<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
PHYSICIANS TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 76-0485118
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1300 POST OAK BOULEVARD, SUITE 1800
HOUSTON, TEXAS 77056
(713) 622-1818
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ROBERT F. STRANGE, JR.
PHYSICIANS TRUST, INC.
1300 POST OAK BOULEVARD, SUITE 1800
HOUSTON, TEXAS 77056
(713) 622-1818
FAX: (713) 622-2227
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices and agent for
service)
Copies to:
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<S> <C>
ROBERT J. VIGUET, JR. MICHAEL P. GALLAGHER
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & MARTIN PEPPER HAMILTON LLP
1200 SMITH STREET, SUITE 1400 1235 WESTLAKES DRIVE, SUITE 400
HOUSTON, TEXAS 77002-4310 BERWYN, PENNSYLVANIA 19312
(713) 658-1818 (610) 640-7807
FAX: (713) 658-2553 FAX: (610) 640-7835
</TABLE>
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Approximate date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
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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,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
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=============================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED BE REGISTERED (1) PRICE PER SHARE (1) PRICE (2)(3) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value -- -- $36,800,000 $10,856
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</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Includes shares of Common Stock issuable upon exercise of the Underwriters'
over-allotment option.
(3) Estimated solely for the purpose of calculating the registration fee.
------------------------------------
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
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 MARCH 4, 1998
4,000,000 SHARES
[PHYSICIANS TRUST, INC. LOGO]
COMMON STOCK
All of the shares of common stock, $.001 par value per share offered hereby
(the "Offering") are being sold by Physicians Trust, Inc. (the "Company"). Prior
to the Offering, there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price per share will be
between $ and $ . For information relating to the factors to
be considered in determining the initial public offering price, see
"Underwriting." The Company intends to apply for quotation of the Common Stock
on the Nasdaq National Market under the symbol "PHTR."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3)....................................... $ $ $
============================================================================================================
</TABLE>
(1) The Company will pay to the Underwriters a non-accountable expense allowance
equal to 1% of the aggregate offering price, including the overallotment
option. In addition, 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 estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 600,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option 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 are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the shares will be made at the office of Pennsylvania
Merchant Group in West Conshohocken, Pennsylvania on or about , 1998.
------------------------
PENNSYLVANIA MERCHANT GROUP
The date of this Prospectus is
<PAGE> 3
DESCRIPTION OF GRAPHICS:
MAP OF UNITED STATES INDICATING
LOCATIONS OF FOUNDING AFFILIATES
AND CORPORATE OFFICE OF THE COMPANY
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) gives effect to the Transactions (as defined below), (ii)
assumes the Underwriters' over-allotment option is not exercised and (iii)
assumes an initial public offering price of $ per share.
THE COMPANY
Physicians Trust, Inc. (the "Company") is a physician practice management
company ("PPMC") organized to provide management services to affiliated
orthopaedic, neurology, neurosurgery, physical medicine, rheumatology and pain
management physician practices (the "Neuro-musculoskeletal Practices"), and also
to provide ancillary services to both affiliated and non-affiliated practices.
Concurrently with the closing of the Offering, the Company will, in separate
transactions (the "Transactions"), affiliate with 14 Neuro-musculoskeletal
Practices with an aggregate of 22 physicians in 7 U.S. states, and purchase
certain ancillary service businesses, consisting of a 70% equity interest in an
outpatient surgery center and substantially all of the assets of a sleep
disorders operation (collectively, the "Founding Affiliates"). Through the
Transactions, the Company will enter into management services agreements
("Management Services Agreements") with each of the Founding Affiliates and
purchase substantially all of the tangible and intangible non-medical assets of
the affiliated practices. Had the terms of the Company's Management Services
Agreements with the Founding Affiliates been applied to historical operating
results of the Founding Affiliates for the year ended December 31, 1997,
management services fees for the Company would have been approximately
$4,132,000, and the Company's share of earnings before interest, income taxes,
depreciation and amortization pursuant to its ownership interest in the
ancillary service facilities would have been approximately $1,477,000.
In general, neuro-musculoskeletal care includes the treatment of conditions
related to bones, joints, muscles, connective tissues, the brain and nervous
system. The American Medical Association ("AMA") estimates that in 1996 there
were approximately 22,500 orthopaedists and orthopaedic surgeons, as well as
approximately 11,600 neurologists, 4,900 neurosurgeons, 5,800 physical medicine
specialists, 3,500 rheumatologists and 500 pain management physicians in the
U.S. The Company believes that health care spending for neuro-musculoskeletal
care in the U.S. is rising in excess of the national growth trend in health care
spending. According to the Health Care Financing Administration ("HCFA"), total
health care expenditures grew from $562 billion in 1988 to $1.04 trillion in
1996, representing an 84% increase. According to studies made by the AMA and the
Medical Group Management Association ("MGMA"), neuro-musculoskeletal physician
services grew by 109% for the same periods. The Company believes several factors
have influenced this increase in expenditures including improvements in medical
technology, more active lifestyles and the overall aging of the population.
According to a 1997 AMA study, 67.3% of all non-institutional physicians
practice in groups consisting of less than five physicians. However, the trend
towards managed care and cost containment is leading to consolidation among
these physicians. In February 1997, the AAOS estimated that approximately 3% to
5% of all orthopaedic practices had affiliated with PPMCs. This shift from
private pay to managed care reimbursement has increased the complexity of
managing the clinical and administrative aspects of the physicians' practices
and has emphasized the necessity for physicians to manage their practices more
efficiently, creating incentives among physicians to affiliate with PPMCs.
The Company's objective is to become a leading neuro-musculoskeletal PPMC
in its targeted geographic markets through the following strategies:
Develop Integrated Networks. The Company intends to develop integrated networks
or groups consisting of a diverse mix of Neuro-musculoskeletal Practices and
complementary ancillary service facilities in each of its target geographic
markets in order to maximize cross-referral opportunities, efficiently utilize
ancillary service facilities and provide a comprehensive neuro-musculoskeletal
disease management option to payors.
3
<PAGE> 5
Enhance Ancillary Revenue Opportunities. The Company believes that a significant
opportunity exists to add value to affiliated physician practices through the
addition of ancillary service facilities which service common patients,
primarily including outpatient surgery, physical therapy, magnetic resonance
imaging ("MRI"), CT Scan, sleep disorders, brain mapping and other electronic
diagnostic testing.
Maximize Profitability and Internal Growth Opportunities. The Company will seek
to maximize the profitability and internal growth of affiliated practices
through increased operating efficiencies, improved billings and collections and
additional revenue opportunities.
Focus on Secondary and Niche Markets. The Company intends to pursue a focused
geographic strategy based on developing critical mass in selected secondary and
niche markets generally characterized by a high concentration of industrial
labor and markets with a more favorable reimbursement environment.
Grow through Affiliations with Small- to Mid-Sized Practices. The Company
intends to pursue growth through new practice affiliations with attractive
practices of all sizes, but with a focus on small- to mid-sized practices
consisting of one to five physicians.
As part of the Transactions, the Company will deliver (i) $21.7 million in
cash, (ii) $7.8 million principal amount of subordinated promissory notes, and
$4.5 million of promissory notes convertible into shares of Common Stock
(collectively, the "Promissory Notes"), (iii) $400,000 worth of shares of Common
Stock at the Offering price and (iv) the right to receive 69,000 shares of
Common Stock and $10.2 million worth of shares of Common Stock at the Offering
price, such shares of Common Stock to be delivered on the first and second
anniversaries of the closing of the Offering, respectively. Certain of the
Transactions are subject to post-closing adjustments, however, the Company
estimates that no further consideration will be payable in connection with such
post-closing adjustments. In addition, the Company will assume approximately
$ of liabilities of the Founding Affiliates. The Founding Affiliates
were selected based on a variety of factors, including their competitive and
financial strengths, the historical growth of their practices and the potential
for future growth in their markets and the applicable regulatory environments.
The Management Services Agreements have initial terms of 40 years, subject
to earlier termination under certain circumstances. Pursuant to the Management
Services Agreements, the Company will become the exclusive manager and
administrator of all of the non-medical services relating to the operation of
the Founding Affiliates. Total fees payable by the Founding Affiliates to the
Company under the Management Services Agreements will consist of the sum of (i)
operating expense reimbursement (ii) percentage based management services fees
and (iii) percentage based ancillary services fees.
The Company will manage most aspects of the affiliated practices and
ancillary services operations other than the provision of medical services and
will employ all business personnel at the offices of the affiliated practices
and the ancillary service facilities. The Company believes the affiliated
practices will benefit from the administrative and management support provided
by the Company and that these services will substantially reduce the amount of
time the physicians spend on administrative matters, enabling them to dedicate
more time to the provision of quality medical services to their patients and
promoting growth of their professional practices. Further, management believes
that through economies of scale the Company will be able to provide these
services at a lower cost than could be obtained by each of the affiliated
practices individually.
The Company was organized in Delaware in November 1995, its corporate
offices are located at 1300 Post Oak Boulevard, Suite 1800, Houston, Texas
77056, and its telephone number is (713) 622-1818.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock offered by the Company.......... [ ] shares
Common Stock to be outstanding after this [ ] shares (1)
Offering...................................
Use of Proceeds.............................. To pay the cash portion of the purchase price
in connection with the Transactions, loan
funds to an owner of a Founding Affiliate,
repay general indebtedness of the Company and
for general corporate purposes, including
future affiliations and acquisitions and
development of ancillary service facilities.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... PHTR
</TABLE>
- ---------------
(1) Includes shares of Common Stock to be issued in connection with
the Transactions and shares of Common Stock reserved for issuance
upon the exercise of certain Common Stock warrants, and excludes (i)
1,245,000 shares of Common Stock issuable upon the exercise of options
outstanding under the Company's 1996 Stock Option Plan (the "1996 Stock
Option Plan"), and 255,000 shares of Common Stock available for future
issuance thereunder, (ii) 60,000 shares of Common Stock issuable upon the
exercise of outstanding options and under the Company's Non-Employee
Director Stock Option Plan (the "Non-Employee Director Stock Option Plan"),
and 190,000 shares of Common Stock available for future issuance thereunder
and (iii) shares of Common Stock reserved for issuance to certain
Founding Affiliates upon conversion of Promissory Notes delivered by the
Company in the Transactions.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following historical information, except for the balance sheet data at
December 31, 1995, is derived from the financial statements of the Company
included elsewhere in this Prospectus. The 1995 balance sheet data is derived
from financial statements not included in this Prospectus. Except as indicated,
this information does not reflect the effects of the Transactions or the
Offering. For certain information concerning the Transactions, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Transactions."
<TABLE>
<CAPTION>
FROM INCEPTION FROM INCEPTION
NOVEMBER 1, 1995 NOVEMBER 1, 1995
THROUGH FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Statement of Operations
Data(1):
Revenue...................... -- -- -- --
Costs and expenses:
Compensation and
benefits................ $ 182 $ 758 $ 940
Compensation expense
incurred in connection
with the issuance of
common stock............ 37 37
Professional fees......... $ 10 620 934 1,564
Depreciation and
amortization............ 4 19 23
Interest expense.......... 28 741 769
General and administrative
expenses................ 121 266 387
--------- --------- --------- ---------
Total costs and expenses..... 10 955 2,755 3,720
--------- --------- --------- ---------
Net income (loss)............ $ (10) $ (955) $ (2,755) $ (3,720)
========= ========= ========= =========
Net income (loss) per share--
basic and diluted(2)...... $ (.01) $ (.41) $ (.82) $ (1.41)
========= ========= ========= =========
Weighted average shares
outstanding............... 1,643,750 2,327,295 3,352,986 2,638,913
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 AS
1995 1996 1997 ADJUSTED(3)
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)....................... $ (8) $(1,052) $(1,593)
Total assets.................................... 51 529 3,254
Short-term debt, net(4)......................... 50 782 1,737
Long-term debt, net............................. -- -- --
Stockholders' equity (deficit).................. (8) (838) (218)
</TABLE>
- ---------------
(1) The Company has been engaged in developmental activities, but has generated
no revenue to date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Transactions."
(2) Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods presented. Substantial
options and warrants are outstanding at minimal exercise prices, the
effects of which are anti-dilutive given the Company's losses, and
therefore basic and diluted net loss per share are equal.
(3) As adjusted gives effect to the Transactions, the sale of million
shares of Common Stock offered by the Company, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
(4) Net of unamortized warrant discounts of $3,068 and $124 as of December 31,
1997 and 1996, respectively.
6
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective investors should carefully consider
the following factors, as well as the other information contained in the
Prospectus. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those projected in the forward-looking statements as a result of any number of
factors, including, but not limited to, the risk factors set forth below and
elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY
The Company was organized in November 1995 and has been engaged in
developmental activities, but has generated no revenue to date. Since inception,
the Company has suffered recurring losses from operations. The Company has a net
capital deficiency that raises substantial doubt about its ability to continue
as a going concern, assuming that the Company does not successfully complete the
Offering. The Company's Report of Independent Accountants includes a
qualification to such extent. The Company has entered into agreements to acquire
substantially all the non-medical assets of, or an equity interest in, as
applicable, the Founding Affiliates concurrently with the Closing of the
Offering. In connection with the consummation of the Transactions, the Company
is entering into agreements to provide management services to the Founding
Affiliates for initial terms of 40 years (subject to early termination by either
party for "cause," which includes bankruptcy of the other party or a material
default of such party which continues for 60 days after notice without cure).
Prior to the Offering, the Founding Affiliates were not under common control or
management and have operated as separate, independent entities. The Company may
experience delays, complications and expenses in implementing, integrating,
managing and/or operating such Founding Affiliates, and there can be no
assurance that the process of integrating the management and administrative
functions of the Founding Affiliates will be successful or that the Company's
management group will be able to manage these operations effectively or
profitably and successfully implement the Company's operating or growth
strategies. Failure by the Company to successfully implement its operating and
growth strategies would have a material adverse effect on the Company's
business, financial condition and results of operations. Finally, there can be
no assurance that the Transactions will not result in a loss of patients or
revenue previously associated with the Founding Affiliates or other adverse
consequences. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--Business Strategy" and "--Exclusive
Management Services Agreement."
DEPENDENCE ON AFFILIATED PRACTICES AND PHYSICIANS
The Company's operations will be dependent initially upon the success of
the Founding Affiliates and ultimately upon the success of all affiliated
practices and related ancillary services. The Company expects to receive fees
for services provided to affiliated practices under the Management Services
Agreements, but will not employ physicians or control or own the affiliated
practices giving rise to such revenue. The Management Services Agreements have
40-year terms but are subject to early termination by either party for "cause,"
which includes bankruptcy of one of the parties or a material default of such
party which continues for 60 days after notice without cure. The growth and
profitability of the affiliated practices, as well as the performance of the
individual physicians employed by the affiliated practices, will affect the
Company's profitability. There can be no assurance that the affiliated practices
will maintain successful practices, that Management Services Agreements will not
be terminated or that any of the physicians in a particular affiliated practice
will continue to be employed by such practice. Termination of such Management
Services Agreements or affiliation could have a material adverse effect on the
Company's business, financial condition and results of operations.
