigation, condemnation or other
proceeding against or relating to or affecting Seller, any Shareholder, the
Business, the Assets or the transactions contemplated by this Agreement,
including, but not limited to, claims for medical malpractice or negligence,
and, to the knowledge of Seller and Shareholders, no basis for any such action
exists, nor is there any legal impediment of which Seller or any Shareholder has
knowledge to the continued operation of the Business in the ordinary course.
2.14 Contracts. Seller has delivered to PSC true copies of all written,
and disclosed to PSC all Material oral, outstanding contracts, obligations and
commitments of Seller and each Shareholder entered into in connection with the
Business, all of which are listed or incorporated by reference on Exhibit 2.6
(in the case of leases) and Exhibit 2.14 (in the case of managed care contracts,
third party payor contracts and contracts other than leases) attached hereto.
Except as otherwise indicated on such Exhibits, all of such contracts,
obligations and commitments are valid, binding and enforceable against Seller in
accordance with their terms and are in full force and effect, subject to
limitations on enforceability imposed by, bankruptcy, moratorium, creditors'
rights or similar laws. Except as set forth or incorporated by reference on such
Exhibits, to Seller's knowledge no default or alleged default by Seller exists
thereunder. Except as listed or incorporated by reference on Exhibit 2.6 and
Exhibit 2.14, neither Seller nor any Shareholder is a party to any Material
written or oral agreement, contract, lease or plan of a type described as
follows:
(a) Contract related to the Assets, not made in the
ordinary course of business, other than this Agreement.
(b) Employment contract which is not terminable
without cost or other liability to Seller, or any successors or assigns thereof,
upon notice of 30 days or less.
(c) Contract with any labor union.
(d) Bonus, pension, profit-sharing, retirement,
stock acquisition, hospitalization, insurance or similar plan providing for
employee benefits.
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee.
(f) Contract for the future acquisition of
materials, supplies or equipment (i) which is in excess of the requirements of
the Business now booked or for normal operating inventories, or (ii) which is
not terminable without material cost or liability to Seller, or any successors
or assigns thereof, upon notice of 30 days or less.
(g) Insurance contract.
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(h) Contract continuing for a period of more than
six months from the Closing Date.
(i) Loan agreement or other contract for money
borrowed.
2.15 Subsequent Events. Except as set forth on Exhibit 2.15
attached hereto, Seller has not, since the date of the Balance Sheet:
(a) Incurred any material uninsured obligation or
liability (absolute, accrued, contingent or otherwise), or any material adverse
change except in connection with the performance of this Agreement, other than
in the ordinary course of business.
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the Balance Sheet or (ii) liabilities incurred since the date of
the Balance Sheet in the ordinary course of business.
(c) Increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor, except as
may have been required due to income or operations of Seller.
(d) Mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the Assets, tangible or intangible.
(e) Sold or transferred any of the Assets, canceled
any debts or claims or waived any rights, except in the ordinary course of
business.
(f) Granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable or to
become payable by Seller to any officer or employee, consultant or agent (other
than normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased the compensation of any officer, employee,
consultant or agent.
(g) Authorized any capital expenditures in excess of
$1,000.00.
(h) Except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered into any
material transaction other than in the ordinary course of business or permitted
under other Sections hereof.
(i) Issued any stock, bonds or other securities.
(j) Experienced damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting any of its
properties, assets or business, or
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experienced any other material adverse change in its financial condition,
assets, liabilities or business.
(k) Paid bonuses, distributions, or advanced loans
to shareholders or employees outside of the ordinary course of business
consistent with past practices of Seller.
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2.16 Accounts Receivable. Exhibit 2.16 reflects the amount of Seller's
accounts receivable as of the date of the Balance Sheet, net of allowances for
uncollectible and doubtful accounts, all in conformity with generally accepted
accounting principles. Seller maintains its accounting records in sufficient
detail to substantiate the accounts receivable reflected on Exhibit 2.16 and has
given and will give to PSC full and complete access to those records, including
the right to make copies therefrom. Since the date of the Balance Sheet, Seller
has not changed any principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. To the best of the
knowledge of the Seller and the Shareholders, the Seller is in substantial
compliance with the terms and conditions of such third-party payor arrangements,
and to Seller's knowledge the reserves established by Seller are adequate to
cover any liability resulting from lack of compliance.
2.17 Tax Returns. Seller has filed all tax returns required to be filed
by it, and made all payments required to be made by it, with respect to income
taxes, real property taxes, sales taxes, use taxes, employment taxes and similar
taxes due and payable on or before the date of this Agreement. Seller has no tax
liability, except for ad valorem taxes for the fiscal year ending in 1996, taxes
being contested in good faith, as set forth on Exhibit 2.17 attached hereto, and
sales, use, employment and similar taxes for periods as to which such taxes have
not yet become due and payable.
2.18 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC or Parent resulting from any action taken by Seller or Shareholders or their
respective agents or employees, or any of them.
2.19 Material Liabilities. Except as set forth on Exhibit 2.15, or to
the extent reflected or reserved against on the Balance Sheet, Seller did not
have, as of the Balance Sheet Date, and has not incurred since that date, any
material uninsured liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due which would
have a Material Adverse Effect, other than those incurred in the ordinary course
of business. Except as set forth on Exhibit 2.15, Seller and Shareholders do not
know, or have reasonable grounds to know, of any basis for the assertion against
Seller as of the Balance Sheet Date, of any material claim or liability of any
nature in any amount not fully reflected or reserved against on the Balance
Sheet, or of any material uninsured claim or liability of any nature arising
since that date which would have a Material Adverse Effect other than those
incurred in the ordinary course of business or contemplated by this Agreement.
2.20 Insurance Policies. Seller or each Shareholder maintains policies
of comprehensive general liability and professional liability insurance in
amounts of not less than $3 million per occurrence and $5 million aggregate on a
claims made basis and property damage insurance on the Assets to be sold
hereunder. Valid policies in such amounts are outstanding and duly in force and
will remain duly in force through the Closing Date. All such policies are
described in Exhibit 2.20 attached hereto.
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2.21 Employee Benefit Plans. Except as set forth on Exhibit 2.21
attached hereto, Seller has neither established, nor maintains, nor is obligated
to make contributions to or under or otherwise participate in, (a) any bonus or
other type of incentive compensation plan, program, agreement, policy,
commitment, contract or arrangement (whether or not set forth in a written
document); (b) any pension, profit sharing, retirement or other plan, program or
arrangement; or (c) any other employee benefit plan, fund or program, including,
but not limited to, those described in Section 3(3) of ERISA. All such plans
listed on Exhibit 2.21 (individually "Seller Plan," and collectively "Seller
Plans") have been operated and administered in all material respects in
accordance with, as applicable, ERISA, the Internal Revenue Code of 1986, as
amended, title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the related rules and regulations adopted by those federal agencies
responsible for the administration of such laws. No act or failure to act by
Seller has resulted in a "prohibited transaction" (as defined in ERISA) with
respect to the Seller Plans. No "reportable event" (as defined in ERISA) has
occurred with respect to any of the Seller Plans. Seller has not previously
made, is not currently making, and is not obligated in any way to make, any
contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
2.22 Compliance with Laws in General. Neither Seller nor any
Shareholder has knowledge of material violations of any federal, state and local
laws, regulations and ordinances relating to the operations of the Business and
the Assets, including, without limitation, the Federal Environmental Protection
Act, the Occupational Safety and Health Act, the Americans with Disabilities Act
and any Environmental Laws, and no notice of any pending inspection or violation
of any such law, regulation or ordinance has been received by Seller or any
Shareholder.
2.23 Fraud and Abuse. Seller and Shareholders and all persons and
entities providing professional services for the Business have not, to the
knowledge of Seller and Shareholders, engaged in any activities which are
prohibited under Section 1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (a) knowingly and willfully making
or causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment; (b) knowingly and willfully
making or causing to be made any false statement or representations of a
material fact for use in determining rights to any benefit or payment; (c) any
failure by a claimant to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with the intent to fraudulently secure such
benefit or payment; (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration (i) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (ii) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, lease or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid; (e)
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engaging in any activity which is a basis for exclusion from the Medicare,
Medicaid and other federally-funded programs under Section 1320a-7a of Title 42
of the United States Code; (f) any violation of the Medicare or Medicaid
requirements, including and fraud and abuse provisions, except where such
circumstances would not have a Material Adverse Effect.
2.24 Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. Except as described in Exhibit 2.24 neither Seller nor any
Shareholder has, and as of the Closing Date, will have, any liabilities to any
third party fiscal intermediary or carrier administering any state Medicaid
program or the federal Medicare program, or to any other third party payor for
the recoupment of any amounts previously paid to Seller (or any predecessor
corporation) or any Shareholder by any such third-party fiscal intermediary,
carrier, Medicaid program, Medicare program, or third party payor. There are no
pending or threatened actions by any third party fiscal intermediary or carrier
administering any state Medicaid or the federal Medicare program, by the
Department of Health and Human Services, any state Medicaid agency, or any third
party payor to suspend payments to Seller or any Shareholder.
2.25 Billing Practices and Referral Sources. (a) Billing Practices
Generally. All billing practices by Seller and each Shareholder to all third
party payors, including, but not limited to, the federal Medicare program, state
Medicaid programs and private insurance companies, have been true, fair and
correct and in compliance with all applicable laws, regulations and policies of
all such third party payors, and neither Seller nor any Shareholder has billed
for or received any payment or reimbursement in excess amounts allowed by law.
(b) Gratuitous Payments. Neither Seller nor any Shareholder,
director, or officer of Seller, nor to Seller's knowledge any employee or agent
acting on behalf of or for the benefit of Seller or any Shareholder, has
directly or indirectly (i) offered or paid any remuneration, in cash or in kind,
to, or made any financial arrangements with, any past or present customers, past
or present patients, past or present suppliers, contractors or third party
payors of Seller in order to obtain business or payments from such persons,
other than entertainment activities in the ordinary and lawful course of
business; (ii) given or agreed to give, or is aware that there has been made or
that there is any agreement to make, any gift or gratuitous payment of any kind,
nature or description (whether in money, property or services) to any customer
or potential customer, patient or potential patient, supplier or potential
supplier, contractors, third party payor or any other person other than in
connection with promotional or entertainment activities in the ordinary and
lawful course of business; (iii) made or agreed to make, or is aware that there
has been made or that there is any agreement to make, any contribution, payment
or gift of funds or property to, or for the private use of, any governmental
official, employee or agent where either the contribution, payment or gift or
the purpose of such contribution, payment or gift is or was illegal under the
laws of the United States or under the laws of any state thereof or any other
jurisdiction (foreign or domestic) under which such payment, contribution or
gift was made; (iv) established or maintained any unrecorded fund or asset for
any purpose or made any false or artificial entries on any of its books or
records for any reason or (v) made, or agreed to make, or is aware that there
has been made or that there is any agreement to make, any payment to any person
with the intention or understanding
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<PAGE> 19
that any part of such payment would be used for any purpose other than that
described in the documents supporting such payment.
(c) Transactions with Referral Sources. Neither Seller nor any
Shareholder, director, or officer thereof, nor to Seller's knowledge any
employee of Seller, is a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement with
any physician, hospital, nursing facility, home health agency or other person
who is in a position to make or influence referrals to or otherwise generate
business for Seller or any Shareholder to provide services, lease space, lease
equipment or engage in any other venture activity.
2.26 Physician Self-Referrals. Neither Seller nor any Shareholder has
submitted any claims in connection with any referrals which violated any
applicable self-referral law, including the Stark Law (42 U.S.C. ss. 1395nn) or
any applicable state self-referral law as those laws are currently interpreted.
2.27 Investment Intent. (a) Acquisition Purpose. Seller and
Shareholders (through their ownership interest in Seller) are acquiring the
Parent Common Stock to be received by them under this Agreement for investment
purposes only and not with a view to the sale or distribution thereof.
(b) Experience in Financial Matters. Seller and Shareholders have had
the opportunity to discuss Parent's business, management and financial affairs
with Parent's management. Seller and Shareholders have such knowledge and
experience in financial matters that they are capable of evaluating the merits
and risks of an investment in the Parent Common Stock. Seller's and each of
Shareholders' financial condition is such that it or he is able to bear all
economic risks of investment in the Parent Common Stock, including the risks of
holding the Parent Common Stock for an indefinite period of time.
(c) Non-transferability of Parent Common Stock. Seller and Shareholders
understand that since the shares of Parent Common Stock have not been registered
under the 1933 Act, the shares of Parent Common Stock must be held indefinitely
unless they are subsequently registered under the 1933 Act or an exemption from
such registration is available. Other than as set forth in the Registration
Rights Agreement, Seller and Shareholders acknowledge that neither Parent nor
PSC is under any obligation to register under the 1933 Act any sale of the
Parent Common Stock or to comply with any provisions which would entitle any
such sale to any exemption from registration. Seller and Shareholders are fully
familiar with Rule 144 promulgated under the 1933 Act.
(d) Legend on Parent Common Stock. Each stock certificate representing the
Parent Common Stock shall bear a legend in, or substantially in, the following
form and any other legend required by any applicable state securities or Blue
Sky laws:
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"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold, pledged or
otherwise transferred without an effective registration under
said Act and any applicable state securities laws or unless
the company shall have received an opinion of counsel
satisfactory to the company that an exemption from
registration under such Act and any applicable state
securities laws is then available."
Seller and Shareholders agree to abide by the terms of this legend. Parent may
maintain a "stop transfer order" against the Parent Common Stock.
2.27 No Untrue Representations. To the knowledge of Seller and
Shareholders, no representation or warranty by Seller or any Shareholder in this
Agreement, and no Exhibit or certificate issued by officers or Directors of
Seller or any Shareholder and furnished or to be furnished to PSC or Parent
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading. All information and information provided by
Seller or the Shareholders for valuation of the Business by PSC and Parent is
true, accurate and complete in all material respects.
Section 3. Representations and Warranties of Parent and PSC.
PSC and Parent hereby jointly and severally represent and warrant
to Seller and Shareholders as follows:
3.1 Corporate Existence; Good Standing; Qualification. Each of PSC and
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of PSC and Parent has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted and is duly qualified to do business and is in
good standing in all jurisdictions in which the character of the property owned,
leased or operated or the nature of the business transacted by it makes
qualification necessary.
3.2 Power and Authority. Each of PSC and Parent has corporate power to
execute and deliver this Agreement and perform its obligations under this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement, and has taken all actions required by law, its
Certificate of Incorporation, its By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws of either PSC or Parent
or any provisions of, or result in the acceleration
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of, any obligation under any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which PSC or Parent is a party
or by which either of them is bound, or violate any restrictions of any kind to
which PSC or Parent is subject. The execution and delivery of this Agreement
have been approved by the respective Boards of Directors of PSC and Parent.
3.3 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Seller or Shareholders resulting from any action taken by PSC or Parent or their
respective officers, Directors or agents, or any of them.
3.4 Capitalization. Parent has an authorized capitalization of 10,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued and outstanding, and no shares are held in treasury, and 50,000,000
shares of common stock, par value $.001 per share, of which 599,893 shares are
issued and outstanding, and no shares are held in treasury. All of the Parent
Common Stock to be issued pursuant to this Agreement will, when so delivered, be
duly and validly issued and fully paid and nonassessable. Except as disclosed in
the draft Registration Statement (as hereinafter defined), and except as
described on Exhibit 3.4, there are no options, warrants or similar rights
granted by Parent or any other agreements to which Parent is a party providing
for the issuance or sale by it of any additional securities. There is no
liability for dividends declared or accumulated but unpaid with respect to any
shares of Parent Common Stock. Parent has not paid any dividends to any holder
of Parent Common Stock or participated in or effected any issuance, exchange or
retirement of Parent Common Stock, or otherwise changed the equity interests of
holders of Parent Common Stock, in contemplation of effecting the transaction
contemplated by this Agreement within the two years immediately preceding the
Closing Date.
3.5 PSC Common Stock. Parent owns, beneficially and of record, all of
the issued and outstanding shares of Common Stock of PSC, free and clear of all
liens and encumbrances. Parent has taken all such actions as may be required in
its capacity as the sole shareholder of PSC to approve this transaction.
3.6 Parent Documents. Parent has heretofore furnished Seller with draft
Amendment No. 1 to its Registration Statement S-1 dated February 8, 1997, to be
filed with the SEC, relating to the offer and sale of 2,200,000 shares of Parent
Common Stock in the IPO (the "Registration Statement").
3.7 Legal Proceedings. Except as disclosed in the Registration
Statement, there is no material litigation, governmental investigation or other
proceeding pending or, so far as is known to Parent threatened against or
relating to Parent, its properties or business, or the transaction contemplated
by this Agreement and, so far as is known to Parent, no basis for any such
action exists.
Section 4. Access to Information and Documents Prior to Closing.
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4.1 Access to Seller's Information. Seller and Shareholders shall give
to PSC and its counsel, accountants, engineers and other representatives full
access to all the requested properties, documents, contracts, personnel files
and other records of Seller and the Business hereunder and shall furnish PSC
with copies of such requested documents and with such information with respect
to the affairs of Seller as PSC shall from time to time reasonably request.
Seller and Shareholders shall disclose and make available to Parent and its
representatives all requested books, contracts, accounts, personnel records,
letters of intent papers, records, communications with regulatory authorities
and other documents relating to the Assets and to the Business.
4.2 Access to Information of PSC and Parent. PSC and Parent shall give
to Seller and Shareholders and their respective counsel, accountants and other
representatives such access to the documents, contracts and other records of
PSC, Parent and PSC and shall furnish Seller and Shareholders with copies of
such documents and with such information with respect to the affairs of PSC,
Parent and PSC as Seller and Shareholders shall from time to time reasonably
request.
4.3 Retention of Records. Without cost to Seller, PSC shall retain all
books and records of Seller ("Records") transferred to it pursuant to this
Agreement for the greater of four years from the Closing Date or such longer
periods of time as required by applicable statutes, rules and regulations. For a
period of four years after the Closing Date, and for such longer period as the
Records are maintained, each party will, during normal business hours and so as
not to unreasonably disrupt normal business, afford any other party, its
counsel, its accountants or other parties who have a reasonable need for such
access full access (and copying at the expense of the requesting party, if
desired) to the books and records relating to the Assets in the possession of
such party as such other party may reasonably request.
Section 5. Conditions to Obligation of Parent and PSC to Close.
The obligation of PSC and Parent to consummate the transactions to be
performed by them in connection with this Agreement is subject to satisfaction
of the following conditions precedent (any of which may be waived in writing by
PSC or Parent):
5.1 Representations and Warranties True. The representations and
warranties set forth in Article 2 shall be true and correct in all material
respects as of the date made and at and as of the Closing, except as a result of
changes expressly permitted by this Agreement.
5.2 Covenants. The Shareholders and Seller shall have performed and
complied with all of their covenants and agreements in all material respects
through the Closing.
5.3 No Suit or Proceeding. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction in which an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (iii) affect
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<PAGE> 23
adversely the right of PSC to operate the Business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect).
5.4 Absence of Material Adverse Change.
(i) There shall have been no change in the condition
(financial or otherwise), business, assets, or prospects of
Seller or the Business from the Balance Sheet Date which has
had or could reasonably be expected to have a Material Adverse
Effect on the Seller, the Business, or the Assets.
(ii) Neither Seller nor the Assets shall have been,
and shall not be seriously threatened to be materially
adversely affected in any way as a result of fire, explosion,
disaster, accident, labor dispute, any action by the United
States or any other government or government authority,
domestic or foreign, riot, act of war, civil disturbance or
Act of God.
5.5 Certificate. The Shareholders shall have delivered to PSC a
certificate to the effect that each of the conditions specified in Sections
5.1-5.4 is satisfied in all respects.
5.6 Consents and Approvals. PSC and Parent shall have received all
authorizations, consents, and approvals of third parties and of governments and
governmental agencies, if any, that may be required for the acquisition of the
Assets by PSC, including, without limitation, the consent of the lessors to
transfer to PSC the leases listed on Exhibits 2.6 and/or 2.14.
5.7 Counsel Opinion. Parent and PSC shall have received from counsel to
the Seller and Shareholders an opinion dated as of the Closing Date, in form and
substance reasonably satisfactory to Parent and PSC.
5.8 Other Agreements Executed. Each Shareholder shall have executed and
delivered an Employment Agreement with Practice in the form required by the
Management Services Agreement, which will in the aggregate among the
Shareholders provide for liquidated damages in an amount equal to the
Acquisition Price in the event of breach by the physician of certain provisions
therein, (ii) Practice shall have executed and delivered the Management Services
Agreement, and (iii) the Shareholders shall have executed and delivered the
Registration Rights Agreement in substantially the form of Exhibit 5.8 (the
"Registration Rights Agreement").
5.9 Release of Liens. All liens encumbering the Assets other than those
listed on Exhibit 5.9, shall be duly released by the secured parties and other
lien holders, and UCC-3 release or termination statements and other lien release
documents, if any, shall have been recorded or the recording thereof provided
for.
5.10 Closing Date Financial Certificate. Seller shall have delivered to
PSC a closing date financial certificate which shall certify as of the last day
of the month prior to the effective date of the Registration Statement an
unaudited cash basis balance sheet of Seller and for the period
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ended as of such date a statement of operations of Seller, along with a detailed
accounts receivable aging analysis of Seller as of such date. The net worth of
Practice as of the Closing Date (defined as the accrual basis net worth of
assets acquired by PSC including the net realizable value of its accounts
receivable, less assumed liabilities) shall not be less than $250,000.
5.11 Corporate Documents. Seller shall have furnished PSC with copies
of the following documents: the Articles of Incorporation and all amendments
thereto of Seller and of Practice, duly certified by the Secretary of State of
the State of Georgia; certificates, executed by the proper officials of the
State of Georgia, as to the valid existence and good standing of Seller and of
Practice in the State of Georgia; resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors or
other governing body of Seller and duly adopted by all the Shareholders, all as
duly certified by the Secretary of Seller; and resolutions of the Practice
authorizing the execution, delivery and performance of the Management Services
Agreement by the Practice, as duly certified by the Secretary of the Practice.
5.12 Instruments of Conveyance. Simultaneously with the execution of
this Agreement and in order to effect the conveyance, transfer and assignment of
the Assets and the Business and the assumption of certain liabilities, Seller
shall have executed and delivered to PSC all such bills of sale, assignment and
assumption agreements and other documents or instruments of conveyance, transfer
or assignment as shall be necessary or appropriate to vest in or confirm to PSC
Seller's right, title and interest in and to the Assets, free and clear of all
obligations, security interests, liens and encumbrances whatsoever, except as
specifically assumed by PSC pursuant to Section 1.3(b).
5.13 Practice Acquisition. The Practice shall have acquired from the
Seller the excluded assets referred to in Section 1.2(c) (other than those
personally owned items (if any) identified as such on Exhibit 1.2(c)) and (d)
(the "Medical Excluded Assets") for the purpose of acquiring and owning such
assets, subject to and in accordance with the provisions of a Bill of Sale and
Assignment by and from the Seller in form and substance reasonably satisfactory
to PSC.
5.14 Investor Letter and Financial Data Sheet. Seller and each
Shareholder shall have provided to Parent prior to the Closing Date a
fully-completed and executed Investor Letter and Financial Data Sheet
substantially in the form of Exhibit 5.14.
5.15 Assignment of Leases. At the option of PSC, Seller shall assign to
PSC any real property lease utilized by Seller in the Practice and lease to
Parent and PSC any real property owned by Seller or the Shareholders and
utilized in Seller's practice. All such leases shall be on reasonable terms
mutually agreeable to the Parties.
5.16 Listing of Shares in NASDAQ. Shares of common stock of Parent
shall have been listed for trading on NASDAQ.
5.17 Contemporaneous Acquisition. Contemporaneously with the Closing,
PSC will acquire the assets of AENT and the capital stock of Atlanta ENT Center,
Inc., Atlanta-AHP, Inc.
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and ENT Center of Atlanta, Inc. pursuant to separate agreements with Ramie A.
Tritt, M.D. and the shareholders of AENT.
Section 6. Conditions to Obligation of Seller and the Shareholders.
The obligation of Seller and the Shareholders to consummate the
transactions to be performed by them in connection with this Agreement is
subject to satisfaction of the following conditions (any one of which may be
waived in writing by Seller or the Shareholder);
6.1 Representations and Warranties True. The representations and
warranties set forth in Article 3 above shall be true and correct in all
material respects at and as of the Closing;
6.2 Covenants. Parent and PSC shall have performed and complied with
all of their covenants and agreements in all material respects through the
Closing;
6.3 No Suit or Proceeding. No action, suit or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
6.4 Certificate. PSC shall have delivered to Seller a certificate to
the effect that each of the conditions specified in Sections 6.1-6.3 is
satisfied in all respects;
6.5 Government Approvals. Seller, Parent and PSC shall have received
all authorizations, consents, and approvals of governments and governmental
agencies, if any, that may be required;
6.6 Counsel Opinion. The Seller shall have received from counsel to
Parent and PSC an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to Seller;
6.7 Other Agreements Executed. (i) The Practice shall have executed and
delivered an Employment Agreement with each Shareholder and other Physician
Practice Employees in the form required by the Management Services Agreement,
(ii) PSC shall have executed and delivered the Management Services Agreement,
and (iii) meeting the requirements of Section 5.8 above, Parent shall have
executed and delivered the Registration Rights Agreement.
6.8 Parent Stock. Parent or PSC shall have delivered at the closing the
Parent Common Stock required as the Acquisition Price under Section 1.3(a).
6.9 Corporate Documents. (a) PSC shall have furnished Seller with
copies of the following documents: the Certificate of Incorporation and all
amendments thereto of PSC, duly certified by the Delaware Secretary of State;
certificates, executed by the proper Delaware officials,
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as to the good standing of PSC in Delaware; and resolutions authorizing this
Agreement and the transactions provided for herein, duly adopted by the Board of
Directors of PSC and duly certified by the Secretary of PSC.
(b) Parent shall have furnished Seller with copies of the following
documents; the Certificate of Incorporation and all amendments thereto of
Parent, duly certified by the Delaware Secretary of State; certificates,
executed by the proper Delaware officials, as to the good standing of Parent in
Delaware; and resolutions authorizing this Agreement and the transactions
provided for herein, duly adopted by the Board of Directors of Parent and duly
certified by the Secretary of Parent.
6.10 Assumption of Liabilities. PSC shall have assumed the Obligations
in accordance with Section 1.3(b) pursuant to an assumption agreement in form
and substance reasonably satisfactory to Seller.
6.11 Absence of Material Adverse Change. There shall have been no
change in the condition (financial or otherwise), business, assets, or prospects
of PSC or Parent from the date of this Agreement which has had or could
reasonably be expected to have a material adverse effect on PSC or Parent.
6.12 Listing of Shares. Shares of the common stock of Parent shall have
been listed for trading on NASDAQ.
6.13 Ancillary Agreements. The Management Services Agreement (between
the Practice and PSC), the Restated Stockholders Agreement (among the
shareholders of the Practice), and the Employment Agreement (between each of the
Shareholders and Practice) shall be substantially in the form of Exhibit 6.13.
Section 7. Certain Additional Covenants.
7.1 Conduct of Business Prior to Closing. During the period from and
after the date of this Agreement and until the Closing Date:
(a) Seller and the Shareholders will carry on the Business
in substantially the same manner as heretofore carried on and will not make any
purchase or sale, incur any indebtedness or liens, or introduce any method of
management or operation in respect to such Business or otherwise engage in any
transaction except in the ordinary course of business and in the manner not
inconsistent with prior practice and the terms of this Agreement, other than
with the prior written consent of PSC;
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(b) Neither Seller nor the Shareholders will permit
any change to be made in the articles of incorporation or by-laws or, if
applicable, shareholder agreement of Seller, other than with the prior written
consent of PSC.
(c) Neither Seller nor the Shareholders will acquire
or dispose of any capital assets having an initial cost or current value in
excess of $1,000 other than with the prior written consent of PSC;
(d) Neither Seller nor the Shareholders will
increase the compensation payable or to become payable to any of its employees
or agents other than (a) with the prior written consent of PSC or (b) cash
bonuses by Seller to the Shareholders consistent with the past practice of
Seller;
(e) Neither Seller nor the Shareholders will take,
or permit or suffer to be taken, any action which is represented and warranted
in Section 2.15 not to have occurred since the Balance Sheet Date other than
with the prior written consent of PSC.
7.2 Funding of Accrued Employee Benefits. Except as set forth on
Exhibit 7.2, Seller hereby covenants and agrees that it will take whatever steps
are necessary to pay or fund completely or reserve completely for any accrued
benefits, where applicable, or vested accrued benefits for which Seller or any
entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, vacation pay, sick leave, insurance, employment tax or similar
liability of Seller to any employee or other person or entity (including,
without limitation, any Seller Plan and any liability under employment contracts
with Seller) allocable to services performed prior to the Closing Date. Seller
acknowledges that the purpose and intent of this covenant is to assure that PSC
shall have no liability whatsoever at any time in the future with respect to any
of Seller's employees or similar persons or entities, including, without
limitation, any Seller Plan, except as indicated on Exhibit 7.2.
7.3 Creditor's Claims. Seller and Shareholders represent, covenant and
agree that all of the creditors with respect to the Business will be paid in
full by Seller prior to the Closing Date, or within such other period as is
normally permitted by such creditors in the ordinary course of business, except
to the extent that any liability to such creditors is assumed by PSC pursuant to
this Agreement. If required by PSC, Seller and Shareholders shall furnish PSC
with proof of payment of all creditors with respect to the Assets.
Notwithstanding the foregoing, Seller may dispute the amount or validity of any
such creditor's claim without being deemed to be in violation of this Section
7.3, provided that such dispute is in good faith.
7.4 Affiliate Agreements. Seller will use its reasonable, good faith
efforts to cause its directors and its executive officers and "affiliates"
(within the meaning of Rule 145 under the Securities Act of 1933, as amended) to
execute and deliver to Parent as soon as practicable instructions in the form
attached hereto as Exhibit 7.4 relating to the disposition of the shares of
Parent issued to the Seller.
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7.5 Waiver of Bulk Transfer Compliance. Seller, the Shareholders and
PSC hereby waive any compliance with the Georgia Bulk Transfers Act. Seller and
the Shareholders jointly and severally represent, covenant and agree that all of
the creditors with respect to the Business will be paid in full by the Seller
prior to the Closing Date, or within such other period as is normally permitted
by such creditors in the ordinary course of business, except to the extent that
any liability to such creditors is assumed by PSC pursuant to this Agreement. If
required by PSC, the Seller and the Shareholders shall furnish PSC with proof of
payment of all creditors with respect to the Business. Notwithstanding the
foregoing, the Seller may dispute the amount of validity of any such creditor's
claim without being deemed to be in violation of this Section 7.5, provided that
such dispute is in good faith and does not unreasonably delay the resolution of
the claim.
7.6 Liquidation of Seller. As soon as practical, but in no event later
than 12 months following the Closing Date, Seller will dissolve and liquidate in
accordance with applicable law.
7.7 Covenant Not to Compete. For a period of five (5) years from and
after the Closing Date, each of Seller and each Shareholder agrees that it, he
or she will not (i) directly or indirectly, engage in, manage, operate, control,
conduct, consult for or be employed in a management capacity by, provide
services to or invest in any business or venture in competition with the
Business or PSC or Parent in the Geographic Territory (as defined below);
provided however, that ownership of less than 1% of the outstanding stock of any
publicly traded corporation shall not be deemed to violate this clause, (ii)
within the Geographic Territory, directly or indirectly, solicit or attempt to
solicit any customer or client of PSC or Parent or patient of Practice other
than in the course of a Shareholder's normal performance of services and duties
for Practice as a physician-shareholder thereof; or (iii) solicit or employ or
attempt to solicit or hire away or employ any employee of PSC or Parent or
Practice. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section is invalid or unenforceable, the
Shareholders and PSC agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified. The
parties agree that the Business currently serves territories each with greater
than an eight (8) mile radius of Seller's various office locations. Accordingly,
as used herein, the term "Geographic Territory" shall mean each area within an
eight (8) mile radius of each of the office locations of Seller. The parties
agree that the restraints set forth above in this Section 7.7 are reasonable in
respect to subject matter, length of time and geographic area. Each of Seller
and the Shareholders agrees that the restrictions on their activities contained
in this Section are reasonable and necessary to protect the goodwill and
relationships, economic advantage and other legitimate interests of PSC and
Parent, and that, were it, he or she to breach any of the covenants contained in
this Section 7.7, PSC would be harmed and the damage to PSC would be
irreparable. Accordingly, Seller and the Shareholders acknowledge and agree
that, as PSC's legal remedies may be inadequate in the event of a breach of the
covenants in this Section 7.7, in addition to damages and other remedies
available to PSC, such covenants may be enforced by injunction or other
equitable remedies.
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7.8 Confidentiality.
(a) Seller and the Shareholders shall, and shall use
their reasonable efforts to cause their respective employees, agents and
representatives to, for a period of five (5) years after the Closing, hold in
confidence all financial information about Seller, the Business and the Assets,
except such disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided PSC will be provided
advance notice of such disclosure in order to afford it the opportunity to seek
an appropriate protective order).
(b) Seller and the Shareholders further agree to,
and shall use their reasonable efforts to cause their respective employees,
agents and representatives who are not hired by PSC at Closing, to keep
confidential for a period of five (5) years after the Closing, any and all
information relating to services, products, marketing information, sources of
supply, pricing and patients of Seller on the date hereof or developed by or for
Seller, except such disclosure as may be required by law or governmental order
or regulation, or by subpoena or other legal process (provided PSC will be
provided advance notice of such disclosure in order to seek an appropriate
protective order).
(c) The restrictions in this Section 7.8 shall not
apply to any information that comes into the public domain through no fault of
Seller or the Shareholders.
7.9 Pooling and Tax-free Combination Treatment. Neither Parent, Seller
or Shareholders shall intentionally take or cause to be taken any action, which
would disqualify the combination as a "pooling of interests" under generally
accepted accounting principles and applicable SEC requirements or as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code. Each
Shareholder represents and warrants to Parent that he or she has no present
intention or plan or design to dispose of the shares of Parent Common Stock that
he or she will receive pursuant to the liquidation of Seller. Further, each of
the Shareholders hereby covenants and agrees with Parent that he or she will not
sell, convey or otherwise transfer any shares of Parent Common Stock distributed
to such Shareholder pursuant to the liquidation of Seller until the expiration
of not less than one (1) month following the release by Parent of consolidated
financial statements of Parent to the public that reflect at least one (1) month
of joint operations of Parent and Seller's business. Each Party hereto agrees to
take such further action or action and to execute such other documents,
agreements, certificates or instruments as may be necessary or desirable to
maintain pooling of interests accounting treatment of the transactions
contemplated by this Agreement in accordance with all applicable financial
accounting standards.
Section 8. Nature and Survival of Representations and Warranties;
Indemnification.
8.1 Nature and Survival. All statements contained in this Agreement or
in any Exhibit attached hereto, any agreement executed pursuant hereto, and any
certificate executed and delivered by any party pursuant to the terms of this
Agreement, shall constitute representations and warranties of Seller and
Shareholders, jointly and severally, or of PSC and Parent, jointly and
severally, as the case may be. All such representations and warranties, all
representations and
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warranties expressly labeled as such in this Agreement and the obligations of
the parties to indemnify any other party pursuant to Section 8.2 or 8.3(a),
shall survive the date of this Agreement and the Closing Date (i) with respect
to the representations and warranties in Sections 2.1 through 2.4 and Sections
2.23 through 2.26, for the period of the applicable statute of limitations, and
(ii) with respect to all other representations and warranties until the earlier
of (A) a period of one (1) year following the Closing Date or (B) the date of
issuance of the first audited consolidated financial statements for Parent and
its subsidiaries which contain combined operations of Parent and the Business.