Some of the affiliated practices may derive a significant portion of their
revenue from a limited number of physicians. Particularly because none of the
physicians in the affiliated practices will have previously entered into
management services arrangements similar to those embodied in the Transaction
Documents, there can be no assurance that the Company or the affiliated
practices will maintain cooperative relationships with such physicians.
Furthermore, the failure by an affiliated practice to employ a sufficient number
of physicians (whether by renewals of existing employment agreements or
otherwise) would have a material adverse effect
7
<PAGE> 9
on the Company's business, financial condition and results of operations. In
addition, there can be no assurance that key members of an affiliated practice
will not retire, become disabled or otherwise become unable or unwilling to
continue practicing their profession with an affiliated practice. The loss by an
affiliated practice of one or more key members could have a material adverse
effect on the revenue of such affiliated practice and the related ancillary
services and, thus, on the Company.
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company intends to grow through enhancing the productivity of
affiliated physician practices, affiliating with additional physician practices
and developing related ancillary services. The success of the Company's growth
strategy will depend on a number of factors, including the Company's ability to
(i) identify suitable and willing candidates to become affiliated practices, and
develop these practices into integrated networks or groups, (ii) affiliate with
attractive practices on favorable terms, (iii) develop related ancillary
services, (iv) adapt the Company's structure to comply with present or future
legal requirements affecting the Company's arrangements with affiliated
practices and comply with regulatory and licensing requirements applicable to
physicians and facilities operated and services offered by physicians, (v)
obtain suitable financing to facilitate its growth program and (vi) expand the
Company's infrastructure and management to accommodate growth. Identifying
physician practices with which to affiliate and proposing, negotiating and
implementing economically feasible affiliations with such practices can be a
lengthy, complex and costly process. The Company anticipates facing substantial
competition from other companies to establish affiliations with additional
Neuro-musculoskeletal Practices. A shortage of available physicians with the
skills and experience sought by the Company would have a material adverse effect
on the Company's expansion opportunities. There can be no assurance that the
Company's growth strategy will be successful, that modifications to the
Company's strategy will not be required, that the Company will be able to
effectively manage and enhance the profitability of additional affiliated
practices or that the Company will be able to obtain adequate financing on
reasonable terms to support its growth program. In addition, there can be no
assurance that the Company will be able to successfully integrate additional
affiliated practices into its existing operations, or that such integration and
the measures taken to achieve practice growth will not result in the loss of a
significant number of patients by the applicable affiliated practices after the
completion of the relevant transactions or other unanticipated adverse
consequences. The Company's results will be materially adversely affected if it
is unable to implement its growth strategy successfully or to manage growth
effectively. See "--Immediate and Substantial Dilution," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy."
RISKS ASSOCIATED WITH ANCILLARY SERVICE FACILITIES
To date, the Company has not owned or operated any ancillary service
facilities. The Company is unable to predict whether it will be able to obtain
the critical mass in any particular market needed to establish ancillary service
facilities and, if so, whether the Company and/or the affiliated practices will
be able to consistently minimize costs and maintain a sufficient volume of
patient visits to the ancillary service facilities for such facilities to be
profitable. Moreover, such facilities must be structured and operated to comply
with various federal and state laws. Future judicial or regulatory
interpretation could adversely affect such operations. See "Business--Government
Regulation" and "--Healthcare Regulation."
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
The Company's growth strategy will require substantial capital resources.
Capital is needed not only for future affiliations with additional affiliated
practices and ancillary service facilities, but also for the effective
integration, operation and expansion of the affiliated practices. In addition,
the $12.3 million principal balances of the Promissory Notes issued in the
Transactions are payable after the closing of the Offering as follows: (i)
$441,000 in year 1, (ii) $4,504,000 in year 2, (iii) $2,649,000 in year 3, (iv)
$2,517,000 in year 4 and (v) $2,212,000 in year 5. Furthermore, the affiliated
practices may from time to time require capital for renovation and expansion and
for the addition of equipment and technology. The Management Services Agreements
provide for advances by the Company to the affiliated practices for working
capital requirements
8
<PAGE> 10
and other purposes, including capital expenditures. The extent to which the
Company will be able or willing to use shares of Common Stock to consummate
affiliations or provide future financing will depend on its market value from
time to time and the willingness of owners of potential affiliated practices to
accept Common Stock as full or partial payment for affiliation consideration.
Using shares of Common Stock for these purposes may result in significant
dilution to then-existing stockholders. The Company will require additional
capital from outside financing sources in order to continue its growth program.
Although the Company currently believes it will be able to secure additional
financing, there can be no assurance that the Company will be able to obtain
additional funds when needed on satisfactory terms or at all. Any limitation on
the Company's ability to obtain additional financing could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Immediate and Substantial Dilution," "No Dividends" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
In connection with the closing of the Affiliations, the Company will pay,
out of the net proceeds from the Offering, an aggregate of approximately
$1,176,000 to officers and directors of the Company, and $21.7 million to the
physician-owners of the Founding Affiliates, including, (i) approximately
$1,810,000 to Richard A. Silver, M.D. and $521,000 to Charles C. Wells, Jr.,
M.D. (each of whom will become a member of the Board of Directors of the Company
upon consummation of the Offering) and (ii) approximately $2,517,000 in
connection with the purchase of certain accounts receivable from the Founding
Affiliates. In addition, the Company will make a $1,250,000 loan to Christopher
Cenac, M.D., a physician owner of a Founding Affiliate. See "Use of Proceeds"
and "Certain Transactions."
DEPENDENCE ON IMPLEMENTATION AND INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS
The Company's success is largely dependent upon its ability to implement
new management information systems and to integrate these systems into the
existing operational, financial and clinical information systems of the
affiliated practices and related ancillary service facilities. In addition to
their integral role in helping the affiliated practices and ancillary service
facilities manage operating efficiencies, these systems are critical to
negotiating, pricing and monitoring managed care contracts. Furthermore, the
management information systems will be critical to the Company's ability (i) to
comply with the tax and reimbursement regulations of each state in which the
Company operates and (ii) prepare accurate and timely periodic financial reports
required for public companies. The Company will need to continue to invest in
and administer sophisticated management information systems to support these
activities. These systems may require modifications, improvements or
replacements as the Company expands or if new technologies become available,
which may require substantial expenditures and cause interruptions in operations
during periods of implementation. Furthermore, some of the affiliated practice's
existing systems are not year 2000 compliant. The failure to successfully
implement and maintain operational, financial and clinical information systems
which are also year 2000 compliant would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Services and Operations--Management Information Systems."
CHANGES IN PAYMENT FOR MEDICAL SERVICES
Cost Containment. Management of the Company estimates that a significant
portion of the revenue of the affiliated practices may be derived from
government sponsored health care programs (principally, the Medicare and
Medicaid programs). The health care industry is experiencing a trend toward cost
containment as government and private third party payors seek to impose lower
reimbursement and utilization rates and negotiate reduced payment schedules with
medical service providers. The Company believes that these trends will continue
to result in a reduction from historical levels in per-patient revenue for such
medical service providers. Further reductions in payments to physicians or other
changes in reimbursement for health care services could have an adverse effect
on the Company's operations, unless the Company is otherwise able to offset such
payment reductions.
Reimbursement Rates. Rates paid by private third party payors, including
those that provide Medicare supplemental insurance, are based on established
health care provider and hospital charges and are generally
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<PAGE> 11
higher than Medicare payment rates. A change in the patient mix of any
affiliated practice or ancillary service facility that results in a decrease in
patients covered by private insurance could have a material adverse effect on
the revenue of such affiliated practice or ancillary service facility and, as a
result, on the Company.
POTENTIAL RISKS OF MANAGED CARE
In recent years, an increasing percentage of patients have entered into
health care coverage contracts with managed care payors. The Company believes
that its success will be dependent upon its ability to negotiate contracts on
behalf of the affiliated practices and related ancillary service facilities with
managed care payors, health maintenance organizations ("HMOs"), employer groups
and other private third party payors. Many such managed care or other third
party payors already have existing provider structures in place and may not be
able or willing to change their provider networks. In addition, managed care and
third party payors have established primary care providers who often have
considerable discretion over who delivers various medical services. The
inability of the Company to establish or maintain arrangements on behalf of the
affiliated practices or ancillary service facilities with managed care or other
third party providers could have a material adverse effect on the Company.
In certain instances, the Company may seek to negotiate on behalf of
regional neuro-musculoskeletal care networks consisting of affiliated practices
and other physicians or group practices willing to permit the Company to
negotiate on their behalf with respect to a particular third party payor. The
Company anticipates that, in the future, the payor contracts entered into on
behalf of the affiliated practices or ancillary service facilities may include
contracts based on capitated fee arrangements. Under some of these contracts,
the affiliated practices or ancillary service facilities may agree either to
accept a predetermined dollar amount per member, per month, in exchange for
undertaking to provide all covered services to patients. The affiliated
practices or ancillary service facilities bear the risk, generally subject to
certain loss limits, that the aggregate costs of providing medical services will
exceed the premiums received. Some agreements may also contain "shared risk"
provisions under which affiliated physicians or ancillary service facilities may
earn additional compensation based on utilization control of institutional,
ancillary and other services by patients. Through the fee determination
provisions of the Company's Management Services Agreements, the Company's
revenue may be adversely affected in connection with these "shared risks"
provisions. To the extent that patients or enrollees covered by these contracts
require more frequent or, in certain instances, more extensive care than
anticipated, there could be a material adverse effect on an affiliated practice
or ancillary service facilities and, therefore, on the Company. Any material
reduction or elimination of earnings to the affiliated practices or ancillary
service facilities under these fee arrangements could have a material adverse
effect on the Company. See "Business--Services and Operations," "--Managed Care"
and "--Government Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part on the
continued service of its senior management, including Robert F. Strange, Jr.,
Chairman of the Board of Directors and Chief Executive Officer, and Terence D.
Jung, President and Chief Operating Officer, and other key personnel. The
Company has entered into employment agreements with each of Messrs. Strange and
Jung with initial terms of five years and three years, respectively. Loss of
services of those employees, however, and other key personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. The success of the Company's growth strategy will also
depend on the Company's ability to attract and retain additional high quality
personnel. See "Business--Employees" and "Management."
HEALTH CARE REGULATION
Potential Adverse Consequences of Government Regulation. The delivery of
neuro-musculoskeletal services and health care generally are subject to
extensive federal and state regulation. The Company believes that its operations
are and will be conducted in material compliance with applicable laws. However,
the Company has not received or applied for an opinion from any federal or state
judicial or regulatory authority to this effect, and many aspects of the
Company's business operations to date have not been the subject of state or
federal regulatory interpretation. There can be no assurance that a review of
the Company's operations by
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<PAGE> 12
federal or state judicial or regulatory authorities will not result in a
determination that the Company or one or more of its affiliated practices or
ancillary service facilities have violated one or more provisions of federal or
state health care law. Any such determination could have a material adverse
effect on the Company.
The fraud and abuse provisions of the Social Security Act and anti-kickback
laws and regulations adopted by many states prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration in return for, or as
an inducement to, certain referrals of patients, items or services. Provisions
of the Social Security Act impose significant penalties for false or improper
billings for services reimbursable by Medicare, Medicaid or other
federally-funded programs. In addition, the Stark amendments to the Social
Security Act impose specific restrictions on physicians' referrals for
designated health services reimbursable by Medicare, Medicaid or other
federally-funded programs to entities with which the physicians have financial
relationships. The federal government has also recently extended its statutory
prohibitions to include the relationship between health care providers and any
health care benefit programs, including non-governmental health care programs
(such as HMOs or standard indemnity insurance).
Violations of any of these laws may result in substantial civil or criminal
penalties, including large civil monetary penalties and, in the case of
violations of certain federal laws, exclusion from participation in the
Medicare, Medicaid or other federally-funded programs. Such exclusion and
penalties, if applied to the Company, the affiliated practices or ancillary
service facilities, would have a material adverse effect on the Company.
The laws of many states prohibit business corporations, such as the
Company, from practicing medicine or exercising control over the medical
judgments or decisions of physicians and from engaging in certain financial
arrangements, such as splitting fees with physicians. These laws and their
interpretations vary from state to state and are enforced by both the courts and
regulatory authorities, each with broad discretion. Violations of these laws
could result in censure or the revocation of the license of affiliated
physicians or ancillary service facilities, civil or criminal penalties,
including large civil monetary penalties, or other sanctions. In addition, a
determination in any state that the Company is engaged in the corporate practice
of medicine or any unlawful fee-splitting arrangement could render any
Management Services Agreement between the Company and an affiliated practice or
ancillary service facilities located in such state unenforceable or subject to
modification or termination by the affiliated practice or ancillary service
facilities, each of which could have a material adverse effect on the Company.
Expansion of the Company's operations into certain jurisdictions may
require modification of the Company's form of relationship with its affiliated
practices or ancillary service facilities, which could have a material adverse
effect on the Company. Furthermore, the Company's ability to expand into, or to
continue to operate within, certain jurisdictions may depend on the Company's
ability to modify its operational structure to conform to such jurisdictions'
regulatory framework or to obtain necessary approvals, licenses and permits. Any
such limitation on the Company's ability to expand could have a material adverse
effect on the Company. See "Business--Government Regulation."
Future Health Care Reform. In addition to extensive existing government
health care regulation, there are numerous initiatives on the federal and state
levels for comprehensive reforms affecting the payment for and availability of
health care services. These initiatives include reductions in Medicare and
Medicaid payments, trends in adopting managed care for Medicare and Medicaid
patients, regulation of entities that provide managed care and additional
prohibitions on ownership by health care providers, directly or indirectly, of
facilities to which they refer patients. It is uncertain what legislative
proposals will be adopted in the future or what actions federal or state
legislators or third party payors may take in anticipation of or in response to
any health care reform proposals or legislation. Aspects of certain of these
health care proposals, if adopted, could have a material adverse effect on the
Company. See "Business--Government Regulation."
RISKS RELATED TO MANAGEMENT SERVICES AGREEMENTS
As a result of the Transactions, approximately $ million of the
Management Services Agreements will be recorded on the Company's balance sheet
as of the closing of the Offering. Affiliations that result in the
capitalization of future management services agreements will cause amortization
expense to
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<PAGE> 13
increase further. Although the Company's net unamortized balance of its
management services agreements acquired and anticipated to be acquired was not
considered to be impaired as of the closing of the Offering, any future
determination that a significant impairment has occurred would require the
write-off of the impaired portion of unamortized management services agreements,
which could have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The Company anticipates facing substantial competition from other companies
to establish affiliations with additional Neuro-musculoskeletal Practices and
develop ancillary services. Several companies with established operating
histories and greater financial and other resources than the Company, including
other PPMCs, some hospitals, clinics and HMOs are pursuing activities similar to
those of the Company. Additional companies with similar objectives may enter the
Company's markets and compete with the Company. In addition, there is
significant competition for the affiliation with Neuro-musculoskeletal
Practices, and such competition may limit the availability of suitable practices
with which the Company may be able to affiliate. The business of providing
medical services is highly competitive in each market in which the Company will
operate. Each of the affiliated practices faces local competition from other
physicians, some of whom have more established practices, and greater financial
or other resources. The Company's strategy includes the development of ancillary
service facilities. Pursuit of this strategy will subject the Company to
competition with other providers of such facilities, some of which will have
greater financial or other resources and experience than the Company. There can
be no assurance that the Company or the affiliated practices or ancillary
service facilities will be able to compete effectively with their respective
competitors, that additional competitors will not enter the market or that this
competition will not make it more difficult and costly to acquire the assets of,
and provide management services to, Neuro-musculoskeletal Practices on terms
beneficial to the Company. See "Business--Competition."