Each party covenants with the other parties not to make any claim with respect
to such representations or warranties against any party after the date on which
such survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 8.2 or 8.3(a) hereof, unless such
party has timely given the notice required in Section 8.4 hereof. Each party
hereby releases, acquits and discharges the other party from any and all claims
and demands, actions and causes of action, damages, costs, expenses and rights
of setoff with respect to which the notice required by Section 8.4 is not timely
provided.
8.2 Indemnification by PSC and Parent. PSC and Parent jointly and
severally (for purposes of this Section 8.2 and, to the extent applicable,
Section 8.4, "Indemnitor"), shall indemnify and hold Seller and Shareholders,
and their respective agents, employees, legal representatives, successors and
assigns (each of the foregoing, including Seller and Shareholders, for purposes
of this Section 8.2 and, to the extent applicable, Section 8.4, an "Indemnified
Person"), harmless from and against any and all liabilities, losses, claims,
damages, actions, suits, costs, deficiencies and expenses (including, but not
limited to, reasonable fees and disbursements of counsel through appeal) arising
from or by reason of or resulting from any breach by Indemnitor of any
representation, warranty, agreement or covenant made by Indemnitor contained in
this Agreement (including the Exhibits hereto) and each document, certificate or
other instrument furnished or to be furnished by Indemnitor hereunder,
excluding, however, any and all liabilities of Seller or the Shareholders which
are not expressly assumed by PSC under this Agreement.
8.3 Indemnification by Seller and Shareholders. (a) Seller and
Shareholders (for purposes of this Section 8.3(a) and, to the extent applicable,
Section 8.3(b) and Section 8.4, "Indemnitor"), shall jointly and severally
indemnify and hold PSC and Parent and their respective officers, directors,
shareholders, affiliates, agents, employees, legal representatives, successors
and assigns (each of the foregoing, including PSC and Parent, for purposes of
this Section 8.3(a) and, to the extent applicable, Sections 8.3(b) and Section
8.4, an "Indemnified Person") harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies and expenses
(including, but not limited to, reasonable fees and disbursements of counsel
through appeal), in an aggregate amount not to exceed the Acquisition Price
arising from or by reason of or resulting from any breach by Indemnitor (or any
of them) of any representation or warranty contained in this Agreement
(including the Exhibits hereto) and each document, certificate or other
instrument furnished or to be furnished by Indemnitor hereunder, and with
respect to all times prior to the Closing Date, arising from or by reason of or
resulting from the Indemnitor's management and conduct of the ownership or
operation of the Business or the Assets and from any alleged act of negligence
or malpractice of Indemnitor or its employees, agents and independent
contractors in or about the Business or the Assets.
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(b) The Seller and the Shareholders jointly and severally
agree to indemnify and hold harmless each Indemnified Person from and against
any and all liabilities, losses, claims, damages, actions, suits, costs,
deficiencies and expenses, including, but not limited to, reasonable fees and
disbursements of counsel through appeal, resulting from, arising out of,
relating to or caused by any breach of any covenant or agreement of the Seller
or a Shareholder contained in this Agreement.
8.4 Indemnification Procedure. Within 60 days after Indemnified Person
receives written notice of the commencement of any action or other proceeding,
or otherwise becomes aware of any claim or other circumstance, in respect of
which indemnification or reimbursement may be sought under Section 8.2 or
Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof. If any
such action or other proceeding shall be brought against any Indemnified Person,
Indemnitor shall, upon written notice given within a reasonable time following
receipt by Indemnitor of such notice from Indemnified Person, be entitled to
assume the defense of such action or proceeding with counsel chosen by
Indemnitor and reasonably satisfactory to Indemnified Person; provided, however,
that any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, Indemnified Person
shall have the right to employ separate counsel at Indemnitor's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such Indemnified Person, (a) there are or may be legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to Indemnitor and which
could not be adequately advanced by counsel chosen by Indemnitor, or (b) a
conflict or potential conflict exists between Indemnitor and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall Indemnitor be required to pay fees and expenses
hereunder for more than one firm of attorneys in any jurisdiction in any one
action or proceeding or group of related actions or proceedings. Indemnitor
shall not, without the prior written consent of any Indemnified Person, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding to which such Indemnified Person is a
party unless such settlement compromise or consent includes an unconditional
release of such Indemnified Person from all liability arising or potentially
arising from or by reason of such claim, action or proceeding.
8.5 Limitations Upon Obligations. Anything in this Section 8 to the
contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Seller or Shareholders (individually and collectively a
"Selling Party") or, by a Selling Party to a Parent Party, on claims for
indemnification under Sections 8.2 or 8.3(a) until the aggregate of all such
claims of a Parent Party against a Selling Party under Section 8.3(a), or by a
Selling Party against a Parent Party under Section 8.2, shall exceed $10,000.00,
in which event the Party holding such claim shall be entitled to indemnification
with respect to all such claims in the aggregate. In the event that such claims
do not aggregate in excess of $10,000.00, then neither the Parent Parties nor
the Selling Parties shall have any claim for indemnification against the other
under Section 8.2 or Section 8.3(a).
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Section 9. Termination.
9.1 Right to Terminate. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and
Seller;
(b) by either PSC, Parent or Seller upon prior written
notice to the other party
(i) if any court or governmental or regulatory
agency, authority or body shall have enacted, promulgated or
issued any statute, rule, regulation, ruling, writ or
injunction, or taken any other action, restraining, enjoining
or otherwise prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have been
exhausted; or
(ii) if the Closing shall not have occurred on or
before March 31, 1997 or such later date as the parties may
agree to; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.1(b)(ii) shall not be
available to any party whose breach of any representation or
warranty or failure to perform or comply with any obligation
or condition under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before
such date;
(c) by PSC or Parent, upon prior written notice to Seller and
the Shareholders, if any of the conditions specified in Section 5 have
not been met or waived prior to the Closing Date (or any extension
thereof pursuant to Section 9.1(b)(ii) above); or
(d) by Seller and the Shareholders, upon prior written notice
to PSC, if any of the conditions specified in Section 6 shall not have
been met or waived prior to the Closing Date (or any extension thereof
pursuant to Section 9.1(b)(ii) above).
9.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Section 9, this Agreement shall forthwith become null
and void and there shall be no liability on the part of any of the parties
hereto or their respective officers or directors with respect to this Agreement,
except for Section 1.7 which shall remain in full force and effect after any
such termination of this Agreement, and except that nothing herein shall relieve
any party from liability for a breach of this Agreement prior to the termination
thereof.
Section 10. Miscellaneous.
10.1 Notices. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
or by facsimile and overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
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If to PSC:
PSC MANAGEMENT CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
If to Parent:
PHYSICIANS SPECIALTY CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
with a copy of each notice directed to PSC or Parent to:
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
If to Seller or Shareholders:
William S. Smith, M.D.
Andrew J. Diamond, M.D.
285 Boulevard, Suite 110
Atlanta, Georgia 30312
Facsimile: _________________
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.2 Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. Seller and Shareholders
will execute and deliver from time to time thereafter, at the request of PSC,
all such further instruments of conveyance, assignment and further assurance as
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may reasonably be required in order to vest in and confirm to PSC all of
Seller's right, title and interest in and to the Assets.
10.3 Public Disclosures. Except as otherwise required by law, no party
to this Agreement shall make any public or other disclosure of this Agreement or
the transactions contemplated hereby (other than Parent's disclosures in the
Registration Statement) without the prior consent of the other parties. The
parties to this Agreement shall cooperate with respect to the form and content
of any such disclosures.
10.4 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Georgia, applied without
giving effect to any conflict-of-laws principles.
10.5 "Including". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to" or words of similar
import) is used with reference to the word "including" or the similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall with the broadest possible scope of the general statement,
term or matter.
10.6 "Knowledge". "To the knowledge," "to the best knowledge,
information and belief' or any similar phrase, shall be deemed to include the
assurance that such knowledge is based upon a reasonable investigation, unless
otherwise expressly provided. Unless otherwise expressly provided herein, Seller
shall be deemed to have knowledge of any facts known to any Shareholder.
10.7 "Material". An individual claim, obligation or liability shall be
deemed to be "material" if the amount thereof exceeds $5,000.00 or involves the
violation of any federal, state or local statute, rule or regulation. A contract
or lease shall be deemed to be material if it requires a single payment in
excess of $5,000.00 or payment for any future 12-month period in excess of
$5,000.00, except that no contract for the acquisition of inventory items or
consumable supplies shall be deemed material unless such contract cannot be
terminated without cause by Seller on not more than 30 days notice, or has, as
of the Closing Date, an amount payable with respect thereto of more than
$5,000.00.
10.8 "Material Adverse Change" or "Material Adverse Effect". "Material
Adverse Change" or "Material Adverse Effect" means, when used in connection with
the parties to this Agreement, any change, effect, event or occurrence that has,
or is reasonably likely to have individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "Material Adverse Change"
and "Material Adverse Effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles, (ii) changes in applicable
law, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by Seller with the consent of PSC.
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10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which is or may potentially be hazardous to the health or safety of
human or animal life or vegetation, regardless of whether such material is found
on or below the surface of the ground, in any surface or underground water,
airborne in ambient air or in the air inside any structure built or located upon
or below the surface of the ground or in building materials or in improvements
of any structures, or in any personal property located or used in any such
structure, including, but not limited to, all hazardous substances, imminently
hazardous substances, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined, listed, identified,
designated or classified as such under any Environmental Laws (as defined in
Section 10.10) regardless of the quantity of any such material.
10.10 "Environmental Laws". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or medical waste or relating to the protection of
the environment or the disposal of medical waste.
10.11 Appointment of Attorney-in-Fact. Effective at the Closing, Seller
hereby constitutes and appoints PSC, and its successors and assigns, the true
and lawful attorneys for Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of and at the expense of PSC, to
institute and prosecute, in the name of Seller or otherwise, all proceedings
which PSC may deem proper in order to collect, assert or enforce any claim,
right or title of any kind in or to the Assets, to defend and compromise any and
all actions, suits or proceedings in respect of any such Assets, and to do all
such acts and things in relation thereto as PSC shall deem advisable, subject to
applicable laws and regulations. Seller agrees that the foregoing powers shall
be coupled with an interest and shall be irrevocable by Seller or by its
dissolution or in any manner or for any reason. PSC shall retain for its own
account any amounts collected pursuant to the foregoing powers, including any
sums payable in respect thereof, and Seller shall pay to PSC, when received, any
amounts which shall be received by Seller in respect of any Assets.
10.12 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
10.13 Integration of Exhibits. All Exhibits attached to this Agreement
are integral parts of this Agreement as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced; provided, however, that any liabilities or obligations to be assumed
by PSC shall be set forth on Exhibit 1.3(b), and the inclusion of any
liabilities or obligations in any other Exhibits shall not be deemed or
construed to incorporate such liabilities or obligations into Exhibit 1.3(b).
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<PAGE> 36
10.14 Entire Agreement. This instrument, including all Exhibits
attached hereto, contains the entire agreement of the parties and supersedes any
and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby. It may not be
changed or terminated orally, but may only be changed by an agreement in writing
signed by the party or parties against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
10.15 Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument.
10.16 Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.17 No Rule of Construction. The parties acknowledge that this
Agreement was initially prepared by PSC and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
10.18 Costs of Enforcement. In the event that PSC or Parent on the one
hand, or Seller or Shareholders, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit. The
term "prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
10.19 Transfer of Assets; Assignment. The parties also hereby agree
that this Agreement shall not be assigned or transferred by either party without
the prior written consent of the other; provided, however, that this Agreement
may be assigned, in whole or in part, by PSC or Parent, in its sole discretion,
to any parent, subsidiary or affiliate of PSC or Parent or to any party
acquiring all or substantially all PSC's or Parent's assets. Any such assignment
shall not affect Parent's obligations hereunder or under any documents executed
by Parent pursuant to this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"PSC"
PSC MANAGEMENT CORP.
By /s/ Gerald R. Benjamin
-------------------------------------
Title: Secretary and Vice Chairman
----------------------------------
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By /s/ Gerald R. Benjamin
-------------------------------------
Title: Secretary and Vice Chairman
----------------------------------
"SELLER"
METROPOLITAN EAR, NOSE
& THROAT, P.C.
By /s/ William S. Smith, M.D.
-------------------------------------
Title: President
----------------------------------
"SHAREHOLDERS"
/s/ William S. Smith, M.D.
----------------------------------------
William S. Smith, M.D.
/s/ Andrew J. Diamond, M.D.
----------------------------------------
Andrew J. Diamond, M.D.
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<PAGE> 1
EXHIBIT 10.26
ASSET ACQUISITION AGREEMENT
by and among
Physicians' Specialty Corp.
PSC Management Corp.
and
Atlanta Head and Neck Surgery, P.C.
<PAGE> 2
ASSET ACQUISITION AGREEMENT
ASSET ACQUISITION AGREEMENT (this "Agreement"), dated as of February
13, 1997, by and among PSC MANAGEMENT CORP., a Delaware corporation ("PSC");
PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("PARENT"); ATLANTA HEAD
AND NECK SURGERY, P.C., a Georgia professional corporation ("Seller") and
ALBERT A. CLAIRMONT, M.D., an individual resident of the State of Georgia
("Shareholder").
W I T N E S S E T H:
WHEREAS, Seller operates a medical practice which provides
otolaryngology and other medical and surgical services from offices located in
the metropolitan Atlanta, Georgia area ("Business");
WHEREAS, Shareholder is the only shareholder of Seller;
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in the
business of acquiring the assets of and managing medical practices;
WHEREAS, PSC is a wholly-owned subsidiary of Parent;
WHEREAS, Seller wishes to convey to PSC, and PSC wishes to acquire from
Seller, substantially all of the properties and assets of Seller, subject to
certain liabilities set forth herein, all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth, and the contemplated delivery by PSC to
Seller of shares of the Common Stock of Parent, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
Section 1. Terms of the Sale and Acquisition of Assets.
The sale of the assets of Seller hereunder and the acquisition thereof
by PSC shall be made at the Closing (as defined in Section 1.12) based on the
respective representations, warranties and agreements of the parties hereto and
subject to the terms and conditions herein stated.
1.1 Conveyance of Assets. Subject to the provisions of Section 1.2
hereof, at the Closing Seller shall convey, transfer and assign to PSC and PSC
shall acquire from Seller all of Seller's right, title and interest in and to
the properties and assets of Seller as a going concern, including, without
limitation, all items of personal property and other assets used in connection
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<PAGE> 3
with the Business (except as otherwise provided herein), whether or not any of
such assets have any value for accounting purposes (individually "Asset," and
collectively "Assets"), free and clear of all obligations, security interests,
liens, claims and encumbrances whatsoever, except as specifically assumed by PSC
pursuant to Section 1.3(b). Without limiting the generality of the foregoing,
the Assets specifically include:
(a) All real estate, personal property, plant,
furniture, fixtures and equipment owned by Seller which are utilized in or
related to the Business, including, but not limited to, all items owned by
Seller identified on Exhibit 1.1(a) attached hereto.
(b) All contracts, agreements and commitments of
Seller and/or Shareholder related to the Business identified on Exhibit 2.6 and
Exhibit 2.14 attached hereto and set forth on Exhibit 1.3(b) and all contracts,
agreements and commitments of Seller and/or Shareholder related to the Business
and entered into after the date hereof and prior to the Closing in the ordinary
course of business and not in violation of Section 7.1 hereof (but excluding
this Agreement and the agreements, instruments and documents executed and
delivered by PSC pursuant to this Agreement and also excluding physician
employment agreements of Seller and any contracts with nurse practitioners and
physician assistants of Seller) and all contract rights of Seller incident
thereto, and all general intangibles of Seller.
(c) Subject to applicable laws and regulations, all
inventories maintained by Seller as of the Closing Date as described in Exhibit
1.1(c).
(d) Subject to applicable laws and regulations, all
accounts receivable of Seller, notes receivable and other rights to receive
payments owing to Seller in existence on the Closing Date, and all proceeds and
cash arising from the collection of same from and after the Closing Date.
(e) Subject to applicable laws and regulations, all
patient accounts receivable records of Seller.
(f) The books and records of Seller relating to the
Assets, all of which shall be delivered to PSC, or such person as PSC may
designate, on the Closing Date.
(g) Subject to applicable laws and regulations, all
transferable licenses and other regulatory approvals necessary for or incident
to the operation of the Assets.
(h) Seller's right to use the name "Atlanta Head and
Neck Surgery, P.C." and all other trade and service marks and names and goodwill
associated therewith, and all customer lists, clinical and administrative policy
and procedure manuals, trade secrets, copyrights, patents, marketing and
promotional materials (including audiotapes, videotapes and printed materials)
and all other property rights required for or incident to the marketing of the
products and services of the Business, and all books and records relating
thereto.
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<PAGE> 4
(i) All of Seller's prepaid expenses, prepaid
insurance, deposits and similar items.
1.2 Excluded Assets. There shall be excluded from the Assets
transferred and conveyed hereunder, and Seller shall retain all of its right,
title and interest in and to, the assets set forth on Exhibit 1.2 attached
hereto and the following assets:
(a) The minute books of Seller and similar corporate
records of Seller.
(b) All considerations to be delivered by PSC on the
Closing Date.
(c) All assets listed in Exhibit 1.2 hereto.
(d) Patient charts, records and files.
1.3 Acquisition PSC Price; Assumption of Liabilities. As consideration
for the sale of the Assets by Seller, at Closing PSC shall provide Seller with
the following considerations:
(a) Parent Shares. At the Closing Parent shall issue
to Seller shares of the Common Stock, par value $.001 per share, of Parent (the
"Parent Common Stock") with a total value equal to $170,000 subject to
adjustments described in Exhibit 1.3(a) and Section 1.3(b) (the "Acquisition
Price"). The number of shares of Parent Common Stock which shall constitute the
Acquisition Price shall be determined by dividing the Acquisition Price by the
Initial Public Offering Price of the Parent Common Stock. For purposes of this
Section 1.3(a), the "Initial Public Offering Price" shall mean the price for the
shares of Parent Common Stock as priced and sold on a gross basis before taking
into account the managing underwriters' commissions and costs associated with
Parent's initial public offering (the "IPO"). Assuming an IPO Price of $9.50 per
share and no adjustments pursuant to Exhibit 1.3(a), a total of 17,895 shares of
Parent Common Stock would be issued as the Acquisition Price. The Acquisition
Price shall be allocated to the acquisition of the Assets as set forth on
Exhibit 1.3(a)(1) attached hereto. The parties shall use such allocation in
completing Form 8594 and satisfying any and all other reporting requirements of
the Internal Revenue Service or any other state or local taxing authority.
(b) Assumption of Liabilities. Except as otherwise
provided herein, at the Closing PSC shall assume and discharge up to Eighty
Thousand Dollars ($80,000) (the "Assumed Debt") of the then outstanding
principal and interest accrued thereon of Seller's notes listed on Exhibit
1.3(b) (the "Notes") and shall perform or discharge on or after the Closing Date
(as defined in Section 1.12), only those contracts, leases, commitments,
obligations and liabilities of Seller which are also listed on Exhibit 1.3(b)
attached hereto (collectively, the "Obligations"), except to the extent that
such contracts, leases, commitments, obligations and liabilities are excluded by
virtue of the operation of other provisions of this Agreement. PSC agrees to
promptly pay and discharge such Obligations as the same become due and payable.
An amount, if any, equal to Eighty Thousand Dollars less the amount of Seller's
debt assumed by PSC shall be added to the Acquisition Price (as defined in
Section 1.3(a)). Notwithstanding anything to the contrary
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<PAGE> 5
contained herein, Seller and Shareholder shall pay off (before Closing) the
excess of the sum of all of the outstanding principal and interest accrued
thereon of the Notes less Eighty Thousand Dollars ($80,000).
(c) Liabilities Not Assumed. Notwithstanding any
contrary provision contained herein, PSC shall not be deemed to have assumed,
nor shall PSC assume (i) any liability which may be incurred by reason of any
uncured material breach of or any monetary default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of Seller, including,
but not limited to, liabilities arising under any Seller Plan (as defined in
Section 2.21 hereto) and liabilities for accrued sick leave or vacation days;
(iii) any liability based upon or arising out of a violation of any antitrust or
similar restraint-of-trade laws by Seller, including, without limiting the
generality of the foregoing, any such antitrust liability which may arise in
connection with agreements, contracts, commitments or orders for the sale of
goods or provision of services by Seller reflected on the books of Seller at or
prior to the Closing Date; (iv) any liability based upon or arising out of
overpayments due to the Medicare and/or Medicaid programs, any other third party
payor, or any liability based upon or arising out of a violation of any false
claim, anti-kickback, prohibition or self-referral laws or similar fraud and
abuse laws by Seller; (v) any medical malpractice liability associated with the
Business or Seller or any person associated with the Business or Seller; (vi)
any liability based upon or arising out of any tortious conduct or wrongful
actions of Seller or any Shareholder; or (vii) any liability for the payment of
any taxes imposed by law on Seller arising from or by reason of the transactions
contemplated by this Agreement or otherwise.
1.4 Employment Arrangements.
(a) Following the Closing PSC will initially offer
employment as employees-at-will to all persons (other than physicians and such
personnel as are specified in the Management Services Agreement, defined in
Section 1.5 below) who are employees of Seller on the Closing Date; Seller's
employees who become employed by PSC are hereinafter referred to as "Transferred
Employees" and the physicians and such other personnel as are specified in the
Management Services Agreement, but who will not become employed by PSC are
hereafter referred to as the "Practice Employees."
(b) As of the Closing Date, Seller will: (i)
terminate any employment contracts applicable to those persons who are employed
by PSC as Transferred Employees pursuant to Section 1.4(a) hereof; and (ii)
terminate the participation of all such employees in all Seller Plans, such
termination to be effected in accordance with and to the extent permitted by
applicable provisions of the Internal Revenue Code of 1986, as amended, (the
"Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other applicable laws, rules and regulations; and (iii) cause
the Seller Plans to make timely appropriate distributions, to the extent
required, to such employees in accordance with, and to the extent permitted by,
the terms and conditions of such Seller Plans. Seller will provide to PSC such
copies of documents and other information related to the termination of such
employees' participation in the Seller Plans as PSC may request.
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<PAGE> 6
(c) At the Closing, Shareholder agrees to become an
employee and shareholder of New Atlanta Ear, Nose & Throat Associates, P.C., a
Georgia professional corporation ("Practice"), and shall execute the form of
employment contract and shareholders agreement which other shareholder employees
of Practice have executed with Practice.
1.5 Management Services Agreement. Shareholder acknowledges and agrees
that Practice and PSC shall execute a Management Services Agreement at the time
of the acquisition of assets of Atlanta Ear, Nose & Throat Associates, P.C.
("AENT") by PSC which shall govern the business relationship between Practice
and PSC.
1.6 Seller's Financial Information. The agreement between the parties
evidenced by this Agreement has been reached based on financial information
about Seller, the Assets and the Business as of September 30, 1996, all provided
to PSC by Seller. The unaudited Balance Sheet of Seller as of December 31, 1996
("Balance Sheet Date"), is attached hereto as Exhibit 1.6 and is hereinafter
referred to as the "Balance Sheet".
1.7 Each Party to Bear Costs. PSC shall pay up to Five Thousand Dollars
($5,000) of Seller's and Shareholder's reasonable legal expenses owed to S.
Friedman & Associates, P.C. in connection with this Agreement. Each of the
parties to this Agreement shall pay all of the costs and expenses incurred by
such party in connection with the transactions contemplated by this Agreement,
except as otherwise provided herein. Without limiting the generality of the
foregoing, and whether or not such liabilities may be deemed to have been
incurred in the ordinary course of business, neither party shall be liable for
or required to pay, either directly or indirectly, any of the following
liabilities or expenses incurred by the other party: (a) fees and expenses of
any person for services as a finder, or for fees and expenses of any persons for
financial services rendered to such other party in connection with negotiating
and closing the sale contemplated by this Agreement; (b) fees and expenses of
legal counsel retained by such other party for services rendered to such party
in connection with negotiating and closing the sale contemplated by this
Agreement; (c) fees and expenses of any auditors and accountants retained by
such other party for services rendered to such party in connection with
negotiating and closing the sale contemplated by this Agreement; (d) state and
federal income taxes or other similar charges on income incurred by such other
party on any gain from the purchase and sale of Assets hereunder; and (e)
expenses and fees relating to feasibility studies, appraisals and similar
valuation services performed on behalf of such other party in connection with
the transactions contemplated hereby.
1.8 Assignment of Contracts and Assets; Consents. Nothing in this
Agreement or delivered pursuant to this Agreement shall be construed as an
attempt to agree to assign any contract, certificate, license or other Asset
which is in law or by agreement nonassignable without the consent of the other
party or parties thereto, or of any governmental authority, as the case may be,
unless such consent shall be given. Seller will use its reasonable good faith
efforts to obtain all such necessary consents of the parties to any such
contracts prior to the Closing. In order, however, that the full value of every
such contract, certificate, license or other Asset included within the Assets
and all claims and demands in such contracts may be realized, Seller and
Shareholder hereby
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<PAGE> 7
covenant with PSC and Parent that Seller, by itself or by its agents, will, at
the request and expense and under the direction of PSC, in the name of Seller or
otherwise, as PSC shall specify and as shall be permitted by law, take all such
reasonable actions and do or cause to be done all such reasonable things as
shall, in the opinion of PSC, be necessary or proper (a) in order that the
rights and obligations of Seller under such contracts, certificates, licenses
and other Assets shall be preserved, and (b) for, and to facilitate, from and
after the Closing, the collection of the moneys due and payable, and to become
due and payable, to Seller in and under every such contract and in respect of
every such claim and demand, from and after the Closing, and Seller shall hold
the same for the benefit of, and shall pay the same over to, PSC.
1.9 Cooperation with Regulatory Approvals. Seller and Shareholder shall
cooperate with and assist PSC, as PSC shall reasonably request, in obtaining the
approval of all regulatory agencies and officials whose approval is required for
the transfer of all licenses and other regulatory approvals required to enable
PSC to acquire the Assets and operate the Business.
1.10 Irrevocable Guaranty by Parent. To induce Seller to execute and
deliver this Agreement, Parent hereby unconditionally and irrevocably guarantees
the Seller and Shareholder the full, prompt and faithful performance by PSC of
all covenants and obligations to be performed by PSC under this Agreement,
including, but not limited to, the payment of all sums and delivery of all
property stipulated to be transferred by PSC pursuant to this Agreement and
PSC's obligation to indemnify the Seller and Shareholder pursuant to Section
8.2. This guaranty shall be a guaranty of payment, not merely collection, and
shall be unaffected by any subsequent modification or amendment of this
Agreement whether or not Parent has knowledge of or consented to such
modification or amendment. In the event that PSC fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums or deliver all or any part of such property when due, Parent will
perform all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Seller (or such other payee or transferee as may
be provided in any such agreement) the amount due and unpaid or the property not
delivered, as the case may be, by PSC. In the event of bankruptcy, termination,
liquidation or dissolution of PSC, this unconditional guaranty shall continue in
full force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Parent shall be
required.
1.11 Tax and Accounting Treatment. It is intended by the parties that
the purchase and sale contemplated by this Agreement and related documents
qualify as a reorganization under the provisions of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, and that for accounting purposes, it
is intended that such transaction be accounted for by Parent as a "pooling of
interests".
1.12 Closing.
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(a) Closing. Subject to the fulfillment of the
conditions precedent specified in Sections 5 and 6, the transaction contemplated
by this Agreement shall be consummated at a closing (the "Closing") to be held
at 10:00 a.m. local time simultaneously with the closing of the IPO at the
offices of Bachner, Tally, Polevoy, & Misher L.L.P., New York, New York, or at
such other location, as is mutually agreed upon by the Parties. The date on
which the Closing occurs shall be referred to as the "Closing Date."
(b) Documents to be Delivered by Seller. At the
Closing, Seller shall deliver, or cause to be delivered, to PSC the following:
(i) Such bills of sale, endorsements and
assignments as are necessary to vest in PSC good and
valid title to the Purchased Assets;
(ii) The certificate required to be
delivered pursuant to Section 5.5;
(iii) The legal opinion required to be
delivered pursuant to Section 5.7 of this Agreement;
(iv) The other agreements, documents and
instruments required by Sections 5.8 through 5.14;
(v) Any other documentation required to be
delivered under this Agreement or otherwise requested
to be delivered by PSC that is necessary or
appropriate to consummate the Transaction; and
(vi) Pursuant to 5.18 of this Agreement, a
copy of the bill of sale evidencing that any medical
assets of Seller not acquired by PSC have been
transferred by Seller to Practice.
(c) Documents and Other Items to be Delivered by
Purchaser. At the Closing, PSC shall deliver to Seller the following:
(i) The Acquisition Price, payable by shares
of Parent Common Stock pursuant to Section 1.3;
(ii) The certificate required to be
delivered pursuant to Sections 6.4 of this Agreement;
(iii) The legal opinion required to be
delivered pursuant to Section 6.6 of this Agreement;
(iv) The other agreements, documents and
instruments required by Section 6.7, 6.9 and 6.10;
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<PAGE> 9
(v) Any other documentation required to be
delivered under this Agreement or otherwise
reasonably requested to be delivered by Seller or
Shareholder that is necessary or appropriate to
consummate the transaction.
Simultaneously with such delivery, Seller and Shareholder jointly and
severally agree to use their best efforts and to take all action as may be
reasonably necessary to put PSC in possession and operating control of the
Assets free and clear of all liens or other restrictions or encumbrances,
including the obtaining of such consents of third parties as may be reasonably
necessary to effect the foregoing.
Section 2. Representations and Warranties of Seller and Shareholder.
The Seller and Shareholder jointly and severally
represent and warrant to PSC and Parent as follows:
2.1 Corporate Existence; Good Standing. Seller is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Seller has all necessary corporate powers to own all of
its assets and to carry on its business as such business is now being conducted.
Seller is not required to qualify to do business as a foreign corporation in any
other state or jurisdiction by reason of its business, properties or activities
in or relating to such other state or jurisdiction.
2.2 Power and Authority for Transactions.
(a) Seller has corporate power to execute, deliver
and perform its obligations under this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all action required by law, its Articles of Incorporation, its Bylaws or
otherwise, to authorize the execution and delivery of and the performance of
this Agreement and such related documents. The execution and delivery of this
Agreement, and the agreements related hereto executed and delivered pursuant to
this Agreement, do not, and, subject to the receipt of consents to assignments
of leases and other contracts where required and the receipt of regulatory
approvals where required, the consummation of the transactions contemplated
hereby will not, violate any provision of the Articles of Incorporation or
Bylaws of Seller or any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which Seller is a party or by which
Seller is bound, or violate any material restrictions of any kind to which
Seller is subject which could have a Material Adverse Effect.
(b) The execution and delivery of this Agreement,
and the agreements related hereto executed and delivered pursuant to this
Agreement, do not, and the consummation of the transactions contemplated hereby
will not, violate any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which any Shareholder is a party or by
which any Shareholder is bound, or
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<PAGE> 10
violate any material restrictions of any kind to which any Shareholder is
subject and which could have a Material Adverse Effect.
2.3 Subsidiaries and Affiliates. Seller does not own stock in or
control, directly or indirectly, any other corporation, association or business
organization, nor is Seller a party to any joint venture or partnership.
Shareholder is the sole shareholder of Seller and owns all the capital stock of
Seller. There are no outstanding (a) securities of Seller convertible into
equity interests in Seller, or (b) commitments, options, rights or warrants to
issue any such equity interests in Seller, or to issue securities of Seller
convertible into such equity interests.
2.4 Permits, Licenses and Governmental Authorizations. (a) All material
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other material governmental
authorizations and approvals necessary for the conduct of the Business, or
waivers thereof, have been duly obtained and are in full force and effect, and
there are no proceedings pending or, to the knowledge of Seller and Shareholder,
threatened which may result in the revocation, cancellation or suspension, or
any adverse modification, of any thereof. Any and all past litigation concerning
such building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other governmental authorizations
and approvals, and all claims and causes of action raised therein, have been
finally adjudicated.
(b) Approvals. Shareholder holds in full force and effect all
approvals, authorizations, licenses, and certifications required by law (the
"Approvals") to practice medicine. Evidence of such Approvals has been delivered
to PSC. There has been no lapse, revocation, or suspension of any Approval, or
any formal allegation (including any complaint, indictment or initiation of
proceedings) made before a court of law, licensing or regulatory authority,
professional organization, or the medical staff or committee of a hospital,
regarding any Shareholder's practice or fitness to practice medicine, including
any allegation of the following: alcohol abuse, a violation of any law or
regulation relating to controlled substances, professional malpractice or
misconduct, improper billing practices, or a crime involving moral turpitude.
The foregoing does not include any action taken as a result of failure to timely
complete medical records.
(c) Provider Numbers. Shareholder holds a valid Medicare provider
number and valid uniform physician identification numbers. Evidence of such
numbers has been delivered to PSC.
(d) Board Certification. Shareholder is certified by the American Board
of Otolaryngology and evidence of such board certification(s) has been delivered
to PSC.
(e) No Conviction. No Shareholder has ever been convicted of a criminal
offense relating to the Medicare or any federally-funded state health care
program. For purposes of this Agreement, the term conviction includes the entry
of a plea of guilty or no contendere and participation in a first offender,
deferred adjudication, or other arrangement or program whereby a judgment of
conviction has been withheld.
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2.5 Seller's Financial Information. Seller has heretofore furnished PSC
and Parent with copies of financial information about Seller as set forth on
Exhibit 2.5 attached hereto, including, but not limited to, the Balance Sheet.
All such financial statements have been prepared on a tax (cash) basis and not
in accordance with generally accepted accounting principles ("GAAP") but
otherwise have been prepared on a consistent basis throughout the periods
indicated, reflect all liabilities of Seller as of their respective dates, and
present fairly the financial position of Seller as of such dates and the results
of operations and cash flows for the period or periods reflected therein.
2.6 Leases. Exhibit 2.6 attached hereto sets forth a list of all leases
pursuant to which Seller leases, as lessor or lessee, real or personal property
used in operating the Business or otherwise; however the parties understand and
agree that only those leases [if any] listed on Exhibit 1.3(b) will be assumed
by PSC. Except as indicated on Exhibit 2.16, all such leases listed on Exhibit
2.6 are valid and effective in accordance with their respective terms, and there
is not under any such lease any existing default by Seller, as lessor or lessee,
or any condition or event of which Seller or any Shareholder has knowledge which
with notice or lapse of time, or both, would constitute a default, in respect of
which Seller has not taken adequate steps to cure such default or to prevent a
default from occurring. With respect to any lease not assumed by PSC, Seller and
Shareholder represent and covenant that they will honor and discharge all
obligations of Seller under such leases.
2.7 Personal Property. Seller owns all of the personal property
reflected on the Balance Sheet and included in the Assets, including, but not
limited to, all items of personal property identified on Exhibit 1.1(a) and
Exhibit 1.1(c) attached hereto, free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those set forth in Exhibit 2.7 attached
hereto and except for liens corresponding to the Assumed Debt. All such personal
property that comprises the Assets shall be transferred to PSC subject to only
claims, charges, exceptions or encumbrances set forth on Exhibit 2.7. Such
personal property is in usable condition, normal wear and tear excepted, and
suitable for its purpose and intended use.
2.8 Inventories. The items of Seller's inventory have been acquired in
the ordinary course of the Business and maintained at levels consistent with
past practices and are in all material respects adequate for the reasonable
requirements of the Business.
2.9 Principal Place of Business. The principal places of business of
Seller are, and have been for the previous five (5) years, in those counties
listed in Exhibit 2.9.
2.10 Location of Assets. Except as indicated in Exhibit 2.10, all of
the Assets are located in those counties listed in Exhibit 2.9.
2.11 Intellectual Property Rights. Except as set forth in Exhibit 2.11
attached hereto, Seller has no right, title or interest in or to patents, patent
rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets. Except for off-the-shelf software licenses, Seller is not a licensee in
respect of
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any patents, trademarks, service marks, trade names, copyrights or applications
therefor, or manufacturing processes, formulas or trade secrets. Seller owns and
possesses adequate licenses or other rights to use all such patents, trademarks,
service marks, trade names, copyrights, manufacturing processes, inventions,
specialized treatment protocols, formulas and trade secrets necessary to conduct
its business as now operated. No claim is pending or has been made to the effect
that the present or past operations of Seller infringe upon or conflict with the
asserted rights of others to such patents, patent rights, manufacturing
processes, trade names, trademarks, service marks, inventions, specialized
treatment protocols, copyrights, formulas and trade secrets.
2.12 Directors and Officers; Payroll Information. Set forth on Exhibit
2.12 attached hereto is a true and complete list, as of the date of this
Agreement, of: (a) the name of each Director and officer of Seller and the
offices held by each; and (b) the most recent payroll report of Seller, showing
all current employees of Seller and their current levels of compensation other
than bonuses and other extraordinary compensation.
2.13 Legal Proceedings. Except as set forth in Exhibit 2.13 attached
hereto, neither Seller nor any Shareholder has knowledge of any pending or
threatened litigation, governmental investigation, condemnation or other
proceeding against or relating to or affecting Seller, any Shareholder, the
Business, the Assets or the transactions contemplated by this Agreement,
including, but not limited to, claims for medical malpractice or negligence,
and, to the knowledge of Seller and Shareholder, no basis for any such action
exists, nor is there any legal impediment of which Seller or any Shareholder has
knowledge to the continued operation of the Business in the ordinary course.
2.14 Contracts. Seller has delivered to PSC true copies of all written,
and disclosed to PSC all Material oral, outstanding contracts, obligations and
commitments of Seller and Shareholder entered into in connection with the
Business, all of which are listed or incorporated by reference on Exhibit 2.6
(in the case of leases) and Exhibit 2.14 (in the case of managed care contracts,
third party payor contracts and contracts other than leases) attached hereto.
Except as otherwise indicated on such Exhibits, all of such contracts,
obligations and commitments are valid, binding and enforceable against Seller in
accordance with their terms and are in full force and effect, subject to
limitations on enforceability imposed by, bankruptcy, moratorium, creditors'
rights or similar laws. Except as set forth or incorporated by reference on such
Exhibits, to Seller's knowledge no default or alleged default by Seller exists
thereunder. Except as listed or incorporated by reference on Exhibit 2.6 and
Exhibit 2.14, neither Seller nor any Shareholder is a party to any Material
written or oral agreement, contract, lease or plan of a type described as
follows:
(a) Contract related to the Assets, not made in the
ordinary course of business, other than this Agreement.
(b) Employment contract which is not terminable
without cost or other liability to Seller, or any successors or assigns thereof,
upon notice of 30 days or less.
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(c) Contract with any labor union.
(d) Bonus, pension, profit-sharing, retirement,
stock acquisition, hospitalization, insurance or similar plan providing for
employee benefits.
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee.
(f) Contract for the future acquisition of
materials, supplies or equipment (i) which is in excess of the requirements of
the Business now booked or for normal operating inventories, or (ii) which is
not terminable without material cost or liability to Seller, or any successors
or assigns thereof, upon notice of 30 days or less.
(g) Insurance contract.
(h) Contract continuing for a period of more than
six months from the Closing Date.
(i) Loan agreement or other contract for money
borrowed.
2.15 Subsequent Events. Except as set forth on Exhibit 2.15 attached
hereto, Seller has not, since the date of the Balance Sheet:
(a) Incurred any material uninsured obligation or
liability (absolute, accrued, contingent or otherwise), or any material adverse
change except in connection with the performance of this Agreement, other than
in the ordinary course of business.
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the Balance Sheet or (ii) liabilities incurred since the date of
the Balance Sheet in the ordinary course of business.
(c) Increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor, except as
may have been required due to income or operations of Seller.
(d) Mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the Assets, tangible or intangible.
(e) Sold or transferred any of the Assets, canceled
any debts or claims or waived any rights, except in the ordinary course of
business.
(f) Granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable or to
become payable by Seller to any
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officer or employee, consultant or agent (other than normal merit increases), or
by means of any bonus or pension plan, contract or other commitment, increased
the compensation of any officer, employee, consultant or agent.
(g) Authorized any capital expenditures in excess of
$1,000.00.
(h) Except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered into any
material transaction other than in the ordinary course of business or permitted
under other Sections hereof.
(i) Issued any stock, bonds or other securities.
(j) Experienced damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting any of its
properties, assets or business, or experienced any other material adverse change
in its financial condition, assets, liabilities or business.
(k) Paid bonuses, distributions, or advanced loans
to Shareholder or employees outside of the ordinary course of business
consistent with past practices of Seller.
2.16 Accounts Receivable. Exhibit 2.16 reflects the amount of Seller's
accounts receivable as of the date of the Balance Sheet, net of allowances for
uncollectible and doubtful accounts, all in conformity with generally accepted
accounting principles. All such financial information has been prepared on a tax
(cash) basis and not in accordance with GAAP but has been prepared otherwise on
a consistent basis throughout the period indicated. Seller maintains its
accounting records in sufficient detail to substantiate the accounts receivable
reflected on Exhibit 2.16 and has given and will give to PSC full and complete
access to those records, including the right to make copies therefrom. Since the
date of the Balance Sheet, Seller has not changed any principle or practice with
respect to the recordation of accounts receivable or the calculation of reserves
therefor, or any material collection, discount or write-off policy or procedure.
To the best of the knowledge of the Seller and Shareholder, the Seller is in
substantial compliance with the terms and conditions of such third-party payor
arrangements, and to Seller's knowledge the reserves established by Seller are
adequate to cover any liability resulting from lack of compliance.
2.17 Tax Returns. Seller has filed all tax returns required to be filed
by it, and made all payments required to be made by it, with respect to income
taxes, real property taxes, sales taxes, use taxes, employment taxes and similar
taxes due and payable on or before the date of this Agreement. Seller has no tax
liability, except for ad valorem taxes for the fiscal year ending in 1996, taxes
being contested in good faith, as set forth on Exhibit 2.17 attached hereto, and
sales, use, employment and similar taxes for periods as to which such taxes have
not yet become due and payable.
2.18 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which
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may be now or hereafter asserted against PSC or Parent resulting from any
action taken by Seller or Shareholder or their respective agents or employees,
or any of them.
2.19 Material Liabilities. Except as set forth on Exhibit 2.15, or to
the extent reflected or reserved against on the Balance Sheet, Seller did not
have, as of the Balance Sheet Date, and has not incurred since that date, any
material uninsured liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due which would
have a Material Adverse Effect, other than those incurred in the ordinary course
of business. Except as set forth on Exhibit 2.15, Seller and Shareholder do not
know, or have reasonable grounds to know, of any basis for the assertion against
Seller as of the Balance Sheet Date, of any material claim or liability of any
nature in any amount not fully reflected or reserved against on the Balance
Sheet, or of any material uninsured claim or liability of any nature arising
since that date which would have a Material Adverse Effect other than those
incurred in the ordinary course of business or contemplated by this Agreement.
2.20 Insurance Policies. Seller or Shareholder maintains policies of
comprehensive general liability and professional liability insurance in amounts
of not less than $3 million per occurrence and $5 million aggregate on a claims
made basis and property damage insurance on the Assets to be sold hereunder.
Valid policies in such amounts are outstanding and duly in force and will remain
duly in force through the Closing Date. All such policies are described in
Exhibit 2.20 attached hereto.
2.21 Employee Benefit Plans. Except as set forth on Exhibit 2.21
attached hereto, Seller has neither established, nor maintains, nor is obligated
to make contributions to or under or otherwise participate in, (a) any bonus or
other type of incentive compensation plan, program, agreement, policy,
commitment, contract or arrangement (whether or not set forth in a written
document); (b) any pension, profit sharing, retirement or other plan, program or
arrangement; or (c) any other employee benefit plan, fund or program, including,
but not limited to, those described in Section 3(3) of ERISA. All such plans
listed on Exhibit 2.21 (individually "Seller Plan," and collectively "Seller
Plans") have been operated and administered in all material respects in
accordance with, as applicable, ERISA, the Internal Revenue Code of 1986, as
amended, title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the related rules and regulations adopted by those federal agencies
responsible for the administration of such laws. No act or failure to act by
Seller has resulted in a "prohibited transaction" (as defined in ERISA) with
respect to the Seller Plans. No "reportable event" (as defined in ERISA) has
occurred with respect to any of the Seller Plans. Seller has not previously
made, is not currently making, and is not obligated in any way to make, any
contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
2.22 Compliance with Laws in General. Neither Seller nor any
Shareholder has knowledge of material violations of any federal, state and local
laws, regulations and ordinances relating to the operations of the Business and
the Assets, including, without limitation, the Federal Environmental Protection
Act, the Occupational Safety and Health Act, the Americans with
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Disabilities Act and any Environmental Laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by Seller or any Shareholder.
2.23 Fraud and Abuse. Seller and Shareholder and all persons and
entities providing professional services for the Business have not, to the
knowledge of Seller and Shareholder, engaged in any activities which are
prohibited under Section 1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (a) knowingly and willfully making
or causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment; (b) knowingly and willfully
making or causing to be made any false statement or representations of a
material fact for use in determining rights to any benefit or payment; (c) any
failure by a claimant to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with the intent to fraudulently secure such
benefit or payment; (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration (i) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (ii) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, lease or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid; (e) engaging in
any activity which is a basis for exclusion from the Medicare, Medicaid and
other federally-funded programs under Section 1320a-7a of Title 42 of the United
States Code; (f) any violation of the Medicare or Medicaid requirements,
including and fraud and abuse provisions, except where such circumstances would
not have a Material Adverse Effect.
2.24 Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. Except as described in Exhibit 2.24 neither Seller nor any
Shareholder has, and as of the Closing Date, will have, any liabilities to any
third party fiscal intermediary or carrier administering any state Medicaid
program or the federal Medicare program, or to any other third party payor for
the recoupment of any amounts previously paid to Seller (or any predecessor
corporation) or any Shareholder by any such third-party fiscal intermediary,
carrier, Medicaid program, Medicare program, or third party payor. There are no
pending or threatened actions by any third party fiscal intermediary or carrier
administering any state Medicaid or the federal Medicare program, by the
Department of Health and Human Services, any state Medicaid agency, or any third
party payor to suspend payments to Seller or any Shareholder.
2.25 Billing Practices and Referral Sources. (a) Billing Practices
Generally. All billing practices by Seller and Shareholder to all third party
payors, including, but not limited to, the federal Medicare program, state
Medicaid programs and private insurance companies, have been true, fair and
correct and in compliance with all applicable laws, regulations and policies of
all such third party payors, and neither Seller nor any Shareholder has billed
for or received any payment or reimbursement in excess amounts allowed by law.
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<PAGE> 17
(b) Gratuitous Payments. Neither Seller nor any Shareholder,
director, or officer of Seller, nor to Seller's knowledge any employee or agent
acting on behalf of or for the benefit of Seller or any Shareholder, has
directly or indirectly (i) offered or paid any remuneration, in cash or in kind,
to, or made any financial arrangements with, any past or present customers, past
or present patients, past or present suppliers, contractors or third party
payors of Seller in order to obtain business or payments from such persons,
other than entertainment activities in the ordinary and lawful course of
business; (ii) given or agreed to give, or is aware that there has been made or
that there is any agreement to make, any gift or gratuitous payment of any kind,
nature or description (whether in money, property or services) to any customer
or potential customer, patient or potential patient, supplier or potential
supplier, contractors, third party payor or any other person other than in
connection with promotional or entertainment activities in the ordinary and
lawful course of business; (iii) made or agreed to make, or is aware that there
has been made or that there is any agreement to make, any contribution, payment
or gift of funds or property to, or for the private use of, any governmental
official, employee or agent where either the contribution, payment or gift or
the purpose of such contribution, payment or gift is or was illegal under the
laws of the United States or under the laws of any state thereof or any other
jurisdiction (foreign or domestic) under which such payment, contribution or
gift was made; (iv) established or maintained any unrecorded fund or asset for
any purpose or made any false or artificial entries on any of its books or
records for any reason or (v) made, or agreed to make, or is aware that there
has been made or that there is any agreement to make, any payment to any person
with the intention or understanding that any part of such payment would be used
for any purpose other than that described in the documents supporting such
payment.
(c) Transactions with Referral Sources. Neither Seller nor any
Shareholder, director, or officer thereof, nor to Seller's knowledge any
employee of Seller, is a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement with
any physician, hospital, nursing facility, home health agency or other person
who is in a position to make or influence referrals to or otherwise generate
business for Seller or any Shareholder to provide services, lease space, lease
equipment or engage in any other venture activity.
2.26 Physician Self-Referrals. Neither Seller nor any Shareholder has
submitted any claims in connection with any referrals which violated any
applicable self-referral law, including the Stark Law (42 U.S.C. Section
1395nn) or any applicable state self-referral law as those laws are currently
interpreted.
2.27 Investment Intent. (a) Acquisition Purpose. Seller and Shareholder
(through his ownership interest in Seller) are acquiring the Parent Common Stock
to be received by them under this Agreement for investment purposes only and not
with a view to the sale or distribution thereof.
(b) Experience in Financial Matters. Seller and Shareholder have had
the opportunity to discuss Parent's business, management and financial affairs
with Parent's management. Seller and Shareholder have such knowledge and
experience in financial matters that they are capable
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<PAGE> 18
of evaluating the merits and risks of an investment in the Parent Common Stock.
Seller's and Shareholder's financial condition is such that it or he is able to
bear all economic risks of investment in the Parent Common Stock, including the
risks of holding the Parent Common Stock for an indefinite period of time.
(c) Non-transferability of Parent Common Stock. Seller and Shareholder
understand that since the shares of Parent Common Stock have not been registered
under the 1933 Act, the shares of Parent Common Stock must be held indefinitely
unless they are subsequently registered under the 1933 Act or an exemption from
such registration is available. Other than as set forth in the Registration
Rights Agreement, Seller and Shareholder acknowledge that neither Parent nor PSC
is under any obligation to register under the 1933 Act any sale of the Parent
Common Stock or to comply with any provisions which would entitle any such sale
to any exemption from registration. Seller and Shareholder are fully familiar
with Rule 144 promulgated under the 1933 Act.
(d) Legend on Parent Common Stock. Each stock certificate representing
the Parent Common Stock shall bear a legend in, or substantially in, the
following form and any other legend required by any applicable state securities
or Blue Sky laws:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold, pledged or
otherwise transferred without an effective registration under
said Act and any applicable state securities laws or unless
the company shall have received an opinion of counsel
satisfactory to the company that an exemption from
registration under such Act and any applicable state
securities laws is then available."
Seller and Shareholder agree to abide by the terms of this legend. Parent may
maintain a "stop transfer order" against the Parent Common Stock.
2.28 No Untrue Representations. To the knowledge of Seller and
Shareholder, no representation or warranty by Seller or any Shareholder in this
Agreement, and no Exhibit or certificate issued by officers or Directors of
Seller or any Shareholder and furnished or to be furnished to PSC or Parent
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading. All information and information provided by
Seller or Shareholder for valuation of the Business by PSC and Parent is true,
accurate and complete in all material respects.
Section 3. Representations and Warranties of Parent and PSC.
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PSC and Parent hereby jointly and severally represent and warrant to
Seller and Shareholder as follows:
3.1 Corporate Existence; Good Standing; Qualification. Each of PSC and
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of PSC and Parent has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted and is duly qualified to do business and is in
good standing in all jurisdictions in which the character of the property owned,
leased or operated or the nature of the business transacted by it makes
qualification necessary.
3.2 Power and Authority. Each of PSC and Parent has corporate power to
execute and deliver this Agreement and perform its obligations under this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement, and has taken all actions required by law, its
Certificate of Incorporation, its By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws of either PSC or Parent
or any provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which PSC or Parent is a party or by which either of them is bound,
or violate any restrictions of any kind to which PSC or Parent is subject. The
execution and delivery of this Agreement have been approved by the respective
Boards of Directors of PSC and Parent.
3.3 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Seller or Shareholder resulting from any action taken by PSC or Parent or their
respective officers, Directors or agents, or any of them.
3.4 Capitalization. Parent has an authorized capitalization of 10,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued and outstanding, and no shares are held in treasury, and 50,000,000
shares of common stock, par value $.001 per share, of which 599,893 shares are
issued and outstanding, and no shares are held in treasury. All of the Parent
Common Stock to be issued pursuant to this Agreement will, when so delivered, be
duly and validly issued and fully paid and nonassessable. Except as disclosed in
the draft Registration Statement (as hereinafter defined), and except as
described on Exhibit 3.4, there are no options, warrants or similar rights
granted by Parent or any other agreements to which Parent is a party providing
for the issuance or sale by it of any additional securities. There is no
liability for dividends declared or accumulated but unpaid with respect to any
shares of Parent Common Stock. Parent has not paid any dividends to any holder
of Parent Common Stock or participated in or effected any issuance, exchange or
retirement of Parent Common Stock, or otherwise changed the equity interests of
holders of Parent Common Stock, in contemplation of effecting the transaction
contemplated by this Agreement within the two years immediately preceding the
Closing Date.
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3.5 PSC Common Stock. Parent owns, beneficially and of record, all of
the issued and outstanding shares of Common Stock of PSC, free and clear of all
liens and encumbrances. Parent has taken all such actions as may be required in
its capacity as the sole shareholder of PSC to approve this transaction.
3.6 Parent Documents. Parent has heretofore furnished Seller with draft
Amendment No. 1 to its Registration Statement S-1 dated February 8, 1997, to be
filed with the SEC, relating to the offer and sale of 2,200,000 shares of Parent
Common Stock in the IPO (the "Registration Statement").
3.7 Legal Proceedings. Except as disclosed in the Registration
Statement, there is no material litigation, governmental investigation or other
proceeding pending or, so far as is known to Parent threatened against or
relating to Parent, its properties or business, or the transaction contemplated
by this Agreement and, so far as is known to Parent, no basis for any such
action exists.
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Section 4. Access to Information and Documents Prior to Closing.
4.1 Access to Seller's Information. Seller and Shareholder shall give
to PSC and its counsel, accountants, engineers and other representatives full
access to all the requested properties, documents, contracts, personnel files
and other records of Seller and the Business hereunder and shall furnish PSC
with copies of such requested documents and with such information with respect
to the affairs of Seller as PSC shall from time to time reasonably request.
Seller and Shareholder shall disclose and make available to Parent and its
representatives all requested books, contracts, accounts, personnel records,
letters of intent papers, records, communications with regulatory authorities
and other documents relating to the Assets and to the Business.
4.2 Access to Information of PSC and Parent. PSC and Parent shall give
to Seller and Shareholder and their respective counsel, accountants and other
representatives such access to the documents, contracts and other records of
PSC, Parent and PSC and shall furnish Seller and Shareholder with copies of such
documents and with such information with respect to the affairs of PSC, Parent
and PSC as Seller and Shareholder shall from time to time reasonably request.
4.3 Retention of Records. Without cost to Seller, PSC shall retain all
books and records of Seller ("Records") transferred to it pursuant to this
Agreement for the greater of four years from the Closing Date or such longer
periods of time as required by applicable statutes, rules and regulations. For a
period of four years after the Closing Date, and for such longer period as the
Records are maintained, each party will, during normal business hours and so as
not to unreasonably disrupt normal business, afford any other party, its
counsel, its accountants or other parties who have a reasonable need for such
access full access (and copying at the expense of the requesting party, if
desired) to the books and records relating to the Assets in the possession of
such party as such other party may reasonably request.
Section 5. Conditions to Obligation of Parent and PSC to Close.
The obligation of PSC and Parent to consummate the transactions to be
performed by them in connection with this Agreement is subject to satisfaction
of the following conditions precedent (any of which may be waived in writing by
PSC or Parent):
5.1 Representations and Warranties True. The representations and
warranties set forth in Article 2 shall be true and correct in all material
respects as of the date made and at and as of the Closing, except as a result of
changes expressly permitted by this Agreement.
5.2 Covenants. Shareholder and Seller shall have performed and complied
with all of their covenants and agreements in all material respects through the
Closing.
5.3 No Suit or Proceeding. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction in which an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the
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transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of PSC to operate the Business
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect).
5.4 Absence of Material Adverse Change.
(i) There shall have been no change in the condition
(financial or otherwise), business, assets of Seller or the
Business from the Balance Sheet Date which has had or could
reasonably be expected to have a Material Adverse Effect on
the Seller, the Business, or the Assets.
(ii) Neither Seller nor the Assets shall have been,
and shall not be seriously threatened to be materially
adversely affected in any way as a result of fire, explosion,
disaster, accident, labor dispute, any action by the United
States or any other government or government authority,
domestic or foreign, riot, act of war, civil disturbance or
Act of God.
5.5 Certificate. Shareholder shall have delivered to PSC a certificate
to the effect that each of the conditions specified in Sections 5.1-5.4 is
satisfied in all respects.
5.6 Consents and Approvals. PSC and Parent shall have received all
authorizations, consents, and approvals of third parties and of governments and
governmental agencies, if any, that may be required for the acquisition of the
Assets by PSC, including, without limitation, the consent of the lessors to
transfer to PSC the leases listed on Exhibits 2.6 and/or 2.14.
5.7 Counsel Opinion. Parent and PSC shall have received from counsel to
the Seller and Shareholder an opinion dated as of the Closing Date, in form and
substance reasonably satisfactory to Parent and PSC.
5.8 Other Agreements Executed. Shareholder shall have executed and
delivered an Employment Agreement with Practice in the form required by the
Management Services Agreement, which will provide for liquidated damages in an
amount equal to the Acquisition Price in the event of breach by the physician of
certain provisions therein, (ii) Practice shall have executed and delivered the
Management Services Agreement, and (iii) Shareholder shall have executed and
delivered the Registration Rights Agreement in substantially the form of Exhibit
5.8 (the "Registration Rights Agreement").
5.9 Release of Liens. All liens encumbering the Assets other than those
listed on Exhibit 5.9, shall be duly released by the secured parties and other
lien holders, and UCC-3 release or termination statements and other lien release
documents, if any, shall have been recorded or the recording thereof provided
for.
5.10 Closing Date Financial Certificate. Seller shall have delivered to
PSC a closing date financial certificate which shall certify as of the last day
of the month prior to the effective date
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of the Registration Statement an unaudited cash basis balance sheet of Seller
and for the period ended as of such date a statement of operations of Seller,
along with a detailed accounts receivable aging analysis of Seller as of such
date. Seller's 1996 collections shall not have been less than five hundred
thousand dollars ($500,000) and the net worth of Practice as of the Closing Date
(defined as the accrual basis net worth of assets acquired by PSC including the
net realizable value of its accounts receivable, less assumed liabilities) shall
not be less than one hundred twenty-five thousand dollars ($125,000).
5.11 Corporate Documents. Seller shall have furnished PSC with copies
of the following documents: the Articles of Incorporation and all amendments
thereto of Seller and of Practice, duly certified by the Secretary of State of
the State of Georgia; certificates, executed by the proper officials of the
State of Georgia, as to the valid existence and good standing of Seller and of
Practice in the State of Georgia; resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors or
other governing body of Seller and duly adopted by Shareholder, all as duly
certified by the Secretary of Seller; and resolutions of the Practice
authorizing the execution, delivery and performance of the Management Services
Agreement by the Practice, as duly certified by the Secretary of the Practice.
5.12 Instruments of Conveyance. Simultaneously with the execution of
this Agreement and in order to effect the conveyance, transfer and assignment of
the Assets and the Business and the assumption of certain liabilities, Seller
shall have executed and delivered to PSC all such bills of sale, assignment and
assumption agreements and other documents or instruments of conveyance, transfer
or assignment as shall be necessary or appropriate to vest in or confirm to PSC
Seller's right, title and interest in and to the Assets, free and clear of all
obligations, security interests, liens and encumbrances whatsoever, except as
specifically assumed by PSC pursuant to Section 1.3(b).
5.13 Practice Acquisition. The Practice shall have acquired from the
Seller the excluded assets referred to in Section 1.2(c) (other than those
personally owned items (if any) identified as such on Exhibit 1.2(c)) and (d)
(the "Medical Excluded Assets") for the purpose of acquiring and owning such
assets, subject to and in accordance with the provisions of a Bill of Sale and
Assignment by and from the Seller in form and substance reasonably satisfactory
to PSC.
5.14 Investor Letter and Financial Data Sheet. Seller and Shareholder
shall have provided to Parent prior to the Closing Date a fully-completed and
executed Investor Letter and Financial Data Sheet substantially in the form of
Exhibit 5.14.
5.15 Assignment of Leases. At the option of PSC, Seller shall assign to
PSC any real property lease utilized by Seller in the Practice and lease to
Parent and PSC any real property owned by Seller or Shareholder and utilized in
Seller's practice. All such leases shall be on reasonable terms mutually
agreeable to the Parties.
5.16 Listing of Shares in NASDAQ. Shares of common stock of Parent
shall have been listed for trading on NASDAQ.
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5.17 Contemporaneous Acquisition. Contemporaneously with the Closing,
PSC will acquire the assets of AENT and the capital stock of Atlanta ENT Center,
Inc., Atlanta-AHP, Inc. and ENT Center of Atlanta, Inc. pursuant to separate
agreements with Ramie A. Tritt, M.D. and the shareholders of AENT.
5.18 Execution of Promissory Note. Contemporaneously with the Closing:
(a) New Atlanta Ear, Nose and Throat Associates, P.C. ("NAENT) shall
execute a promissory note in the amount of Thirty Thousand Dollars (pursuant to
a loan from PSC to NAENT as set forth in Section 6.13(a) of this Agreement)
payable to PSC and bearing simple interest at eight percent (8%) per annum. Such
promissory note shall be payable by NAENT in ten (10) equal installments of
interest and principal beginning sixty (60) days after the Closing Date with
each such installment due every thirty days thereafter.
(b) Shareholder shall execute a promissory note in the amount of Thirty
Thousand Dollars (pursuant to a loan from NAENT to Shareholder as set forth in
Section 6.13(b) of this Agreement) payable to NAENT and bearing simple interest
at eight percent (8%) per annum. Such promissory note shall be payable by
Shareholder in ten (10) equal installments of interest and principal beginning
sixty (60) days after the Closing Date with each such installment due every
thirty days thereafter.
Section 6. Conditions to Obligation of Seller and Shareholder.
The obligation of Seller and Shareholder to consummate the transactions
to be performed by them in connection with this Agreement is subject to
satisfaction of the following conditions (any one of which may be waived in
writing by Seller or Shareholder);
6.1 Representations and Warranties True. The representations and
warranties set forth in Article 3 above shall be true and correct in all
material respects at and as of the Closing;
6.2 Covenants. Parent and PSC shall have performed and complied with
all of their covenants and agreements in all material respects through the
Closing;
6.3 No Suit or Proceeding. No action, suit or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
6.4 Certificate. PSC shall have delivered to Seller a certificate to
the effect that each of the conditions specified in Sections 6.1-6.3 is
satisfied in all respects;
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6.5 Government Approvals. Seller, Parent and PSC shall have received
all authorizations, consents, and approvals of governments and governmental
agencies, if any, that may be required;
6.6 Counsel Opinion. The Seller shall have received from counsel to
Parent and PSC an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to Seller;
6.7 Other Agreements Executed. (i) The Practice shall have executed and
delivered an Employment Agreement with Shareholder and other Physician Practice
Employees in the form required by the Management Services Agreement, (ii) PSC
shall have executed and delivered the Management Services Agreement, and (iii)
meeting the requirements of Section 5.8 above, Parent shall have executed and
delivered the Registration Rights Agreement.
6.8 Parent Stock. Parent or PSC shall have delivered at the closing the
Parent Common Stock required as the Acquisition Price under Section 1.3(a).
6.9 Corporate Documents. (a) PSC shall have furnished Seller with
copies of the following documents: the Certificate of Incorporation and all
amendments thereto of PSC, duly certified by the Delaware Secretary of State;
certificates, executed by the proper Delaware officials, as to the good standing
of PSC in Delaware; and resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors of PSC
and duly certified by the Secretary of PSC.
(b) Parent shall have furnished Seller with copies of the following
documents; the Certificate of Incorporation and all amendments thereto of
Parent, duly certified by the Delaware Secretary of State; certificates,
executed by the proper Delaware officials, as to the good standing of Parent in
Delaware; and resolutions authorizing this Agreement and the transactions
provided for herein, duly adopted by the Board of Directors of Parent and duly
certified by the Secretary of Parent.
6.10 Assumption of Liabilities. PSC shall have assumed the Obligations
in accordance with Section 1.3(b) pursuant to an assumption agreement in form
and substance reasonably satisfactory to Seller.
6.11 Absence of Material Adverse Change. There shall have been no
change in the condition (financial or otherwise), business, assets, or prospects
of PSC or Parent from the date of this Agreement which has had or could
reasonably be expected to have a material adverse effect on PSC or Parent.
6.12 Listing of Shares. Shares of the common stock of Parent shall have
been listed for trading on NASDAQ.
6.13 Loan to Seller and Shareholder. Contemporaneously with the
Closing:
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(a) PSC shall loan to NAENT Thirty Thousand Dollars ($30,000) and NAENT
shall execute a promissory note for such loan as set forth in Section 5.18(a) of
this Agreement.
(b) NAENT shall loan to Shareholder Thirty Thousand Dollars ($30,000)
and Shareholder shall execute a promissory note for such loan as set forth in
Section 5.18(b) of this Agreement.
Section 7. Certain Additional Covenants.
7.1 Conduct of Business Prior to Closing. During the period from and
after the date of this Agreement and until the Closing Date:
(a) Seller and Shareholder will carry on the
Business in substantially the same manner as heretofore carried on and will not
make any purchase or sale, incur any indebtedness or liens, or introduce any
method of management or operation in respect to such Business or otherwise
engage in any transaction except in the ordinary course of business and in the
manner not inconsistent with prior practice and the terms of this Agreement,
other than with the prior written consent of PSC;
(b) Neither Seller nor Shareholder will permit any
change to be made in the articles of incorporation or by-laws or, if applicable,
shareholder agreement of Seller, other than with the prior written consent of
PSC.
(c) Neither Seller nor Shareholder will acquire or
dispose of any capital assets having an initial cost or current value in excess
of $1,000 other than with the prior written consent of PSC;
(d) Neither Seller nor Shareholder will increase the
compensation payable or to become payable to any of its employees or agents
other than (a) with the prior written consent of PSC or (b) cash bonuses by
Seller to Shareholder consistent with the past practice of Seller;
(e) Neither Seller nor Shareholder will take, or
permit or suffer to be taken, any action which is represented and warranted in
Section 2.15 not to have occurred since the Balance Sheet Date other than with
the prior written consent of PSC.
7.2 Funding of Accrued Employee Benefits. Except as set forth on
Exhibit 7.2, Seller hereby covenants and agrees that it will take whatever steps
are necessary to pay or fund completely or reserve completely for any accrued
benefits, where applicable, or vested accrued benefits for which Seller or any
entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, vacation pay, sick leave, insurance, employment tax or similar
liability of Seller to any employee or other person or entity (including,
without limitation, any Seller Plan and any liability under employment contracts
with Seller) allocable to services performed prior to the Closing Date. Seller
acknowledges that the purpose and intent of this covenant is to assure that PSC
shall have no liability whatsoever at any time in the future with respect to any
of Seller's
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employees or similar persons or entities, including, without limitation, any
Seller Plan, except as indicated on Exhibit 7.2.
7.3 Creditor's Claims. Seller and Shareholder represent, covenant and
agree that all of the creditors with respect to the Business will be paid in
full by Seller prior to the Closing Date, or within such other period as is
normally permitted by such creditors in the ordinary course of business, except
to the extent that any liability to such creditors is assumed by PSC pursuant to
this Agreement. If required by PSC, Seller and Shareholder shall furnish PSC
with proof of payment of all creditors with respect to the Assets.
Notwithstanding the foregoing, Seller may dispute the amount or validity of any
such creditor's claim without being deemed to be in violation of this Section
7.3, provided that such dispute is in good faith.
7.4 Affiliate Agreements. Seller will use its reasonable, good faith
efforts to cause its directors and its executive officers and "affiliates"
(within the meaning of Rule 145 under the Securities Act of 1933, as amended) to
execute and deliver to Parent as soon as practicable instructions in the form
attached hereto as Exhibit 7.4 relating to the disposition of the shares of
Parent issued to the Seller.
7.5 Waiver of Bulk Transfer Compliance. Seller, Shareholder and PSC
hereby waive any compliance with the Georgia Bulk Transfers Act. Seller and
Shareholder jointly and severally represent, covenant and agree that all of the
creditors with respect to the Business will be paid in full by the Seller prior
to the Closing Date, or within such other period as is normally permitted by
such creditors in the ordinary course of business, except to the extent that any
liability to such creditors is assumed by PSC pursuant to this Agreement. If
required by PSC, the Seller and Shareholder shall furnish PSC with proof of
payment of all creditors with respect to the Business. Notwithstanding the
foregoing, the Seller may dispute the amount of validity of any such creditor's
claim without being deemed to be in violation of this Section 7.5, provided that
such dispute is in good faith and does not unreasonably delay the resolution of
the claim.
7.6 Liquidation of Seller. As soon as practical, but in no event later
than 12 months following the Closing Date, Seller will dissolve and liquidate in
accordance with applicable law.
7.7 Covenant Not to Compete. For a period of five (5) years from and
after the Closing Date, each of Seller and Shareholder agrees that it or he will
not (i) directly or indirectly, engage in, manage, operate, control, conduct,
consult for or be employed in a management capacity by, provide services to or
invest in any business or venture in competition with the Business or PSC or
Parent in the Geographic Territory (as defined below); provided however, that
ownership of less than 1% of the outstanding stock of any publicly traded
corporation shall not be deemed to violate this clause, (ii) within the
Geographic Territory, directly or indirectly, solicit or attempt to solicit any
customer or client of PSC or Parent or patient of Practice other than in the
course of a Shareholder's normal performance of services and duties for Practice
as a physician-shareholder thereof; or (iii) solicit or employ or attempt to
solicit or hire away or employ any employee of PSC or Parent or Practice. If the
final judgment of a court of competent jurisdiction declares that any term or
provision of this Section is invalid or unenforceable, Shareholder and PSC agree
that the
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court making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. The parties agree that the
Business currently serves territories each with greater than an eight (8) mile
radius of Seller's various office locations. Accordingly, as used herein, the
term "Geographic Territory" shall mean each area within an eight (8) mile radius
of each of the office locations of Seller. The parties agree that the restraints
set forth above in this Section 7.7 are reasonable in respect to subject matter,
length of time and geographic area. Each of Seller and Shareholder agrees that
the restrictions on their activities contained in this Section are reasonable
and necessary to protect the goodwill and relationships, economic advantage and
other legitimate interests of PSC and Parent, and that, were it or he to breach
any of the covenants contained in this Section 7.7, PSC would be harmed and the
damage to PSC would be irreparable. Accordingly, Seller and Shareholder
acknowledge and agree that, as PSC's legal remedies may be inadequate in the
event of a breach of the covenants in this Section 7.7, in addition to damages
and other remedies available to PSC, such covenants may be enforced by
injunction or other equitable remedies.