RISKS INHERENT IN THE PROVISION OF MEDICAL SERVICES; ADEQUACY OF INSURANCE
Providing health care services involves 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. The terms of the Management
Services Agreements require affiliated physicians performing medical services to
maintain medical malpractice insurance within limits to be jointly agreed upon
by the Company and the affiliated practices or ancillary service facilities.
This insurance is expected to provide insurance coverage, subject to policy
limits, if the Company is held liable as a co-defendant in a lawsuit for
professional malpractice. Nonetheless, malpractice claims may be asserted
against the Company if services or procedures performed at one of the affiliated
practices or ancillary service facilities are alleged to have resulted in injury
or other adverse effects. Although the Company has obtained liability insurance
that will be effective concurrently with 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, a malpractice claim asserted against the Company
could be costly to defend, could consume significant management resources and
could adversely affect the Company's reputation and business, regardless of the
merit or eventual outcome of the claim. In addition, there can be no assurance
that the Company will be able to obtain insurance on commercially reasonable
terms in the future or that any insurance will provide adequate coverage against
potential claims. See "Business--Insurance."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. After giving effect to the Transactions and the
shares of Common Stock offered hereby, the Company will have outstanding
shares of Common Stock. Of these shares, shares (
shares if the Underwriters' over-allotment option is exercised in full) of
Common Stock sold in the Offering will be freely tradeable
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<PAGE> 14
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates," as that term
is defined under the Securities Act, of the Company. The remaining
shares are "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act. Not included in the above are
shares which have been reserved to be issued to the owners of the Founding
Affiliates of which will be issued on the consummation of the
Offering, and 69,000 and of which will be issued on the first and
second anniversaries of the consummation of the Offering, respectively. Upon
issuance, these shares will not be restricted securities under Rule 144. In
connection with the Transactions, the Company has agreed to grant the former
stockholders of the Founding Affiliates certain registration rights with respect
to the Common Stock to be issued to such stockholders in the Transactions. If
the Company proposes to file a registration statement with the SEC to register
shares of its Common Stock (other than in connection with the Offering), it must
notify such stockholders of such proposed registration, and give them the
opportunity to include their shares of Common Stock in the registration, subject
to certain conditions. The stockholders can participate in only such
registrations by the Company which occur between years two through five of the
anniversary of the closing of this Offering, and the Company is not obligated to
register any shares of Common Stock which are eligible to be sold pursuant to
Rule 144(k) of the Securities Act (or any successor provision with substantially
the same effect). The Company is also obligated to pay all costs associated with
the registration of the Common Stock, except for the fees and expenses of legal
counsel for such stockholders.
The Company has outstanding warrants to purchase up to a total of
approximately shares of Common Stock which become exercisable upon
consummation of the Offering. Pursuant to the terms of its outstanding warrants,
if the Company proposes at any time to register any of its Common Stock under
the Securities Act (other than in connection with the Offering), it must also
give timely notice to the holders of the warrants of its intention to do so. The
holders then have the option to join their shares of Common Stock (after
exercise of the warrants) in the public offering, subject to certain conditions.
The Company is not obligated to register shares freely tradeable under Rule
144(k) of the Securities Act or any successor provision, but will bear all
normal and customary expenses related to such registration.
In addition to Common Stock issued in connection with the Offering and the
Transactions, stockholders of the Company currently hold 3,460,000 shares of
Common Stock in the aggregate. Such shares are not being offered or sold
pursuant to this Prospectus, and were issued or sold in transactions exempt from
registration under the Securities Act, and may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration. After the Closing of the Offering, stockholders holding
300,000 of such shares, including 30,000 shares held by Robert F. Strange, Jr.
and 25,000 shares held by Raymond P. Landry (both of whom are directors of the
Company), have the right to (i) demand that the Company register their shares of
Common Stock under the Securities Act or (ii) participate in a future
registration of shares of Common Stock by the Company. These stockholders, along
with the Company, its officers and directors and certain other security holders
have agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Commission a registration statement under the Securities Act
relating to any additional shares of Common Stock or securities convertible or
exchangeable or exercisable for any shares of Common Stock, without the prior
written consent of Pennsylvania Merchant Group for a period of 180 days after
the date of this Prospectus (the "lock-up period"), except (i) issuances of
unregistered Common Stock by the Company in connection with affiliation with
physician practices, physicians and ancillary service providers (although
persons receiving such shares would be subject to such restrictions for the
remainder of the lock-up period), (ii) issuances of Common Stock by the Company
pursuant to the exercise of employee stock options outstanding on the date of
this Prospectus or (iii) issuances of Common Stock by the Company upon the
exercise of certain Common Stock warrants.
Prior to the consummation of the Offering, the Company will have
outstanding under its 1996 Stock Option Plan options to purchase approximately
1,245,000 shares of Common Stock, and options to purchase 60,000 shares under
its Non-Employee Directors Stock Option Plan. The Company intends to file a
registration statement on Form S-8 with the Securities and Exchange Commission
(the "Commission") to register the shares issuable pursuant to the plans under
the Securities Act. After that registration statement
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<PAGE> 15
becomes effective, the shares registered thereby generally will on issuance be
available for sale in the open market by holders who are not affiliates of the
Company and, subject to the volume and other limitations of Rule 144, by holders
who are affiliates of the Company. See "Management--1996 Stock Option Plan,"
"--Non-Employee Director Stock Option Plan" and "Shares Eligible for Future
Sale."
DEPENDENCE ON TRANSACTION DOCUMENTS
To effect the Company's affiliation with the Founding Affiliates, a Master
Transaction Agreement or similar affiliation agreement by and between the
Founding Affiliates and the Company has been agreed upon and signed which
provides that the parties will enter into the following agreements concurrently
with the Closing of the Offering (collectively, the "Transaction Documents"):
(i) Management Services Agreements by and between the Founding Affiliate and the
Company, (ii) Physician Employment Agreements by and between a new physician
practice or group practice organized as a professional corporation or limited
liability company and each owner of an affiliated practice, (iii) Asset Purchase
Agreements between the Company and the Founding Affiliates and (iv) Operating
Agreements between the affiliated practices and the physicians. The consummation
of the affiliations with the Founding Affiliates and the subsequent viability of
the Company are dependent on the continuing enforceability of the Transaction
Documents. While the Company has attempted to structure the Transaction
Documents in accordance with applicable state and federal law, there can be no
assurance that the enforceability of the Transaction Documents will not be
successfully challenged. See "--Health Care Regulation" and "Business-Exclusive
Management Services Agreement" and "--Physician Employment Agreements" and
"--Government Regulation."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation, as amended, provides
for a classified Board of Directors. This provision may inhibit or delay a
change in control of the Company on terms which stockholders might find
attractive. In addition, the Company's Restated Certificate of Incorporation
provides for "blank check" preferred stock, which may be issued without
stockholder approval. The ability of the Company to issue shares of such
preferred stock, without further stockholder approval, may also inhibit a change
in control of the Company on terms which stockholders might find attractive. See
"Description of Capital Stock." The Restated Certificate of Incorporation also
requires that certain business combinations and reorganizations affecting the
Company be approved by at least (i) seventy-five (75%) of the stockholders of
the Company entitled to vote thereon, (ii) at least a majority of the shares
entitled to vote thereon, not including shares deemed beneficially owned by
certain related persons, including any person, who together with "affiliates"
and "associates" of such person, as defined in the Delaware General Corporation
Law, beneficially owns 10% or more of the outstanding shares of Common Stock of
the Company and (iii) two-thirds vote of the board of directors of the Company,
excluding any directors affiliated with such persons. These provisions may also
inhibit a change in control of the Company on terms which stockholders might
find attractive.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock, which has been determined
through negotiations between the Company and the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
The factors considered in making such determination included the prevailing
market conditions, the financial condition and operating history of the Company
and the Founding Affiliates, their prospects and the prospects for the health
care industry in general, the management of the Company and the market price of
securities for companies in businesses similar to that of the Company. The
securities markets have, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's common stock. The market prices for securities of PPMCs
have in the past been, and can in the future be expected to be, particularly
volatile. The market price of the Common
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<PAGE> 16
Stock may be subject to volatility from quarter to quarter depending on
announcements regarding the affiliated practices or ancillary service
facilities, acquisitions by the Company or its competitors, government
regulations, developments or disputes concerning proprietary rights, changes in
reimbursement levels, changes in health care policy in the United States and
internationally, the issuance of stock market analyst reports and
recommendations, and economic and other external factors, as well as operating
results of the Company and fluctuations in the Company's financial results. See
"--Fluctuations in Operating Results," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year. Results may fluctuate due to a number of
factors, including the timing of future affiliations with physician practices,
timing of capital expenditures, seasonal fluctuations in the demand for medical
services, development of ancillary services, implementation and integration of
management information systems and other competitive factors. Accordingly,
quarterly comparisons of the Company's revenue and operating results should not
be relied on as an indication of future performance, and the results of any
quarterly period may not be indicative of results to be expected for any future
quarter or for the year in question. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $ per share (after giving
effect to underwriting discounts and commissions and estimated offering
expenses). In the event the Company issues additional Common Stock in the
future, including shares of Common Stock that may be issued in connection with
future affiliations, purchasers of Common Stock in this Offering may experience
further dilution in the net tangible book value per share of the Common Stock of
the Company. See "Dilution."
NO DIVIDENDS
The Company has never paid or declared any cash dividends and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
anticipated credit facility will most likely prohibit the payment of any
dividends without written approval from the lender. See "Dividend Policy."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the consummation of the Transactions and the Offering, the
Company's executive officers and directors will beneficially own approximately
% of the outstanding shares of Common Stock, representing % of all
shares of Common Stock currently outstanding. These stockholders, if acting in
concert, may be able to exercise substantial influence over the Company's
affairs. See "Security Ownership of Certain Beneficial Owners and Management."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $
million (approximately $ million if the Underwriters' over-allotment
option is exercised in full).
The Company intends to use these net proceeds (i) to pay approximately
$21.7 million for the cash portion of the consideration for the Transactions,
(ii) to pay approximately $5.1 million for principal and accrued interest on
certain promissory notes issued by the Company as part of its interim financing,
including approximately $990,000 to certain directors and officers of the
Company, (iii) to pay approximately $186,000 in deferred compensation to certain
officers of the Company and (iv) to loan approximately $1.25 million at an
interest rate of 7% to Christopher Cenac, M.D., the owner of Bone & Joint
Surgical Clinic, a Founding Affiliate. The remaining net proceeds will be used
for general corporate purposes, which are expected to include future
affiliations with physician practices, development of ancillary service
facilities and future capital expenditures. Other than with respect to the
Transactions, the Company currently has no agreement or understanding with
respect to any future physician practice affiliations. Pending such uses, the
net proceeds will be invested in short-term, interest bearing, investment grade
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and "Certain Transactions."
The indebtedness under the Company's promissory notes to be repaid with the
proceeds of the Offering bear interest at 12% per annum and would otherwise
mature at various dates through December 31, 1998. Proceeds of the promissory
notes were used for general working capital requirements of the Company, to pay
expenses in connection with the Transactions and the Offering and to purchase
and install management information systems.
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
physician practice affiliations and development of ancillary services, and does
not anticipate paying any cash dividends on its Common Stock for the foreseeable
future. Any future dividends will be at the discretion of the Board of Directors
after taking into account various factors, including, among others, the
Company's financial condition, results of operations, cash flows from
operations, current and anticipated cash needs and expansion plans, the income
tax laws then in effect, the requirements of Delaware law and restrictions that
may be imposed by the Company's future financing arrangements.
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DILUTION
The net tangible book value of the Company as of December 31, 1997 was
approximately $ or approximately $ . per share of Common Stock. The
pro forma net tangible book value per share of Common Stock represents the
amount by which the Company's pro forma net worth divided by the number of
shares of Common Stock to be outstanding after giving effect to the
Transactions. After giving effect to (i) the Transactions and (ii) the sale by
the Company of shares of Common Stock offered hereby, and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value at
December 31, 1997 would have been approximately $ , or approximately
$ . per share. This represents an immediate increase in pro forma net
tangible book value of approximately $ . per share to existing stockholders
and an immediate dilution of approximately $ . per share to new investors
purchasing the shares of Common Stock in the Offering. The following table
illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $
Historical net tangible book value per share before
Offering............................................... $
Increase due to Transactions, but before the Offering.....
Increase in pro forma net tangible book value per share
attributable to new investors..........................
Pro forma net tangible book value per share after
Offering..................................................
Dilution per share to new investor(s)....................... $
</TABLE>
- ---------------
(1) Before deducting estimated underwriting discounts and estimated expenses of
the Offering payable by the Company.
The calculation of pro forma net tangible book value per share assumes no
exercise of outstanding options or warrants. As of the date of this Offering,
shares of Common Stock were subject to outstanding options, at a
weighted average exercise price of $ per share. In addition, as of the
date of this Offering, warrants to purchase shares of Common Stock
were outstanding with a weighted average exercise price of $ per share.
If the options and the warrants were exercised in full, there would be further
dilution to new investors resulting in a reduction of pro forma net tangible
book value per share of . See "Management--Executive Compensation" and
"Description of Capital Stock--Warrants and Options."
The following table sets forth, on a pro forma basis to give effect to the
Transactions as of December 31, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders, owners of the Founding Affiliates and
the new investors purchasing shares of Common Stock from the Company in this
Offering (before deducting underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................
Founding Affiliates..........................
New Investors................................
Total......................................
</TABLE>
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CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the long-term debt and the total
capitalization of the Company (i) as of December 31, 1997 and (ii) on a pro
forma adjusted basis to reflect the Transactions, the sale by the Company of
shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Financial Statements and
Notes thereto.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------
HISTORICAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
Short-term debt, net of unamortized warrant discounts of
$3,068:................................................... $ 1,737 $
======= =======
Long-term debt:
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.001 par value, 30,000,000 shares
authorized, 3,460,000 shares issued and outstanding and
shares issued and outstanding as
adjusted(2)............................................ 3 --
Common stock, $001 par value, to be issued to affiliated
physicians at specified future dates, shares
as adjusted
Additional paid-in capital.................................. 64 --
Common Stock Warrants....................................... 3,435
Accumulated deficit......................................... (3,720) --
------- -------
Total stockholders' equity (deficit)................... (218)
-------
Total capitalization........................................ $ (218) $
======= =======
</TABLE>
- ---------------
(1) Gives effect to the sale of million shares of Common Stock offered
by the Company at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."