7.8 Confidentiality.
(a) Seller and Shareholder shall, and shall use
their reasonable efforts to cause their respective employees, agents and
representatives to, for a period of five (5) years after the Closing, hold in
confidence all financial information about Seller, the Business and the Assets,
except such disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided PSC will be provided
advance notice of such disclosure in order to afford it the opportunity to seek
an appropriate protective order).
(b) Seller and Shareholder further agree to, and
shall use their reasonable efforts to cause their respective employees, agents
and representatives who are not hired by PSC at Closing, to keep confidential
for a period of five (5) years after the Closing, any and all information
relating to services, products, marketing information, sources of supply,
pricing and patients of Seller on the date hereof or developed by or for Seller,
except such disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided PSC will be provided
advance notice of such disclosure in order to seek an appropriate protective
order).
(c) The restrictions in this Section 7.8 shall not
apply to any information that comes into the public domain through no fault of
Seller or Shareholder.
7.9 Pooling and Tax-free Combination Treatment. Neither Parent, Seller
or Shareholder shall intentionally take or cause to be taken any action, which
would disqualify the combination as a "pooling of interests" under generally
accepted accounting principles and applicable SEC requirements or as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
Shareholder represents and warrants to Parent that he has no present intention
or plan
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or design to dispose of the shares of Parent Common Stock that he will receive
pursuant to the liquidation of Seller. Further, Shareholder hereby covenants and
agrees with Parent that he will not sell, convey or otherwise transfer any
shares of Parent Common Stock distributed to Shareholder pursuant to the
liquidation of Seller until the expiration of not less than one (1) month
following the release by Parent of consolidated financial statements of Parent
to the public that reflect at least one (1) month of joint operations of Parent
and Seller's business. Each Party hereto agrees to take such further action or
action and to execute such other documents, agreements, certificates or
instruments as may be necessary or desirable to maintain pooling of interests
accounting treatment of the transactions contemplated by this Agreement in
accordance with all applicable financial accounting standards.
Section 8. Nature and Survival of Representations and Warranties;
Indemnification.
8.1 Nature and Survival. All statements contained in this Agreement or
in any Exhibit attached hereto, any agreement executed pursuant hereto, and any
certificate executed and delivered by any party pursuant to the terms of this
Agreement, shall constitute representations and warranties of Seller and
Shareholder, jointly and severally, or of PSC and Parent, jointly and severally,
as the case may be. All such representations and warranties, all representations
and warranties expressly labeled as such in this Agreement and the obligations
of the parties to indemnify any other party pursuant to Section 8.2 or 8.3(a),
shall survive the date of this Agreement and the Closing Date (i) with respect
to the representations and warranties in Sections 2.1 through 2.4 and Sections
2.23 through 2.26, for the period of the applicable statute of limitations, and
(ii) with respect to all other representations and warranties until the earlier
of (A) a period of one (1) year following the Closing Date or (B) the date of
issuance of the first audited consolidated financial statements for Parent and
its subsidiaries which contain combined operations of Parent and the Business.
Each party covenants with the other parties not to make any claim with respect
to such representations or warranties against any party after the date on which
such survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 8.2 or 8.3(a) hereof, unless such
party has timely given the notice required in Section 8.4 hereof. Each party
hereby releases, acquits and discharges the other party from any and all claims
and demands, actions and causes of action, damages, costs, expenses and rights
of setoff with respect to which the notice required by Section 8.4 is not timely
provided.
8.2 Indemnification by PSC and Parent. PSC and Parent jointly and
severally (for purposes of this Section 8.2 and, to the extent applicable,
Section 8.4, "Indemnitor"), shall indemnify and hold Seller and Shareholder, and
their respective agents, employees, legal representatives, successors and
assigns (each of the foregoing, including Seller and Shareholder, for purposes
of this Section 8.2 and, to the extent applicable, Section 8.4, an "Indemnified
Person"), harmless from and against any and all liabilities, losses, claims,
damages, actions, suits, costs, deficiencies and expenses (including, but not
limited to, reasonable fees and disbursements of counsel through appeal) arising
from or by reason of or resulting from any breach by Indemnitor of any
representation, warranty, agreement or covenant made by Indemnitor contained in
this Agreement (including the Exhibits hereto) and each document, certificate or
other instrument
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furnished or to be furnished by Indemnitor hereunder, excluding, however, any
and all liabilities of Seller or Shareholder which are not expressly assumed by
PSC under this Agreement.
8.3 Indemnification by Seller and Shareholder. (a) Seller and
Shareholder (for purposes of this Section 8.3(a) and, to the extent applicable,
Section 8.3(b) and Section 8.4, "Indemnitor"), shall jointly and severally
indemnify and hold PSC and Parent and their respective officers, directors,
shareholders, affiliates, agents, employees, legal representatives, successors
and assigns (each of the foregoing, including PSC and Parent, for purposes of
this Section 8.3(a) and, to the extent applicable, Sections 8.3(b) and Section
8.4, an "Indemnified Person") harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies and expenses
(including, but not limited to, reasonable fees and disbursements of counsel
through appeal), in an aggregate amount not to exceed the Acquisition Price
arising from or by reason of or resulting from any breach by Indemnitor (or any
of them) of any representation or warranty contained in this Agreement
(including the Exhibits hereto) and each document, certificate or other
instrument furnished or to be furnished by Indemnitor hereunder, and with
respect to all times prior to the Closing Date, arising from or by reason of or
resulting from the Indemnitor's management and conduct of the ownership or
operation of the Business or the Assets and from any alleged act of negligence
or malpractice of Indemnitor or its employees, agents and independent
contractors in or about the Business or the Assets.
(b) The Seller and Shareholder jointly and severally agree to
indemnify and hold harmless each Indemnified Person from and against any and all
liabilities, losses, claims, damages, actions, suits, costs, deficiencies and
expenses, including, but not limited to, reasonable fees and disbursements of
counsel through appeal, resulting from, arising out of, relating to or caused by
any breach of any covenant or agreement of the Seller or a Shareholder contained
in this Agreement.
8.4 Indemnification Procedure. Within 60 days after Indemnified Person
receives written notice of the commencement of any action or other proceeding,
or otherwise becomes aware of any claim or other circumstance, in respect of
which indemnification or reimbursement may be sought under Section 8.2 or
Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof. If any
such action or other proceeding shall be brought against any Indemnified Person,
Indemnitor shall, upon written notice given within a reasonable time following
receipt by Indemnitor of such notice from Indemnified Person, be entitled to
assume the defense of such action or proceeding with counsel chosen by
Indemnitor and reasonably satisfactory to Indemnified Person; provided, however,
that any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, Indemnified Person
shall have the right to employ separate counsel at Indemnitor's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such Indemnified Person, (a) there are or may be legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to Indemnitor and which
could not be adequately advanced by counsel chosen by Indemnitor, or (b) a
conflict or potential conflict exists between Indemnitor and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall Indemnitor be required to pay
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fees and expenses hereunder for more than one firm of attorneys in any
jurisdiction in any one action or proceeding or group of related actions or
proceedings. Indemnitor shall not, without the prior written consent of any
Indemnified Person, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding to which such
Indemnified Person is a party unless such settlement compromise or consent
includes an unconditional release of such Indemnified Person from all liability
arising or potentially arising from or by reason of such claim, action or
proceeding.
8.5 Limitations Upon Obligations. Anything in this Section 8 to the
contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Seller or Shareholder (individually and collectively a
"Selling Party") or, by a Selling Party to a Parent Party, on claims for
indemnification under Sections 8.2 or 8.3(a):
(a) until the aggregate of all such claims of a Parent Party
against a Selling Party under Section 8.3(a), or by a Selling Party against a
Parent Party under Section 8.2, shall exceed $10,000.00, in which event the
Party holding such claim shall be entitled to indemnification with respect to
all such claims in the aggregate subject to section (b) below. In the event that
such claims do not aggregate in excess of $10,000.00, then neither the Parent
Parties nor the Selling Parties shall have any claim for indemnification against
the other under Section 8.2 or Section 8.3(a);
(b) in excess of the sum of the Acquisition Price (as defined
in Section 1.3(a)) and Assumed Debt (as defined in Section 1.3(b)).
Section 9. Termination.
9.1 Right to Terminate. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and
Seller;
(b) by either PSC, Parent or Seller upon prior written
notice to the other party
(i) if any court or governmental or regulatory
agency, authority or body shall have enacted, promulgated or
issued any statute, rule, regulation, ruling, writ or
injunction, or taken any other action, restraining, enjoining
or otherwise prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have been
exhausted; or
(ii) if the Closing shall not have occurred on or
before March 31, 1997 or such later date as the parties may
agree to; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.1(b)(ii) shall not be
available to any party whose breach of any representation or
warranty or failure to perform or
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comply with any obligation or condition under this
Agreement has been the cause of, or resulted in, the failure
of the Closing to occur on or before such date;
(c) by PSC or Parent, upon prior written notice to Seller and
Shareholder, if any of the conditions specified in Section 5 have not
been met or waived prior to the Closing Date (or any extension thereof
pursuant to Section 9.1(b)(ii) above); or
(d) by Seller and Shareholder, upon prior written notice to
PSC, if any of the conditions specified in Section 6 shall not have
been met or waived prior to the Closing Date (or any extension thereof
pursuant to Section 9.1(b)(ii) above).
9.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Section 9, this Agreement shall forthwith become null
and void and there shall be no liability on the part of any of the parties
hereto or their respective officers or directors with respect to this Agreement,
except for Section 1.7 which shall remain in full force and effect after any
such termination of this Agreement, and except that nothing herein shall relieve
any party from liability for a breach of this Agreement prior to the termination
thereof.
Section 10. Miscellaneous.
10.1 Notices. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
or by facsimile and overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to PSC:
PSC MANAGEMENT CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
If to Parent:
PHYSICIANS SPECIALTY CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
with a copy of each notice directed to PSC or Parent to:
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<PAGE> 33
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
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<PAGE> 34
If to Seller or Shareholder:
Albert A. Clairmont, M.D.
Suite 370
5671 Peachtree Dunwoody Road
Atlanta, Georgia 30342
Facsimile: _________________
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.2 Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. Seller and Shareholder
will execute and deliver from time to time thereafter, at the request of PSC,
all such further instruments of conveyance, assignment and further assurance as
may reasonably be required in order to vest in and confirm to PSC all of
Seller's right, title and interest in and to the Assets.
10.3 Public Disclosures. Except as otherwise required by law, no party
to this Agreement shall make any public or other disclosure of this Agreement or
the transactions contemplated hereby (other than Parent's disclosures in the
Registration Statement) without the prior consent of the other parties. The
parties to this Agreement shall cooperate with respect to the form and content
of any such disclosures.
10.4 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Georgia, applied without
giving effect to any conflict-of-laws principles.
10.5 "Including". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to" or words of similar
import) is used with reference to the word "including" or the similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall with the broadest possible scope of the general statement,
term or matter.
10.6 "Knowledge". "To the knowledge," "to the best knowledge,
information and belief' or any similar phrase, shall be deemed to include the
assurance that such knowledge is based upon a reasonable investigation, unless
otherwise expressly provided. Unless otherwise expressly provided herein, Seller
shall be deemed to have knowledge of any facts known to any Shareholder.
10.7 "Material". An individual claim, obligation or liability shall be
deemed to be "material" if the amount thereof exceeds [$3,000.00] or involves
the violation of any federal, state or local statute, rule or regulation. A
contract or lease shall be deemed to be material if it requires a
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single payment in excess of [$3,000.00] or payment for any future 12-month
period in excess of [$3,000.00], except that no contract for the acquisition of
inventory items or consumable supplies shall be deemed material unless such
contract cannot be terminated without cause by Seller on not more than 30 days
notice, or has, as of the Closing Date, an amount payable with respect thereto
of more than [$3,000.00].
10.8 "Material Adverse Change" or "Material Adverse Effect". "Material
Adverse Change" or "Material Adverse Effect" means, when used in connection with
the parties to this Agreement, any change, effect, event or occurrence that has,
or is reasonably likely to have individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "Material Adverse Change"
and "Material Adverse Effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles, (ii) changes in applicable
law, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by Seller with the consent of PSC.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which is or may potentially be hazardous to the health or safety of
human or animal life or vegetation, regardless of whether such material is found
on or below the surface of the ground, in any surface or underground water,
airborne in ambient air or in the air inside any structure built or located upon
or below the surface of the ground or in building materials or in improvements
of any structures, or in any personal property located or used in any such
structure, including, but not limited to, all hazardous substances, imminently
hazardous substances, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined, listed, identified,
designated or classified as such under any Environmental Laws (as defined in
Section 10.10) regardless of the quantity of any such material.
10.10 "Environmental Laws". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or medical waste or relating to the protection of
the environment or the disposal of medical waste.
10.11 Appointment of Attorney-in-Fact. Effective at the Closing, Seller
hereby constitutes and appoints PSC, and its successors and assigns, the true
and lawful attorneys for Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of and at the expense of PSC, to
institute and prosecute, in the name of Seller or otherwise, all proceedings
which PSC may deem proper in order to collect, assert or enforce any claim,
right or title of any kind in or to the Assets, to defend and compromise any and
all actions, suits or proceedings in respect of any such Assets, and to do all
such acts and things in relation thereto as PSC shall deem advisable, subject to
applicable laws and regulations. Seller agrees that the foregoing powers shall
be coupled with an interest and shall be irrevocable by Seller or by its
dissolution or in any manner or for any reason. PSC shall retain for its own
account any amounts collected pursuant to the foregoing powers, including any
sums payable in respect thereof, and
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Seller shall pay to PSC, when received, any amounts which shall be received
by Seller in respect of any Assets.
10.12 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
10.13 Integration of Exhibits. All Exhibits attached to this Agreement
are integral parts of this Agreement as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced; provided, however, that any liabilities or obligations to be assumed
by PSC shall be set forth on Exhibit 1.3(b), and the inclusion of any
liabilities or obligations in any other Exhibits shall not be deemed or
construed to incorporate such liabilities or obligations into Exhibit 1.3(b).
10.14 Entire Agreement. This instrument, including all Exhibits
attached hereto, contains the entire agreement of the parties and supersedes any
and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby. It may not be
changed or terminated orally, but may only be changed by an agreement in writing
signed by the party or parties against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
10.15 Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument.
10.16 Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.17 No Rule of Construction. The parties acknowledge that this
Agreement was initially prepared by PSC and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
10.18 Costs of Enforcement. In the event that PSC or Parent on the one
hand, or Seller or Shareholder, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit. The
term "prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the
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claims asserted in the Complaint. "Reasonable attorneys' fees" are those
attorneys' fees actually incurred in obtaining a judgment in favor of the
prevailing party.
10.19 Transfer of Assets; Assignment. The parties also hereby agree
that this Agreement shall not be assigned or transferred by either party without
the prior written consent of the other; provided, however, that this Agreement
may be assigned, in whole or in part, by PSC or Parent, in its sole discretion,
to any parent, subsidiary or affiliate of PSC or Parent or to any party
acquiring all or substantially all PSC's or Parent's assets. Any such assignment
shall not affect Parent's obligations hereunder or under any documents executed
by Parent pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"PSC"
PSC MANAGEMENT CORP.
By /s/ Gerald R. Benjamin
--------------------------------------
Title: Secretary and Vice Chairman
----------------------------------
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By /s/ Gerald R. Benjamin
--------------------------------------
Title: Secretary and Vice Chairman
----------------------------------
"SELLER"
ATLANTA HEAD AND NECK
SURGERY, P.C.
By /s/ Albert A. Clairmont, M.D.
--------------------------------------
Title: President
----------------------------------
"SHAREHOLDER"
/s/ Albert A. Clairmont, M.D.
----------------------------------------
Albert A. Clairmont, M.D.
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<PAGE> 1
EXHIBIT 10.27
ASSET ACQUISITION AGREEMENT
by and among
Physicians' Specialty Corp.
PSC Management Corp.
and
Ear, Nose & Throat Associates, P.C.
<PAGE> 2
ASSET ACQUISITION AGREEMENT
ASSET ACQUISITION AGREEMENT (this "Agreement"), dated as of February
13, 1997, by and among PSC MANAGEMENT CORP., a Delaware corporation ("PSC");
PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("PARENT"); EAR, NOSE &
THROAT ASSOCIATES, P.C., a Georgia professional corporation ("Seller"); ROBERT
A. GADLAGE, M.D. AND NANCY R. GRINER, M.D. all individual residents of the
State of Georgia (individually a "Shareholder," and collectively the
"Shareholders").
W I T N E S S E T H:
WHEREAS, Seller operates a medical practice which provides
otolaryngology and other medical and surgical services from offices located in
the metropolitan Atlanta, Georgia area and surrounding communities ("Business");
WHEREAS, Shareholders are the only shareholders of Seller;
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in the
business of acquiring the assets of and managing medical practices;
WHEREAS, PSC is a wholly-owned subsidiary of Parent;
WHEREAS, Seller wishes to convey to PSC, and PSC wishes to acquire from
Seller, substantially all of the properties and assets of Seller, subject to
certain liabilities set forth herein, all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth, and the contemplated delivery by PSC to
Seller of shares of the Common Stock of Parent, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
Section 1. Terms of the Sale and Acquisition of Assets.
The sale of the assets of Seller hereunder and the acquisition thereof
by PSC shall be made at the Closing (as defined in Section 1.12) based on the
respective representations, warranties and agreements of the parties hereto and
subject to the terms and conditions herein stated.
1.1 Conveyance of Assets. Subject to the provisions of Section 1.2
hereof, at the Closing Seller shall convey, transfer and assign to PSC and PSC
shall acquire from Seller all of Seller's right, title and interest in and to
the properties and assets of Seller as a going concern,
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<PAGE> 3
including, without limitation, all items of personal property and other assets
used in connection with the Business (except as otherwise provided herein),
whether or not any of such assets have any value for accounting purposes
(individually "Asset," and collectively "Assets"), free and clear of all
obligations, security interests, liens, claims and encumbrances whatsoever,
except as specifically assumed by PSC pursuant to Section 1.3(b). Without
limiting the generality of the foregoing, the Assets specifically include:
(a) All real estate, personal property, plant,
furniture, fixtures and equipment owned by Seller which are utilized in or
related to the Business, including, but not limited to, all items owned by
Seller identified on Exhibit 1.1(a) attached hereto.
(b) All contracts, agreements and commitments of
Seller and/or the Shareholders related to the Business identified on Exhibit 2.6
and Exhibit 2.14 attached hereto and set forth on Exhibit 1.3(b) and all
contracts, agreements and commitments of Seller and/or the Shareholders related
to the Business and entered into after the date hereof and prior to the Closing
in the ordinary course of business and not in violation of Section 7.1 hereof
(but excluding this Agreement and the agreements, instruments and documents
executed and delivered by PSC pursuant to this Agreement and also excluding
physician employment agreements of Seller and any contracts with nurse
practitioners and physician assistants of Seller) and all contract rights of
Seller incident thereto, and all general intangibles of Seller.
(c) Subject to applicable laws and regulations, all
inventories maintained by Seller as of the Closing Date as described in Exhibit
1.1(c).
(d) Subject to applicable laws and regulations, all
accounts receivable of Seller, notes receivable and other rights to receive
payments owing to Seller in existence on the Closing Date, and all proceeds and
cash arising from the collection of same from and after the Closing Date.
(e) Subject to applicable laws and regulations, all
patient accounts receivable records of Seller.
(f) The books and records of Seller relating to the
Assets, all of which shall be delivered to PSC, or such person as PSC may
designate, on the Closing Date.
(g) Subject to applicable laws and regulations, all
transferable licenses and other regulatory approvals necessary for or incident
to the operation of the Assets.
(h) Seller's right to use the name "Ear, Nose &
Throat Associates" and all other trade and service marks and names and goodwill
associated therewith, and all customer lists, clinical and administrative policy
and procedure manuals, trade secrets, copyrights, patents, marketing and
promotional materials (including audiotapes, videotapes and printed materials)
and all other property rights required for or incident to the marketing of the
products and services of the Business, and all books and records relating
thereto.
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<PAGE> 4
(i) All of Seller's prepaid expenses, prepaid
insurance, deposits and similar items.
1.2 Excluded Assets. There shall be excluded from the Assets
transferred and conveyed hereunder, and Seller shall retain all of its right,
title and interest in and to, the assets set forth on Exhibit 1.2 attached
hereto and the following assets:
(a) The minute books of Seller and similar corporate
records of Seller.
(b) All considerations to be delivered by PSC on the
Closing Date.
(c) All assets listed in Exhibit 1.2 hereto.
(d) Patient charts, records and files.
1.3 Acquisition PSC Price; Assumption of Liabilities. As consideration
for the sale of the Assets by Seller, at Closing PSC shall provide Seller with
the following considerations:
(a) Parent Shares. At the Closing Parent shall issue
to Seller shares of the Common Stock, par value $.001 per share, of Parent (the
"Parent Common Stock") with a total value equal to $1,250,000 subject to
adjustments described in Exhibit 1.3(a) (the "Acquisition Price"). The number of
shares of Parent Common Stock which shall constitute the Acquisition Price shall
be determined by dividing the Acquisition Price by the Initial Public Offering
Price of the Parent Common Stock. For purposes of this Section 1.3(a), the
"Initial Public Offering Price" shall mean the price for the shares of Parent
Common Stock as priced and sold on a gross basis before taking into account the
managing underwriters' commissions and costs associated with Parent's initial
public offering (the "IPO"). Assuming an IPO Price of $9.50 per share and no
adjustments pursuant to Exhibit 1.3(a), a total of 131,579 shares of Parent
Common Stock would be issued as the Acquisition Price. The Acquisition Price
shall be allocated to the acquisition of the Assets as set forth on Exhibit
1.3(a)(1) attached hereto. The parties shall use such allocation in completing
Form 8594 and satisfying any and all other reporting requirements of the
Internal Revenue Service or any other state or local taxing authority.
(b) Assumption of Liabilities. Except as otherwise
provided herein, at the Closing PSC shall assume and discharge up to One Hundred
Thousand Dollars ($100,000) in the aggregate of the then outstanding principal
and interest accrued thereon of Seller's bank debt (currently evidenced by two
notes) and shall perform or discharge on or after the Closing Date (as defined
in Section 1.12), only those contracts, leases, commitments, obligations and
liabilities of Seller which are listed on Exhibit 1.3(b) attached hereto
(collectively, the "Obligations"), except to the extent that such contracts,
leases, commitments, obligations and liabilities are excluded by virtue of the
operation of other provisions of this Agreement. PSC agrees to promptly pay and
discharge such Obligations as the same become due and payable. Notwithstanding
anything to the contrary contained herein, Seller and Shareholder shall pay off
(prior to Closing) the excess of the
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sum of the outstanding principal and interest accrued thereon of Seller's bank
debt over the One Hundred Thousand Dollars ($100,000) to be discharged by PSC.
(c) Liabilities Not Assumed. Notwithstanding any
contrary provision contained herein, PSC shall not be deemed to have assumed,
nor shall PSC assume (i) any liability which may be incurred by reason of any
uncured material breach of or any monetary default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of Seller, including,
but not limited to, liabilities arising under any Seller Plan (as defined in
Section 2.21 hereto) and liabilities for accrued sick leave or vacation days;
(iii) any liability based upon or arising out of a violation of any antitrust or
similar restraint-of-trade laws by Seller, including, without limiting the
generality of the foregoing, any such antitrust liability which may arise in
connection with agreements, contracts, commitments or orders for the sale of
goods or provision of services by Seller reflected on the books of Seller at or
prior to the Closing Date; (iv) any liability based upon or arising out of
overpayments due to the Medicare and/or Medicaid programs, any other third party
payor, or any liability based upon or arising out of a violation of any false
claim, anti-kickback, prohibition or self-referral laws or similar fraud and
abuse laws by Seller; (v) any medical malpractice liability associated with the
Business or Seller or any person associated with the Business or Seller; (vi)
any liability based upon or arising out of any tortious conduct or wrongful
actions of Seller or any Shareholder; or (vii) any liability for the payment of
any taxes imposed by law on Seller arising from or by reason of the transactions
contemplated by this Agreement or otherwise.
1.4 Employment Arrangements.
(a) Following the Closing PSC will initially offer
employment as employees-at-will to all persons (other than physicians and such
personnel as are specified in the Management Services Agreement, defined in
Section 1.5 below) who are employees of Seller on the Closing Date; Seller's
employees who become employed by PSC are hereinafter referred to as "Transferred
Employees" and the physicians and such other personnel as are specified in the
Management Services Agreement, but who will not become employed by PSC are
hereafter referred to as the "Practice Employees."
(b) As of the Closing Date, Seller will: (i)
terminate any employment contracts applicable to those persons who are employed
by PSC as Transferred Employees pursuant to Section 1.4(a) hereof; and (ii)
terminate the participation of all such employees in all Seller Plans, such
termination to be effected in accordance with and to the extent permitted by
applicable provisions of the Internal Revenue Code of 1986, as amended, (the
"Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other applicable laws, rules and regulations; and (iii) cause
the Seller Plans to make timely appropriate distributions, to the extent
required, to such employees in accordance with, and to the extent permitted by,
the terms and conditions of such Seller Plans. Seller will provide to PSC such
copies of documents and other information related to the termination of such
employees' participation in the Seller Plans as PSC may request.
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<PAGE> 6
(c) At the Closing, the Shareholders agree to become
employees and shareholders of New Atlanta Ear, Nose & Throat Associates, P.C., a
Georgia professional corporation ("Practice"), and shall execute the form of
employment contract and shareholders agreement which other shareholder employees
of Practice have executed with Practice.
1.5 Management Services Agreement. Shareholders acknowledge and agree
that Practice and PSC shall execute a Management Services Agreement at the time
of the acquisition of assets of Atlanta Ear, Nose & Throat Associates, P.C.
("AENT") by PSC which shall govern the business relationship between Practice
and PSC.
1.6 Seller's Financial Information. The agreement between the parties
evidenced by this Agreement has been reached based on financial information
about Seller, the Assets and the Business as of June 30, 1996, all provided to
PSC by Seller. The unaudited Balance Sheet of Seller as of December 31, 1996
("Balance Sheet Date"), is attached hereto as Exhibit 1.6 and is hereinafter
referred to as the "Balance Sheet".
1.7 Each Party to Bear Costs. Each of the parties to this Agreement
shall pay all of the costs and expenses incurred by such party in connection
with the transactions contemplated by this Agreement, except as otherwise
provided herein. Without limiting the generality of the foregoing, and whether
or not such liabilities may be deemed to have been incurred in the ordinary
course of business, neither party shall be liable for or required to pay, either
directly or indirectly, any of the following liabilities or expenses incurred by
the other party: (a) fees and expenses of any person for services as a finder,
or for fees and expenses of any persons for financial services rendered to such
other party in connection with negotiating and closing the sale contemplated by
this Agreement; (b) fees and expenses of legal counsel retained by such other
party for services rendered to such party in connection with negotiating and
closing the sale contemplated by this Agreement; (c) fees and expenses of any
auditors and accountants retained by such other party for services rendered to
such party in connection with negotiating and closing the sale contemplated by
this Agreement; (d) state and federal income taxes or other similar charges on
income incurred by such other party on any gain from the purchase and sale of
Assets hereunder; and (e) expenses and fees relating to feasibility studies,
appraisals and similar valuation services performed on behalf of such other
party in connection with the transactions contemplated hereby.
1.8 Assignment of Contracts and Assets; Consents. Nothing in this
Agreement or delivered pursuant to this Agreement shall be construed as an
attempt to agree to assign any contract, certificate, license or other Asset
which is in law or by agreement nonassignable without the consent of the other
party or parties thereto, or of any governmental authority, as the case may be,
unless such consent shall be given. Seller will use its reasonable good faith
efforts to obtain all such necessary consents of the parties to any such
contracts prior to the Closing. In order, however, that the full value of every
such contract, certificate, license or other Asset included within the Assets
and all claims and demands in such contracts may be realized, Seller and the
Shareholders hereby covenant with PSC and Parent that Seller, by itself or by
its agents, will, at the request and expense and under the direction of PSC, in
the name of Seller or otherwise, as PSC shall specify and as shall be permitted
by law, take all such reasonable actions and do or cause to be done all
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<PAGE> 7
such reasonable things as shall, in the opinion of PSC, be necessary or proper
(a) in order that the rights and obligations of Seller under such contracts,
certificates, licenses and other Assets shall be preserved, and (b) for, and to
facilitate, from and after the Closing, the collection of the moneys due and
payable, and to become due and payable, to Seller in and under every such
contract and in respect of every such claim and demand, from and after the
Closing, and Seller shall hold the same for the benefit of, and shall pay the
same over to, PSC.
1.9 Cooperation with Regulatory Approvals. Seller and the Shareholders
shall cooperate with and assist PSC, as PSC shall reasonably request, in
obtaining the approval of all regulatory agencies and officials whose approval
is required for the transfer of all licenses and other regulatory approvals
required to enable PSC to acquire the Assets and operate the Business.
1.10 Irrevocable Guaranty by Parent. To induce Seller to execute and
deliver this Agreement, Parent hereby unconditionally and irrevocably guarantees
the Seller and Shareholders the full, prompt and faithful performance by PSC of
all covenants and obligations to be performed by PSC under this Agreement,
including, but not limited to, the payment of all sums and delivery of all
property stipulated to be transferred by PSC pursuant to this Agreement and
PSC's obligation to indemnify the Seller and the Shareholders pursuant to
Section 8.2. This guaranty shall be a guaranty of payment, not merely
collection, and shall be unaffected by any subsequent modification or amendment
of this Agreement whether or not Parent has knowledge of or consented to such
modification or amendment. In the event that PSC fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums or deliver all or any part of such property when due, Parent will
perform all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Seller (or such other payee or transferee as may
be provided in any such agreement) the amount due and unpaid or the property not
delivered, as the case may be, by PSC. In the event of bankruptcy, termination,
liquidation or dissolution of PSC, this unconditional guaranty shall continue in
full force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Parent shall be
required.
1.11 Tax and Accounting Treatment. It is intended by the parties that
the purchase and sale contemplated by this Agreement and related documents
qualify as a reorganization under the provisions of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, and that for accounting purposes, it
is intended that such transaction be accounted for by Parent as a "pooling of
interests".
1.12 Closing.
(a) Closing. Subject to the fulfillment of the
conditions precedent specified in Sections 5 and 6, the transaction contemplated
by this Agreement shall be consummated at a closing (the "Closing") to be held
at 10:00 a.m. local time simultaneously with
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the closing of the IPO at the offices of Bachner, Tally, Polevoy, & Misher
L.L.P., New York, New York, or at such other location, as is mutually agreed
upon by the Parties. The date on which the Closing occurs shall be referred to
as the "Closing Date."
(b) Documents to be Delivered by Seller. At the
Closing, Seller shall deliver, or cause to be delivered, to PSC the following:
(i) Such bills of sale, endorsements and
assignments as are necessary to vest in PSC good and
valid title to the Purchased Assets;
(ii) The certificate required to be
delivered pursuant to Section 5.5;
(iii) The legal opinion required to be
delivered pursuant to Section 5.7 of this Agreement;
(iv) The other agreements, documents and
instruments required by Sections 5.8 through 5.14;
(v) Any other documentation required to be
delivered under this Agreement or otherwise requested
to be delivered by PSC that is necessary or
appropriate to consummate the Transaction; and
(vi) Pursuant to 5.18 of this Agreement, a
copy of the bill of sale evidencing that any medical
assets of Seller not acquired by PSC have been
transferred by Seller to Practice.
(c) Documents and Other Items to be Delivered by
Purchaser. At the Closing, PSC shall deliver to Seller the following:
(i) The Acquisition Price, payable by
shares of Parent Common Stock pursuant to Section
1.3;
(ii) The certificate required to be
delivered pursuant to Sections 6.4 of this Agreement;
(iii) The legal opinion required to be
delivered pursuant to Section 6.6 of this Agreement;
(iv) The other agreements, documents and
instruments required by Section 6.7, 6.9 and 6.10;
(v) Any other documentation required to be
delivered under this Agreement or otherwise
reasonably requested to be delivered by Seller or
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<PAGE> 9
the Shareholders that is necessary or appropriate
to consummate the transaction.
Simultaneously with such delivery, Seller and Shareholders jointly and
severally agree to use their best efforts and to take all action as may be
reasonably necessary to put PSC in possession and operating control of the
Assets free and clear of all liens or other restrictions or encumbrances,
including the obtaining of such consents of third parties as may be reasonably
necessary to effect the foregoing.
Section 2. Representations and Warranties of Seller and Shareholders.
The Seller and Shareholders jointly and severally represent
and warrant to PSC and Parent as follows:
2.1 Corporate Existence; Good Standing. Seller is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Seller has all necessary corporate powers to own all of
its assets and to carry on its business as such business is now being conducted.
Seller is not required to qualify to do business as a foreign corporation in any
other state or jurisdiction by reason of its business, properties or activities
in or relating to such other state or jurisdiction.
2.2 Power and Authority for Transactions.
(a) Seller has corporate power to execute, deliver
and perform its obligations under this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all action required by law, its Articles of Incorporation, its Bylaws or
otherwise, to authorize the execution and delivery of and the performance of
this Agreement and such related documents. The execution and delivery of this
Agreement, and the agreements related hereto executed and delivered pursuant to
this Agreement, do not, and, subject to the receipt of consents to assignments
of leases and other contracts where required and the receipt of regulatory
approvals where required, the consummation of the transactions contemplated
hereby will not, violate any provision of the Articles of Incorporation or
Bylaws of Seller or any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which Seller is a party or by which
Seller is bound, or violate any material restrictions of any kind to which
Seller is subject which could have a Material Adverse Effect.
(b) The execution and delivery of this Agreement,
and the agreements related hereto executed and delivered pursuant to this
Agreement, do not, and the consummation of the transactions contemplated hereby
will not, violate any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which any Shareholder is a party or by
which any Shareholder is bound, or violate any material restrictions of any kind
to which any Shareholder is subject and which could have a Material Adverse
Effect.
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2.3 Subsidiaries and Affiliates. Seller does not own stock in or
control, directly or indirectly, any other corporation, association or business
organization, nor is Seller a party to any joint venture or partnership. The
Shareholders are the sole shareholders of Seller and own all the capital stock
of Seller in the respective proportionate amounts set forth in Exhibit 2.3.
There are no outstanding (a) securities of Seller convertible into equity
interests in Seller, or (b) commitments, options, rights or warrants to issue
any such equity interests in Seller, or to issue securities of Seller
convertible into such equity interests.
2.4 Permits, Licenses and Governmental Authorizations. (a) All material
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other material governmental
authorizations and approvals necessary for the conduct of the Business, or
waivers thereof, have been duly obtained and are in full force and effect, and
there are no proceedings pending or, to the knowledge of Seller and
Shareholders, threatened which may result in the revocation, cancellation or
suspension, or any adverse modification, of any thereof. Any and all past
litigation concerning such building or other permits, certificates of occupancy,
concessions, grants, franchises, licenses, certificates of need and other
governmental authorizations and approvals, and all claims and causes of action
raised therein, have been finally adjudicated.
(b) Approvals. Each Shareholder holds in full force and effect all
approvals, authorizations, licenses, and certifications required by law (the
"Approvals") to practice medicine. Evidence of such Approvals has been delivered
to PSC. There has been no lapse, revocation, or suspension of any Approval, or
any formal allegation (including any complaint, indictment or initiation of
proceedings) made before a court of law, licensing or regulatory authority,
professional organization, or the medical staff or committee of a hospital,
regarding any Shareholder's practice or fitness to practice medicine, including
any allegation of the following: alcohol abuse, a violation of any law or
regulation relating to controlled substances, professional malpractice or
misconduct, improper billing practices, or a crime involving moral turpitude.
The foregoing does not include any action taken as a result of failure to timely
complete medical records.
(c) Provider Numbers. Each Shareholder holds a valid Medicare provider
number and valid uniform physician identification numbers. Evidence of such
numbers has been delivered to PSC.
(d) Board Certification. Each Shareholder is certified by the American
Board of Otolaryngology and evidence of such board certification(s) has been
delivered to PSC.
(e) No Conviction. No Shareholder has ever been convicted of a criminal
offense relating to the Medicare or any federally-funded state health care
program. For purposes of this Agreement, the term conviction includes the entry
of a plea of guilty or no contendere and participation in a first offender,
deferred adjudication, or other arrangement or program whereby a judgment of
conviction has been withheld.
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2.5 Seller's Financial Information. Seller has heretofore furnished PSC
and Parent with copies of financial information about Seller as set forth on
Exhibit 2.5 attached hereto, including, but not limited to, the Balance Sheet.
All such financial statements have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
indicated, reflect all liabilities of Seller as of their respective dates, and
present fairly the financial position of Seller as of such dates and the results
of operations and cash flows for the period or periods reflected therein.
2.6 Leases. Exhibit 2.6 attached hereto sets forth a list of all leases
pursuant to which Seller leases, as lessor or lessee, real or personal property
used in operating the Business or otherwise; however the parties understand and
agree that only those leases listed [if any] on Exhibit 1.3(b) will be assumed
by PSC. Except as indicated on Exhibit 2.16, all such leases listed on Exhibit
2.6 are valid and effective in accordance with their respective terms, and there
is not under any such lease any existing default by Seller, as lessor or lessee,
or any condition or event of which Seller or any Shareholder has knowledge which
with notice or lapse of time, or both, would constitute a default, in respect of
which Seller has not taken adequate steps to cure such default or to prevent a
default from occurring. With respect to any leases not assumed by PSC, Seller
and the Shareholder represent and covenant that they will honor and discharge
all obligations of Seller under such leases.
2.7 Personal Property. Seller owns all of the personal property
reflected on the Balance Sheet and included in the Assets, including, but not
limited to, all items of personal property identified on Exhibit 1.1(a) and
Exhibit 1.1(c) attached hereto, free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those set forth in Exhibit 2.7 attached
hereto. All such personal property that comprises the Assets shall be
transferred to PSC subject to only claims, charges, exceptions or encumbrances
set forth on Exhibit 2.7. Such personal property is in usable condition, normal
wear and tear excepted, and suitable for its purpose and intended use.
2.8 Inventories. The items of Seller's inventory have been acquired in
the ordinary course of the Business and maintained at levels consistent with
past practices and are in all material respects adequate for the reasonable
requirements of the Business.
2.9 Principal Place of Business. The principal places of business of
Seller are, and have been for the previous five (5) years, in those counties
listed in Exhibit 2.9.
2.10 Location of Assets. Except as indicated in Exhibit 2.10, all of
the Assets are located in those counties listed in Exhibit 2.9.
2.11 Intellectual Property Rights. Except as set forth in Exhibit 2.11
attached hereto, Seller has no right, title or interest in or to patents, patent
rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets. Except for off-the-shelf software licenses, Seller is not a licensee in
respect of any patents, trademarks, service marks, trade names, copyrights or
applications therefor, or manufacturing processes, formulas or trade secrets.
Seller owns and possesses adequate licenses or
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other rights to use all such patents, trademarks, service marks, trade names,
copyrights, manufacturing processes, inventions, specialized treatment
protocols, formulas and trade secrets necessary to conduct its business as now
operated. No claim is pending or has been made to the effect that the present or
past operations of Seller infringe upon or conflict with the asserted rights of
others to such patents, patent rights, manufacturing processes, trade names,
trademarks, service marks, inventions, specialized treatment protocols,
copyrights, formulas and trade secrets.
2.12 Directors and Officers; Payroll Information. Set forth on Exhibit
2.12 attached hereto is a true and complete list, as of the date of this
Agreement, of: (a) the name of each Director and officer of Seller and the
offices held by each; and (b) the most recent payroll report of Seller, showing
all current employees of Seller and their current levels of compensation other
than bonuses and other extraordinary compensation.
2.13 Legal Proceedings. Except as set forth in Exhibit 2.13 attached
hereto, neither Seller nor any Shareholder has knowledge of any pending or
threatened litigation, governmental investigation, condemnation or other
proceeding against or relating to or affecting Seller, any Shareholder, the
Business, the Assets or the transactions contemplated by this Agreement,
including, but not limited to, claims for medical malpractice or negligence,
and, to the knowledge of Seller and Shareholders, no basis for any such action
exists, nor is there any legal impediment of which Seller or any Shareholder has
knowledge to the continued operation of the Business in the ordinary course.
2.14 Contracts. Seller has delivered to PSC true copies of all written,
and disclosed to PSC all Material oral, outstanding contracts, obligations and
commitments of Seller and each Shareholder entered into in connection with the
Business, all of which are listed or incorporated by reference on Exhibit 2.6
(in the case of leases) and Exhibit 2.14 (in the case of managed care contracts,
third party payor contracts and contracts other than leases) attached hereto.
Except as otherwise indicated on such Exhibits, all of such contracts,
obligations and commitments are valid, binding and enforceable against Seller in
accordance with their terms and are in full force and effect, subject to
limitations on enforceability imposed by, bankruptcy, moratorium, creditors'
rights or similar laws. Except as set forth or incorporated by reference on such
Exhibits, to Seller's knowledge no default or alleged default by Seller exists
thereunder. Except as listed or incorporated by reference on Exhibit 2.6 and
Exhibit 2.14, neither Seller nor any Shareholder is a party to any Material
written or oral agreement, contract, lease or plan of a type described as
follows:
(a) Contract related to the Assets, not made in the
ordinary course of business, other than this Agreement.
(b) Employment contract which is not terminable
without cost or other liability to Seller, or any successors or assigns thereof,
upon notice of 30 days or less.
(c) Contract with any labor union.
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(d) Bonus, pension, profit-sharing, retirement,
stock acquisition, hospitalization, insurance or similar plan providing for
employee benefits.
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee.
(f) Contract for the future acquisition of
materials, supplies or equipment (i) which is in excess of the requirements of
the Business now booked or for normal operating inventories, or (ii) which is
not terminable without material cost or liability to Seller, or any successors
or assigns thereof, upon notice of 30 days or less.
(g) Insurance contract.
(h) Contract continuing for a period of more than
six months from the Closing Date.
(i) Loan agreement or other contract for money
borrowed.
2.15 Subsequent Events. Except as set forth on Exhibit 2.15
attached hereto, Seller has not, since the date of the Balance Sheet:
(a) Incurred any material uninsured obligation or
liability (absolute, accrued, contingent or otherwise), or any material adverse
change except in connection with the performance of this Agreement, other than
in the ordinary course of business.
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the Balance Sheet or (ii) liabilities incurred since the date of
the Balance Sheet in the ordinary course of business.
(c) Increased or established any reserve for taxes
or any other liability on its books or otherwise provided therefor, except as
may have been required due to income or operations of Seller.
(d) Mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the Assets, tangible or intangible.
(e) Sold or transferred any of the Assets, canceled
any debts or claims or waived any rights, except in the ordinary course of
business.
(f) Granted any general or uniform increase in the
rates of pay of employees or any substantial increase in salary payable or to
become payable by Seller to any officer or employee, consultant or agent (other
than normal merit increases), or by means of any
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bonus or pension plan, contract or other commitment, increased the compensation
of any officer, employee, consultant or agent.
(g) Authorized any capital expenditures in excess of
$1,000.00.
(h) Except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered into any
material transaction other than in the ordinary course of business or permitted
under other Sections hereof.
(i) Issued any stock, bonds or other securities.
(j) Experienced damage, destruction or loss (whether
or not covered by insurance) materially and adversely affecting any of its
properties, assets or business, or experienced any other material adverse change
in its financial condition, assets, liabilities or business.
(k) Paid bonuses, distributions, or advanced loans
to shareholders or employees outside of the ordinary course of business
consistent with past practices of Seller.
2.16 Accounts Receivable. Exhibit 2.16 reflects the amount of Seller's
accounts receivable as of the date of the Balance Sheet, net of allowances for
uncollectible and doubtful accounts, all in conformity with generally accepted
accounting principles. Seller maintains its accounting records in sufficient
detail to substantiate the accounts receivable reflected on Exhibit 2.16 and has
given and will give to PSC full and complete access to those records, including
the right to make copies therefrom. Since the date of the Balance Sheet, Seller
has not changed any principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. To the best of the
knowledge of the Seller and the Shareholders, the Seller is in substantial
compliance with the terms and conditions of such third-party payor arrangements,
and to Seller's knowledge the reserves established by Seller are adequate to
cover any liability resulting from lack of compliance.
2.17 Tax Returns. Seller has filed all tax returns required to be filed
by it, and made all payments required to be made by it, with respect to income
taxes, real property taxes, sales taxes, use taxes, employment taxes and similar
taxes due and payable on or before the date of this Agreement. Seller has no tax
liability, except for ad valorem taxes for the fiscal year ending in 1996, taxes
being contested in good faith, as set forth on Exhibit 2.17 attached hereto, and
sales, use, employment and similar taxes for periods as to which such taxes have
not yet become due and payable.
2.18 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC or Parent resulting from any action taken by Seller or Shareholders or their
respective agents or employees, or any of them.
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2.19 Material Liabilities. Except as set forth on Exhibit 2.15, or to
the extent reflected or reserved against on the Balance Sheet, Seller did not
have, as of the Balance Sheet Date, and has not incurred since that date, any
material uninsured liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due which would
have a Material Adverse Effect, other than those incurred in the ordinary course
of business. Except as set forth on Exhibit 2.15, Seller and Shareholders do not
know, or have reasonable grounds to know, of any basis for the assertion against
Seller as of the Balance Sheet Date, of any material claim or liability of any
nature in any amount not fully reflected or reserved against on the Balance
Sheet, or of any material uninsured claim or liability of any nature arising
since that date which would have a Material Adverse Effect other than those
incurred in the ordinary course of business or contemplated by this Agreement.
2.20 Insurance Policies. Seller or each Shareholder maintains policies
of comprehensive general liability and professional liability insurance in
amounts of not less than $3 million per occurrence and $5 million aggregate on a
claims made basis and property damage insurance on the Assets to be sold
hereunder. Valid policies in such amounts are outstanding and duly in force and
will remain duly in force through the Closing Date. All such policies are
described in Exhibit 2.20 attached hereto.
2.21 Employee Benefit Plans. Except as set forth on Exhibit 2.21
attached hereto, Seller has neither established, nor maintains, nor is obligated
to make contributions to or under or otherwise participate in, (a) any bonus or
other type of incentive compensation plan, program, agreement, policy,
commitment, contract or arrangement (whether or not set forth in a written
document); (b) any pension, profit sharing, retirement or other plan, program or
arrangement; or (c) any other employee benefit plan, fund or program, including,
but not limited to, those described in Section 3(3) of ERISA. All such plans
listed on Exhibit 2.21 (individually "Seller Plan," and collectively "Seller
Plans") have been operated and administered in all material respects in
accordance with, as applicable, ERISA, the Internal Revenue Code of 1986, as
amended, title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the related rules and regulations adopted by those federal agencies
responsible for the administration of such laws. No act or failure to act by
Seller has resulted in a "prohibited transaction" (as defined in ERISA) with
respect to the Seller Plans. No "reportable event" (as defined in ERISA) has
occurred with respect to any of the Seller Plans. Seller has not previously
made, is not currently making, and is not obligated in any way to make, any
contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
2.22 Compliance with Laws in General. Neither Seller nor any
Shareholder has knowledge of material violations of any federal, state and local
laws, regulations and ordinances relating to the operations of the Business and
the Assets, including, without limitation, the Federal Environmental Protection
Act, the Occupational Safety and Health Act, the Americans with Disabilities Act
and any Environmental Laws, and no notice of any pending inspection or violation
of any such law, regulation or ordinance has been received by Seller or any
Shareholder.
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2.23 Fraud and Abuse. Seller and Shareholders and all persons and
entities providing professional services for the Business have not, to the
knowledge of Seller and Shareholders, engaged in any activities which are
prohibited under Section 1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (a) knowingly and willfully making
or causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment; (b) knowingly and willfully
making or causing to be made any false statement or representations of a
material fact for use in determining rights to any benefit or payment; (c) any
failure by a claimant to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with the intent to fraudulently secure such
benefit or payment; (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration (i) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (ii) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, lease or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid; (e) engaging in
any activity which is a basis for exclusion from the Medicare, Medicaid and
other federally-funded programs under Section 1320a-7a of Title 42 of the United
States Code; (f) any violation of the Medicare or Medicaid requirements,
including and fraud and abuse provisions, except where such circumstances would
not have a Material Adverse Effect.
2.24 Medicare, Medicaid, and Other Third-Party Payor Payment
Liabilities. Except as described in Exhibit 2.24 neither Seller nor any
Shareholder has, and as of the Closing Date, will have, any liabilities to any
third party fiscal intermediary or carrier administering any state Medicaid
program or the federal Medicare program, or to any other third party payor for
the recoupment of any amounts previously paid to Seller (or any predecessor
corporation) or any Shareholder by any such third-party fiscal intermediary,
carrier, Medicaid program, Medicare program, or third party payor. There are no
pending or threatened actions by any third party fiscal intermediary or carrier
administering any state Medicaid or the federal Medicare program, by the
Department of Health and Human Services, any state Medicaid agency, or any third
party payor to suspend payments to Seller or any Shareholder.
2.25 Billing Practices and Referral Sources. (a) Billing Practices
Generally. All billing practices by Seller and each Shareholder to all third
party payors, including, but not limited to, the federal Medicare program, state
Medicaid programs and private insurance companies, have been true, fair and
correct and in compliance with all applicable laws, regulations and policies of
all such third party payors, and neither Seller nor any Shareholder has billed
for or received any payment or reimbursement in excess amounts allowed by law.
(b) Gratuitous Payments. Neither Seller nor any Shareholder,
director, or officer of Seller, nor to Seller's knowledge any employee or agent
acting on behalf of or for the benefit of Seller or any Shareholder, has
directly or indirectly (i) offered or paid any remuneration,
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in cash or in kind, to, or made any financial arrangements with, any past or
present customers, past or present patients, past or present suppliers,
contractors or third party payors of Seller in order to obtain business or
payments from such persons, other than entertainment activities in the ordinary
and lawful course of business; (ii) given or agreed to give, or is aware that
there has been made or that there is any agreement to make, any gift or
gratuitous payment of any kind, nature or description (whether in money,
property or services) to any customer or potential customer, patient or
potential patient, supplier or potential supplier, contractors, third party
payor or any other person other than in connection with promotional or
entertainment activities in the ordinary and lawful course of business; (iii)
made or agreed to make, or is aware that there has been made or that there is
any agreement to make, any contribution, payment or gift of funds or property
to, or for the private use of, any governmental official, employee or agent
where either the contribution, payment or gift or the purpose of such
contribution, payment or gift is or was illegal under the laws of the United
States or under the laws of any state thereof or any other jurisdiction (foreign
or domestic) under which such payment, contribution or gift was made; (iv)
established or maintained any unrecorded fund or asset for any purpose or made
any false or artificial entries on any of its books or records for any reason or
(v) made, or agreed to make, or is aware that there has been made or that there
is any agreement to make, any payment to any person with the intention or
understanding that any part of such payment would be used for any purpose other
than that described in the documents supporting such payment.
(c) Transactions with Referral Sources. Neither Seller nor any
Shareholder, director, or officer thereof, nor to Seller's knowledge any
employee of Seller, is a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement with
any physician, hospital, nursing facility, home health agency or other person
who is in a position to make or influence referrals to or otherwise generate
business for Seller or any Shareholder to provide services, lease space, lease
equipment or engage in any other venture activity.
2.26 Physician Self-Referrals. Neither Seller nor any Shareholder has
submitted any claims in connection with any referrals which violated any
applicable self-referral law, including the Stark Law (42 U.S.C. Section
1395nn) or any applicable state self-referral law as those laws are currently
interpreted.
2.27 Investment Intent. (a) Acquisition Purpose. Seller and
Shareholders (through their ownership interest in Seller) are acquiring the
Parent Common Stock to be received by them under this Agreement for investment
purposes only and not with a view to the sale or distribution thereof.
(b) Experience in Financial Matters. Seller and
Shareholders have had the opportunity to discuss Parent's business, management
and financial affairs with Parent's management. Seller and Shareholders have
such knowledge and experience in financial matters that they are capable of
evaluating the merits and risks of an investment in the Parent Common Stock.
Seller's and each of Shareholders' financial condition is such that it, he or
she is able to
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bear all economic risks of investment in the Parent Common Stock, including the
risks of holding the Parent Common Stock for an indefinite period of time.
(c) Non-transferability of Parent Common Stock.
Seller and Shareholders understand that since the shares of Parent Common Stock
have not been registered under the 1933 Act, the shares of Parent Common Stock
must be held indefinitely unless they are subsequently registered under the 1933
Act or an exemption from such registration is available. Other than as set forth
in the Registration Rights Agreement, Seller and Shareholders acknowledge that
neither Parent nor PSC is under any obligation to register under the 1933 Act
any sale of the Parent Common Stock or to comply with any provisions which would
entitle any such sale to any exemption from registration. Seller and
Shareholders are fully familiar with Rule 144 promulgated under the 1933 Act.
(d) Legend on Parent Common Stock. Each stock certificate representing the
Parent Common Stock shall bear a legend in, or substantially in, the following
form and any other legend required by any applicable state securities or Blue
Sky laws:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold, pledged or
otherwise transferred without an effective registration under
said Act and any applicable state securities laws or unless
the company shall have received an opinion of counsel
satisfactory to the company that an exemption from
registration under such Act and any applicable state
securities laws is then available."
Seller and Shareholders agree to abide by the terms of this legend. Parent may
maintain a "stop transfer order" against the Parent Common Stock.
2.28 No Untrue Representations. To the knowledge of Seller and
Shareholders, no representation or warranty by Seller or any Shareholder in this
Agreement, and no Exhibit or certificate issued by officers or Directors of
Seller or any Shareholder and furnished or to be furnished to PSC or Parent
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading. All information and information provided by
Seller or the Shareholders for valuation of the Business by PSC and Parent is
true, accurate and complete in all material respects.
Section 3. Representations and Warranties of Parent and PSC.
PSC and Parent hereby jointly and severally represent and
warrant to Seller and Shareholders as follows:
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3.1 Corporate Existence; Good Standing; Qualification. Each of PSC and
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of PSC and Parent has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted and is duly qualified to do business and is in
good standing in all jurisdictions in which the character of the property owned,
leased or operated or the nature of the business transacted by it makes
qualification necessary.
3.2 Power and Authority. Each of PSC and Parent has corporate power to
execute and deliver this Agreement and perform its obligations under this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement, and has taken all actions required by law, its
Certificate of Incorporation, its By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or By-laws of either PSC or Parent
or any provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which PSC or Parent is a party or by which either of them is bound,
or violate any restrictions of any kind to which PSC or Parent is subject. The
execution and delivery of this Agreement have been approved by the respective
Boards of Directors of PSC and Parent.
3.3 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Seller or Shareholders resulting from any action taken by PSC or Parent or their
respective officers, Directors or agents, or any of them.
3.4 Capitalization. Parent has an authorized capitalization of 10,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued and outstanding, and no shares are held in treasury, and 50,000,000
shares of common stock, par value $.001 per share, of which 599,893 shares are
issued and outstanding, and no shares are held in treasury. All of the Parent
Common Stock to be issued pursuant to this Agreement will, when so delivered, be
duly and validly issued and fully paid and nonassessable. Except as disclosed in
the draft Registration Statement (as hereinafter defined), and except as
described on Exhibit 3.4, there are no options, warrants or similar rights
granted by Parent or any other agreements to which Parent is a party providing
for the issuance or sale by it of any additional securities. There is no
liability for dividends declared or accumulated but unpaid with respect to any
shares of Parent Common Stock. Parent has not paid any dividends to any holder
of Parent Common Stock or participated in or effected any issuance, exchange or
retirement of Parent Common Stock, or otherwise changed the equity interests of
holders of Parent Common Stock, in contemplation of effecting the transaction
contemplated by this Agreement within the two years immediately preceding the
Closing Date.
3.5 PSC Common Stock. Parent owns, beneficially and of record, all of
the issued and outstanding shares of Common Stock of PSC, free and clear of all
liens and encumbrances. Parent
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has taken all such actions as may be required in its capacity as the sole
shareholder of PSC to approve this transaction.
3.6 Parent Documents. Parent has heretofore furnished Seller with draft
Amendment No. 1 to its Registration Statement S-1 dated February 8, 1997, to be
filed with the SEC, relating to the offer and sale of 2,200,000 shares of Parent
Common Stock in the IPO (the "Registration Statement").
3.7 Legal Proceedings. Except as disclosed in the Registration
Statement, there is no material litigation, governmental investigation or other
proceeding pending or, so far as is known to Parent threatened against or
relating to Parent, its properties or business, or the transaction contemplated
by this Agreement and, so far as is known to Parent, no basis for any such
action exists.
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Section 4. Access to Information and Documents Prior to Closing.
4.1 Access to Seller's Information. Seller and Shareholders shall give
to PSC and its counsel, accountants, engineers and other representatives full
access to all the requested properties, documents, contracts, personnel files
and other records of Seller and the Business hereunder and shall furnish PSC
with copies of such requested documents and with such information with respect
to the affairs of Seller as PSC shall from time to time reasonably request.
Seller and Shareholders shall disclose and make available to Parent and its
representatives all requested books, contracts, accounts, personnel records,
letters of intent papers, records, communications with regulatory authorities
and other documents relating to the Assets and to the Business.
4.2 Access to Information of PSC and Parent. PSC and Parent shall give
to Seller and Shareholders and their respective counsel, accountants and other
representatives such access to the documents, contracts and other records of
PSC, Parent and PSC and shall furnish Seller and Shareholders with copies of
such documents and with such information with respect to the affairs of PSC,
Parent and PSC as Seller and Shareholders shall from time to time reasonably
request.
4.3 Retention of Records. Without cost to Seller, PSC shall retain all
books and records of Seller ("Records") transferred to it pursuant to this
Agreement for the greater of four years from the Closing Date or such longer
periods of time as required by applicable statutes, rules and regulations. For a
period of four years after the Closing Date, and for such longer period as the
Records are maintained, each party will, during normal business hours and so as
not to unreasonably disrupt normal business, afford any other party, its
counsel, its accountants or other parties who have a reasonable need for such
access full access (and copying at the expense of the requesting party, if
desired) to the books and records relating to the Assets in the possession of
such party as such other party may reasonably request.
Section 5. Conditions to Obligation of Parent and PSC to Close.
The obligation of PSC and Parent to consummate the transactions to be
performed by them in connection with this Agreement is subject to satisfaction
of the following conditions precedent (any of which may be waived in writing by
PSC or Parent):
5.1 Representations and Warranties True. The representations and
warranties set forth in Article 2 shall be true and correct in all material
respects as of the date made and at and as of the Closing, except as a result of
changes expressly permitted by this Agreement.
5.2 Covenants. The Shareholders and Seller shall have performed and
complied with all of their covenants and agreements in all material respects
through the Closing.
5.3 No Suit or Proceeding. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction in which an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the
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transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of PSC to operate the Business
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect).
5.4 Absence of Material Adverse Change.
(i) There shall have been no change in the condition
(financial or otherwise), business, assets, or prospects of
Seller or the Business from the Balance Sheet Date which has
had or could reasonably be expected to have a Material Adverse
Effect on the Seller, the Business, or the Assets.
(ii) Neither Seller nor the Assets shall have been,
and shall not be seriously threatened to be materially
adversely affected in any way as a result of fire, explosion,
disaster, accident, labor dispute, any action by the United
States or any other government or government authority,
domestic or foreign, riot, act of war, civil disturbance or
Act of God.
5.5 Certificate. The Shareholders shall have delivered to PSC a
certificate to the effect that each of the conditions specified in Sections
5.1-5.4 is satisfied in all respects.
5.6 Consents and Approvals. PSC and Parent shall have received all
authorizations, consents, and approvals of third parties and of governments and
governmental agencies, if any, that may be required for the acquisition of the
Assets by PSC, including, without limitation, the consent of the lessors to
transfer to PSC the leases listed on Exhibits 2.6 and/or 2.14.
5.7 Counsel Opinion. Parent and PSC shall have received from counsel to
the Seller and Shareholders an opinion dated as of the Closing Date, in form and
substance reasonably satisfactory to Parent and PSC.
5.8 Other Agreements Executed. Each Shareholder shall have executed and
delivered an Employment Agreement with Practice in the form required by the
Management Services Agreement, which will in the aggregate among the
Shareholders provide for liquidated damages in an amount equal to the
Acquisition Price in the event of breach by the physician of certain provisions
therein, (ii) Practice shall have executed and delivered the Management Services
Agreement, and (iii) the Shareholders shall have executed and delivered the
Registration Rights Agreement in substantially the form of Exhibit 5.8 (the
"Registration Rights Agreement").
5.9 Release of Liens. All liens encumbering the Assets other than those
listed on Exhibit 5.9, shall be duly released by the secured parties and other
lien holders, and UCC-3 release or termination statements and other lien release
documents, if any, shall have been recorded or the recording thereof provided
for.
5.10 Closing Date Financial Certificate. Seller shall have delivered to
PSC a closing date financial certificate which shall certify as of the last day
of the month prior to the effective date
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of the Registration Statement an unaudited cash basis balance sheet of Seller
and for the period ended as of such date a statement of operations of Seller,
along with a detailed accounts receivable aging analysis of Seller as of such
date. Seller's 1996 collections shall not have been less than two million
dollars ($2,000,000) and the net worth of Practice as of the Closing Date
(defined as the accrual basis net worth of assets acquired by PSC including the
net realizable value of its accounts receivable, less assumed liabilities) shall
not be less than three hundred twenty-five thousand dollars ($325,000).
5.11 Corporate Documents. Seller shall have furnished PSC with copies
of the following documents: the Articles of Incorporation and all amendments
thereto of Seller and of Practice, duly certified by the Secretary of State of
the State of Georgia; certificates, executed by the proper officials of the
State of Georgia, as to the valid existence and good standing of Seller and of
Practice in the State of Georgia; resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors or
other governing body of Seller and duly adopted by all the Shareholders, all as
duly certified by the Secretary of Seller; and resolutions of the Practice
authorizing the execution, delivery and performance of the Management Services
Agreement by the Practice, as duly certified by the Secretary of the Practice.
5.12 Instruments of Conveyance. Simultaneously with the execution of
this Agreement and in order to effect the conveyance, transfer and assignment of
the Assets and the Business and the assumption of certain liabilities, Seller
shall have executed and delivered to PSC all such bills of sale, assignment and
assumption agreements and other documents or instruments of conveyance, transfer
or assignment as shall be necessary or appropriate to vest in or confirm to PSC
Seller's right, title and interest in and to the Assets, free and clear of all
obligations, security interests, liens and encumbrances whatsoever, except as
specifically assumed by PSC pursuant to Section 1.3(b).
5.13 Practice Acquisition. The Practice shall have acquired from the
Seller the excluded assets referred to in Section 1.2(c) (other than those
personally owned items (if any) identified as such on Exhibit 1.2(c)) and (d)
(the "Medical Excluded Assets") for the purpose of acquiring and owning such
assets, subject to and in accordance with the provisions of a Bill of Sale and
Assignment by and from the Seller in form and substance reasonably satisfactory
to PSC.
5.14 Investor Letter and Financial Data Sheet. Seller and each
Shareholder shall have provided to Parent prior to the Closing Date a
fully-completed and executed Investor Letter and Financial Data Sheet in form
and substance reasonably satisfactory to Parent.
5.15 Assignment of Leases. At the option of PSC, Seller shall assign to
PSC any real property lease utilized by Seller in the Practice and lease to
Parent and PSC any real property owned by Seller or the Shareholders and
utilized in Seller's practice. All such leases shall be on reasonable terms
mutually agreeable to the Parties.
5.16 Listing of Shares in NASDAQ. Shares of common stock of Parent
shall have been listed for trading on NASDAQ.
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5.17 Contemporaneous Acquisition. Contemporaneously with the Closing,
PSC will acquire the assets of AENT and the capital stock of Atlanta ENT Center,
Inc., Atlanta-AHP, Inc. and ENT Center of Atlanta, Inc. pursuant to separate
agreements with Ramie A. Tritt, M.D. and the shareholders of AENT.
Section 6. Conditions to Obligation of Seller and the Shareholders.
The obligation of Seller and the Shareholders to consummate the
transactions to be performed by them in connection with this Agreement is
subject to satisfaction of the following conditions (any one of which may be
waived in writing by Seller or the Shareholder);
6.1 Representations and Warranties True. The representations and
warranties set forth in Article 3 above shall be true and correct in all
material respects at and as of the Closing;
6.2 Covenants. Parent and PSC shall have performed and complied with
all of their covenants and agreements in all material respects through the
Closing;
6.3 No Suit or Proceeding. No action, suit or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
6.4 Certificate. PSC shall have delivered to Seller a certificate to
the effect that each of the conditions specified in Sections 6.1-6.3 is
satisfied in all respects;
6.5 Government Approvals. Seller, Parent and PSC shall have received
all authorizations, consents, and approvals of governments and governmental
agencies, if any, that may be required;
6.6 Counsel Opinion. The Seller shall have received from counsel to
Parent and PSC an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to Seller;
6.7 Other Agreements Executed. (i) The Practice shall have executed
and delivered an Employment Agreement with each Shareholder and other Physician
Practice Employees in the form required by the Management Services Agreement,
(ii) PSC shall have executed and delivered the Management Services Agreement,
and (iii) meeting the requirements of Section 5.8 above, Parent shall have
executed and delivered the Registration Rights Agreement.
6.8 Parent Stock. Parent or PSC shall have delivered at the closing
the Parent Common Stock required as the Acquisition Price under Section 1.3(a).
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6.9 Corporate Documents. (a) PSC shall have furnished Seller with
copies of the following documents: the Certificate of Incorporation and all
amendments thereto of PSC, duly certified by the Delaware Secretary of State;
certificates, executed by the proper Delaware officials, as to the good standing
of PSC in Delaware; and resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors of PSC
and duly certified by the Secretary of PSC.
(b) Parent shall have furnished Seller with copies of the following
documents; the Certificate of Incorporation and all amendments thereto of
Parent, duly certified by the Delaware Secretary of State; certificates,
executed by the proper Delaware officials, as to the good standing of Parent in
Delaware; and resolutions authorizing this Agreement and the transactions
provided for herein, duly adopted by the Board of Directors of Parent and duly
certified by the Secretary of Parent.
6.10 Assumption of Liabilities. PSC shall have assumed the Obligations
in accordance with Section 1.3(b) pursuant to an assumption agreement in form
and substance reasonably satisfactory to Seller.
6.11 Absence of Material Adverse Change. There shall have been no
change in the condition (financial or otherwise), business, assets, or prospects
of PSC or Parent from the date of this Agreement which has had or could
reasonably be expected to have a material adverse effect on PSC or Parent.
6.12 Listing of Shares. Shares of the common stock of Parent shall have
been listed for trading on NASDAQ.
6.13 Ancillary Agreements. The Management Services Agreement (between
the Practice and PSC), the Restated Stockholders Agreement (among the
shareholders of the Practice), and the Employment Agreement (between each of the
Shareholders and Practice) shall be substantially in the form of Exhibit 6.13.
Section 7. Certain Additional Covenants.
7.1 Conduct of Business Prior to Closing. During the period from and
after the date of this Agreement and until the Closing Date:
(a) Seller and the Shareholders will carry on the
Business in substantially the same manner as heretofore carried on and will not
make any purchase or sale, incur any indebtedness or liens, or introduce any
method of management or operation in respect to such Business or otherwise
engage in any transaction except in the ordinary course of business and in the
manner not inconsistent with prior practice and the terms of this Agreement,
other than with the prior written consent of PSC;
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(b) Neither Seller nor the Shareholders will permit
any change to be made in the articles of incorporation or by-laws or, if
applicable, shareholder agreement of Seller, other than with the prior written
consent of PSC.
(c) Neither Seller nor the Shareholders will acquire
or dispose of any capital assets having an initial cost or current value in
excess of $1,000 other than with the prior written consent of PSC;
(d) Neither Seller nor the Shareholders will
increase the compensation payable or to become payable to any of its employees
or agents other than (a) with the prior written consent of PSC or (b) cash
bonuses by Seller to the Shareholders consistent with the past practice of
Seller;
(e) Neither Seller nor the Shareholders will take,
or permit or suffer to be taken, any action which is represented and warranted
in Section 2.15 not to have occurred since the Balance Sheet Date other than
with the prior written consent of PSC.
7.2 Funding of Accrued Employee Benefits. Except as set forth on
Exhibit 7.2, Seller hereby covenants and agrees that it will take whatever steps
are necessary to pay or fund completely or reserve completely for any accrued
benefits, where applicable, or vested accrued benefits for which Seller or any
entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, vacation pay, sick leave, insurance, employment tax or similar
liability of Seller to any employee or other person or entity (including,
without limitation, any Seller Plan and any liability under employment contracts
with Seller) allocable to services performed prior to the Closing Date. Seller
acknowledges that the purpose and intent of this covenant is to assure that PSC
shall have no liability whatsoever at any time in the future with respect to any
of Seller's employees or similar persons or entities, including, without
limitation, any Seller Plan, except as indicated on Exhibit 7.2.
7.3 Creditor's Claims. Seller and Shareholders represent, covenant and
agree that all of the creditors with respect to the Business will be paid in
full by Seller prior to the Closing Date, or within such other period as is
normally permitted by such creditors in the ordinary course of business, except
to the extent that any liability to such creditors is assumed by PSC pursuant to
this Agreement. If required by PSC, Seller and Shareholders shall furnish PSC
with proof of payment of all creditors with respect to the Assets.
Notwithstanding the foregoing, Seller may dispute the amount or validity of any
such creditor's claim without being deemed to be in violation of this Section
7.3, provided that such dispute is in good faith.
7.4 Affiliate Agreements. Seller will use its reasonable, good faith
efforts to cause its directors and its executive officers and "affiliates"
(within the meaning of Rule 145 under the Securities Act of 1933, as amended) to
execute and deliver to Parent as soon as practicable instructions in the form
attached hereto as Exhibit 7.4 relating to the disposition of the shares of
Parent issued to the Seller.