(2) Includes shares of Common Stock reserved for issuance upon the
exercise of certain Common Stock warrants, but does not include (i)
1,245,000 shares of Common Stock issuable upon the exercise of options
outstanding under the Company's 1996 Stock Option Plan, and 255,000 shares
of Common Stock available for issuance thereunder and (ii) 60,000 shares of
Common Stock issuable upon the exercise of outstanding options and under the
Company's Non-Employee Director Stock Option Plan, and 190,000 shares of
Common Stock available for issuance thereunder and (iii) shares of
Common Stock reserved for issuance to certain Founding Affiliates upon
conversion of Promissory Notes delivered by the Company in the Transactions.
18
<PAGE> 20
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following historical information, except for the balance sheet data at
December 31, 1995, is derived from the financial statements of the Company
included elsewhere in this Prospectus. The 1995 balance sheet data is derived
from financial statements not included in this Prospectus. Except as indicated,
this information does not reflect the effects of the Transactions or the
Offering.
<TABLE>
<CAPTION>
FROM INCEPTION FROM INCEPTION
NOVEMBER 1, 1995 NOVEMBER 1, 1995
THROUGH FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Statement of Operations
Data(1):
Revenue..................... -- -- --
Costs and expenses:
Compensation and
benefits............... $ 182 $ 758 $ 940
Compensation expense
incurred in connection
with the issuance of
common stock........... 37 37
Professional fees........ $ 10 620 934 1,564
Depreciation and
amortization........... 4 19 23
Interest expense......... 28 741 769
General and
administrative
expenses............... 121 266 387
---------- ---------- ---------- ----------
Total costs and expenses.... 10 955 2,755 3,720
---------- ---------- ---------- ----------
Net income (loss)........... $ (10) $ (955) $ (2,755) $ (3,720)
========== ========== ========== ==========
Net income (loss) per
share--Basic and
Diluted(2)............... $ (.01) $ (.41) $ (.82) $ (1.41)
========== ========== ========== ==========
Weighted average shares
outstanding.............. 1,643,750 2,327,295 3,352,986 2,638,913
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 AS
1995 1996 1997 ADJUSTED(3)
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $51 $ 311 $ 1,842
Working capital (deficit)........................ (8) (1,052) (1,593)
Total assets..................................... 51 529 3,254
Short-term debt, net(4).......................... 50 782 1,737
Long-term debt, net.............................. -- -- --
Stockholders' equity (deficit)................... (8) (838) (218)
</TABLE>
- ---------------
(1) The Company has been engaged in developmental activities, but has generated
no revenue to date.
(2) Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods presented. Substantial
options and warrants are outstanding at minimal exercise prices, the effects
of which are anti-dilutive given the Company's losses, and therefore basic
and diluted net loss per share are equal.
(3) As adjusted gives effect to the Transactions, the sale of million
shares of Common Stock offered by the Company, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
(4) Net of unamortized warrant discounts of $3,068 and $124 as of December 31,
1997 and 1996, respectively.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only forecasts, and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus. The historical results
set forth in this discussion and analysis are not indicative of trends with
respect to any actual or projected future financial performance of the Company.
The following should be read in conjunction with the Financial Statements and
related notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
The Company will acquire, in connection with the Transactions,
substantially all of the non-medical assets and liabilities of, and enter into
Management Services Agreements with, the Founding Affiliates. Through those
Management Services Agreements, the Company will provide practice management
services to the Founding Affiliates in return for management services fees.
The Company's affiliation transactions will be accomplished under
individually negotiated terms of multiple agreements, primarily a Management
Services Agreement and Asset Purchase Agreement between the Company and the
Founding Affiliates. Based upon an independent valuation, consideration paid by
the Company in the form of Common Stock will be discounted for financial
reporting purposes 25% and 40%, respectively, for such shares delivered on the
first and second anniversaries of the closing of the Offering. Consideration
paid by the Company, net of the discount, in excess of the fair market value of
the assets acquired pursuant to the Asset Purchase Agreements will be
capitalized as the fair market value of the Management Services Agreements and
amortized over the useful life of such agreements, generally 25 years.
The expenses incurred by the Company in fulfilling its obligations under
the Management Services Agreements will generally be of the same nature as the
operating costs and expenses that were otherwise incurred by the Founding
Affiliates prior to the Transactions, including salaries, wages and benefits of
practice personnel (excluding physicians and certain other licensed medical care
professionals), medical and office supplies used in administering their
practices and the office (general and administrative) expenses of the practices.
The Company believes it can reduce these expenses through management
efficiencies and economies of scale. In addition to the operating costs and
expenses discussed above, the Company will incur personnel and administrative
expenses in connection with establishing and maintaining a corporate office
which will provide management, administrative, marketing and development and
acquisition services to affiliated practices.
The Management Services Agreements have initial terms of 40 years, subject
to earlier termination under certain circumstances. Pursuant to the Management
Services Agreements, the Company will become the exclusive manager and
administrator of the non-medical services relating to the operation of the
affiliated practices. Generally, the management services fees are equal to (i) a
percentage (ranging from 20% to 55%) of the revenue, less operating expenses of
the affiliated practice and (ii) a percentage (generally 60%) of gross revenue
less operating expenses of any ancillary services provided by the affiliated
practice. See "Business--Exclusive Management Services Agreements."
In connection with its strategy of providing ancillary services, the
Company has entered into definitive agreements to purchase a 70% equity interest
in an outpatient surgery center and substantially all of the assets of a sleep
disorders operation with two locations. Ancillary revenue will be generated from
services provided by the affiliated practices to their patients that are
ancillary to neuro-musculoskeletal care, such as outpatient surgery, physical
therapy, MRI, CT Scan, sleep disorders, brain mapping and other electronic
diagnostic testing. See "Business--Summary of Terms of Transactions."
RESULTS OF OPERATIONS--THE COMPANY
The Company has been engaged in developmental activities, but has generated
no revenue to date. The Company has incurred and will continue to incur various
legal, accounting, travel, personnel and marketing
20
<PAGE> 22
costs in connection with the Transactions and the Offering. These expenses were
funded with proceeds from (i) issuances of the Common Stock, (ii) issuances of
$4,805,000 aggregate principal amount of 12% promissory notes of the Company
with warrants to acquire approximately $9,117,000 worth of shares of Common
Stock at the offering price, with exercise prices ranging from $.01 to $.25 per
share and (iii) warrants to acquire 27,000 shares of Common Stock at an exercise
price of $1.00 per share. Since inception, the Company has suffered recurring
losses from operations. The Company has a net capital deficiency that raises
substantial doubt about its ability to continue as a going concern. The
Company's Report of Independent Accountants includes a qualification to such
extent.
THE TRANSACTIONS
Simultaneously with the consummation of the Offering, the Company will
complete the Transactions whereby it will acquire substantially all of the
non-medical assets of the Founding Affiliates and will enter into Management
Service Agreements with each of the Founding Affiliates. The actual terms of the
various Management Services Agreements may vary from the description below on a
case-by-case basis, depending on negotiations with the individual Founding
Affiliate and the requirements of applicable law and governmental regulations.
See "Business--Summary of Terms of Transactions."
Management Services Fee Calculation. The following table categorizes by the
type of Management Services Agreement, the historical patient revenue and the
historical operating expenses, excluding physicians' compensation, for the year
ended December 31, 1997 for the Founding Affiliates. Total fees payable by the
Founding Affiliates to the Company under the Management Services Agreements will
consist of the sum of (i) operating expense reimbursement, (ii) percentage based
management services fees and (iii) percentage based ancillary services fees. The
table below demonstrates the calculation of the management services fees under
each type of Management Services Agreement (dollars in thousands):
<TABLE>
<CAPTION>
REVENUE
GROSS LESS OPERATING ANCILLARY
REVENUE EXPENSES SERVICES(1) TOTALS
------- -------------- ----------- -------
<S> <C> <C> <C> <C>
Number of Founding Affiliates.................. 1 13 2 16
==== ======= ====== =======
Historical 1997 patient revenue of Founding
Affiliates................................... $790 $16,581 $5,336 $22,707
Historical 1997 operating expenses of Founding
Affiliates(2)................................ 302 7,274 3,707 11,283
---- ------- ------ -------
Historical 1997 operating income(2)............ $488 $ 9,307 $1,629 $11,424
==== ======= ====== =======
Percentage based management services fees
derived from Management Services
Agreements................................... $153 $ 3,746 $ 233 $ 4,132
==== ======= ====== =======
</TABLE>
- ---------------
(1) Includes a fee of 5% of revenue received by the Company for providing
management services to the Physician Surgery Center (as defined herein),
but does not include the Company's share of earnings before interest,
income taxes, depreciation and amortization pursuant to its ownership
interest in the Physician Surgery Center of $1,260,000 or the Central
Georgia Center for Sleep Disorders of $217,000.
(2) Under the terms of the Management Services Agreements, operating expenses
and operating income exclude affiliated physicians' compensation and
operating expenses of the Company.
The combined historical financial information of the Founding Affiliates
presented herein is not related to the financial position or results of
operations of the Company. This information is presented solely for the purpose
of providing disclosures to potential investors regarding the group of entities
with which the Company will be contracting to provide future management
services. Since the Founding Affiliates were not operated under common control
or management during the year ended December 31, 1997, future results may vary
significantly.
RESULTS OF OPERATIONS--PHYSICIAN SURGERY CENTER
Surgical, L.L.C., a Louisiana limited liability company doing business as
Physician Surgery Center ("Physician Surgery Center"), was incorporated in
August 1994 for the purpose of providing outpatient
21
<PAGE> 23
surgery services throughout the Houma, Louisiana area. After its construction,
the surgery center began operations in August 1996. Its net patient revenues
grew from $1,638,000 to $4,665,000 for the years ended 1996 and 1997,
respectively, and its net income increased from $239,000 to $1,117,000 for the
same periods. These increases can be attributable to a full year of operations
for 1997 and the ability of the Physician Surgery Center to market itself to the
greater Houma area and to attract and maintain beneficial relationships with
physicians.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had an accumulated deficit during
development stage of $3,720,000. The Company has relied on loans from
stockholders and the private sale of investment units composed of promissory
notes and warrants to purchase Common Stock to fund its operations through the
Closing of the Offering. The Company sold, at a price of $1,000 per unit, 310 of
these investment units on December 31, 1996, 410 of these units on October 31,
1997 and 3,000 of these units on December 31, 1997. As of the date of the
Offering, the Company will have outstanding promissory notes in the principal
amount of $4,805,000 from the sale of the investment units, including $30,000
and $50,000 to Messrs. Strange and Landry, respectively, all of which will be
repaid from the proceeds of the Offering. These notes bear simple interest at a
rate of twelve percent (12%) per annum. At December 31, 1997, the Company had
cash on hand of $1,842,000.
Robert F. Strange, Jr., Chairman of the Board and Chief Executive Officer
of the Company, loaned $784,000 to fund operations of the Company under terms of
unsecured promissory notes, payable on demand, and accruing interest at a rate
of twelve percent per annum. As of May 31, 1997, Mr. Strange converted $300,000
of such unsecured promissory notes into a 12% promissory note of the Company in
the principal amount of $300,000, and a warrant to purchase up to $600,000 worth
of Common Stock based on the Offering price exercisable at $0.05 per share. As
of October 31, 1997, Mr. Strange converted the remaining $484,000 of such
promissory notes together with $16,000 of accrued interest thereon into a 12%
promissory note of the Company in the principal amount of $500,000, and a
warrant to purchase up to 1,000,000 worth of Common Stock based on the price of
this Offering at $0.25 per share.
In connection with the Transactions, the Company will issue an aggregate of
$12.3 million of Promissory Notes to the owners of the Founding Affiliates, and
assume $ worth of indebtedness of the Physician Surgery Center. These
Promissory Notes will be non-negotiable, full-recourse obligations of the
Company, and the repayment of any outstanding principal and accrued interest due
under $7.8 million of these Promissory Notes will be subordinate to the senior
debt of the Company. The remaining $4.5 million principal amount of these
Promissory Notes will be convertible into shares of Common Stock. Interest on
the outstanding principal balance of the Promissory Notes is generally payable
annually at rates ranging from 0% to 10% per annum. The outstanding principal
balances of the Promissory Notes, subject to certain adjustments, are due and
payable after the Closing of the Offering as follows: (i) $441,000 in year 1,
(ii) $4,504,000 in year 2, (iii) $2,649,000 in year 3, (iv) $2,517,000 in year 4
and (v) $2,212,000 in year 5. See "Certain Transactions--Transactions with
Founding Affiliates."
The Company anticipates that capital expenditures during 1998 will relate
primarily to affiliations with additional physician practices, if any, and to
the expansion and replacement of medical and office equipment for the affiliated
practices. The Company also anticipates that it will guarantee approximately
$1.1 million in debt planned for the expansion of the Physician Surgery Center.
The Company is currently negotiating with various lenders to obtain a revolving
credit facility which if obtained will be available to fund additional working
capital needs and possible future affiliations. It is anticipated that funding
for the above purposes will be derived from the proceeds of the Offering, funds
borrowed under the contingent credit facility and cash flow from operations.
Management of the Company believes that such sources will be sufficient to fund
the Company's capital needs for a period of in excess of twelve months following
completion of the Offering. In the future, the Company will seek to raise
additional funds through borrowings or the issuance of debt or equity
securities. There can be no assurance that sufficient funds will be available on
terms acceptable to the Company, if at all.
22
<PAGE> 24
BUSINESS
GENERAL
The Company is a PPMC organized to provide management services to
affiliated Neuro-musculoskeletal Practices, and also to provide ancillary
services to both affiliated and non-affiliated physician practices. Concurrently
with the Closing of the Offering, the Company will, in separate Transactions,
affiliate with 14 Neuro-musculoskeletal Practices with an aggregate of 22
physicians in 7 U.S. states, and purchase certain ancillary service businesses
consisting of a 70% equity interest in an outpatient surgery center, and
substantially all of the assets of a sleep disorders operation. Through the
Transactions, the Company will enter into Management Services Agreements with
each of the Founding Affiliates and purchase substantially all of the tangible
and intangible nonmedical assets of the affiliated practices. Had the terms of
the Company's Management Services Agreements with the Founding Affiliates been
applied to historical operating results of the Founding Affiliates for the year
ended December 31, 1997, management services fees for the Company would have
been approximately $4,132,000, and the Company's share of earnings before
interest, income taxes, depreciation and amortization pursuant to its ownership
interest in the ancillary service facilities would have been approximately
$1,477,000.