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7.5 Waiver of Bulk Transfer Compliance. Seller, the Shareholders and
PSC hereby waive any compliance with the Georgia Bulk Transfers Act. Seller and
the Shareholders jointly and severally represent, covenant and agree that all of
the creditors with respect to the Business will be paid in full by the Seller
prior to the Closing Date, or within such other period as is normally permitted
by such creditors in the ordinary course of business, except to the extent that
any liability to such creditors is assumed by PSC pursuant to this Agreement. If
required by PSC, the Seller and the Shareholders shall furnish PSC with proof of
payment of all creditors with respect to the Business. Notwithstanding the
foregoing, the Seller may dispute the amount of validity of any such creditor's
claim without being deemed to be in violation of this Section 7.5, provided that
such dispute is in good faith and does not unreasonably delay the resolution of
the claim.
7.6 Liquidation of Seller. As soon as practical, but in no event later
than 12 months following the Closing Date, Seller will dissolve and liquidate in
accordance with applicable law.
7.7 Covenant Not to Compete. For a period of five (5) years from and
after the Closing Date, each of Seller and each Shareholder agrees that it, he
or she will not (i) directly or indirectly, engage in, manage, operate, control,
conduct, consult for or be employed in a management capacity by, provide
services to or invest in any business or venture in competition with the
Business or PSC or Parent in the Geographic Territory (as defined below);
provided however, that ownership of less than 1% of the outstanding stock of any
publicly traded corporation shall not be deemed to violate this clause, (ii)
within the Geographic Territory, directly or indirectly, solicit or attempt to
solicit any customer or client of PSC or Parent or patient of Practice other
than in the course of a Shareholder's normal performance of services and duties
for Practice as a physician-shareholder thereof; or (iii) solicit or employ or
attempt to solicit or hire away or employ any employee of PSC or Parent or
Practice. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section is invalid or unenforceable, the
Shareholders and PSC agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified. The
parties agree that the Business currently serves territories each with greater
than an eight (8) mile radius of Seller's various office locations. Accordingly,
as used herein, the term "Geographic Territory" shall mean each area within an
eight (8) mile radius of each of the office locations of Seller. The parties
agree that the restraints set forth above in this Section 7.7 are reasonable in
respect to subject matter, length of time and geographic area. Each of Seller
and the Shareholders agrees that the restrictions on their activities contained
in this Section are reasonable and necessary to protect the goodwill and
relationships, economic advantage and other legitimate interests of PSC and
Parent, and that, were it, he or she to breach any of the covenants contained in
this Section 7.7, PSC would be harmed and the damage to PSC would be
irreparable. Accordingly, Seller and the Shareholders acknowledge and agree
that, as PSC's legal remedies may be inadequate in the event of a breach of the
covenants in this Section 7.7, in addition to damages and other remedies
available to PSC, such covenants may be enforced by injunction or other
equitable remedies.
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7.8 Confidentiality.
(a) Seller and the Shareholders shall, and shall use
their reasonable efforts to cause their respective employees, agents and
representatives to, for a period of five (5) years after the Closing, hold in
confidence all financial information about Seller, the Business and the Assets,
except such disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided PSC will be provided
advance notice of such disclosure in order to afford it the opportunity to seek
an appropriate protective order).
(b) Seller and the Shareholders further agree to,
and shall use their reasonable efforts to cause their respective employees,
agents and representatives who are not hired by PSC at Closing, to keep
confidential for a period of five (5) years after the Closing, any and all
information relating to services, products, marketing information, sources of
supply, pricing and patients of Seller on the date hereof or developed by or for
Seller, except such disclosure as may be required by law or governmental order
or regulation, or by subpoena or other legal process (provided PSC will be
provided advance notice of such disclosure in order to seek an appropriate
protective order).
(c) The restrictions in this Section 7.8 shall not
apply to any information that comes into the public domain through no fault of
Seller or the Shareholders.
7.9 Pooling and Tax-free Combination Treatment. Neither Parent, Seller
or Shareholders shall intentionally take or cause to be taken any action, which
would disqualify the combination as a "pooling of interests" under generally
accepted accounting principles and applicable SEC requirements or as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code. Each
Shareholder represents and warrants to Parent that he or she has no present
intention or plan or design to dispose of the shares of Parent Common Stock that
he or she will receive pursuant to the liquidation of Seller. Further, each of
the Shareholders hereby covenants and agrees with Parent that he or she will not
sell, convey or otherwise transfer any shares of Parent Common Stock distributed
to such Shareholder pursuant to the liquidation of Seller until the expiration
of not less than one (1) month following the release by Parent of consolidated
financial statements of Parent to the public that reflect at least one (1) month
of joint operations of Parent and Seller's business. Each Party hereto agrees to
take such further action or action and to execute such other documents,
agreements, certificates or instruments as may be necessary or desirable to
maintain pooling of interests accounting treatment of the transactions
contemplated by this Agreement in accordance with all applicable financial
accounting standards.
Section 8. Nature and Survival of Representations and Warranties;
Indemnification.
8.1 Nature and Survival. All statements contained in this Agreement or
in any Exhibit attached hereto, any agreement executed pursuant hereto, and any
certificate executed and delivered by any party pursuant to the terms of this
Agreement, shall constitute representations and warranties of Seller and
Shareholders, jointly and severally, or of PSC and Parent, jointly and
severally, as the case may be. All such representations and warranties, all
representations and
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warranties expressly labeled as such in this Agreement and the obligations of
the parties to indemnify any other party pursuant to Section 8.2 or 8.3(a),
shall survive the date of this Agreement and the Closing Date (i) with respect
to the representations and warranties in Sections 2.1 through 2.4 and Sections
2.23 through 2.26, for the period of the applicable statute of limitations, and
(ii) with respect to all other representations and warranties until the earlier
of (A) a period of one (1) year following the Closing Date or (B) the date of
issuance of the first audited consolidated financial statements for Parent and
its subsidiaries which contain combined operations of Parent and the Business.
Each party covenants with the other parties not to make any claim with respect
to such representations or warranties against any party after the date on which
such survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 8.2 or 8.3(a) hereof, unless such
party has timely given the notice required in Section 8.4 hereof. Each party
hereby releases, acquits and discharges the other party from any and all claims
and demands, actions and causes of action, damages, costs, expenses and rights
of setoff with respect to which the notice required by Section 8.4 is not timely
provided.
8.2 Indemnification by PSC and Parent. PSC and Parent jointly and
severally (for purposes of this Section 8.2 and, to the extent applicable,
Section 8.4, "Indemnitor"), shall indemnify and hold Seller and Shareholders,
and their respective agents, employees, legal representatives, successors and
assigns (each of the foregoing, including Seller and Shareholders, for purposes
of this Section 8.2 and, to the extent applicable, Section 8.4, an "Indemnified
Person"), harmless from and against any and all liabilities, losses, claims,
damages, actions, suits, costs, deficiencies and expenses (including, but not
limited to, reasonable fees and disbursements of counsel through appeal) arising
from or by reason of or resulting from any breach by Indemnitor of any
representation, warranty, agreement or covenant made by Indemnitor contained in
this Agreement (including the Exhibits hereto) and each document, certificate or
other instrument furnished or to be furnished by Indemnitor hereunder,
excluding, however, any and all liabilities of Seller or the Shareholders which
are not expressly assumed by PSC under this Agreement.
8.3 Indemnification by Seller and Shareholders. (a) Seller and
Shareholders (for purposes of this Section 8.3(a) and, to the extent applicable,
Section 8.3(b) and Section 8.4, "Indemnitor"), shall jointly and severally
indemnify and hold PSC and Parent and their respective officers, directors,
shareholders, affiliates, agents, employees, legal representatives, successors
and assigns (each of the foregoing, including PSC and Parent, for purposes of
this Section 8.3(a) and, to the extent applicable, Sections 8.3(b) and Section
8.4, an "Indemnified Person") harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies and expenses
(including, but not limited to, reasonable fees and disbursements of counsel
through appeal), in an aggregate amount not to exceed the Acquisition Price
arising from or by reason of or resulting from any breach by Indemnitor (or any
of them) of any representation or warranty contained in this Agreement
(including the Exhibits hereto) and each document, certificate or other
instrument furnished or to be furnished by Indemnitor hereunder, and with
respect to all times prior to the Closing Date, arising from or by reason of or
resulting from the Indemnitor's management and conduct of the ownership or
operation of the Business or the Assets and from any alleged act of negligence
or malpractice of Indemnitor or its employees, agents and independent
contractors in or about the Business or the Assets.
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(b) The Seller and the Shareholders jointly and severally agree to
indemnify and hold harmless each Indemnified Person from and against any and
all liabilities, losses, claims, damages, actions, suits, costs, deficiencies
and expenses, including, but not limited to, reasonable fees and disbursements
of counsel through appeal, resulting from, arising out of, relating to or
caused by any breach of any covenant or agreement of the Seller or a
Shareholder contained in this Agreement.
8.4 Indemnification Procedure. Within 60 days after Indemnified Person
receives written notice of the commencement of any action or other proceeding,
or otherwise becomes aware of any claim or other circumstance, in respect of
which indemnification or reimbursement may be sought under Section 8.2 or
Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof. If any
such action or other proceeding shall be brought against any Indemnified Person,
Indemnitor shall, upon written notice given within a reasonable time following
receipt by Indemnitor of such notice from Indemnified Person, be entitled to
assume the defense of such action or proceeding with counsel chosen by
Indemnitor and reasonably satisfactory to Indemnified Person; provided, however,
that any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, Indemnified Person
shall have the right to employ separate counsel at Indemnitor's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such Indemnified Person, (a) there are or may be legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to Indemnitor and which
could not be adequately advanced by counsel chosen by Indemnitor, or (b) a
conflict or potential conflict exists between Indemnitor and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall Indemnitor be required to pay fees and expenses
hereunder for more than one firm of attorneys in any jurisdiction in any one
action or proceeding or group of related actions or proceedings. Indemnitor
shall not, without the prior written consent of any Indemnified Person, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding to which such Indemnified Person is a
party unless such settlement compromise or consent includes an unconditional
release of such Indemnified Person from all liability arising or potentially
arising from or by reason of such claim, action or proceeding.
8.5 Limitations Upon Obligations. Anything in this Section 8 to the
contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Seller or Shareholders (individually and collectively a
"Selling Party") or, by a Selling Party to a Parent Party, on claims for
indemnification under Sections 8.2 or 8.3(a) until the aggregate of all such
claims of a Parent Party against a Selling Party under Section 8.3(a), or by a
Selling Party against a Parent Party under Section 8.2, shall exceed $10,000.00,
in which event the Party holding such claim shall be entitled to indemnification
with respect to all such claims in the aggregate. In the event that such claims
do not aggregate in excess of $10,000.00, then neither the Parent Parties nor
the Selling Parties shall have any claim for indemnification against the other
under Section 8.2 or Section 8.3(a).
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Section 9. Termination.
9.1 Right to Terminate. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and
Seller;
(b) by either PSC, Parent or Seller upon prior written
notice to the other party
(i) if any court or governmental or regulatory
agency, authority or body shall have enacted, promulgated or
issued any statute, rule, regulation, ruling, writ or
injunction, or taken any other action, restraining, enjoining
or otherwise prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have been
exhausted; or
(ii) if the Closing shall not have occurred on or
before March 31, 1997 or such later date as the parties may
agree to; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.1(b)(ii) shall not be
available to any party whose breach of any representation or
warranty or failure to perform or comply with any obligation
or condition under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before
such date;
(c) by PSC or Parent, upon prior written notice to Seller and
the Shareholders, if any of the conditions specified in Section 5 have
not been met or waived prior to the Closing Date (or any extension
thereof pursuant to Section 9.1(b)(ii) above); or
(d) by Seller and the Shareholders, upon prior written notice
to PSC, if any of the conditions specified in Section 6 shall not have
been met or waived prior to the Closing Date (or any extension thereof
pursuant to Section 9.1(b)(ii) above).
9.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Section 9, this Agreement shall forthwith become null
and void and there shall be no liability on the part of any of the parties
hereto or their respective officers or directors with respect to this Agreement,
except for Section 1.7 which shall remain in full force and effect after any
such termination of this Agreement, and except that nothing herein shall relieve
any party from liability for a breach of this Agreement prior to the termination
thereof.
Section 10. Miscellaneous.
10.1 Notices. Any communications required or desired to be
given hereunder shall be deemed to have been properly given if sent by hand
delivery, or by facsimile and overnight courier, to the parties hereto at the
following addresses, or at such other address as either party may advise the
other in writing from time to time:
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If to PSC:
PSC MANAGEMENT CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
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<PAGE> 33
If to Parent:
PHYSICIANS SPECIALTY CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
with a copy of each notice directed to PSC or Parent to:
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
If to Seller or Shareholders:
Robert A. Gadlage, M.D.
Gwinnett Physicians Building
2121 Fountain Drive, Suite C
Snellville, Georgia 30278
Facsimile: _________________
Nancy R. Griner, M.D.
4875 Riversound Drive
Lithonia, Georgia 30058
Facsimile: _________________
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.2 Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. Seller and Shareholders
will execute and deliver from time to time thereafter, at the request of PSC,
all such further instruments of conveyance, assignment and further assurance as
may reasonably be required in order to vest in and confirm to PSC all of
Seller's right, title and interest in and to the Assets.
10.3 Public Disclosures. Except as otherwise required by law, no party
to this Agreement shall make any public or other disclosure of this Agreement or
the transactions contemplated hereby (other than Parent's disclosures in the
Registration Statement) without the
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<PAGE> 34
prior consent of the other parties. The parties to this Agreement shall
cooperate with respect to the form and content of any such disclosures.
10.4 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Georgia, applied without
giving effect to any conflict-of-laws principles.
10.5 "Including". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to" or words of similar
import) is used with reference to the word "including" or the similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall with the broadest possible scope of the general statement,
term or matter.
10.6 "Knowledge". "To the knowledge," "to the best knowledge,
information and belief' or any similar phrase, shall be deemed to include the
assurance that such knowledge is based upon a reasonable investigation, unless
otherwise expressly provided. Unless otherwise expressly provided herein, Seller
shall be deemed to have knowledge of any facts known to any Shareholder.
10.7 "Material". An individual claim, obligation or liability shall be
deemed to be "material" if the amount thereof exceeds $5,000.00 or involves the
violation of any federal, state or local statute, rule or regulation. A contract
or lease shall be deemed to be material if it requires a single payment in
excess of $5,000.00 or payment for any future 12-month period in excess of
$5,000.00, except that no contract for the acquisition of inventory items or
consumable supplies shall be deemed material unless such contract cannot be
terminated without cause by Seller on not more than 30 days notice, or has, as
of the Closing Date, an amount payable with respect thereto of more than
$5,000.00.
10.8 "Material Adverse Change" or "Material Adverse Effect". "Material
Adverse Change" or "Material Adverse Effect" means, when used in connection with
the parties to this Agreement, any change, effect, event or occurrence that has,
or is reasonably likely to have individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "Material Adverse Change"
and "Material Adverse Effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles, (ii) changes in applicable
law, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by Seller with the consent of PSC.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which is or may potentially be hazardous to the health or safety of
human or animal life or vegetation, regardless of whether such material is found
on or below the surface of the ground, in any surface or underground water,
airborne in ambient air or in the air inside any structure built or located upon
or below the surface of the ground or in building materials or in improvements
of any
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<PAGE> 35
structures, or in any personal property located or used in any such
structure, including, but not limited to, all hazardous substances, imminently
hazardous substances, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined, listed, identified,
designated or classified as such under any Environmental Laws (as defined in
Section 10.10) regardless of the quantity of any such material.
10.10 "Environmental Laws". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or medical waste or relating to the protection of
the environment or the disposal of medical waste.
10.11 Appointment of Attorney-in-Fact. Effective at the Closing, Seller
hereby constitutes and appoints PSC, and its successors and assigns, the true
and lawful attorneys for Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of and at the expense of PSC, to
institute and prosecute, in the name of Seller or otherwise, all proceedings
which PSC may deem proper in order to collect, assert or enforce any claim,
right or title of any kind in or to the Assets, to defend and compromise any and
all actions, suits or proceedings in respect of any such Assets, and to do all
such acts and things in relation thereto as PSC shall deem advisable, subject to
applicable laws and regulations. Seller agrees that the foregoing powers shall
be coupled with an interest and shall be irrevocable by Seller or by its
dissolution or in any manner or for any reason. PSC shall retain for its own
account any amounts collected pursuant to the foregoing powers, including any
sums payable in respect thereof, and Seller shall pay to PSC, when received, any
amounts which shall be received by Seller in respect of any Assets.
10.12 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
10.13 Integration of Exhibits. All Exhibits attached to this Agreement
are integral parts of this Agreement as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced; provided, however, that any liabilities or obligations to be assumed
by PSC shall be set forth on Exhibit 1.3(b), and the inclusion of any
liabilities or obligations in any other Exhibits shall not be deemed or
construed to incorporate such liabilities or obligations into Exhibit 1.3(b).
10.14 Entire Agreement. This instrument, including all Exhibits
attached hereto, contains the entire agreement of the parties and supersedes any
and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby. It may not be
changed or terminated orally, but may only be changed by an agreement in writing
signed by the party or parties against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
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<PAGE> 36
10.15 Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument.
10.16 Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.17 No Rule of Construction. The parties acknowledge that this
Agreement was initially prepared by PSC and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
10.18 Costs of Enforcement. In the event that PSC or Parent on the one
hand, or Seller or Shareholders, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit. The
term "prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
10.19 Transfer of Assets; Assignment. The parties also hereby agree
that this Agreement shall not be assigned or transferred by either party without
the prior written consent of the other; provided, however, that this Agreement
may be assigned, in whole or in part, by PSC or Parent, in its sole discretion,
to any parent, subsidiary or affiliate of PSC or Parent or to any party
acquiring all or substantially all PSC's or Parent's assets. Any such assignment
shall not affect Parent's obligations hereunder or under any documents executed
by Parent pursuant to this Agreement.
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"PSC"
PSC MANAGEMENT CORP.
By /s/ Gerald R. Benjamin
-------------------------------------
Title: Secretary and Vice Chairman
---------------------------------
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By /s/ Gerald R. Benjamin
-------------------------------------
Title: Secretary and Vice Chairman
---------------------------------
"SELLER"
EAR, NOSE & THROAT
ASSOCIATES, P.C.
By /s/ Robert A. Gadlage, M.D.
-------------------------------------
Title: President
---------------------------------
"SHAREHOLDERS"
/s/ Robert A. Gadlage, M.D.
--------------------------------------
Robert A. Gadlage, M.D.
/s/ Nancy R. Griner, M.D.
--------------------------------------
Nancy R. Griner, M.D.
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<PAGE> 1
EXHIBIT 10.28
ASSET ACQUISITION AGREEMENT
by and among
Physicians' Specialty Corp.
PSC Management Corp.
and
W.J. Cornay, III, M.D., P.C.
<PAGE> 2
ASSET ACQUISITION AGREEMENT
ASSET ACQUISITION AGREEMENT (this "Agreement"), dated as of February
20, 1997, by and among PSC MANAGEMENT CORP., a Delaware corporation ("PSC");
PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("PARENT"); W.J. CORNAY,
III, M.D., P.C., an Alabama professional corporation ("Seller"); W.J. CORNAY,
III, M.D. and MARC ROUTMAN, M.D. both individual residents of the State of
Alabama (individually a "Shareholder," and collectively the "Shareholders").
W I T N E S S E T H:
WHEREAS, Seller operates a medical practice which provides
otolaryngology and other medical and surgical services from offices located in
the metropolitan Birmingham, Alabama area ("Business");
WHEREAS, Shareholders are the only shareholders of Seller;
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in
the business of acquiring the assets of and managing medical practices;
WHEREAS, PSC is a wholly-owned subsidiary of Parent;
WHEREAS, Seller wishes to convey to PSC, and PSC wishes to acquire
from Seller, substantially all of the properties and assets of Seller, subject
to certain liabilities set forth herein, all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth, and the contemplated delivery by PSC to
Seller of shares of the Common Stock of Parent, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
SECTION 1. TERMS OF THE SALE AND ACQUISITION OF ASSETS.
The sale of the assets of Seller hereunder and the acquisition thereof
by PSC shall be made at the Closing (as defined in Section 1.12) based on the
respective representations, warranties and agreements of the parties hereto and
subject to the terms and conditions herein stated.
1.1 CONVEYANCE OF ASSETS. Subject to the provisions of Section
1.2 hereof, at the Closing Seller shall convey, transfer and assign to PSC and
PSC shall acquire from Seller all of Seller's right, title and interest in and
to the properties and assets of
<PAGE> 3
Seller as a going concern, including, without limitation, all items of personal
property and other assets used in connection with the Business (except as
otherwise provided herein), whether or not any of such assets have any value
for accounting purposes (individually "Asset," and collectively "Assets"), free
and clear of all obligations, security interests, liens, claims and
encumbrances whatsoever, except as specifically assumed by PSC pursuant to
Section 1.3(b). Without limiting the generality of the foregoing, the Assets
specifically include:
(a) All real estate, personal property, plant,
furniture, fixtures and equipment owned by Seller which are utilized in or
related to the Business, including, but not limited to, all items owned by
Seller identified on Exhibit 1.1(a) attached hereto.
(b) All contracts, agreements and commitments of
Seller and/or the Shareholders related to the Business identified on Exhibit
2.6 and Exhibit 2.14 attached hereto and set forth on Exhibit 1.3(b) and all
contracts, agreements and commitments of Seller and/or the Shareholders related
to the Business and entered into after the date hereof and prior to the Closing
in the ordinary course of business and not in violation of Section 7.1 hereof
(but excluding this Agreement and the agreements, instruments and documents
executed and delivered by PSC pursuant to this Agreement and also excluding
physician employment agreements of Seller and any contracts with nurse
practitioners and physician assistants of Seller) and all contract rights of
Seller incident thereto, and all general intangibles of Seller.
(c) Subject to applicable laws and regulations,
all inventories maintained by Seller as of the Closing Date as described in
Exhibit 1.1(c).
(d) Subject to applicable laws and regulations,
all accounts receivable of Seller, notes receivable and other rights to receive
payments owing to Seller in existence on the Closing Date, and all proceeds and
cash arising from the collection of same from and after the Closing Date.
(e) Subject to applicable laws and regulations,
all patient accounts receivable records of Seller.
(f) The books and records of Seller relating to
the Assets, all of which shall be delivered to PSC, or such person as PSC may
designate, on the Closing Date.
(g) Subject to applicable laws and regulations,
all transferable licenses and other regulatory approvals necessary for or
incident to the operation of the Assets.
(h) Seller's right to use the name "W.J. Cornay,
III, M.D., P.C." and all other trade and service marks and names and goodwill
associated therewith, and all customer lists, clinical and administrative
policy and procedure manuals, trade
<PAGE> 4
secrets, copyrights, patents, marketing and promotional materials (including
audiotapes, videotapes and printed materials) and all other property rights
required for or incident to the marketing of the products and services of the
Business, and all books and records relating thereto.
(i) All of Seller's prepaid expenses, prepaid
insurance, deposits and similar items.
1.2 EXCLUDED ASSETS. There shall be excluded from the Assets
transferred and conveyed hereunder, and Seller shall retain all of its right,
title and interest in and to, the assets set forth on Exhibit 1.2 attached
hereto and the following assets:
(a) The minute books of Seller and similar
corporate records of Seller.
(b) All considerations to be delivered by PSC on
the Closing Date.
(c) All assets listed in Exhibit 1.2 hereto.
(d) Patient charts, records and files.
1.3 ACQUISITION PSC PRICE; ASSUMPTION OF LIABILITIES. As
consideration for the sale of the Assets by Seller, at Closing PSC shall
provide Seller with the following considerations:
(a) Parent Shares. At the Closing Parent shall
issue to Seller shares of the Common Stock, par value $.001 per share, of
Parent (the "Parent Common Stock") with a total value equal to $992,000 subject
to any adjustments described in Section 1.3(b) or Section 5.10 hereof (the
"Acquisition Price"). The number of shares of Parent Common Stock which shall
constitute the Acquisition Price shall be determined by dividing the
Acquisition Price by the Initial Public Offering Price of the Parent Common
Stock. For purposes of this Section 1.3(a), the "Initial Public Offering
Price" shall mean the price for the shares of Parent Common Stock as priced and
sold on a gross basis before taking into account the managing underwriters'
commissions and costs associated with Parent's initial public offering (the
"IPO"). Assuming an IPO Price of $9.50 per share and no adjustments pursuant
to Section 5.10, a total of 104,421 shares of Parent Common Stock would be
issued as the Acquisition Price. The Acquisition Price shall be allocated to
the acquisition of the Assets as set forth on Exhibit 1.3(a)(1) attached
hereto. The parties shall use such allocation in completing Form 8594 and
satisfying any and all other reporting requirements of the Internal Revenue
Service or any other state or local taxing authority.
(b) Assumption of Liabilities. Except as
otherwise provided herein, at the Closing PSC shall assume up to One Hundred
Sixty-Eight Thousand
<PAGE> 5
Dollars ($168,000) of Seller's stated liabilities in the form of accounts
payable, accrued expenses, notes payable and capitalized leases and shall
perform or discharge on or after the Closing Date (as defined in Section 1.12),
only those contracts, leases, commitments, obligations and liabilities of
Seller which are listed on Exhibit 1.3(b) attached hereto (collectively, the
"Obligations"), except to the extent that such contracts, leases, commitments,
obligations and liabilities are excluded by virtue of the operation of other
provisions of this Agreement, provided, that in the event the amount of stated
liabilities assumed by PSC under this Section 1.3(b) exceeds $168,000, the
Acquisition Price shall be reduced on a dollar-for-dollar basis by the amount
of such excess. PSC agrees to promptly pay and discharge such Obligations as
the same become due and payable.
(c) Liabilities Not Assumed. Notwithstanding any
contrary provision contained herein, PSC shall not be deemed to have assumed,
nor shall PSC assume (i) any liability which may be incurred by reason of any
uncured material breach of or any monetary default under such contracts,
leases, commitments or obligations which occurred prior to the Closing Date;
(ii) any liability for any employee benefits payable to employees of Seller,
including, but not limited to, liabilities arising under any Seller Plan (as
defined in Section 2.21 hereto) and liabilities for accrued sick leave or
vacation days; (iii) any liability based upon or arising out of a violation of
any antitrust or similar restraint-of-trade laws by Seller, including, without
limiting the generality of the foregoing, any such antitrust liability which
may arise in connection with agreements, contracts, commitments or orders for
the sale of goods or provision of services by Seller reflected on the books of
Seller at or prior to the Closing Date; (iv) any liability based upon or
arising out of overpayments due to the Medicare and/or Medicaid programs, any
other third party payor, or any liability based upon or arising out of a
violation of any false claim, anti-kickback, prohibition or self- referral laws
or similar fraud and abuse laws by Seller; (v) any medical malpractice
liability associated with the Business or Seller or any person associated with
the Business or Seller; (vi) any liability based upon or arising out of any
tortious conduct or wrongful actions of Seller or any Shareholder; or (vii) any
liability for the payment of any taxes imposed by law on Seller arising from or
by reason of the transactions contemplated by this Agreement or otherwise.
1.4 EMPLOYMENT ARRANGEMENTS.
(a) Following the Closing PSC will initially
offer employment as employees-at-will to all persons (other than physicians
and such personnel as are specified in the Management Services Agreement,
defined in Section 1.5 below) who are employees of Seller on the Closing Date;
Seller's employees who become employed by PSC are hereinafter referred to as
"Transferred Employees" and the physicians and such other personnel as are
specified in the Management Services Agreement, but who will not become
employed by PSC are hereafter referred to as the "Practice Employees."
(b) As of the Closing Date, Seller will: (i)
terminate any employment contracts applicable to those persons who are employed
by PSC as
<PAGE> 6
Transferred Employees pursuant to Section 1.4(a) hereof; and (ii) terminate the
participation of all such employees in all Seller Plans, such termination to be
effected in accordance with and to the extent permitted by applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Code") and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
all other applicable laws, rules and regulations; and (iii) cause the Seller
Plans to make timely appropriate distributions, to the extent required, to such
employees in accordance with, and to the extent permitted by, the terms and
conditions of such Seller Plans. Seller will provide to PSC such copies of
documents and other information related to the termination of such employees'
participation in the Seller Plans as PSC may request.
(c) At the Closing, the Shareholders agree to
become employees of PSC Alabama Corp., a Delaware corporation ("Practice"), a
wholly owned subsidiary of Parent, and shall each execute with Practice a
seventy- eight (78) month primary term employment contract.
1.5 MANAGEMENT SERVICES AGREEMENT. Shareholders acknowledge and
agree that Practice and PSC shall execute a Management Services Agreement
substantially in the form of Exhibit 1.5 at the time of the acquisition of
assets of Seller by PSC which shall govern the business relationship between
Practice and PSC.
1.6 SELLER'S FINANCIAL INFORMATION. The agreement between the
parties evidenced by this Agreement has been reached based on financial
information about Seller, the Assets and the Business as of December 31, 1996,
all provided to PSC by Seller. The audited Balance Sheet of Seller as of
December 31, 1996 ("Balance Sheet Date"), is attached hereto as Exhibit 1.6 and
is hereinafter referred to as the "Balance Sheet".
1.7 EACH PARTY TO BEAR COSTS. Each of the parties to this
Agreement shall pay all of the costs and expenses incurred by such party in
connection with the transactions contemplated by this Agreement, except as
otherwise provided herein. Without limiting the generality of the foregoing,
and whether or not such liabilities may be deemed to have been incurred in the
ordinary course of business, neither party shall be liable for or required to
pay, either directly or indirectly, any of the following liabilities or
expenses incurred by the other party: (a) fees and expenses of any person for
services as a finder, or for fees and expenses of any persons for financial
services rendered to such other party in connection with negotiating and
closing the sale contemplated by this Agreement; (b) fees and expenses of legal
counsel retained by such other party for services rendered to such party in
connection with negotiating and closing the sale contemplated by this
Agreement; (c) fees and expenses of any auditors and accountants retained by
such other party for services rendered to such party in connection with
negotiating and closing the sale contemplated by this Agreement; (d) state and
federal income taxes or other similar charges on income incurred by such other
party on any gain from the purchase and sale of Assets hereunder; and (e)
expenses and fees relating to feasibility studies, appraisals and similar
valuation services performed on behalf of such other party in connection with
the transactions
<PAGE> 7
contemplated hereby.
1.8 ASSIGNMENT OF CONTRACTS AND ASSETS; CONSENTS. Nothing in this
Agreement or delivered pursuant to this Agreement shall be construed as an
attempt to agree to assign any contract, certificate, license or other Asset
which is in law or by agreement nonassignable without the consent of the other
party or parties thereto, or of any governmental authority, as the case may be,
unless such consent shall be given. Seller will use its reasonable good faith
efforts to obtain all such necessary consents of the parties to any such
contracts prior to the Closing. In order, however, that the full value of
every such contract, certificate, license or other Asset included within the
Assets and all claims and demands in such contracts may be realized, Seller and
the Shareholders hereby covenant with PSC and Parent that Seller, by itself or
by its agents, will, at the request and expense and under the direction of PSC,
in the name of Seller or otherwise, as PSC shall specify and as shall be
permitted by law, take all such reasonable actions and do or cause to be done
all such reasonable things as shall, in the opinion of PSC, be necessary or
proper (a) in order that the rights and obligations of Seller under such
contracts, certificates, licenses and other Assets shall be preserved, and (b)
for, and to facilitate, from and after the Closing, the collection of the
moneys due and payable, and to become due and payable, to Seller in and under
every such contract and in respect of every such claim and demand, from and
after the Closing, and Seller shall hold the same for the benefit of, and shall
pay the same over to, PSC.
1.9 COOPERATION WITH REGULATORY APPROVALS. Seller and the
Shareholders shall cooperate with and assist PSC, as PSC shall reasonably
request, in obtaining the approval of all regulatory agencies and officials
whose approval is required for the transfer of all licenses and other
regulatory approvals required to enable PSC to acquire the Assets and operate
the Business.
1.10 IRREVOCABLE GUARANTY BY PARENT. To induce Seller to execute
and deliver this Agreement, Parent hereby unconditionally and irrevocably
guarantees the Seller and Shareholders the full, prompt and faithful
performance by PSC of all covenants and obligations to be performed by PSC
under this Agreement, including, but not limited to, the payment of all sums
and delivery of all property stipulated to be transferred by PSC pursuant to
this Agreement and PSC's obligation to indemnify the Seller and the
Shareholders pursuant to Section 8.2. This guaranty shall be a guaranty of
payment, not merely collection, and shall be unaffected by any subsequent
modification or amendment of this Agreement whether or not Parent has knowledge
of or consented to such modification or amendment. In the event that PSC fails
to fully perform all such covenants and obligations in accordance with their
terms or pay all or any part of such sums or deliver all or any part of such
property when due, Parent will perform all such covenants and obligations in
accordance with their terms or immediately pay or deliver to Seller (or such
other payee or transferee as may be provided in any such agreement) the amount
due and unpaid or the property not delivered, as the case may be, by PSC. In
the event of bankruptcy, termination, liquidation or dissolution of PSC, this
unconditional guaranty shall continue in full force and effect. In the event
of any extension of time for payment or performance or other modification of
any guaranteed
<PAGE> 8
obligation or covenant, or any waiver thereof or other compromise or indulgence
with respect thereto or any release or impairment of any security for any such
obligation or covenant, or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor, no notice
to, or consent of, Parent shall be required.
1.11 TAX AND ACCOUNTING TREATMENT. It is intended by the parties
that the purchase and sale contemplated by this Agreement and related documents
qualify as a reorganization under the provisions of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, and that for accounting purposes, it
is intended that such transaction be accounted for by Parent as a "pooling of
interests".
1.12 CLOSING.
(a) Closing. Subject to the fulfillment of the
conditions precedent specified in Sections 5 and 6, the transaction
contemplated by this Agreement shall be consummated at a closing (the
"Closing") to be held at 10:00 a.m. local time simultaneously with the closing
of the IPO at the offices of Bachner, Tally, Polevoy, & Misher L.L.P., New
York, New York, or at such other location, as is mutually agreed upon by the
Parties. The date on which the Closing occurs shall be referred to as the
"Closing Date."
(b) Documents to be Delivered by Seller. At the
Closing, Seller shall deliver, or cause to be delivered, to PSC the following:
(i) Such bills of sale, endorsements and
assignments as are necessary to vest in PSC good and
valid title to the Purchased Assets;
(ii) The certificate required to be
delivered pursuant to Section 5.5;
(iii) The legal opinion required to be
delivered pursuant to Section 5.7 of this Agreement;
(iv) The other agreements, documents and
instruments required by Sections 5.8 through 5.14;
(v) Any other documentation required to
be delivered under this Agreement or otherwise
requested to be delivered by PSC that is necessary or
appropriate to consummate the Transaction; and
(vi) Pursuant to 5.18 of this Agreement,
a copy of the bill of sale evidencing that any
medical assets of Seller not acquired by PSC have
been transferred by Seller to Practice.
<PAGE> 9
(c) Documents and Other Items to be Delivered by
Purchaser. At the Closing, PSC shall deliver to Seller the following:
(i) The Acquisition Price, payable by
shares of Parent Common Stock pursuant to Section
1.3;
(ii) The certificate required to be
delivered pursuant to Sections 6.4 of this
Agreement;
(iii) The legal opinion required to be
delivered pursuant to Section 6.6 of this Agreement;
(iv) The other agreements, documents and
instruments required by Section 6.7, 6.9 and 6.10;
(v) Any other documentation required to
be delivered under this Agreement or otherwise
reasonably requested to be delivered by Seller or the
Shareholders that is necessary or appropriate to
consummate the transaction.
Simultaneously with such delivery, Seller and Shareholders jointly and
severally agree to use their best efforts and to take all action as may be
reasonably necessary to put PSC in possession and operating control of the
Assets free and clear of all liens or other restrictions or encumbrances,
including the obtaining of such consents of third parties as may be reasonably
necessary to effect the foregoing.
<PAGE> 10
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.
The Seller and Shareholders jointly and severally represent
and warrant to PSC and Parent as follows:
2.1 CORPORATE EXISTENCE; GOOD STANDING. Seller is a professional
corporation duly organized, validly existing and in good standing under the
laws of the State of Alabama. Seller has all necessary corporate powers to own
all of its assets and to carry on its business as such business is now being
conducted. Seller is not required to qualify to do business as a foreign
corporation in any other state or jurisdiction by reason of its business,
properties or activities in or relating to such other state or jurisdiction.
2.2 POWER AND AUTHORITY FOR TRANSACTIONS.
(a) Seller has corporate power to execute,
deliver and perform its obligations under this Agreement and all agreements and
other documents executed and delivered by it pursuant to this Agreement, and
has taken all action required by law, its Articles of Incorporation, its Bylaws
or otherwise, to authorize the execution and delivery of and the performance
of this Agreement and such related documents. The execution and delivery of
this Agreement, and the agreements related hereto executed and delivered
pursuant to this Agreement, do not, and, subject to the receipt of consents to
assignments of leases and other contracts where required and the receipt of
regulatory approvals where required, the consummation of the transactions
contemplated hereby will not, violate any provision of the Articles of
Incorporation or Bylaws of Seller or any provisions of, or result in the
acceleration of, any obligation under any mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree to which Seller is a
party or by which Seller is bound, or violate any material restrictions of any
kind to which Seller is subject which could have a Material Adverse Effect.
(b) The execution and delivery of this Agreement,
and the agreements related hereto executed and delivered pursuant to this
Agreement, do not, and the consummation of the transactions contemplated hereby
will not, violate any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which any Shareholder is a party or by
which any Shareholder is bound, or violate any material restrictions of any
kind to which any Shareholder is subject and which could have a Material
Adverse Effect.
2.3 SUBSIDIARIES AND AFFILIATES. Seller does not own stock in or
control, directly or indirectly, any other corporation, association or business
organization, nor is Seller a party to any joint venture or partnership. The
Shareholders are the sole shareholders of Seller and own all the capital stock
of Seller in the respective proportionate amounts set forth in Exhibit 2.3.
There are no outstanding (a) securities
<PAGE> 11
of Seller convertible into equity interests in Seller, or (b) commitments,
options, rights or warrants to issue any such equity interests in Seller, or to
issue securities of Seller convertible into such equity interests.
2.4 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. (a) All
material building or other permits, certificates of occupancy, concessions,
grants, franchises, licenses, certificates of need and other material
governmental authorizations and approvals necessary for the conduct of the
Business, or waivers thereof, have been duly obtained and are in full force and
effect, and there are no proceedings pending or, to the knowledge of Seller and
Shareholders, threatened which may result in the revocation, cancellation or
suspension, or any adverse modification, of any thereof. Any and all past
litigation concerning such building or other permits, certificates of
occupancy, concessions, grants, franchises, licenses, certificates of need and
other governmental authorizations and approvals, and all claims and causes of
action raised therein, have been finally adjudicated.
(b) Approvals. Each Shareholder holds in full force and effect
all approvals, authorizations, licenses, and certifications required by law
(the "Approvals") to practice medicine. Evidence of such Approvals has been
delivered to PSC. There has been no lapse, revocation, or suspension of any
Approval, or any formal allegation (including any complaint, indictment or
initiation of proceedings) made before a court of law, licensing or regulatory
authority, professional organization, or the medical staff or committee of a
hospital, regarding any Shareholder's practice or fitness to practice medicine,
including any allegation of the following: alcohol abuse, a violation of any
law or regulation relating to controlled substances, professional malpractice
or misconduct, improper billing practices, or a crime involving moral
turpitude. The foregoing does not include any action taken as a result of
failure to timely complete medical records.
(c) Provider Numbers. Each Shareholder holds a valid Medicare
provider number and valid uniform physician identification numbers. Evidence
of such numbers has been delivered to PSC.
(d) Board Certification. Each Shareholder is certified by the
American Board of Otolaryngology and evidence of such board certification(s)
has been delivered to PSC.
(e) No Conviction. No Shareholder has ever been convicted of a
criminal offense relating to the Medicare or any federally-funded state health
care program. For purposes of this Agreement, the term conviction includes the
entry of a plea of guilty or nolo contendere and participation in a first
offender, deferred adjudication, or other arrangement or program whereby a
judgment of conviction has been withheld.
2.5 SELLER'S FINANCIAL INFORMATION. Seller has heretofore
furnished PSC and Parent with copies of financial information about Seller as
set forth on Exhibit 2.5 attached hereto, including, but not limited to, the
Balance Sheet. All such financial statements have been prepared in accordance
with generally accepted accounting
<PAGE> 12
principles consistently followed throughout the periods indicated, reflect all
liabilities of Seller as of their respective dates, and present fairly the
financial position of Seller as of such dates and the results of operations and
cash flows for the period or periods reflected therein.
2.6 LEASES. Exhibit 2.6 attached hereto sets forth a list of all
leases pursuant to which Seller leases, as lessor or lessee, real or personal
property used in operating the Business or otherwise; however the parties
understand and agree that only those leases [IF ANY] listed on Exhibit 1.3(b)
will be assumed by PSC. Except as indicated on Exhibit 2.16, all such leases
listed on Exhibit 2.6 are valid and effective in accordance with their
respective terms, and there is not under any such lease any existing default by
Seller, as lessor or lessee, or any condition or event of which Seller or any
Shareholder has knowledge which with notice or lapse of time, or both, would
constitute a default, in respect of which Seller has not taken adequate steps
to cure such default or to prevent a default from occurring. With respect to
any lease not assumed by PSC, Seller and the Shareholders represent and
covenant that they will honor and discharge all obligations of Seller under
such leases.
2.7 PERSONAL PROPERTY. Seller owns all of the personal property
reflected on the Balance Sheet and included in the Assets, including, but not
limited to, all items of personal property identified on Exhibit 1.1(a) and
Exhibit 1.1(c) attached hereto, free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those set forth in Exhibit 2.7 attached
hereto. All such personal property that comprises the Assets shall be
transferred to PSC subject to only claims, charges, exceptions or encumbrances
set forth on Exhibit 2.7. Such personal property is in usable condition,
normal wear and tear excepted, and suitable for its purpose and intended use.
2.8 INVENTORIES. The items of Seller's inventory have been
acquired in the ordinary course of the Business and maintained at levels
consistent with past practices and are in all material respects adequate for
the reasonable requirements of the Business.
2.9 PRINCIPAL PLACE OF BUSINESS. The principal places of business
of Seller are, and have been for the previous five (5) years, in Jefferson
County, Alabama.
2.10 LOCATION OF ASSETS. All of the Assets are located in
Jefferson County, Alabama.
2.11 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in Exhibit
2.11 attached hereto, Seller has no right, title or interest in or to patents,
patent rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets. Except for off-the-shelf software licenses, Seller is not a licensee
in respect of any patents, trademarks, service marks, trade names, copyrights
or applications therefor, or manufacturing processes, formulas or trade
secrets. Seller owns and possesses adequate licenses or other rights to use
all such patents, trademarks, service marks, trade names, copyrights,
manufacturing
<PAGE> 13
processes, inventions, specialized treatment protocols, formulas and trade
secrets necessary to conduct its business as now operated. No claim is pending
or has been made to the effect that the present or past operations of Seller
infringe upon or conflict with the asserted rights of others to such patents,
patent rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets.
2.12 DIRECTORS AND OFFICERS; PAYROLL INFORMATION. Set forth on
Exhibit 2.12 attached hereto is a true and complete list, as of the date of
this Agreement, of: (a) the name of each Director and officer of Seller and
the offices held by each; and (b) the most recent payroll report of Seller,
showing all current employees of Seller and their current levels of
compensation other than bonuses and other extraordinary compensation.
<PAGE> 14
2.13 LEGAL PROCEEDINGS. Except as set forth in Exhibit 2.13
attached hereto, neither Seller nor any Shareholder has knowledge of any
pending or threatened litigation, governmental investigation, condemnation or
other proceeding against or relating to or affecting Seller, any Shareholder,
the Business, the Assets or the transactions contemplated by this Agreement,
including, but not limited to, claims for medical malpractice or negligence,
and, to the knowledge of Seller and Shareholders, no basis for any such action
exists, nor is there any legal impediment of which Seller or any Shareholder
has knowledge to the continued operation of the Business in the ordinary
course.
2.14 CONTRACTS. Seller has delivered to PSC true copies of all
written, and disclosed to PSC all Material oral, outstanding contracts,
obligations and commitments of Seller and each Shareholder entered into in
connection with the Business, all of which are listed or incorporated by
reference on Exhibit 2.6 (in the case of leases) and Exhibit 2.14 (in the case
of managed care contracts, third party payor contracts and contracts other than
leases) attached hereto. Except as otherwise indicated on such Exhibits, all
of such contracts, obligations and commitments are valid, binding and
enforceable against Seller in accordance with their terms and are in full force
and effect, subject to limitations on enforceability imposed by, bankruptcy,
moratorium, creditors' rights or similar laws. Except as set forth or
incorporated by reference on such Exhibits, to Seller's knowledge no default or
alleged default by Seller exists thereunder. Except as listed or incorporated
by reference on Exhibit 2.6 and Exhibit 2.14, neither Seller nor any
Shareholder is a party to any Material written or oral agreement, contract,
lease or plan of a type described as follows:
(a) Contract related to the Assets, not made in
the ordinary course of business, other than this Agreement.
(b) Employment contract which is not terminable
without cost or other liability to Seller, or any successors or assigns
thereof, upon notice of 30 days or less.
(c) Contract with any labor union.
(d) Bonus, pension, profit-sharing, retirement,
stock acquisition, hospitalization, insurance or similar plan providing for
employee benefits.
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee.
(f) Contract for the future acquisition of
materials, supplies or equipment (i) which is in excess of the requirements of
the Business now booked or for normal operating inventories, or (ii) which is
not terminable without material cost or liability to Seller, or any successors
or assigns thereof, upon notice of 30 days or less.
<PAGE> 15
(g) Insurance contract.
(h) Contract continuing for a period of more than
six months from the Closing Date.
(i) Loan agreement or other contract for money
borrowed.
2.15 SUBSEQUENT EVENTS. Except as set forth on Exhibit 2.15
attached hereto, Seller has not, since the date of the Balance Sheet:
(a) Incurred any material uninsured obligation or
liability (absolute, accrued, contingent or otherwise), or any material adverse
change except in connection with the performance of this Agreement, other than
in the ordinary course of business.
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i) liabilities shown
or reflected on the Balance Sheet or (ii) liabilities incurred since the date
of the Balance Sheet in the ordinary course of business.
(c) Increased or established any reserve for
taxes or any other liability on its books or otherwise provided therefor,
except as may have been required due to income or operations of Seller.
(d) Mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the Assets, tangible or intangible.
(e) Sold or transferred any of the Assets,
canceled any debts or claims or waived any rights, except in the ordinary
course of business.
(f) Granted any general or uniform increase in
the rates of pay of employees or any substantial increase in salary payable or
to become payable by Seller to any officer or employee, consultant or agent
(other than normal merit increases), or by means of any bonus or pension plan,
contract or other commitment, increased the compensation of any officer,
employee, consultant or agent.
(g) Authorized any capital expenditures in excess
of $1,000.00.
(h) Except for this Agreement and any other
agreement executed and delivered pursuant to this Agreement, entered into any
material transaction other than in the ordinary course of business or permitted
under other Sections hereof.
(i) Issued any stock, bonds or other securities.
<PAGE> 16
(j) Experienced damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting any of
its properties, assets or business, or experienced any other material adverse
change in its financial condition, assets, liabilities or business.
(k) Paid bonuses, distributions, or advanced
loans to shareholders or employees outside of the ordinary course of business
consistent with past practices of Seller.
2.16 ACCOUNTS RECEIVABLE. Exhibit 2.16 reflects the amount of
Seller's accounts receivable as of the date of the Balance Sheet, net of
allowances for uncollectible and doubtful accounts, all in conformity with
generally accepted accounting principles. Seller maintains its accounting
records in sufficient detail to substantiate the accounts receivable reflected
on Exhibit 2.16 and has given and will give to PSC full and complete access to
those records, including the right to make copies therefrom. Since the date of
the Balance Sheet, Seller has not changed any principle or practice with
respect to the recordation of accounts receivable or the calculation of
reserves therefor, or any material collection, discount or write-off policy or
procedure. To the best of the knowledge of the Seller and the Shareholders,
the Seller is in substantial compliance with the terms and conditions of such
third-party payor arrangements, and to Seller's knowledge the reserves
established by Seller are adequate to cover any liability resulting from lack
of compliance.
2.17 TAX RETURNS. Seller has filed all tax returns required to be
filed by it, and made all payments required to be made by it, with respect to
income taxes, real property taxes, sales taxes, use taxes, employment taxes and
similar taxes due and payable on or before the date of this Agreement. Seller
has no tax liability, except for ad valorem taxes for the fiscal year ending in
1996, taxes being contested in good faith, as set forth on Exhibit 2.17
attached hereto, and sales, use, employment and similar taxes for periods as to
which such taxes have not yet become due and payable.
2.18 COMMISSIONS AND FEES. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC or Parent resulting from any action taken by Seller or Shareholders or
their respective agents or employees, or any of them.
2.19 MATERIAL LIABILITIES. Except as set forth on Exhibit 2.15, or
to the extent reflected or reserved against on the Balance Sheet, Seller did
not have, as of the Balance Sheet Date, and has not incurred since that date,
any material uninsured liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due
which would have a Material Adverse Effect, other than those incurred in the
ordinary course of business. Except as set forth on Exhibit 2.15, Seller and
Shareholders do not know, or have reasonable grounds to know, of any basis for
the assertion against Seller as of the Balance Sheet Date, of any material
claim or liability of any nature in any amount not fully reflected or reserved
<PAGE> 17
against on the Balance Sheet, or of any material uninsured claim or liability
of any nature arising since that date which would have a Material Adverse
Effect other than those incurred in the ordinary course of business or
contemplated by this Agreement.
2.20 INSURANCE POLICIES. Seller or each Shareholder maintains
policies of comprehensive general liability and professional liability
insurance in amounts of not less than $1 million per occurrence and $3 million
aggregate on a claims made basis and property damage insurance on the Assets to
be sold hereunder. Valid policies in such amounts are outstanding and duly in
force and will remain duly in force through the Closing Date. All such
policies are described in Exhibit 2.20 attached hereto.
2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on Exhibit 2.21
attached hereto, Seller has neither established, nor maintains, nor is
obligated to make contributions to or under or otherwise participate in, (a)
any bonus or other type of incentive compensation plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document); (b) any pension, profit sharing, retirement or other plan,
program or arrangement; or (c) any other employee benefit plan, fund or
program, including, but not limited to, those described in Section 3(3) of
ERISA. All such plans listed on Exhibit 2.21 (individually "Seller Plan," and
collectively "Seller Plans") have been operated and administered in all
material respects in accordance with, as applicable, ERISA, the Internal
Revenue Code of 1986, as amended, title VII of the Civil Rights Act of 1964, as
amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in
Employment Act of 1967, as amended, and the related rules and regulations
adopted by those federal agencies responsible for the administration of such
laws. No act or failure to act by Seller has resulted in a "prohibited
transaction" (as defined in ERISA) with respect to the Seller Plans. No
"reportable event" (as defined in ERISA) has occurred with respect to any of
the Seller Plans. Seller has not previously made, is not currently making, and
is not obligated in any way to make, any contributions to any multi-employer
plan within the meaning of the Multi-Employer Pension Plan Amendments Act of
1980.
2.22 COMPLIANCE WITH LAWS IN GENERAL. Neither Seller nor any
Shareholder has knowledge of material violations of any federal, state and
local laws, regulations and ordinances relating to the operations of the
Business and the Assets, including, without limitation, the Federal
Environmental Protection Act, the Occupational Safety and Health Act, the
Americans with Disabilities Act and any Environmental Laws, and no notice of
any pending inspection or violation of any such law, regulation or ordinance
has been received by Seller or any Shareholder.
2.23 FRAUD AND ABUSE. Seller and Shareholders and all persons and
entities providing professional services for the Business have not, to the
knowledge of Seller and Shareholders, engaged in any activities which are
prohibited under Section 1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (a) knowingly and willfully
making or causing to be made a false statement or representation of a
<PAGE> 18
material fact for use in determining rights to any benefit or payment; (b)
knowingly and willfully making or causing to be made any false statement or
representations of a material fact for use in determining rights to any benefit
or payment; (c) any failure by a claimant to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or
offering to pay or receive such remuneration (i) in return for referring an
individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid, or (ii) in return for purchasing, leasing or ordering or
arranging for, or recommending, purchasing, lease or ordering any good,
facility, service or item for which payment may be made in whole or in part by
Medicare or Medicaid; (e) engaging in any activity which is a basis for
exclusion from the Medicare, Medicaid and other federally-funded programs under
Section 1320a-7a of Title 42 of the United States Code; (f) any violation of
the Medicare or Medicaid requirements, including and fraud and abuse
provisions, except where such circumstances would not have a Material Adverse
Effect.
2.24 MEDICARE, MEDICAID, AND OTHER THIRD-PARTY PAYOR PAYMENT
LIABILITIES. Except as described in Exhibit 2.24 neither Seller nor any
Shareholder has, and as of the Closing Date, will have, any liabilities to any
third party fiscal intermediary or carrier administering any state Medicaid
program or the federal Medicare program, or to any other third party payor for
the recoupment of any amounts previously paid to Seller (or any predecessor
corporation) or any Shareholder by any such third-party fiscal intermediary,
carrier, Medicaid program, Medicare program, or third party payor. There are
no pending or threatened actions by any third party fiscal intermediary or
carrier administering any state Medicaid or the federal Medicare program, by
the Department of Health and Human Services, any state Medicaid agency, or any
third party payor to suspend payments to Seller or any Shareholder.
2.25 BILLING PRACTICES AND REFERRAL SOURCES. (a) Billing
Practices Generally. All billing practices by Seller and each Shareholder to
all third party payors, including, but not limited to, the federal Medicare
program, state Medicaid programs and private insurance companies, have been
true, fair and correct and in compliance with all applicable laws, regulations
and policies of all such third party payors, and neither Seller nor any
Shareholder has billed for or received any payment or reimbursement in excess
amounts allowed by law.
(b) Gratuitous Payments. Neither Seller nor any
Shareholder, director, or officer of Seller, nor to Seller's knowledge any
employee or agent acting on behalf of or for the benefit of Seller or any
Shareholder, has directly or indirectly (i) offered or paid any remuneration,
in cash or in kind, to, or made any financial arrangements with, any past or
present customers, past or present patients, past or present suppliers,
contractors or third party payors of Seller in order to obtain business or
payments from such persons, other than entertainment activities in the ordinary
and lawful course of
<PAGE> 19
business; (ii) given or agreed to give, or is aware that there has been made or
that there is any agreement to make, any gift or gratuitous payment of any
kind, nature or description (whether in money, property or services) to any
customer or potential customer, patient or potential patient, supplier or
potential supplier, contractors, third party payor or any other person other
than in connection with promotional or entertainment activities in the ordinary
and lawful course of business; (iii) made or agreed to make, or is aware that
there has been made or that there is any agreement to make, any contribution,
payment or gift of funds or property to, or for the private use of, any
governmental official, employee or agent where either the contribution, payment
or gift or the purpose of such contribution, payment or gift is or was illegal
under the laws of the United States or under the laws of any state thereof or
any other jurisdiction (foreign or domestic) under which such payment,
contribution or gift was made; (iv) established or maintained any unrecorded
fund or asset for any purpose or made any false or artificial entries on any of
its books or records for any reason or (v) made, or agreed to make, or is aware
that there has been made or that there is any agreement to make, any payment to
any person with the intention or understanding that any part of such payment
would be used for any purpose other than that described in the documents
supporting such payment.
(c) Transactions with Referral Sources. Neither Seller
nor any Shareholder, director, or officer thereof, nor to Seller's knowledge
any employee of Seller, is a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any physician, hospital, nursing facility, home health agency or
other person who is in a position to make or influence referrals to or
otherwise generate business for Seller or any Shareholder to provide services,
lease space, lease equipment or engage in any other venture activity.
2.26 PHYSICIAN SELF-REFERRALS. Neither Seller nor any Shareholder
has submitted any claims in connection with any referrals which violated any
applicable self-referral law, including the Stark Law (42 U.S.C. Section
1395nn) or any applicable state self-referral law as those laws are currently
interpreted.
2.27 INVESTMENT INTENT. (a) Acquisition Purpose. Seller and
Shareholders (through their ownership interest in Seller) are acquiring the
Parent Common Stock to be received by them under this Agreement for investment
purposes only and not with a view to the sale or distribution thereof.
(b) Experience in Financial Matters. Seller and
Shareholders have had the opportunity to discuss Parent's business, management
and financial affairs with Parent's management. Seller and Shareholders have
such knowledge and experience in financial matters that they are capable of
evaluating the merits and risks of an investment in the Parent Common Stock.
Seller's and each of Shareholders' financial condition is such that it or he is
able to bear all economic risks of investment in the Parent Common Stock,
including the risks of holding the Parent Common Stock for an indefinite period
of time.
<PAGE> 20
(c) Non-transferability of Parent Common Stock.
Seller and Shareholders understand that since the shares of Parent Common Stock
have not been registered under the 1933 Act, the shares of Parent Common Stock
must be held indefinitely unless they are subsequently registered under the
1933 Act or an exemption from such registration is available. Other than as
set forth in the Registration Rights Agreement, Seller and Shareholders
acknowledge that neither Parent nor PSC is under any obligation to register
under the 1933 Act any sale of the Parent Common Stock or to comply with any
provisions which would entitle any such sale to any exemption from
registration. Seller and Shareholders are fully familiar with Rule 144
promulgated under the 1933 Act.
(d) Legend on Parent Common Stock. Each stock certificate
representing the Parent Common Stock shall bear a legend in, or substantially
in, the following form and any other legend required by any applicable state
securities or Blue Sky laws:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold, pledged or
otherwise transferred without an effective registration under
said Act and any applicable state securities laws or unless
the company shall have received an opinion of counsel
satisfactory to the company that an exemption from
registration under such Act and any applicable state
securities laws is then available."
Seller and Shareholders agree to abide by the terms of this legend. Parent may
maintain a "stop transfer order" against the Parent Common Stock.
2.27 NO UNTRUE REPRESENTATIONS. To the knowledge of Seller and
Shareholders, no representation or warranty by Seller or any Shareholder in
this Agreement, and no Exhibit or certificate issued by officers or Directors
of Seller or any Shareholder and furnished or to be furnished to PSC or Parent
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading. All information and information provided by
Seller or the Shareholders for valuation of the Business by PSC and Parent is
true, accurate and complete in all material respects.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PSC.
PSC and Parent hereby jointly and severally represent and
warrant to Seller and Shareholders as follows:
3.1 CORPORATE EXISTENCE; GOOD STANDING; QUALIFICATION. Each of
PSC and Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of PSC and Parent has
all necessary corporate
<PAGE> 21
power to own its properties and assets and to carry on its business as
presently conducted and is duly qualified to do business and is in good
standing in all jurisdictions in which the character of the property owned,
leased or operated or the nature of the business transacted by it makes
qualification necessary.
3.2 POWER AND AUTHORITY. Each of PSC and Parent has corporate
power to execute and deliver this Agreement and perform its obligations under
this Agreement and all agreements and other documents executed and delivered by
it pursuant to this Agreement, and has taken all actions required by law, its
Certificate of Incorporation, its By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws of either PSC or Parent
or any provisions of, or result in the acceleration of, any obligation under
any mortgage, lien, lease, agreement, instrument, order, arbitration award,
judgment or decree to which PSC or Parent is a party or by which either of them
is bound, or violate any restrictions of any kind to which PSC or Parent is
subject. The execution and delivery of this Agreement have been approved by
the respective Boards of Directors of PSC and Parent.
3.3 COMMISSIONS AND FEES. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Seller or Shareholders resulting from any action taken by PSC or Parent or
their respective officers, Directors or agents, or any of them.
3.4 CAPITALIZATION. Parent has an authorized capitalization of
10,000 shares of Preferred Stock, par value $1.00 per share, of which no shares
are issued and outstanding, and no shares are held in treasury, and 50,000,000
shares of common stock, par value $.001 per share, of which 599,893 shares are
issued and outstanding, and no shares are held in treasury. All of the Parent
Common Stock to be issued pursuant to this Agreement will, when so delivered,
be duly and validly issued and fully paid and nonassessable. Except as
disclosed in the draft Registration Statement (as hereinafter defined), and
except as described on Exhibit 3.4, there are no options, warrants or similar
rights granted by Parent or any other agreements to which Parent is a party
providing for the issuance or sale by it of any additional securities. There
is no liability for dividends declared or accumulated but unpaid with respect
to any shares of Parent Common Stock. Parent has not paid any dividends to any
holder of Parent Common Stock or participated in or effected any issuance,
exchange or retirement of Parent Common Stock, or otherwise changed the equity
interests of holders of Parent Common Stock, in contemplation of effecting the
transaction contemplated by this Agreement within the two years immediately
preceding the Closing Date.
<PAGE> 22
3.5 PSC COMMON STOCK. Parent owns, beneficially and of record,
all of the issued and outstanding shares of Common Stock of PSC, free and clear
of all liens and encumbrances. Parent has taken all such actions as may be
required in its capacity as the sole shareholder of PSC to approve this
transaction.
3.6 PARENT DOCUMENTS. Parent has heretofore furnished Seller with
its Registration Statement S-1 dated on or about February 11, 1997, filed with
the SEC, relating to the offer and sale of 2,200,000 shares of Parent Common
Stock in the IPO (the "Registration Statement"). To the Parent's best
knowledge, such Registration Statement does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements contained therein not misleading, provided, however, Parent makes
no representation or warranty to Seller and Shareholders regarding information
in the Registration Statement provided by or on behalf of Seller or the
Shareholders.
3.7 LEGAL PROCEEDINGS. Except as disclosed in the Registration
Statement, there is no material litigation, governmental investigation or other
proceeding pending or, so far as is known to Parent threatened against or
relating to Parent, its properties or business, or the transaction contemplated
by this Agreement and, so far as is known to Parent, no basis for any such
action exists.
SECTION 4. ACCESS TO INFORMATION AND DOCUMENTS PRIOR TO CLOSING.
4.1 ACCESS TO SELLER'S INFORMATION. Seller and Shareholders shall
give to PSC and its counsel, accountants, engineers and other representatives
full access to all the requested properties, documents, contracts, personnel
files and other records of Seller and the Business hereunder and shall furnish
PSC with copies of such requested documents and with such information with
respect to the affairs of Seller as PSC shall from time to time reasonably
request. Seller and Shareholders shall disclose and make available to Parent
and its representatives all requested books, contracts, accounts, personnel
records, letters of intent papers, records, communications with regulatory
authorities and other documents relating to the Assets and to the Business.
4.2 ACCESS TO INFORMATION OF PSC AND PARENT. PSC and Parent shall
give to Seller and Shareholders and their respective counsel, accountants and
other representatives such access to the documents, contracts and other records
of PSC, Parent and PSC and shall furnish Seller and Shareholders with copies of
such documents and with such information with respect to the affairs of PSC,
Parent and PSC as Seller and Shareholders shall from time to time reasonably
request.
4.3 RETENTION OF RECORDS. Without cost to Seller, PSC shall
retain all books and records of Seller ("Records") transferred to it pursuant
to this Agreement for the greater of four years from the Closing Date or such
longer periods of time as required by applicable statutes, rules and
regulations. For a period of four years after the Closing Date, and for such
longer period as the Records are maintained, each party will, during normal
business hours and so as not to unreasonably disrupt normal
<PAGE> 23
business, afford any other party, its counsel, its accountants or other parties
who have a reasonable need for such access full access (and copying at the
expense of the requesting party, if desired) to the books and records relating
to the Assets in the possession of such party as such other party may
reasonably request.
SECTION 5. CONDITIONS TO OBLIGATION OF PARENT AND PSC TO CLOSE.
The obligation of PSC and Parent to consummate the transactions to be
performed by them in connection with this Agreement is subject to satisfaction
of the following conditions precedent (any of which may be waived in writing by
PSC or Parent):
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties set forth in Article 2 shall be true and correct in all material
respects as of the date made and at and as of the Closing, except as a result
of changes expressly permitted by this Agreement.
5.2 COVENANTS. The Shareholders and Seller shall have performed
and complied with all of their covenants and agreements in all material
respects through the Closing.
5.3 NO SUIT OR PROCEEDING. No action, suit, or proceeding shall
be pending before any court or quasi- judicial or administrative agency of any
federal, state, local, or foreign jurisdiction in which an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (iii) affect adversely the right of PSC to operate the
Business (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect).
5.4 ABSENCE OF MATERIAL ADVERSE CHANGE.
(i) There shall have been no change in the
condition (financial or otherwise), business, assets, or
prospects of Seller or the Business from the Balance Sheet
Date which has had or could reasonably be expected to have a
Material Adverse Effect on the Seller, the Business, or the
Assets.
<PAGE> 24
(ii) Neither Seller nor the Assets shall have
been, and shall not be seriously threatened to be materially
adversely affected in any way as a result of fire, explosion,
disaster, accident, labor dispute, any action by the United
States or any other government or government authority,
domestic or foreign, riot, act of war, civil disturbance or
Act of God.
5.5 CERTIFICATE. The Shareholders shall have delivered to PSC a
certificate to the effect that each of the conditions specified in Sections
5.1-5.4 is satisfied in all respects.
5.6 CONSENTS AND APPROVALS. PSC and Parent shall have received
all authorizations, consents, and approvals of third parties and of governments
and governmental agencies, if any, that may be required for the acquisition of
the Assets by PSC, including, without limitation, the consent of the lessors to
transfer to PSC the leases listed on Exhibits 2.6 and/or 2.14.
5.7 COUNSEL OPINION. Parent and PSC shall have received from
counsel to the Seller and Shareholders an opinion dated as of the Closing Date,
in form and substance reasonably satisfactory to Parent and PSC.
5.8 OTHER AGREEMENTS EXECUTED. (i) Each Shareholder shall have
executed and delivered an Employment Agreement with Practice in the form
required by the Management Services Agreement, which will in the aggregate
among the Shareholders provide for (a) graduated liquidated damages in the
event of voluntary termination of such employment by the physician or breach by
the physician of certain provisions therein; and (b) procurement by each
physician of extended reporting period coverage of existing professional
liability insurance (for personal injury or death arising out of any
malpractice by such Shareholder physician) in the amounts of not less than
$3,000,000 per occurrence and $5,000,000 annual aggregate, (ii) Practice shall
have executed and delivered the Management Services Agreement, and (iii) the
Shareholders shall have executed and delivered the Registration Rights
Agreement in substantially the form of Exhibit 5.8 (the "Registration Rights
Agreement").
5.9 RELEASE OF LIENS. All liens encumbering the Assets other than
those listed on Exhibit 5.9, shall be duly released by the secured parties and
other lien holders, and UCC-3 release or termination statements and other lien
release documents, if any, shall have been recorded or the recording thereof
provided for.
5.10 CLOSING DATE FINANCIAL CERTIFICATE; FINANCIAL REQUIREMENTS.
Seller shall have delivered to PSC a closing date financial certificate which
shall certify as of the last day of the month prior to the effective date of
the Registration Statement an unaudited cash basis balance sheet of Seller and
for the period ended as of such date a statement of operations of Seller, along
with a detailed accounts receivable aging analysis of Seller as of such date.
The net worth of Practice as of the Closing Date (defined as the accrual basis
net worth of assets acquired by PSC including the net
<PAGE> 25
realizable value of its accounts receivable, less assumed liabilities) shall be
greater than zero (0); provided, that if Seller's net worth as of the Closing
Date is greater than zero but less than $52,000, the stock portion of the
purchase price indicated in Section 1.3(a) hereof shall be reduced by the
amount of such shortfall. The net realizable value of Seller's accounts
receivable (as determined in accordance with GAAP on a consistent basis with
the year end 1996 audited financial statements of Seller) shall be not less
than $150,000 as of the Closing Date.
5.11 CORPORATE DOCUMENTS. Seller shall have furnished PSC with
copies of the following documents: the Articles of Incorporation and all
amendments thereto of Seller and of Practice, duly certified by the Secretary
of State of the State of Alabama, certificates, executed by the proper
officials of the State of Alabama, as to the valid existence and good standing
of Seller and of Practice in the State of Alabama; resolutions authorizing this
Agreement and the transactions provided for herein, duly adopted by the Board
of Directors or other governing body of Seller and duly adopted by all the
Shareholders, all as duly certified by the Secretary of Seller; and resolutions
of the Practice authorizing the execution, delivery and performance of the
Management Services Agreement by the Practice, as duly certified by the
Secretary of the Practice.
5.12 INSTRUMENTS OF CONVEYANCE. Simultaneously with the execution
of this Agreement and in order to effect the conveyance, transfer and
assignment of the Assets and the Business and the assumption of certain
liabilities, Seller shall have executed and delivered to PSC all such bills of
sale, assignment and assumption agreements and other documents or instruments
of conveyance, transfer or assignment as shall be necessary or appropriate to
vest in or confirm to PSC Seller's right, title and interest in and to the
Assets, free and clear of all obligations, security interests, liens and
encumbrances whatsoever, except as specifically assumed by PSC pursuant to
Section 1.3(b).
5.13 PRACTICE ACQUISITION. The Practice shall have acquired from
the Seller the excluded assets referred to in Section 1.2(c) (other than those
personally owned items (if any) identified as such on Exhibit 1.2(c)) and (d)
(the "Medical Excluded Assets") for the purpose of acquiring and owning such
assets, subject to and in accordance with the provisions of a Bill of Sale and
Assignment by and from the Seller in form and substance reasonably satisfactory
to PSC.
5.14 INVESTOR LETTER AND FINANCIAL DATA SHEET. Seller and each
Shareholder shall have provided to Parent contemporaneously herewith a
fully-completed and executed Investor Letter and Financial Data Sheet
substantially in the form of Exhibit 5.14.
5.15 ASSIGNMENT OF LEASES. At the option of PSC, Seller shall
obtain consent from lessor and assign to PSC any real property lease utilized
by Seller in the Practice and lease to Parent and PSC any real property owned
by Seller or the Shareholders and utilized in Seller's practice. All such
leases shall be on reasonable terms mutually agreeable to the Parties.
<PAGE> 26
5.16 LISTING OF SHARES IN NASDAQ. Shares of common stock of Parent
shall have been listed for trading on NASDAQ at an initial public offering
("IPO") price of not less than $8.00 per share unless such condition is waived
in writing by PSC and Parent.
<PAGE> 27
5.17 CONTEMPORANEOUS ACQUISITION. Contemporaneously with the
Closing, PSC will acquire the assets of AENT and the capital stock of Atlanta
ENT Center, Inc., Atlanta-AHP, Inc. and ENT Center of Atlanta, Inc. pursuant to
separate agreements with Ramie A. Tritt, M.D. and the shareholders of AENT.
5.18 AUDIT OPINION. Parent and PSC shall have received an
affirmative opinion from Arthur Andersen & Co. that the transaction
contemplated herein can be accounted for pursuant to SAB 48 or as a "pooling of
interests" transaction.