As part of the Transactions, the Company will deliver (i) $21.7 million in
cash, (ii) $7.8 million principal amount of subordinated Promissory Notes, and
$4.5 million of Promissory Notes convertible into shares of Common Stock, (iii)
$400,000 worth of shares of Common Stock at the Offering Price and (iv) the
right to receive 69,000 shares of Common Stock and $10.2 million worth of shares
of Common Stock at the Offering Price, such shares to be delivered on the first
and the second anniversaries of the Closing of the Offering, respectively. In
addition, the Company will assume approximately $ of liabilities of the
Founding Affiliate. Certain of the Transactions are subject to post-closing
adjustments, however, the Company estimates that no further consideration will
be payable in connection with such post-closing adjustments. See "Certain
Transactions." The Founding Affiliates were selected based on a variety of
factors, including their competitive and financial strengths, the historical
growth of their practices and the potential for future growth in their markets
and the applicable regulatory environments.
INDUSTRY OVERVIEW
Market Overview. HCFA estimated that national health care spending in 1996
was approximately $1.04 trillion, with approximately $202 billion of such
expenditures directly attributable to physician services and an additional $630
billion under physician direction. HCFA also projected that national health care
spending will be nearly $2.2 trillion in the year 2005. This projected growth in
health care expenditures has increased the demand by government and third party
payors to control health care costs, increasing the emphasis on more efficient
management by providers. Furthermore, the shift from private pay to managed care
reimbursement has added to the complexity of managing the clinical and
administrative aspects of physicians' practices. As a result, physician
practices are increasingly aligning with management companies to achieve cost
efficiencies, gain access to comprehensive administrative, operational and
financial support and to be better positioned to negotiate for managed care
contracts.
Physicians seeking to affiliate with management companies have several
alternatives, such as affiliating with HMOs, independent physician associations,
physician hospital organizations or PPMCs like the Company. The Company believes
PPMCs are attractive to physicians because of (i) fee and compensation
structures which allow physicians to participate in revenue growth and cost
efficiencies (ii) the physicians' ability to participate in previously
unavailable ancillary service revenue, and (iii) transaction structure, which
permits physicians to become stockholders of PPMCs while maintaining ownership
of their practice.
Many payors are attempting to control costs by reducing the utilization and
reimbursement of specialists through the use of primary care "gatekeepers."
Patients and employers, however, are becoming more conscious of not only the
cost of care, but also of the quality of care and levels of customer service,
and are often demanding greater physician choice and the option of seeking care
directly from specialists. The Company believes that specialist physicians, such
as the neuro-musculoskeletal physicians affiliating with the Company, have a
greater understanding of the treatment and management of complex
neuro-musculoskeletal disease and injury conditions and can therefore provide
more timely, appropriate and, ultimately, less costly care to patients with
direct access to such specialists than through a gatekeeper system controlled by
primary
23
<PAGE> 25
care physicians. As a result, the Company believes that there will be increased
demand for specialists as the shift away from the primary care gatekeeper models
for managed care continues to evolve.
Neuro-musculoskeletal Medicine. In general, neuro-musculoskeletal care
includes the treatment of conditions related to bones, joints, muscles,
connective tissues, the brain and nervous system. Neuro-musculoskeletal care is
provided by a variety of medical and surgical specialists, including
orthopaedists and orthopaedic surgeons, neurologists and neurosurgeons, physical
medicine specialists, rheumatologists and pain management physicians. The
Company believes that the neuro-musculoskeletal segment is one of the largest
specialty areas in health care. Based on data compiled by the AMA, the Company
believes the neuro-musculoskeletal segment represents 6.7% of all active,
classified physicians. The AMA estimates that in 1996 there were approximately
22,500 orthopaedists and orthopaedic surgeons, as well as approximately 11,600
neurologists, 4,900 neurosurgeons, 5,800 physical medicine specialists, 3,500
rheumatologists and 500 pain management physicians in the U.S. Treatment for
neuro-musculoskeletal disorders can range from treatment of milder chronic
conditions such as headaches, arthritis and back pain to more severe conditions
such as knee-replacement, spinal or hip surgery and the treatment of head and
neck trauma.
The Company believes that health care spending for neuro-musculoskeletal
care in the U.S. is growing in excess of the national growth trend in health
care spending. According to HCFA, total health care expenditures grew from $562
billion in 1988 to $1.04 trillion in 1996, representing an 84% increase. Based
on studies made by the AMA and the MGMA, neuro-musculoskeletal physician
services grew by 109% for the same periods. Several factors have influenced this
increase in expenditures, including improvements in medical technology, more
active lifestyles and the overall aging of the population.
The Company has targeted affiliating with neuro-musculoskeletal practices
because it believes physicians in these practices generally produce higher
levels of revenue and income relative to other specialist physicians. According
to the 1997 Physician Compensation and Production Survey, median compensation
for orthopaedic surgeons is 40% higher than the median compensation for all
specialists. Their income level is surpassed only by cardiac surgeons.
With the emergence of managed care, the percentage of payments by private
payors has declined from 39% in 1988 to 23% in 1996, while payments from managed
care sources increased from 12% to 26%. The Company believes that
neuro-musculoskeletal care is subject to a similar payor mix. This shift from
private pay to managed care reimbursement has increased the complexity of
managing the clinical and administrative aspects of the physicians' practices
and has emphasized the necessity for physicians to manage their practices more
efficiently, creating incentives among physicians to affiliate with PPMCs.
The Company believes the neuro-musculoskeletal market is highly fragmented,
and further believes that neuro-musculoskeletal physicians are less dependent on
hospitals than other specialists. According to AMA studies, approximately 80% of
all neuro-musculoskeletal physicians are not hospital based. Furthermore, in the
past neuro-musculoskeletal physicians primarily maintained separate practices,
or have operated in small group practices. According to a 1997 AMA study, 67.3%
of all non-institutional physicians practice in groups consisting of less than
five physicians. However, the trend towards managed care and cost containment is
leading to greater consolidation among these physicians. In February 1997, the
AAOS estimated that approximately 3% to 5% of all orthopaedic practices have
affiliated with PPMCs.
The Company believes that neuro-musculoskeletal physicians typically
utilize ancillary services with greater frequency than many other specialist
physicians. Neuro-musculoskeletal physicians require access to a broad range of
ancillary services including outpatient surgery, physical therapy, MRI, CT Scan,
sleep disorders, brain mapping and other electronic diagnostic testing.
BUSINESS STRATEGY
The Company's objective is to become a leading neuro-musculoskeletal PPMC
in its targeted geographic markets through the following strategies:
Develop Integrated Networks. The Company intends to develop integrated
networks or groups consisting of multiple physician practices as well as
complementary ancillary services in each of its target geographic
24
<PAGE> 26
markets. The Company believes that its comprehensive neuro-musculoskeletal
approach allows for greater inter-specialty business among practices, enabling
the Company to capture a greater share of the revenue associated with
neuro-musculoskeletal disease management. In addition, the Company believes a
broad group of physicians can more efficiently utilize a variety of ancillary
services, making the investment in ancillary service equipment or facilities
more economically attractive. Finally, by assembling a selective group of
physicians and ancillary service capabilities, the Company believes that it will
be better positioned to obtain managed care and other payor contracts than
physician groups that are primarily focused on a single specialty.
Enhance Ancillary Revenue Opportunities. The Company believes that a
significant opportunity exists to add value to affiliated physician practices
through the addition of ancillary service facilities, including outpatient
surgery, physical therapy, MRI, CT Scan, sleep disorders, brain mapping and
other electronic diagnostic testing. The Company intends to develop many of
these and other services in each of its target markets by contracting for excess
capacity with existing facilities, developing new facilities, purchasing
equipment to perform ancillary services and acquiring existing facilities. The
Company expects the affiliated physicians to primarily use the Company's
ancillary service facilities, enabling the Company to control the cost, quality
and other important aspects of these services. Ancillary service facilities will
also generate revenue to the Company through referrals from non-affiliated
physicians. The Company will receive management services fees and share in the
profit generated by these services. In connection with the Offering, the Company
will acquire a 70% equity interest in the Physician Surgery Center, and will
acquire substantially all of the assets of a sleep disorders operation.
Maximize Profitability and Internal Growth Opportunities. The Company will
seek to maximize the profitability and internal growth of affiliated practices
through increased operating efficiencies and additional revenue opportunities.
The Company believes that it can achieve operating efficiencies through i)
economies of scale resulting from centralizing administrative functions such as
billing and collections, payroll and accounting, purchasing, human resources and
regulatory compliance and ii) savings associated with the purchase of medical
supplies and malpractice insurance. The Company believes that it can enhance
revenue growth by a) removing the administrative burden from practices, allowing
physicians to devote more time to the practice of medicine, b) implementing more
effective and timely billing and collections procedures, c) recruiting new
physicians to existing practices and d) enhancing the practice's ability to
develop managed care contracts as part of a larger, integrated network or group.
Focus on Secondary and Niche Markets. The Company intends to pursue a
focused geographic strategy based on developing critical mass in selected
markets. These markets will generally be secondary markets or niche segments of
major markets, typically characterized by a high concentration of industrial
labor with more favorable reimbursement environments. The Company believes that
this geographic and demographic strategy is advantageous because i) it enables
the Company to develop a leading market position more quickly, ii) industrial
markets are typically characterized by a greater incidence of occupational
injuries, which involve attractive payor sources, iii) secondary and niche
markets are less penetrated by managed care payors, creating a more favorable
reimbursement environment and iv) there is currently less competition from other
PPMCs for practice affiliations. The Company intends to focus its initial
affiliation efforts on its existing markets with selective consideration of new
markets.
Grow through Affiliations with Small- to Mid-Sized Practices. The Company
intends to pursue growth through new practice affiliations with practices of all
sizes, but will initially focus on small- to mid-sized practices consisting of
one to five physicians. Small- to mid-sized practices typically do not have the
capital or patient volume to justify ancillary service investments, or the scale
to compete for managed care contracts on a stand-alone basis, and typically
spend a greater portion of their time on non-billable administrative matters;
and, should therefore benefit more from the Company's integrated approach.
Additionally, the Company believes that small- to mid-sized practices are not as
often the focus of affiliation efforts from competing PPMCs.
25
<PAGE> 27
DEVELOPMENT OF AFFILIATIONS AND ACQUISITIONS
Criteria. The Company intends to acquire substantially all of the
non-medical assets of, and provide management services to, small to mid-size
neuro-musculoskeletal practices that are financially strong. The Company is
primarily focused on affiliating with practices that will complement its
Founding Affiliates to form integrated neuro-musculoskeletal networks or groups
in existing markets, but will consider an entrance into attractive new
geographic markets which offer exceptional development opportunities. Candidates
will be expected to demonstrate potential for revenue growth or continued
profitability. The Company will also evaluate qualitative issues such as the
medical professionals' reputations in the local and national marketplace, the
medical professionals' training, licensure and experience, the
Neuro-musculoskeletal Practices' Medicare and Medicaid compliance, billing
practices and operating history. The Company believes that a substantial number
of neuro-musculoskeletal practices will meet these criteria. Prior to entering
any market, the Company will consider such factors as the local level of
networking and consolidation activity, the regulatory environment,
patient-provider ratios and the economic condition of the local market.
The Company will also consider the acquisition of ancillary services
facilities such as outpatient surgery, physical therapy, MRI and CT Scan, sleep
disorders, brain mapping and other electronic diagnostic testing facilities that
are consistent with its objective of providing management services to providers
of integrated neuro-musculoskeletal care. With each affiliated practice the
Company will assess the needs of the practice and the market within which it
delivers medical services in order to determine the best manner in which to
deliver high quality, profitable ancillary services to patients. The Company
will develop these ancillary services by (i) contracting for available excess
capacity at existing centers in the local market area, (ii) acquiring an
existing facility with sufficient capacity to meet the needs of the affiliated
practice, (iii) purchasing equipment to perform the ancillary services or (iv)
constructing new ancillary service facilities.
The Company believes its approach will be attractive to physicians because
of its (i) focus on all specialties within the neuro-musculoskeletal sector,
allowing improved utilization management of cross referrals and greater
potential coverage for managed care contracting, (ii) emphasis in providing
services and opportunities to small to mid-size practices where the Company can
provide potentially larger opportunities for administrative efficiencies and
revenue growth and (iii) emphasis on the development of ancillary services
facilities by the Company for the affiliated practices.
Consideration for Transactions. As consideration for future affiliations
or acquisitions, the Company intends to use various combinations of its Common
Stock, Promissory Notes and cash. The consideration for each practice or
ancillary business will vary on a case by case basis, with the major factors
being the preferences of the owners of such practices or businesses, their
historical operating results and future prospects, their ability to complement
the services offered by other affiliated practices or ancillary services and the
Company's financial resources and the market for its Common Stock.
SERVICES AND OPERATIONS
The Company will manage most aspects of the affiliated practices and
ancillary services operations other than the provision of medical services and
will employ all personnel at the offices of the affiliated practices and the
ancillary service facilities who do not provide medical services. The Company
believes the affiliated practices will benefit from the administrative and
management support provided by the Company and that these services will
substantially reduce the amount of time the physicians spend on administrative
matters, enabling them to dedicate more time to the provision of quality medical
services to their patients and promoting growth of their professional practices.
Further, management believes that through economies of scale the Company will be
able to provide these services at a lower cost than could be obtained by each of
the affiliated practices individually.
Management Information Systems. The Company believes real-time access to
accurate and relevant financial, operating, patient and employee information is
essential to providing practice management services to the affiliated practices.
By the consummation of the Offering, the Company will have in place
comprehensive management information systems that integrate a financial
information system ("Lawson Insight Software") and a physician practice
management system ("Medic Vision Software"). The Medic Vision
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<PAGE> 28
Software includes appointment scheduling, billing, collections, referral
authorization processing and claims adjudication, while Lawson Insight Software
provides an integrated solution including general ledger, accounts payable, cash
management, budgeting, human resources and financial reporting.
The Company's systems have been designed to increase the productivity of
the affiliated practices by enabling the Company and the affiliated practices to
cost-effectively monitor productivity and to identify problem areas and
opportunities for improvement. The Company believes that additional benefits
will be gained from these systems by being able to track clinical outcomes which
is increasingly important to managed care providers.
Managed Care. The Company anticipates an increasing portion of the net
revenue of Neuro-musculoskeletal Practices will be derived from managed care
payors. Although rates paid by managed care payors are generally lower than
commercial rates, managed care payors provide access to large patient volumes.
The Company intends to assist the affiliated practices in competing effectively
within the managed care framework and to take advantage of the managed care
payors' large patient volumes by (i) performing analyses of the affiliated
practices' markets to develop managed care contracting strategies, including
practice specific contracting designed to increase access to managed care
patients, development of globally-priced products designed to establish a single
price for all medical costs of a designated procedure, and neuro-
musculoskeletal or single specialty carveouts that serve as exclusive providers
for managed care plans, (ii) meeting with principal payors in each market to
enhance relationships between the affiliated practices and the payors, (iii)
negotiating attractive arrangements with managed care payors by leveraging the
combined size of the affiliated practice within the integrated networks and (iv)
marketing to managed care payors by emphasizing the Company's disease and
injury-specific treatment programs, treatment protocols, ancillary services and
information-sharing capabilities.