SECTION 6. CONDITIONS TO OBLIGATION OF SELLER AND THE SHAREHOLDERS.
The obligation of Seller and the Shareholders to consummate the
transactions to be performed by them in connection with this Agreement is
subject to satisfaction of the following conditions (any one of which may be
waived in writing by Seller or the Shareholder);
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties set forth in Article 3 above shall be true and correct in all
material respects at and as of the Closing;
6.2 COVENANTS. Parent and PSC shall have performed and complied
with all of their covenants and agreements in all material respects through the
Closing;
6.3 NO SUIT OR PROCEEDING. No action, suit or proceeding shall be
pending before any court or quasi- judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
6.4 CERTIFICATE. PSC shall have delivered to Seller a certificate
to the effect that each of the conditions specified in Sections 6.1-6.3 is
satisfied in all respects;
6.5 GOVERNMENT APPROVALS. Seller, Parent and PSC shall have
received all authorizations, consents, and approvals of governments and
governmental agencies, if any, that may be required;
6.6 COUNSEL OPINION. The Seller shall have received from counsel
to Parent and PSC an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to Seller;
6.7 OTHER AGREEMENTS EXECUTED. (i) The Practice shall have
executed and delivered an Employment Agreement with each Shareholder in the
form required by the Management Services Agreement, (ii) PSC shall have
executed and delivered the
<PAGE> 28
Management Services Agreement, and (iii) meeting the requirements of Section
5.8 above, Parent shall have executed and delivered the Registration Rights
Agreement.
6.8 PARENT STOCK. Parent or PSC shall have delivered at the
closing the Parent Common Stock required as the Acquisition Price under Section
1.3(a).
6.9 CORPORATE DOCUMENTS. (a) PSC shall have furnished Seller with
copies of the following documents: the Certificate of Incorporation and all
amendments thereto of PSC, duly certified by the Delaware Secretary of State;
certificates, executed by the proper Delaware officials, as to the good
standing of PSC in Delaware; and resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors of PSC
and duly certified by the Secretary of PSC.
(b) Parent shall have furnished Seller with copies of the
following documents; the Certificate of Incorporation and all amendments
thereto of Parent, duly certified by the Delaware Secretary of State;
certificates, executed by the proper Delaware officials, as to the good
standing of Parent in Delaware; and resolutions authorizing this Agreement and
the transactions provided for herein, duly adopted by the Board of Directors of
Parent and duly certified by the Secretary of Parent.
6.10 ASSUMPTION OF LIABILITIES. PSC shall have assumed the
Obligations in accordance with Section 1.3(b) pursuant to an assumption
agreement in form and substance reasonably satisfactory to Seller.
6.11 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall have been no
change in the condition (financial or otherwise), business, assets, or
prospects of PSC or Parent from the date of this Agreement which has had or
could reasonably be expected to have a material adverse effect on PSC or
Parent.
6.12 LISTING OF SHARES. Shares of the common stock of Parent shall
have been listed for trading on NASDAQ at an IPO price of not greater than
$10.50 per share unless such condition is waived in writing by Seller and
Shareholders.
6.13 CONSULTING AGREEMENT. PSC shall have entered into a
consulting agreement with W.J. Cornay, III, M.D. and Marc Routman, M.D.
whereby they will assist PSC and Parent in merging with and/or acquiring other
otolaryngology practices in Alabama. Such agreement shall provide, through the
PSC Health Care Professional's Stock Option Plan, for 10,000 share options of
Parent Common Stock for each additional one million dollars ($1,000,000) of
Practice revenues achieved through such mergers and acquisitions during the
initial term of each physician's employment agreement with Practice.
6.14 AENT CLOSING. Prior to or contemporaneously with the Closing,
PSC shall have acquired substantially all the assets of Atlanta Ear, Nose &
Throat Associates, P.C.
<PAGE> 29
SECTION 7. CERTAIN ADDITIONAL COVENANTS.
7.1 CONDUCT OF BUSINESS PRIOR TO CLOSING. During the period from
and after the date of this Agreement and until the Closing Date:
(a) Seller and the Shareholders will carry on the
Business in substantially the same manner as heretofore carried on and will not
make any purchase or sale, incur any indebtedness or liens, or introduce any
method of management or operation in respect to such Business or otherwise
engage in any transaction except in the ordinary course of business and in the
manner not inconsistent with prior practice and the terms of this Agreement,
other than with the prior written consent of PSC;
(b) Neither Seller nor the Shareholders will
permit any change to be made in the articles of incorporation or by-laws or, if
applicable, shareholder agreement of Seller, other than with the prior written
consent of PSC.
(c) Neither Seller nor the Shareholders will
acquire or dispose of any capital assets having an initial cost or current
value in excess of $1,000 other than with the prior written consent of PSC;
(d) Neither Seller nor the Shareholders will
increase the compensation payable or to become payable to any of its employees
or agents other than (a) with the prior written consent of PSC or (b) cash
bonuses by Seller to the Shareholders consistent with the past practice of
Seller;
(e) Neither Seller nor the Shareholders will
take, or permit or suffer to be taken, any action which is represented and
warranted in Section 2.15 not to have occurred since the Balance Sheet Date
other than with the prior written consent of PSC.
7.2 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Except as set forth on
Exhibit 7.2, Seller hereby covenants and agrees that it will take whatever
steps are necessary to pay or fund completely or reserve completely for any
accrued benefits, where applicable, or vested accrued benefits for which Seller
or any entity might have any liability whatsoever arising from any salary,
wage, benefit, bonus, vacation pay, sick leave, insurance, employment tax or
similar liability of Seller to any employee or other person or entity
(including, without limitation, any Seller Plan and any liability under
employment contracts with Seller) allocable to services performed prior to the
Closing Date. Seller acknowledges that the purpose and intent of this covenant
is to assure that PSC shall have no liability whatsoever at any time in the
future with respect to any of Seller's employees or similar persons or
entities, including, without limitation, any Seller Plan, except as indicated
on Exhibit 7.2.
7.3 CREDITOR'S CLAIMS. Seller and Shareholders represent,
covenant and agree that all of the creditors with respect to the Business will
be paid in full by Seller prior to the Closing Date, or within such other
period as is normally permitted by such
<PAGE> 30
creditors in the ordinary course of business, except to the extent that any
liability to such creditors is assumed by PSC pursuant to this Agreement. If
required by PSC, Seller and Shareholders shall furnish PSC with proof of
payment of all creditors with respect to the Assets. Notwithstanding the
foregoing, Seller may dispute the amount or validity of any such creditor's
claim without being deemed to be in violation of this Section 7.3, provided
that such dispute is in good faith.
7.4 AFFILIATE AGREEMENTS. Seller will use its reasonable, good
faith efforts to cause its directors and its executive officers and
"affiliates" (within the meaning of Rule 145 under the Securities Act of 1933,
as amended) to execute and deliver to Parent as soon as practicable
instructions in the form attached hereto as Exhibit 7.4 relating to the
disposition of the shares of Parent issued to the Seller.
7.5 WAIVER OF BULK TRANSFER COMPLIANCE. Seller, the Shareholders
and PSC hereby waive any compliance with the Alabama Bulk Transfers Act.
Seller and the Shareholders jointly and severally represent, covenant and agree
that all of the creditors with respect to the Business will be paid in full by
the Seller prior to the Closing Date, or within such other period as is
normally permitted by such creditors in the ordinary course of business, except
to the extent that any liability to such creditors is assumed by PSC pursuant
to this Agreement. If required by PSC, the Seller and the Shareholders shall
furnish PSC with proof of payment of all creditors with respect to the
Business. Notwithstanding the foregoing, the Seller may dispute the amount of
validity of any such creditor's claim without being deemed to be in violation
of this Section 7.5, provided that such dispute is in good faith and does not
unreasonably delay the resolution of the claim.
7.6 LIQUIDATION OF SELLER. As soon as practical, but in no event
later than 12 months following the Closing Date, Seller will dissolve and
liquidate in accordance with applicable law.
7.7 COVENANT NOT TO COMPETE. For a period of five (5) years from
and after the Closing Date, each of Seller and each Shareholder agrees that it
or he or she will not (i) directly or indirectly, engage in, manage, operate,
control, conduct, consult for or be employed in a management capacity by,
provide services to or invest in or own any business or venture in competition
with the Business or PSC or Parent in the Geographic Territory (as defined
below); provided however, that ownership of less than 1% of the outstanding
stock of any publicly traded corporation shall not be deemed to violate this
clause, (ii) within the Geographic Territory, directly or indirectly, solicit
or attempt to solicit any customer or client of PSC or Parent or patient of
Practice other than in the course of a Shareholder's normal performance of
services and duties for Practice as a physician thereof; or (iii) solicit or
employ or attempt to solicit or hire away or employ any employee of PSC or
Parent or Practice. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section is invalid or
unenforceable, the Shareholders and PSC agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area, to delete specific words or phrases, or to
replace any invalid or
<PAGE> 31
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified. The parties agree that the Business currently serves territories
each with greater than an fifteen (15) mile radius of Seller's office location.
Accordingly, as used herein, the term "Geographic Territory" shall mean each
area within an fifteen (15) mile radius of each of the office locations of
Seller and Practice. The parties agree that the restraints set forth above in
this Section 7.7 are reasonable in respect to subject matter, length of time
and geographic area. Each of Seller and the Shareholders agrees that the
restrictions on their activities contained in this Section are reasonable and
necessary to protect the goodwill and relationships, economic advantage and
other legitimate interests of PSC and Parent, and that, were it, he or she to
breach any of the covenants contained in this Section 7.7, PSC would be harmed
and the damage to PSC would be irreparable. Accordingly, Seller and the
Shareholders acknowledge and agree that, as PSC's legal remedies may be
inadequate in the event of a breach of the covenants in this Section 7.7, in
addition to damages and other remedies available to PSC, such covenants may be
enforced by injunction or other equitable remedies.
7.8 CONFIDENTIALITY.
(a) Seller and the Shareholders shall, and shall
use their reasonable efforts to cause their respective employees, agents and
representatives to, for a period of five (5) years after the Closing, hold in
confidence all financial information about Seller, the Business and the Assets,
except such disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided PSC will be
provided advance notice of such disclosure in order to afford it the
opportunity to seek an appropriate protective order).
(b) Seller and the Shareholders further agree to,
and shall use their reasonable efforts to cause their respective employees,
agents and representatives who are not hired by PSC at Closing, to keep
confidential for a period of five (5) years after the Closing, any and all
information relating to services, products, marketing information, sources of
supply, pricing and patients of Seller on the date hereof or developed by or
for Seller, except such disclosure as may be required by law or governmental
order or regulation, or by subpoena or other legal process (provided PSC will
be provided advance notice of such disclosure in order to seek an appropriate
protective order).
(c) The restrictions in this Section 7.8 shall
not apply to any information that comes into the public domain through no fault
of Seller or the Shareholders.
7.9 POOLING AND TAX-FREE COMBINATION TREATMENT. Neither Parent,
Seller or Shareholders shall intentionally take or cause to be taken any
action, which would disqualify the combination as a "pooling of interests"
under generally accepted accounting principles and applicable SEC requirements
or as a "reorganization" within
<PAGE> 32
the meaning of Section 368(a)(1)(C) of the Code. Each Shareholder represents
and warrants to Parent that he has no present intention or plan or design to
dispose of the shares of Parent Common Stock that he will receive pursuant to
the liquidation of Seller. Further, each of the Shareholders hereby covenants
and agrees with Parent that he will not sell, convey or otherwise transfer any
shares of Parent Common Stock distributed to such Shareholder pursuant to the
liquidation of Seller until the expiration of not less than one (1) month
following the release by Parent of consolidated financial statements of Parent
to the public that reflect at least one (1) month of joint operations of Parent
and Seller's business. Each Party hereto agrees to take such further action or
action and to execute such other documents, agreements, certificates or
instruments as may be necessary or desirable to maintain pooling of interests
accounting treatment of the transactions contemplated by this Agreement in
accordance with all applicable financial accounting standards.
SECTION 8. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
8.1 NATURE AND SURVIVAL. All statements contained in this
Agreement or in any Exhibit attached hereto, any agreement executed pursuant
hereto, and any certificate executed and delivered by any party pursuant to the
terms of this Agreement, shall constitute representations and warranties of
Seller and Shareholders, jointly and severally, or of PSC and Parent, jointly
and severally, as the case may be. All such representations and warranties,
all representations and warranties expressly labeled as such in this Agreement
and the obligations of the parties to indemnify any other party pursuant to
Section 8.2 or 8.3(a), shall survive the date of this Agreement and the Closing
Date (i) with respect to the representations and warranties in Sections 2.1
through 2.4 and Sections 2.23 through 2.26, for the period of the applicable
statute of limitations, and (ii) with respect to all other representations and
warranties until the earlier of (A) a period of one (1) year following the
Closing Date or (B) the date of issuance of the first audited consolidated
financial statements for Parent and its subsidiaries which contain combined
operations of Parent and the Business. Each party covenants with the other
parties not to make any claim with respect to such representations or
warranties against any party after the date on which such survival period shall
terminate. No party shall be entitled to bring suit against any other party
pursuant to Section 8.2 or 8.3(a) hereof, unless such party has timely given
the notice required in Section 8.4 hereof. Each party hereby releases, acquits
and discharges the other party from any and all claims and demands, actions and
causes of action, damages, costs, expenses and rights of setoff with respect to
which the notice required by Section 8.4 is not timely provided.
8.2 INDEMNIFICATION BY PSC AND PARENT. PSC and Parent jointly and
severally (for purposes of this Section 8.2 and, to the extent applicable,
Section 8.4, "Indemnitor"), shall indemnify and hold Seller and Shareholders,
and their respective agents, employees, legal representatives, successors and
assigns (each of the foregoing, including Seller and Shareholders, for purposes
of this Section 8.2 and, to the extent applicable, Section 8.4, an "Indemnified
Person"), harmless from and against
<PAGE> 33
any and all liabilities, losses, claims, damages, actions, suits, costs,
deficiencies and expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) arising from or by reason of or
resulting from any breach by Indemnitor of any representation, warranty,
agreement or covenant made by Indemnitor contained in this Agreement (including
the Exhibits hereto) and each document, certificate or other instrument
furnished or to be furnished by Indemnitor hereunder, excluding, however, any
and all liabilities of Seller or the Shareholders which are not expressly
assumed by PSC under this Agreement.
8.3 INDEMNIFICATION BY SELLER AND SHAREHOLDERS. (a) Seller and
Shareholders (for purposes of this Section 8.3(a) and, to the extent
applicable, Section 8.3(b) and Section 8.4, "Indemnitor"), shall jointly and
severally indemnify and hold PSC and Parent and their respective officers,
directors, shareholders, affiliates, agents, employees, legal representatives,
successors and assigns (each of the foregoing, including PSC and Parent, for
purposes of this Section 8.3(a) and, to the extent applicable, Sections 8.3(b)
and Section 8.4, an "Indemnified Person") harmless from and against any and all
liabilities, losses, claims, damages, actions, suits, costs, deficiencies and
expenses (including, but not limited to, reasonable fees and disbursements of
counsel through appeal), in an aggregate amount not to exceed the Acquisition
Price arising from or by reason of or resulting from any breach by Indemnitor
(or any of them) of any representation or warranty contained in this Agreement
(including the Exhibits hereto) and each document, certificate or other
instrument furnished or to be furnished by Indemnitor hereunder, and with
respect to all times prior to the Closing Date, arising from or by reason of or
resulting from the Indemnitor's management and conduct of the ownership or
operation of the Business or the Assets and from any alleged act of negligence
or malpractice of Indemnitor or its employees, agents and independent
contractors in or about the Business or the Assets.
(b) The Seller and the Shareholders jointly and severally
agree to indemnify and hold harmless each Indemnified Person from and against
any and all liabilities, losses, claims, damages, actions, suits, costs,
deficiencies and expenses, including, but not limited to, reasonable fees and
disbursements of counsel through appeal, resulting from, arising out of,
relating to or caused by any breach of any covenant or agreement of the Seller
or a Shareholder contained in this Agreement.
8.4 INDEMNIFICATION PROCEDURE. Within 60 days after Indemnified
Person receives written notice of the commencement of any action or other
proceeding, or otherwise becomes aware of any claim or other circumstance, in
respect of which indemnification or reimbursement may be sought under Section
8.2 or Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof.
If any such action or other proceeding shall be brought against any Indemnified
Person, Indemnitor shall, upon written notice given within a reasonable time
following receipt by Indemnitor of such notice from Indemnified Person, be
entitled to assume the defense of such action or proceeding with counsel chosen
by Indemnitor and reasonably satisfactory to Indemnified Person; provided,
however, that any Indemnified Person may at its own expense retain separate
counsel to participate in such defense. Notwithstanding the
<PAGE> 34
foregoing, Indemnified Person shall have the right to employ separate counsel
at Indemnitor's expense and to control its own defense of such action or
proceeding if, in the reasonable opinion of counsel to such Indemnified Person,
(a) there are or may be legal defenses available to such Indemnified Person or
to other Indemnified Persons that are different from or additional to those
available to Indemnitor and which could not be adequately advanced by counsel
chosen by Indemnitor, or (b) a conflict or potential conflict exists between
Indemnitor and such Indemnified Person that would make such separate
representation advisable; provided, however, that in no event shall Indemnitor
be required to pay fees and expenses hereunder for more than one firm of
attorneys in any jurisdiction in any one action or proceeding or group of
related actions or proceedings. Indemnitor shall not, without the prior
written consent of any Indemnified Person, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding to which such Indemnified Person is a party unless such settlement
compromise or consent includes an unconditional release of such Indemnified
Person from all liability arising or potentially arising from or by reason of
such claim, action or proceeding.
8.5 LIMITATIONS UPON OBLIGATIONS. Anything in this Section 8 to
the contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Seller or Shareholders (individually and collectively a
"Selling Party") or, by a Selling Party to a Parent Party, on claims for
indemnification under Sections 8.2 or 8.3(a) until the aggregate of all such
claims of a Parent Party against a Selling Party under Section 8.3(a), or by a
Selling Party against a Parent Party under Section 8.2, shall exceed
$10,000.00, in which event the Party holding such claim shall be entitled to
indemnification with respect to all such claims in the aggregate. In the event
that such claims do not aggregate in excess of $10,000.00, then neither the
Parent Parties nor the Selling Parties shall have any claim for indemnification
against the other under Section 8.2 or Section 8.3(a).
<PAGE> 35
SECTION 9. TERMINATION.
9.1 RIGHT TO TERMINATE. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and
Seller;
(b) by either PSC, Parent or Seller upon prior written
notice to the other party
(i) if any court or governmental or regulatory
agency, authority or body shall have enacted, promulgated or
issued any statute, rule, regulation, ruling, writ or
injunction, or taken any other action, restraining, enjoining
or otherwise prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have been
exhausted; or
(ii) if the Closing shall not have occurred on or
before March 31, 1997 or such later date as the parties may
agree to; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.1(b)(ii) shall not be
available to any party whose breach of any representation or
warranty or failure to perform or comply with any obligation
or condition under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before
such date;
(c) by PSC or Parent, upon prior written notice to Seller
and the Shareholders, if any of the conditions specified in Section 5
have not been met or waived prior to the Closing Date (or any
extension thereof pursuant to Section 9.1(b)(ii) above); or
(d) by Seller and the Shareholders, upon prior written
notice to PSC, if any of the conditions specified in Section 6 shall
not have been met or waived prior to the Closing Date (or any
extension thereof pursuant to Section 9.1(b)(ii) above).
9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to this Section 9, this Agreement shall forthwith become
null and void and there shall be no liability on the part of any of the parties
hereto or their respective officers or directors with respect to this
Agreement, except for Section 1.7 which shall remain in full force and effect
after any such termination of this Agreement, and except that nothing herein
shall relieve any party from liability for a breach of this Agreement prior to
the termination thereof.
SECTION 10. MISCELLANEOUS.
10.1 NOTICES. Any communications required or desired to be given
hereunder
<PAGE> 36
shall be deemed to have been properly given if sent by hand delivery, or by
facsimile and overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
<PAGE> 37
If to PSC:
PSC MANAGEMENT CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
If to Parent:
PHYSICIANS SPECIALTY CORP.
5555 Peachtree-Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
with a copy of each notice directed to PSC or Parent to:
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
If to Seller or Shareholders:
W.J. Cornay, III, M.D.
Marc Routman, M.D.
c/o Gene Price
Burr & Foreman
Post Office Box 830719
Birmingham, Alabama 35283-0719
Facsimile: (205) 458-5100
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.2 FURTHER ASSURANCES. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. Seller and
Shareholders will execute and deliver from time to time thereafter, at the
request of PSC, all such further instruments
<PAGE> 38
of conveyance, assignment and further assurance as may reasonably be required
in order to vest in and confirm to PSC all of Seller's right, title and
interest in and to the Assets.
10.3 PUBLIC DISCLOSURES. Except as otherwise required by law, no
party to this Agreement shall make any public or other disclosure of this
Agreement or the transactions contemplated hereby (other than Parent's
disclosures in the Registration Statement) without the prior consent of the
other parties. The parties to this Agreement shall cooperate with respect to
the form and content of any such disclosures.
10.4 GOVERNING LAW. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the State of Georgia, applied
without giving effect to any conflict-of-laws principles.
10.5 "INCLUDING". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following
the word "including" or to similar items or matters, whether or not
non-limiting language (such as "without limitation," "but not limited to" or
words of similar import) is used with reference to the word "including" or the
similar items or matters, but rather shall be deemed to refer to all other
items or matters that could reasonably fall with the broadest possible scope of
the general statement, term or matter.
10.6 "KNOWLEDGE". "To the knowledge," "to the best knowledge,
information and belief' or any similar phrase, shall be deemed to include the
assurance that such knowledge is based upon a reasonable investigation, unless
otherwise expressly provided. Unless otherwise expressly provided herein,
Seller shall be deemed to have knowledge of any facts known to any Shareholder.
10.7 "MATERIAL". An individual claim, obligation or liability
shall be deemed to be "material" if the amount thereof exceeds $5,000.00 or
involves the violation of any federal, state or local statute, rule or
regulation. A contract or lease shall be deemed to be material if it requires
a single payment in excess of $5,000.00 or payment for any future 12-month
period in excess of $5,000.00, except that no contract for the acquisition of
inventory items or consumable supplies shall be deemed material unless such
contract cannot be terminated without cause by Seller on not more than 30 days
notice, or has, as of the Closing Date, an amount payable with respect thereto
of more than $5,000.00.
10.8 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT".
"Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with the parties to this Agreement, any change, effect, event or
occurrence that has, or is reasonably likely to have individually or in the
aggregate, a material adverse impact on the business or financial position of
such party and its subsidiaries taken as a whole; provided, however, that
"Material Adverse Change" and "Material Adverse Effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting
<PAGE> 39
principles, (ii) changes in applicable law, and (iii) any changes resulting
from any restructuring or other similar charges or write-offs taken by Seller
with the consent of PSC.
10.9 "HAZARDOUS MATERIALS". The term "Hazardous Materials" means
any material which is or may potentially be hazardous to the health or safety
of human or animal life or vegetation, regardless of whether such material is
found on or below the surface of the ground, in any surface or underground
water, airborne in ambient air or in the air inside any structure built or
located upon or below the surface of the ground or in building materials or in
improvements of any structures, or in any personal property located or used in
any such structure, including, but not limited to, all hazardous substances,
imminently hazardous substances, hazardous wastes, toxic substances, infectious
wastes, pollutants and contaminants from time to time defined, listed,
identified, designated or classified as such under any Environmental Laws (as
defined in Section 10.10) regardless of the quantity of any such material.
10.10 "ENVIRONMENTAL LAWS". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any
judicial or administrative interpretation thereof, regulating the use,
generation, handling, storage, transportation, discharge, emission, spillage or
other release of Hazardous Materials or medical waste or relating to the
protection of the environment or the disposal of medical waste.
10.11 APPOINTMENT OF ATTORNEY-IN-FACT. Effective at the Closing,
Seller hereby constitutes and appoints PSC, and its successors and assigns, the
true and lawful attorneys for Seller, with full power of substitution, in the
name of Seller, but on behalf of and for the benefit of and at the expense of
PSC, to institute and prosecute, in the name of Seller or otherwise, all
proceedings which PSC may deem proper in order to collect, assert or enforce
any claim, right or title of any kind in or to the Assets, to defend and
compromise any and all actions, suits or proceedings in respect of any such
Assets, and to do all such acts and things in relation thereto as PSC shall
deem advisable, subject to applicable laws and regulations. Seller agrees that
the foregoing powers shall be coupled with an interest and shall be irrevocable
by Seller or by its dissolution or in any manner or for any reason. PSC shall
retain for its own account any amounts collected pursuant to the foregoing
powers, including any sums payable in respect thereof, and Seller shall pay to
PSC, when received, any amounts which shall be received by Seller in respect of
any Assets.
10.12 CAPTIONS. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
10.13 INTEGRATION OF EXHIBITS. All Exhibits attached to this
Agreement are integral parts of this Agreement as if fully set forth herein,
and all statements appearing therein shall be deemed disclosed for all purposes
and not only in connection with the specific representation in which they are
explicitly referenced; provided, however, that
<PAGE> 40
any liabilities or obligations to be assumed by PSC shall be set forth on
Exhibit 1.3(b), and the inclusion of any liabilities or obligations in any
other Exhibits shall not be deemed or construed to incorporate such liabilities
or obligations into Exhibit 1.3(b).
10.14 ENTIRE AGREEMENT. This instrument, including all Exhibits
attached hereto, contains the entire agreement of the parties and supersedes
any and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby. It may not be
changed or terminated orally, but may only be changed by an agreement in
writing signed by the party or parties against whom enforcement of any waiver,
change, modification, extension, discharge or termination is sought.
10.15 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument.
10.16 BINDING EFFECT. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No party may assign any right or obligation
hereunder without the prior written consent of the other parties.
10.17 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by PSC and that all parties have read and
negotiated the language used in this Agreement. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Agreement.
10.18 COSTS OF ENFORCEMENT. In the event that PSC or Parent on the
one hand, or Seller or Shareholders, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the
other party or to obtain performance by it hereunder, the prevailing party will
be entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit.
The term "prevailing party" shall mean the party in whose favor final judgment
after appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
10.19 TRANSFER OF ASSETS; ASSIGNMENT. The parties also hereby agree
that this Agreement shall not be assigned or transferred by either party
without the prior written consent of the other; provided, however, that this
Agreement may be assigned, in whole or in part, by PSC or Parent, in its sole
discretion, to any parent, subsidiary or affiliate of PSC or Parent or to any
party acquiring all or substantially all PSC's or Parent's assets. Any such
assignment shall not affect Parent's obligations hereunder or under any
documents executed by Parent pursuant to this Agreement.
<PAGE> 41
10.20 SEVERABILITY. In the event any term, covenant, condition,
agreement, section or provision hereof shall be deemed invalid or unenforceable
by a court of competent and final jurisdiction in the premises, the same shall
be severable and this Agreement shall not terminate or be deemed void or
voidable, but shall continue in full force and effect without such stricken
provision.
<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"PSC"
PSC MANAGEMENT CORP.
By /s/ Gerald R. Benjamin
Title: Secretary and Vice Chairman
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By /s/ Gerald R. Benjamin
Title: Secretary and Vice Chairman
"SELLER"
W.J. CORNAY, III, M.D., P.C.
By /s/ W.J. Cornay, III, M.D.
Title: President
"SHAREHOLDERS"
/s/ W.J. Cornay, III, M.D.
W.J. Cornay, III, M.D.
/s/ Marc Routman, M.D.
Marc Routman, M.D.
<PAGE> 1
EXHIBIT 10.29
PROMISSORY NOTE
February 7, 1997
$168,108.46 Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, PHYSICIANS' SPECIALTY CORP., a
Georgia professional corporation (hereinafter referred to as "Maker"), promises
to pay to the order of ENT CENTER OF ATLANTA, INC., a Georgia professional
corporation (hereinafter referred to as "Holder"), the principal sum of One
Hundred Sixty-Eight Thousand One Hundred Eight and 46/100 Dollars ($168,108.46)
plus interest thereon at the then-current Prime Rate. The "Prime Rate" is
defined as the Prime Rate publicly announced as being charged by NationsBank of
Georgia, N.A., or its successors, from time to time (which may not necessarily
be the lowest rate charged).
Principal and accrued interest shall be payable on the earlier of: (i)
the closing of an Initial Public Offering ("IPO") or (ii) June 30, 1997.
Maker shall have the right to prepay all or any part of the principal
of this Note remaining unpaid at any time and from time to time without premium
or penalty.
If Maker should fail to pay any amount due hereunder within ten (10)
days form the date of receipt of written notice thereof from Holder, or should
Maker fail to comply with any of the terms or requirements of this Note, then
Maker shall be in default and Holder may, at its option, declare the
indebtedness evidenced by this Note immediately due and payable. It is hereby
expressly agreed that in the event of any default in the payment of this Note as
provided herein, or in the event of any default of any of the terms or
requirements of this Note, and after the above notice is given and the Maker
fails to cure within said period, then, and without further notice to Maker, the
principal indebtedness evidenced hereby shall, at the option of the Holder, at
once become due and payable and may be collected forthwith. Interest shall
accrue on any outstanding principal balance of this Note from the date of any
default hereunder, and for so long as such default continues, at the rate of
fifteen percent (15%) per annum. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default. Time is of the
essence of this Note. In the event this Note, or any part thereof, is collected
by or through an attorney at law, Maker agrees to pay all costs of collection,
including, but not limited to, reasonably attorney's fees.
Except for Maker's right to cure as provided hereinabove, presentment
for payment, demand, protest and notice of demand, protest and non-payment and
all other notices are hereby waived by Maker. No failure to accelerate the debt
evidenced hereby by reason of default hereunder, or indulgences granted from
time to time, shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia. Maker hereby expressly waives the benefit of any statute or
rule of law or
<PAGE> 2
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing. No extension of the time
for the payment of this Note, made by agreement with any person now or hereafter
liable for the payment of this Note, shall operate to release, discharge,
modify, change or affect the original liability of Maker under this Note, either
in whole or in part, unless Holder agrees otherwise in writing. This Note may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
All payments due hereunder shall be payable to the Holder at the
address set forth below:
ENT Center of Atlanta, Inc.
c/o The Medical Quarters
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Ramie A. Tritt, M.D.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Georgia.
Maker and Holder submit to the jurisdiction of any state or federal
court sitting in Atlanta, Georgia, in any action or proceeding arising out of or
related to this Agreement; agree that all claims in respect of the action or
proceeding may be heard and determined in any such court; and agree not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Maker and Holder each waive any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waive any bond,
surety or other security that might be required the other with respect thereto.
Maker and Holder each agree that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law. In the event
that more than one person, firm or entity is a Maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms or entities, each of whom shall be jointly and severally liable for all
obligations of Maker hereunder.
-2-
<PAGE> 3
IN WITNESS WHEREOF, Maker has caused this Note to be duly signed,
sealed and delivered in Atlanta, Georgia, on the date first above written.
MAKER:
Attest: PHYSICIANS' SPECIALTY CORP.
/s/ Gerald R. Benjamin By: /s/ Ramie A. Tritt
- --------------------------------- ----------------------------------
Secretary Its: Chairman
---------------------------------
[CORPORATE SEAL]
-3-
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE
February 7, 1997
$1,891.54 Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, PHYSICIANS' SPECIALTY CORP., a
Georgia professional corporation (hereinafter referred to as "Maker"), promises
to pay to the order of BOCK, BENJAMIN & CO. PARTNERS, a general partnership
(hereinafter referred to as "Holder"), the principal sum of One Thousand Eight
Hundred Ninety-One and 54/100 Dollars ($1,891.54) plus interest thereon at the
then-current Prime Rate. The "Prime Rate" is defined as the Prime Rate publicly
announced as being charged by NationsBank of Georgia, N.A., or its successors,
from time to time (which may not necessarily be the lowest rate charged).
Principal and accrued interest shall be payable on the earlier of: (i)
the closing of an Initial Public Offering ("IPO") or (ii) June 30, 1997.
Maker shall have the right to prepay all or any part of the principal
of this Note remaining unpaid at any time and from time to time without premium
or penalty.
If Maker should fail to pay any amount due hereunder within ten (10)
days form the date of receipt of written notice thereof from Holder, or should
Maker fail to comply with any of the terms or requirements of this Note, then
Maker shall be in default and Holder may, at its option, declare the
indebtedness evidenced by this Note immediately due and payable. It is hereby
expressly agreed that in the event of any default in the payment of this Note as
provided herein, or in the event of any default of any of the terms or
requirements of this Note, and after the above notice is given and the Maker
fails to cure within said period, then, and without further notice to Maker, the
principal indebtedness evidenced hereby shall, at the option of the Holder, at
once become due and payable and may be collected forthwith. Interest shall
accrue on any outstanding principal balance of this Note from the date of any
default hereunder, and for so long as such default continues, at the rate of
fifteen percent (15%) per annum. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default. Time is of the
essence of this Note. In the event this Note, or any part thereof, is collected
by or through an attorney at law, Maker agrees to pay all costs of collection,
including, but not limited to, reasonably attorney's fees.
Except for Maker's right to cure as provided hereinabove, presentment
for payment, demand, protest and notice of demand, protest and non-payment and
all other notices are hereby waived by Maker. No failure to accelerate the debt
evidenced hereby by reason of default hereunder, or indulgences granted from
time to time, shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia. Maker hereby expressly waives the benefit of any statute or
rule of law or
<PAGE> 2
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing. No extension of the time
for the payment of this Note, made by agreement with any person now or hereafter
liable for the payment of this Note, shall operate to release, discharge,
modify, change or affect the original liability of Maker under this Note, either
in whole or in part, unless Holder agrees otherwise in writing. This Note may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
All payments due hereunder shall be payable to the Holder at the
address set forth below:
Bock, Benjamin & Co. Partners
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
Attention: Gerald R. Benjamin
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Georgia.
Maker and Holder submit to the jurisdiction of any state or federal
court sitting in Atlanta, Georgia, in any action or proceeding arising out of or
related to this Agreement; agree that all claims in respect of the action or
proceeding may be heard and determined in any such court; and agree not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Maker and Holder each waive any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waive any bond,
surety or other security that might be required the other with respect thereto.
Maker and Holder each agree that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law. In the event
that more than one person, firm or entity is a Maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms or entities, each of whom shall be jointly and severally liable for all
obligations of Maker hereunder.
-2-
<PAGE> 3
IN WITNESS WHEREOF, Maker has caused this Note to be duly signed,
sealed and delivered in Atlanta, Georgia, on the date first above written.
MAKER:
Attest: PHYSICIANS' SPECIALTY CORP.
/s/ Gerald R. Benjamin By: Ramie A. Tritt
- --------------------------------- ----------------------------------
Secretary Its: Chairman
---------------------------------
[CORPORATE SEAL]
-3-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PHYSICIANS' SPECIALTY CORP.
Subsidiary State of Incorporation
PSC Management Corp. Delaware
PSC Acquisition Corp. Delaware
PSC Alabama Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 123,540
<SECURITIES> 0
<RECEIVABLES> 26,976
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 150,516
<PP&E> 21,706
<DEPRECIATION> 1,809
<TOTAL-ASSETS> 612,980
<CURRENT-LIABILITIES> 623,270
<BONDS> 0
0
0
<COMMON> 600
<OTHER-SE> 96,711
<TOTAL-LIABILITY-AND-EQUITY> 612,980
<SALES> 51,240
<TOTAL-REVENUES> 51,240
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 158,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (107,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,601)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