Marketing. The Company and the affiliated practices and ancillary service
facilities will utilize multimedia advertising in local markets to stimulate
demand for neuro-musculoskeletal treatment and promote name recognition for the
Company and the affiliated practices and ancillary service facilities. Marketing
efforts will consist primarily of direct mail to employer groups, local
residents and managed care organizations to continually promote name and
capabilities recognition.
Education and Training. The Company is committed to on-going education and
training of its staff as an integral part of its operations. The Company's
programs will emphasize (i) improving patient satisfaction, (ii) increasing
skills and career advancement of staff at the affiliated practices and ancillary
service facilities, (iii) creating a professional environmental that is
conducive to attracting qualified personnel and additional affiliated practices
and ancillary service facilities and (iv) monitoring productivity improvements.
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<PAGE> 29
LOCATIONS
Upon consummation of the Transactions, the Company will provide management
services to the Founding Affiliates in the following locations:
<TABLE>
<CAPTION>
NUMBER OF
-----------------------------------
ANCILLARY
SERVICE
MARKET PRACTICES FACILITIES PHYSICIANS DISCIPLINES
- ------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
District of Columbia........... 1 1 orthopaedics
Houma, LA...................... 2 1 2 orthopaedics, surgery center
Houston, TX.................... 4 5 orthopaedics, neurology,
occupational medicine,
rheumatology
Los Angeles, CA................ 1 1 orthopaedics
Macon, GA...................... 1 2 7 neurology, sleep disorder
centers
Pittsburgh, PA................. 1 2 orthopaedics, physical
medicine
Tucson, AZ..................... 4 4 orthopaedics, neurosurgery,
neurology
-- -- --
Totals....................... 14 3 22
== == ==
</TABLE>
SUMMARY OF TERMS OF TRANSACTIONS
General. The aggregate consideration that will be paid by the Company to
affiliate with the Founding Affiliates consists of (i) approximately $21.7
million in cash, (ii) $7.8 million principal amount of subordinated Promissory
Notes, and $4.5 million principal amount of Promissory Notes convertible into
shares of Common Stock, (iii) $400,000 worth of shares of Common Stock at the
Offering Price and (iv) the right to receive 69,000 shares of Common Stock and
$10.2 million worth of shares of Common Stock at the Offering price, such shares
to be delivered on the first and second anniversaries of the closing of the
Offering, respectively. Certain of the Transactions are subject to post-closing
adjustments, however, the Company estimates that no further consideration will
be payable in connection with such post-closing adjustments. In addition, the
Company is assuming $ of the outstanding indebtedness of the Founding
Affiliates. See "Certain Transactions." The consideration being paid by the
Company to each of the Founding Affiliates was determined by arm's-length
negotiations between the Company and a representative of each particular
Founding Affiliate. Except for the Promissory Notes to be issued to the owners
of the Physician Surgery Center, the Company is allowed to reduce any
outstanding principal and interest due under the Promissory Notes and the shares
of Common Stock to be delivered in the event that an owner of the affiliated
practices fails to satisfy certain obligations under the Master Transaction
Agreement or in the event that the Company is entitled to indemnity payments
from such owner pursuant to terms of the Transaction Documents. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The closing of each Transaction is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Affiliates and their owners
and by the Company, the performance of each of their respective covenants
included in the agreements relating to the Transactions and the nonexistence of
a material adverse change in the results of operations, financial condition or
business of each of the Founding Affiliates. Generally, any Founding Affiliate's
definitive agreement may be terminated prior to the Closing of the Offering
under the following circumstances: (i) by the mutual consent of the Company and
the Founding Affiliate, (ii) if the Offering and the affiliation with or
acquisition of each particular Founding Affiliate are not closed by May 15,
1998, except for two of the Founding Affiliates, which transactions must close
by April 30, 1998 or (iii) by the Founding Affiliate or the Company if a
material breach or default is made by the other party in the observance or in
the due and timely performance of any of the covenants, agreements or conditions
contained in the Transaction Documents.
Affiliation with Physician Practices. As part of the closing of the
Transactions with the affiliated practices, (i) the Company and the affiliated
practice will execute and deliver an asset purchase agreement
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<PAGE> 30
whereby the Company will purchase substantially all of the non-medical assets of
the affiliated practice, (ii) generally, each physician and affiliated practice,
which will be reorganized as a new clinic or join an existing regional group
practice (collectively "Regional Group Practice"), will then execute and deliver
a contribution agreement, pursuant to which each physician will contribute to
the Regional Group Practice his undivided interest in the medical assets
received in the distribution from the affiliated practice in exchange for an
equity interest in such Regional Group Practice, (iii) the Company and the
Regional Group Practice will enter into a 40-year Management Services Agreement
under which the Company will provide management, administrative, marketing and
acquisition services to the affiliated practice, (iv) any existing employment or
similar agreements between the physicians and the affiliated practice will be
terminated, and each physician will enter into a physician employment agreement
with the Regional Group Practice and (v) each physician and the Regional Group
Practice will enter into a Clinic Operating Agreement to provide for the
continuation of the practice in certain circumstances.
[Description of Graphics: A block diagram captioned "TRANSACTION STRUCTURE,"
with the following elements: Old Physician Practices, Affiliated Practices,
Physicians, Physicians Trust and Ancillary Facilities. Text and arrows indicate
the relationship of the elements to one another.]
Acquisitions of Ancillary Service Facilities. As a part of the
Transactions, the Company will acquire a 70% equity interest in the Physician
Surgery Center located in Houma, Louisiana for consideration consisting of
$6,960,000 in cash and $2,982,995 in convertible promissory notes. Prior to the
Offering, the surgery center was owned by an aggregate of 26 physician surgical
specialists, all of whom may receive shares of Common Stock in this transaction.
These physicians will own the remaining 30% equity interest in the Physician
Surgery Center immediately after consummation of the Offering. In addition to
its ownership interest, the Company will also enter into a Management Services
Agreement with the Physician Surgery Center whereby it will receive a management
services fee equal to 5% of the revenue of the surgery center.
The promissory notes to be issued by the Company in this transaction bear
interest at 7.5% and are due and payable two years from the date of the closing
of the Offering. The promissory notes are secured by PTI's purchased equity
interest in the Physician Surgery Center. The outstanding principal and accrued
interest due under the promissory notes are convertible, at the option of the
physicians, into shares of Common Stock at any time prior to maturity, based on
the value initial public offering price of the Common Stock. Each of the
physician members of the Physician Surgery Center is also entitled to receive
shares of Common Stock after
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<PAGE> 31
the first anniversary of the Closing of the Offering if they each enter into an
agreement to not compete with the Physician Surgery Center. Such shares of
Common Stock total 69,000 in the aggregate. The Company has agreed to guaranty
$1.1 million of indebtedness to be undertaken by the surgery center to expand
its facilities, and has also agreed to assume $ of the outstanding
liabilities of the Physician Surgery Center as of the closing date of the
Offering.
Additionally, upon consummation of the Offering the Company will acquire
substantially all of the assets of the Central Georgia Center for Sleep
Disorders, a sleep disorders center with two locations in Macon, Georgia. Prior
to the Offering, the sleep disorders center was owned by the physician
stockholders of Neurology Associates, a Founding Affiliate. Dr. Charles C.
Wells, Jr., who will become a director of the Company upon consummation of the
Offering, will be the medical director of the sleep disorders center after the
Closing of the Offering, and in such capacity will be entitled to receive, on
behalf of Neurology Associates, 30% of the net operating income of the sleep
center.
EXCLUSIVE MANAGEMENT SERVICES AGREEMENTS
Commensurate with the successful completion of the Offering, each
affiliated practice will form a new clinic or join an existing regional group
practice, and will enter into an exclusive Management Services Agreement with
the Company. Under the Management Services Agreement, the Company will become
the exclusive manager and administrator of all the non-medical services relating
to the operation of the affiliated practice. The following summary of the
Management Services Agreement is intended to be a brief discussion of the
typical form of management services contract the Company will enter into with
the affiliated practices. The actual terms of the various transactions may vary,
depending on negotiations with the individual affiliated practices and the
requirements of local regulations.
Management Services Fees. The management services fees (the "Management
Services Fees") payable to the Company by an affiliated practice under a
Management Services Agreement are determined in arms-length negotiations. The
Management Services Fees are defined as revenue less the sum of clinic expenses
and excluded clinic expenses. Excluded clinic expenses are comprised
substantially of a physician's salary and benefits, with each Physician's salary
based on a percentage of the difference between the new clinic's revenue and
operating expenses. In connection with any ancillary services provided by the
Company under the Management Services Agreement, the Company will typically
receive Management Service Fees equal to 60% of ancillary service revenue after
operating expenses.
Duties of Company. Pursuant to a Management Services Agreement, the
Company will, among other things, (i) act as the exclusive manager and
administrator of non-medical services relating to the operation of each of the
affiliated practices, subject to matters reserved for the affiliated practices
or referred to a joint planning board consisting of equal representation between
physicians from each of the affiliated practices and members of corporate
management of the Company, (ii) bill patients, insurance companies and other
third party payors in the name of and collect on behalf of the affiliated
practices the fees for professional medical and other services and products
rendered or sold by the affiliated practices, (iii) provide, as necessary,
clerical, accounting, purchasing, payroll, legal, bookkeeping, computer
services, personnel, information management, preparation of certain tax returns,
printing, postage, duplication services and medical transcription services, (iv)
supervise and maintain custody of substantially all files and records, (v)
provide office/medical facilities for the affiliated practices, (vi) prepare, in
consultation with the joint planning board of each affiliated practice, all
annual and capital operating budgets, (vii) order and purchase inventory and
supplies as reasonably requested by the affiliated practices, (viii) implement,
in consultation with the joint planning board of the affiliated practices,
national and local public relations or advertising programs and (ix) provide
financial and business assistance in the negotiation, establishment, supervision
and maintenance of contracts and relationships with managed care and other
similar providers and payors.
Duties of Affiliated Practice. Under the Management Services Agreement,
the affiliated practices will retain the responsibility for, among other things,
(i) hiring and compensating physician employees and other medical professionals,
(ii) ensuring that physicians have the required licenses, credentials, approvals
and other certifications necessary to perform their duties and (iii) complying
with certain federal and state laws and
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<PAGE> 32
regulations applicable to the practice of medicine. In addition, each affiliated
practice will exclusively be in control of all aspects of the practice of
medicine and the delivery of medical services.
Term; Termination of Agreement. The Management Services Agreement is for
an initial term of 40 years, with automatic extensions (unless specified notice
is given) of five years. The Management Services Agreement 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 thereunder, which default continues for 60 days after notice without
cure.
In addition, the Management Services Agreement may also be terminated by
the Company if an affiliated practice or a physician employed thereby engages in
conduct or is formally accused of conduct for which the physician's license to
practice medicine reasonably would be expected to be subject to revocation or
suspension or is otherwise disciplined by any licensing, regulatory or
professional entity or institution, the result of any of which does or
reasonably would be expected to materially adversely affect the affiliated
practice. The affiliated practice and the Company may also elect to terminate
the Management Services Agreement in the event that a law firm with nationally
recognized expertise in health care law acceptable to the Company renders an
opinion that (i) a material provision of the Management Services Agreement is in
violation of applicable law and (ii) the agreement cannot be amended to cure
such violation without materially changing its terms.
Joint Planning Board. The Management Services Agreement provides that
certain non-medical matters related to the administration of each affiliated
practice will be decided by a joint planning board comprised of equal membership
of the affiliated practice and the Company.
Insurance. The affiliated practice is responsible for obtaining
professional liability insurance for its employees and the Company is
responsible for maintaining professional liability insurance for all
professional employees of the Company and general liability and property
insurance for each affiliated practice.
PHYSICIAN EMPLOYMENT AGREEMENTS
Each Regional Group Practice will be a party to a physician employment
agreement (the "Physician Employment Agreement") with each physician associated
with such practice, including those physicians who will receive cash, Common
Stock and a Promissory Note in a Transaction ("Physician Owner"). Each Physician
Owner will have an equal ownership interest in the Regional Group Practice;
however, each physician will have an interest in earnings of the Regional Group
Practice proportional to the difference between the revenue generated by, and
expenses allocable to, such physician. Typically, the Physician Employment
Agreement with a Physician Owner is for an initial term of five years, and
continues thereafter on a year to year basis, until terminated pursuant to its
terms. If a Physician Owner terminates employment or is terminated for cause
during the initial term, the physician will typically be required to pay to the
affiliated practice or group liquidated damages equivalent to a certain number
of months of clinic expenses attributable to the Physician Owner, and the
Company will be entitled to withhold and cancel the unpaid amount due under the
Promissory Note and the amount of the undelivered Common Stock under the terms
of the Transaction Documents. The Physician Employment Agreement typically
provides the Physician Owner will not compete with the affiliated practice
during its term, and for a period of not less than two years thereafter in a
specified geographical area, if termination of employment occurs within the
initial term of the agreement.
The terms of the Physician Employment Agreement for physicians who will not
be Physician Owners are similar to those as described above, except (i) there is
no provision for liquidated damages, (ii) the term for the covenant not to
compete continues for one year following termination and (iii) in certain
instances, the initial term of employment is less than five years.
COMPETITION
The business of providing health care services generally, and of providing
neuro-musculoskeletal services specifically, is highly competitive.
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<PAGE> 33
Affiliation with Physician Practices. The Company is under competitive
pressures for the affiliation, retention and the provision of management
services to Neuro-musculoskeletal Practices. Several companies, both publicly
and privately held, which have established operating histories and greater
financial and other resources than the Company, are pursuing the affiliation
with general and specialty physician practices, including Neuro-musculoskeletal
Practices, and the management of such practices. Some hospitals, clinics, health
care companies, HMOs, insurance companies and management services organizations,
many of which have greater financial and other resources than the Company,
engage in activities similar to the activities of the Company. There can be no
assurance that the Company will be able to compete effectively with such
competitors, that additional competitors will not enter the market, or that such
competition will not make it more difficult to affiliate with, and to enter into
agreements to provide management services to Neuro-musculoskeletal Practices on
terms beneficial to the Company.
Affiliated Practices. The affiliated practices will compete with local
neuro-musculoskeletal care service providers as well as managed care
organizations, many of which have greater financial and other resources than the
Company. The Company believes that changes in government and private
reimbursement policies and other factors have resulted in increased competition
among consumers for medical services, and that this competition is likely to
increase in the future. The Company believes the cost, accessibility, quality of
services and payor reimbursement provided are the principal factors that affect
competition.
The affiliated practices will compete with other providers for managed care
contracts. The Company believes that trends toward managed care have resulted in
increased competition for such contracts, and that this competition is likely to
increase in the future. Other physician practices, PPMCs and management service
organizations may have more experience than the affiliated practices and the
Company in obtaining such contracts. The Company's revenue is substantially
dependent on the success of the affiliated practices with which it establishes
long-term management services agreements. These affiliated practices face
competition from several sources, including sole practitioners, single and
multi-specialty medical groups, hospitals and HMOs.
Ancillary Services. The Company will also compete with other ancillary
service providers in some of the Company's market areas if (i) patients choose
to seek services from competitors facilities or (ii) managed care plans direct
patients to other facilities which are not affiliated with the Company and the
Company's affiliated practice is not able to become a provider on such managed
care plans. In most cases, however, the Company expects to have a competitive
advantage because the affiliated practice can offer "one stop shopping" for many
of its patients needs and most patients tend to follow their doctor's
recommendation when they are referred to an ancillary service facility. Because
the Company's Management Services Agreements provide that the physicians within
each affiliated practice can share in the net income of the ancillary services,
there is more incentive on the part of the physicians to care for the patients
with ancillaries which are within each practice.
GOVERNMENT REGULATION
The delivery of health care services has become one of the most highly
regulated professional and business endeavors in the United States. Both the
federal government and the individual state governments are responsible for
overseeing the activities of individuals and businesses engaged in the delivery
of health care services. Federal law and regulations are based primarily upon
the Medicare program and the Medicaid program, each of which is financed, at
least in part, with federal funds. State jurisdiction is based upon the state's
interest in regulating the quality of health care in the state, regardless of
the source of payment.
The Company believes its operations will be in material compliance with
applicable laws; however, the Company has not received or applied for a ruling
from any federal or state judicial or regulatory authority to this effect, and
many aspects of the Company's business operations have not been the subject of
state or federal regulatory interpretation.
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<PAGE> 34
Federal Law
General. The federal health care laws apply in any case in which a
physician is providing an item or service that is reimbursable under Medicare or
Medicaid or other federal health care programs or in which the Company is
claiming reimbursement from Medicare, Medicaid, other federal health care
programs or, in some instances, other third party payors on behalf of physicians
with whom the Company has a Management Services Agreement. The principal federal
laws include those that prohibit the filing of false or improper claims, those
that prohibit unlawful inducements for the referral of business reimbursable
under Medicare, Medicaid or other federal health care programs and those that
prohibit the provision of certain services by (a) a provider to a patient if the
patient was referred by a physician with which the provider has certain types of
financial relationships or (b) a provider who is excluded from Medicare,
Medicaid or other federal health care programs.
False and Other Improper Claims. The federal government is authorized to
impose criminal, civil and administrative penalties and/or exclusions on any
health care provider and its officers, directors, and in certain limited
circumstances, its owners that files a false claim or a pattern of claims based
on a code that the provider has reason to know will result in greater payments
than appropriate, claims for items or services not medically necessary, or for
the offer, solicitation, payment or receipt of anything of value (direct or
indirect, overt or covert, in cash or in kind), that is intended to induce the
referral of federal health care program patients or the ordering of items or
services reimbursable under those programs or the recommendation of, or the
arranging for, the provision of items or services reimbursable under Medicare
and Medicaid. Civil monetary penalties can also be imposed if a person "arranges
or contracts" with a person excluded from a federally funded health care
program, if they knew or should have known such person was excluded for
reimbursement from Medicare or Medicaid. Criminal penalties are also available
in the case of claims filed with private insurers if the government can show
that the claims constitute mail fraud, wire fraud, health care fraud, theft or
embezzlement in connection with health care or false statements relating to
health care matters. While the criminal statutes are generally reserved for
instances evincing an obviously fraudulent intent, the criminal and
administrative penalty statutes are being applied by the government in an
increasingly broad range of circumstances. The government has taken the
position, for example, that a pattern of claiming reimbursement for unnecessary
services violates these statutes if the claimant should have known that the
services were unnecessary. The government has also taken the position that
claiming reimbursement for services that are substandard is a violation of these
statutes if the claimant should have known that the care was substandard. The
government, in cases of suspected fraud, can freeze the assets of a health care
provider and in the case of a federal health care offense can order the
forfeiture of assets that constitute or are derived from proceeds traceable to
the offense.
The Company believes that its billing activities on behalf of the
affiliated practices will be in material compliance with these laws, but there
can be no assurance that the Company's activities will not be challenged or
scrutinized by government authorities. A determination that the Company had
violated these laws could have a material adverse effect on the Company.
Anti-Kickback Law. A federal law commonly known as the "Anti-Kickback Law"
prohibits the offer, solicitation, payment or receipt of anything of value
(direct or indirect, overt or covert, in cash or in kind), that is intended to
induce the referral of federal health care program patients or the ordering of
items or services reimbursable under those programs. The law also prohibits
remuneration that is intended to induce the recommendation of, or the arranging
for, the provision of items or services reimbursable under Medicare and
Medicaid. The law has been broadly interpreted by a number of courts to prohibit
remuneration that is offered or paid for otherwise legitimate purposes if the
circumstances show that one purpose of the arrangement is to induce referrals.
Even bona fide investment interests in a health care provider may be questioned
under the Anti-Kickback Law if the government concludes that the opportunity to
invest was offered as an inducement for referrals. The penalties for violations
of this law include criminal sanctions and exclusion from the federal health
care program.
In part to address concerns regarding the implementation of the
Anti-Kickback Law, the federal government in 1991 published regulations that
provide exceptions or "safe harbors" for certain transactions
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<PAGE> 35
that will not be deemed to violate the Anti-Kickback Law. Among the safe harbors
included in the regulations were provisions relating to the sale of physician
practices, management and personal services agreements and employee
relationships. Subsequently, regulations were published offering safe harbor
protection to additional activities, including referrals within group practices
consisting of active investors. Proposed amendments clarifying the existing safe
harbor regulations were published in 1994. If any of the proposed regulations
are ultimately adopted, they would result in substantive changes to existing
regulations. The failure of an activity to qualify under a safe harbor
provision, while potentially leading to greater regulatory scrutiny, does not
render the activity illegal.
There are several aspects to the Company's relationships with the
affiliated practices to which the Anti-Kickback Law may be relevant. In some
instances, for example, the government may construe some of the marketing and
managed care contracting activities of the Company as arranging for the referral
of patients to the physicians with whom the Company has a Management Services
Agreement.
Although neither the investment in the Company by physicians nor the
Management Services Agreements between the Company and the affiliated practices
qualify for protection under the safe harbor regulations, the Company does not
believe that these activities fall within the type of activities the Anti-
Kickback Law was intended to prohibit. A determination that the Company had
violated the Anti-Kickback Law would have a material adverse effect on the
Company.
The Civil Monetary Penalties Law also prohibits offering remuneration
prohibited under the anti-kickback laws and offering remuneration to an
individual eligible for Medicare or Medicaid benefits to induce that person to
order or receive any reimbursable item or service from a particular person.
Violations of the Civil Monetary Penalties Law can result in the imposition of
significant civil penalties.
Stark Self-Referral Law. The Stark Self-Referral Law (the "Stark Law")
prohibits a physician from referring a patient to a health care provider for
certain designated health services reimbursable by Medicare or Medicaid if the
physician has a direct or indirect financial relationship with that provider,
including an investment interest, a loan or debt relationship or a compensation
relationship. In addition to the conduct directly prohibited by the law, the
statute also prohibits schemes that are designed to obtain referrals indirectly
that cannot be made directly. The penalties for violating the law include (i) a
refund of any Medicare or Medicaid payments for services that resulted from an
unlawful referral, (ii) civil fines and (iii) exclusion from the Medicare and
Medicaid programs.
The Company will provide or arrange for the provision of designated health
service under the Stark Law. Because the Company will provide management
services related to those designated health services provided by physicians of
the affiliated practices, the Company will likely be deemed the provider of
those services for purposes of the Stark Law and, accordingly, the recipient of
referrals from such physicians. In that event, such referrals will be
permissible only if (i) the financial arrangements under the Management Services
Agreements with the affiliated practices meet certain exceptions in the Stark
Law and (ii) the ownership of stock in the Company by the referring physicians
meets certain investment exceptions under the Stark Law. The Company believes
that the financial arrangements under the Management Services Agreements qualify
for applicable exceptions under the Stark Law. However, there can be no
assurance that a review by courts or regulatory authorities would not result in
a contrary determination. In addition, the Company will not meet the Stark Law
exception related to investment interest until the Company's stockholders'
equity exceeds $75 million.
On January 9, 1998, HCFA published proposed rules to incorporate the
provisions of the Stark Law into regulations with respect to designated health
services other than clinical laboratory services. These regulations provide, in
the case of designated health services provided by a group practice, that the
overhead expenses of and the income from the practice must be distributed
according to methods that indicate that the practice is a unified business and
not based on each satellite office operating as if it were a separate
enterprise. While management believes that the overhead expenses of and the
income from each affiliated practice will be distributed according to methods
that indicate that the practice is a unified business, there can be no assurance
that the affiliated practice distribution methodology will not be challenged or
scrutinized by government authorities. A determination that the sharing of
overhead expenses and income of any affiliated practice does
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<PAGE> 36
not comply with Stark Law would preclude referrals to certain designated health
services operated by the Company and could have a material adverse effect on the
Company.
State Law
State Anti-Kickback Laws. Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Based on court and administrative
interpretation of federal anti-kickback laws, the Company believes that these
laws prohibit payments to referral sources where a purpose for payment is for
the referral. However, the laws in most states regarding kickbacks have been
subjected to limited judicial and regulatory interpretation. Therefore, no
assurances can be given that the Company's activities will be found to be in
compliance. Noncompliance with these laws could have an adverse effect upon the
Company and subject it and physicians of the affiliated practices to penalties
and sanctions.
State Self-Referral Laws. A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions. Some states, for example, only prohibit referrals when the
physician's financial relationship with a health care provider is based upon an
investment interest. Other state laws apply only to a limited number of
designated health services. Some states do not prohibit referrals but require
only that a patient be informed of the financial relationship before the
referral is made. The Company believes that its operations are in material
compliance with the self-referral law of the states in which the affiliated
practices are located.
Fee-Splitting Law. Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any splitting of a physician's fees, regardless of
whether the other party is a referral source. In most states, it is not
considered to be fee-splitting when the payment is made by the physician is
reasonable reimbursement for services rendered on the physician's behalf.
The Company will be reimbursed by physicians on whose behalf the Company
provides management services. The compensation provisions of the Management
Services Agreements have been designed to comply with applicable state laws
relating to fee-splitting. There can be no certainty, however, that if
challenged, the Company and its affiliated practices will be found to be in
compliance with each state's fee-splitting laws. A determination in any state
that the Company is engaged in any unlawful fee-splitting arrangement could
render any service Management Services Agreement between the Company and an
affiliated practice located in such state unenforceable or subject to
modification in a manner adverse to the Company.
Corporate Practice of Medicine. Most states prohibit corporations from
engaging in the practice of medicine. Many of these state doctrines prohibit a
business corporation from employing a physician. States differ, however, with
respect to the extent to which a licensed physician can affiliate with corporate
entities for the delivery of medical services. Some states interpret the
"practice of medicine" broadly to include activities of corporations such as the
Company that can have an indirect impact on the practice of medicine, even where
the physician rendering the medical services is not an employee of the
corporation and the corporation exercises no discretion with respect to the
diagnosis or treatment of a particular patient.
Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, there can
be no assurance that regulatory authorities of the states in which the Company
operates would not apply to these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care
35
<PAGE> 37
network laws by regulatory authorities in these states or in the states into
which the Company may expand will not require licensure or a restructuring of
some or all of the Company's operations.
INSURANCE
The affiliated practices provide medical services to the public and are
exposed to the risk of professional liability and other claims. Such claims, if
successful, could result in substantial damage awards to the claimants that may
exceed the limits of any applicable insurance coverage. Although the Company
does not control the practice of medicine by the affiliated practices, it could
be asserted that the Company should be held liable for malpractice of a
physician employed by an affiliated practice. Each of the affiliated practices
has undertaken to comply with all applicable regulations and legal requirements
with respect to insurance coverage. In addition, the Company maintains liability
insurance for itself. It is anticipated that the Company will be named as an
additional insured party on the liability insurance policies of each of the
affiliated practices. The affiliated practices will maintain comprehensive
professional liability insurance, generally with limits of not less than $1.0
million per claim and with aggregate policy limits of not less than $3.0
million. There can be no assurance, however, that a future claim or claims will
not be successful or, if successful, will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs.
The Founding Affiliates have generally maintained professional liability
insurance coverage on a claims-made basis. Such insurance provides coverage for
claims asserted when the policy is in effect regardless of when the events that
caused the claim occurred. The Company intends to acquire similar coverage after
the closing of the Transactions, since the Company, as a result of the
Transactions, may in some cases succeed to the liabilities of the Founding
Affiliates. Therefore, claims may be asserted after the Transactions against the
Company for events that occurred prior to the Transactions.
PROPERTIES
The Company's corporate headquarters are located at 1300 Post Oak
Boulevard, Suite 1800, Houston, Texas, 77056. The Company subleases
approximately 12,800 square feet of office space at its headquarters in Houston,
Texas. In addition, in connection with the Transactions, the Company will enter
into leases for the facilities utilized by the affiliated practices and
ancillary service facilities.
EMPLOYEES
Upon the completion of the Offering, the Company anticipates that it will
have approximately 125 employees, with about 19 such employees in its corporate
offices in Houston, Texas, and the remaining employees consisting of
non-physician personnel located at the offices of the Founding Affiliates. None
of the Company's employees are subject to a collective bargaining arrangement.
The Company considers its relationships with its employees to be good.
LEGAL MATTERS
As of the date of the Offering, Image Trust, Inc., a Delaware corporation
("Image Trust") (a prior employer of Robert F. Strange, Jr. otherwise unrelated
to the Company), Mr. Strange and the Company are each disputing claims brought
by Mark Singleton ("Consultant") arising under a consulting agreement between
Image Trust and Consultant. Consultant has made a claim against the Company for
(i) unpaid consulting fees in the approximate amount of $128,000, (ii) the right
to acquire 320,000 shares of Common Stock for $320, (iii) warrants to purchase
up to $31,000 worth of Common Stock based on the Offering price and (iv)
punitive damages in an unspecified amount. The Company believes the claims
against it are without merit, and intends to vigorously contest such claims. The
parties submitted the matter to mediation held on April 14, 1997, but no
settlement was reached. The dispute is to be scheduled for binding arbitration
in March 1998.
The Company is not currently a party to any other claims, suits or
complaints relating to services and products provided by the Company or the
Founding Affiliates, although there can be no assurances that such
36
<PAGE> 38
claims will not be asserted against the Company in the future. The Company may
become subject to certain pending claims as the result of successor liability in
connection with the Transactions; however, it is the opinion of management that
the ultimate resolution of those claims will not have a material adverse effect
on the financial position or operating results of the Company.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors. The members of the Board of Directors are
divided into three classes, as nearly equal in number as possible. Generally,
members are elected for a three-year term, with the term of one class expiring
each year. The Class I directors are Messrs. Strange and Conomikes. The Class II
directors are Messrs. Jung and Weaver. The Class III directors are Messrs.
Tuttle and Landry. Upon consummation of the Offering, Dr. Wells will be a Class
II director, and Dr. Silver will be a Class I director. The terms of the Class I
directors expire at the Company's next annual meeting of stockholders
anticipated for May 1998. The terms of the Class II and Class III directors
expire at the annual meeting of stockholders to be held in 1999 and 2000,
respectively. At each annual meeting of stockholders, directors of the class the
term of which then expires will be elected by the holders of the Common Stock to
succeed those directors whose terms are expiring.
<TABLE>
<CAPTION>
NAME AGE(1) PRINCIPAL POSITION(S)
---- ------ ---------------------
<S> <C> <C>
Robert F. Strange, Jr................ 50 Chairman of the Board, Chief Executive Officer and
Director(2)(3)
Terence D. Jung...................... 50 President, Chief Operating Officer and Director(2)
Dwight P. Ryan....................... 39 Senior Vice President of Accounting and Finance
Michael J. Faulkner.................. 50 Senior Vice President of Development
William D. McClellan, Jr............. 38 Vice President of Finance and Secretary
Paul M. Grigsby...................... 31 Vice President of Operational Services
James T. Breland..................... 49 Vice President of Regional Operations
Suzanne E. Speak..................... 33 Vice President of Human Resources
Eugene Metoyer....................... 35 Chief Information Officer
George S. Conomikes.................. 71 Director(3)
Raymond P. Landry.................... 59 Director(4)
Philip A. Tuttle..................... 55 Director(2)(4)
James D. Weaver...................... 48 Director(3)
Richard A. Silver, M.D............... 57 Director(5)
Charles C. Wells, Jr., M.D........... 46 Director(5)
</TABLE>
- ---------------
(1) At March 1, 1998.
(2) Member of the Board Executive Committee.
(3) Member of the Board Compensation Committee.
(4) Member of the Board Audit Committee.
(5) Appointment will become effective when the Offering closes.
Robert F. Strange Jr. has served in the position of Chairman of the Board,
Chief Executive Officer and director of the Company since its inception. From
inception to March 1997, Mr. Strange was also President and Secretary of the
Company. From 1993 to 1996, he served as President and Chief Executive Officer
of ImageTrust, Inc. an owner and operator of MRI and nuclear camera facilities
in South Carolina and Texas. He served as President and Chief Executive Officer
of Sterling Technologies, Inc., in Houston, Texas from 1990 to 1993, and was
Secretary of Axciton Systems Inc., in Houston Texas from 1985 to 1994, both of
which were companies involved in computer technology and manufacturing. From
1988 to 1990, Mr. Strange served as a commercial banker at Texas Commerce Bank,
Houston, Texas. Mr. Strange received a Bachelor of Science degree, majoring in
Business Administration, from Trinity University, and served as a commissioned
officer in the United States Army--Military Intelligence Branch from 1970 to
1972.
Terence D. Jung joined the Company as Chief Operating Officer in November
1996, and was elected President of the Company in March 1997, and became a
director of the Company on January 1, 1998. From 1994 to 1996, he served as
President of Avanti Health Systems of Houston, a physician management services
38
<PAGE> 40
organization located in Houston, Texas and a subsidiary of New York Life
Insurance Company. From 1992 to 1994, Mr. Jung was Chief Operating Officer of
Avanti Health Systems, Inc., a national management health services organization
located in Chicago, Illinois. In 1990, he founded Millenium Business Ventures,
Inc., a management and financial consulting firm specializing in health care and
other industries. From 1985 to 1990, he was Chief Operating Officer of Genesis
and Duffy Broadcasting Companies, holding companies that owned and managed
thirteen radio stations. Mr. Jung received a Bachelor of Science degree,
majoring in Economics and International Finance, from the Wharton School of
Finance & Commerce, and received a Master of Professional Accounting degree from
the University of Texas at Austin. Mr. Jung is a certified public accountant.
Dwight P. Ryan will become Senior Vice President of Accounting and Finance
of the Company, effective March 16, 1998. For over ten years prior to joining
the Company, Mr. Ryan held various executive positions with IntegraMed America,
Inc., most recently as Vice President and Chief Financial Officer. During this
period he oversaw various private and equity offerings, including its initial
public offering in 1992. In addition, Mr. Ryan was the Treasurer and Secretary
of IntegraMed America. IntegraMed America is the largest physician practice
management company specializing in infertility and assisted reproductive
technology (ART) services. Mr. Ryan holds a Bachelor of Arts degree from
Lynchburg College, Lynchburg, Virginia.
Michael J. Faulkner, Ph.D. joined the Company as Senior Vice President of
Development in November 1997. From 1994 to February 1997, Dr. Faulkner served as
Senior Vice President of Strategic Development for Physician Reliance Network,
Inc., an oncology physician practice management company. From 1992 to 1994, Dr.
Faulkner served as Senior Vice President of Business Development for Paragon
Ambulatory Surgery, Inc., an operator of ambulatory surgery centers located in
Los Angeles, California; and, previous to that, was employed as Director of
Strategic Planning and Ambulatory Business Development for OrNda Health
Corporation, a developer and manager of hospital systems located in Dallas,
Texas. Dr. Faulkner obtained a Ph.D. in health care administration from the
University of Minnesota, and a Masters of Hospital Administration from the
University of California at Los Angeles.
William D. McClellan, Jr. joined the Company as Vice President of Finance
in December 1996, and was elected Secretary of the Company in March 1997. Mr.
McClellan previously served as Chief Financial Officer of PhyCor of
Irving/Medical & Surgical from 1995 to 1996, a physician practice management
company located in Irving, Texas, which operates a multi-specialty medical
clinic. From 1993 to 1995, he was corporate controller for TD Rowe Corporation,
a national vending machine corporation headquartered in Houston, Texas. He was
previously employed from 1984 to 1992 with the international accounting firm of
Price Waterhouse specializing in healthcare. Mr. McClellan received a Bachelor
of Business Administration from Abilene Christian University majoring in
Accounting, and is a certified public accountant.
Paul M. Grigsby has served as Vice President of Operational Services of the
Company since June 1997. From 1988 to May 1997, he served in a variety of
financial and operational positions including Director of Finance, Director of
Internal Audit and capitation accountant for various subsidiaries of New York
Life Insurance Company, including NYLCare Health Plans of the Gulf Coast, Avanti
Health Systems, Inc., and Avanti Health Systems of Houston, Inc. His
responsibilities have included oversight of accounting functions for five
professional corporations comprising 53 physician practice locations and four
management services organizations, the oversight of information systems,
development of new clinic locations and establishing fee structures for external
healthcare providers.
James T. Breland joined the Company as Vice President of Regional
Operations in November 1997. From 1995 to 1997, Mr. Breland served as the
Associate Administrator/Chief Operating Officer of the Diagnostic Clinic of
Houston, a 60 physician multi-specialty internal medicine group in Houston,
Texas. From 1992 to 1995, Mr. Breland served as Senior Vice President/Director
of Physician Practice Management of American Medical International, and managed
its Houston-based management services organization. From 1989 to 1992, Mr.
Breland was employed as the director of family healthcare for Presbyterian
Healthcare Services in Albuquerque, New Mexico. Mr. Breland received an
associate degree in Radiologic Technology from Northeast Louisiana University,
and is a Fellow of the American College of Medical Practice Executives.
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<PAGE> 41
Suzanne E. Speak joined the Company in January 1997 as Vice President of
Human Resources. From 1995 to 1997, Ms. Speak was Director of Human Resources
for OneCare Health Industries, Inc., a physician group practice comprised of 32
practice locations and 105 physicians located in Houston, Texas. From 1989 to
1995, she served in various human resource capacities with Hermann Hospital in
Houston, Texas, including physician recruitment. Ms. Speak received a Bachelor
of Arts degree, majoring in Communications, from Baylor University.
Eugene Metoyer joined the Company as Chief Information Officer in November
1997. He served in various capacities with Avanti Health Systems of Houston,
Inc. from 1995 to 1997, most recently as associate director of information
systems. From 1989 to 1995, he served in various capacities with Hermann
Hospital in Houston, Texas, most recently as a data communications analyst. Mr.
Metoyer has an associate of applied science degree from ITT Technical Institute
in Houston, Texas.
George S. Conomikes has served as a director of the Company since December
30, 1997. Since its founding in 1971, Mr. Conomikes has served as President of
Conomikes Associates, Inc., a national medical practice management consulting
firm. Mr. Conomikes received a Bachelor of Arts from Middlebury College,
Middlebury, Vermont, and a Master of Arts in Economics from the University of
Chicago.
Raymond P. Landry has served as a director of the Company since December
30, 1997. Since 1995, he has served as Executive Vice President of WRT Energy
Corp., a publicly-traded oil and gas company located in Houston, Texas. From
1991 to 1995, he was Executive Vice President and Chief Financial Officer of OPI
International, Inc., a marine pipeline and construction company located in
Houston, Texas. Since 1992, Mr. Landry has served as a director of Dupre
Transport, Inc., a tank and general cargo carrier located in Lafayette,
Louisiana. Mr. Landry graduated from Louisiana State University with a Bachelor
of Science in Business Administration.
Philip A. Tuttle has served as a director of the Company since December 30,
1997. He has served as President, Chief Executive Officer, Chairman of the Board
and a Director of Zydeco Exploration, Inc., an oil and gas company located in
Houston, Texas, from its formation in 1993 to 1995, and continues to serve on
its Board of Directors. Since 1997, he has been general partner of Davis Tuttle
Venture Partners, L.P., a private investment partnership located in Houston,
Texas. From 1990 to 1995, Mr. Tuttle was a director of Quality Tubing, Inc., a
Houston, Texas based manufacturer of steel coil tubing for the energy services
industry, becoming Chairman of the Board in 1992. Since 1989, he has been a
general partner of Davis Venture Partners, L.P., a private investment
partnership located in Houston, Texas. Mr. Tuttle is a founder and former
President of the Houston Venture Capital Association. He was also President and
a director of the Houston Chapter of the Association for Corporate Growth,
Chairman of the Accounting Council at Rice University-Jones Graduate School of
Administration and a member of the Board of Governors of the National
Association of Small Business Investment Companies. In addition, Mr. Tuttle
serves on the Board of Drypers Corp., a publicly traded company that
manufactures and distributes disposable diapers. He is a Certified Public
Accountant and Fellow of the Institute of Directors, London, England. Mr. Tuttle
received a BA in Economics from Rice University and a MBA from Northwestern
University.
James D. Weaver became a Director of the Company effective December 30,
1997. Since its formation in 1997, Mr. Weaver has been a director of Group
Maintenance America Corp. ("GMAC"), a publicly-held provider of heating,
ventilation and air conditioning services. From October 1996 to April 1997, Mr.
Weaver served as Director of GMAC's predecessor, GroupMAC Management Co. Mr.
Weaver has been the President of the Gordon and Mary Cain Foundation, a
nonprofit organization, since 1988 and the Director of the Good Samaritan
Foundation, a nonprofit organization, since 1986, both of which are based in
Houston, Texas. Mr. Weaver received a Bachelor of Arts degree from the
University of Houston and a Masters of Arts degree from Syracuse University.
Richard A. Silver, M.D. will become a director of the Company at the
Closing of the Offering. Dr. Silver has been a shareholder of Tucson Orthopaedic
Surgery Association, a Founding Affiliate, since 1973. Dr. Silver is a board
certified Diplomate of the National Board of Medical Examiners (1966), the
American Board of Orthopaedic Surgery (1972), the American Board of Forensic
Examiners (1996) and the American
40
<PAGE> 42
Board of Forensic Medicine (1996). Dr. Silver received his Bachelor of Science
and his Doctor of Medicine degrees from the University of Illinois.
Charles C. Wells, Jr., M.D. will become a director of the Company at the
Closing of the Offering. Dr. Wells is a shareholder of Neurology Associates and
Central Georgia Center for Sleep Disorders, both of which are Founding
Affiliates, and has been practicing medicine in the state of Georgia since 1978.
Dr. Wells is a board certified Diplomate of the National Board of Medical
Examiners (1978), the American Board of Physiatry and Neurology (1983) and the
American Board of Sleep Disorders (1993). Dr. Wells received his Bachelor of
Science degree from the University of Georgia, and his Doctor of Medicine degree
from the Emory University School of Medicine.
BOARD OF DIRECTORS
Following the Offering, each member of the Board of Directors who is not a
full-time employee of the Company, will be paid (i) $1,000 per meeting of the
Board of Directors or any committee thereof at which the director is present,
and $500 for each meeting he attends telephonically and (ii) reimbursement of
all ordinary and necessary expenses incurred in attending any meeting of the
Board of Directors or any committee thereof. Upon being named a director, each
director who is not an employee of the Company will receive options to purchase
10,000 shares of Common Stock, and will also be granted, on an annual basis,
options to purchase 5,000 shares of Common Stock, exercisable at the market
price of the Common Stock when the options were granted by the Company.
Directors who are full-time employees of the Company will not receive any
compensation for serving as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Company's executive officers have or currently serve as a
member of another entity's compensation committee, and no member of the
Compensation Committee has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers. The following table sets forth
for the fiscal year ended December 31, 1997 all compensation received or accrued
by the Chief Executive Officer and by each of the other most highly compensated
executive officers ("Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
-------------------- COMMON STOCK
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ------ ----- ------------------
<S> <C> <C> <C>
Robert F. Strange, Jr.
Chairman of the Board and Chief Executive
Officer.......................................... $195,000(1) -- 300,000
Terence D. Jung
President and Chief Operating Officer............ $165,833(1) $5,050 370,000
William D. McClellan, Jr.
Vice President of Finance and Secretary.......... $113,835 $3,108 200,000
</TABLE>
- ---------------
(1) Includes $133,000 and $11,000 of 1997 salary deferred by Messrs. Strange and
Jung, respectively, until consummation of the Offering.
During the term of their individual employment agreements, the base
salaries of Messrs. Strange, Jung and McClellan are subject to certain automatic
annual increases. Mr. Strange's base salary shall increase to $225,000, $235,000
and $250,000, respectively, in years three, four and five of his employment; Mr.
Jung's base salary shall increase to $200,000 in years three and four of his
employment, and to $210,000 in year five; and, Mr. McClellan's base salary shall
increase to $150,000 in years four and five of his employment. Mr. Strange will
receive a success bonus of $15,000 on the closing of the Offering.
41
<PAGE> 43
Commencing one full calendar quarter after the Offering, Messrs. Strange,
Jung and McClellan will be eligible to receive a quarterly bonus measured as a
percentage of the increase in pre-tax net income per share of the Company over
the pre-tax net income per share for the most recent calendar quarter (the "PTNI
Increase"), times the number of shares outstanding at the end of the quarterly
period for which the bonus is granted. Under terms of their respective
employment agreements, Mr. Strange will be eligible to receive a bonus
equivalent to 6% of the PTNI Increase, not to exceed 150% of his quarterly base
salary; Mr. Jung will be entitled to receive a bonus equivalent to 5% of the
PTNI Increase, not to exceed 150% of his quarterly base salary; and Mr.
McClellan will be entitled to receive a bonus equivalent to 2% of the PTNI
Increase, not to exceed 100% of his quarterly base salary.
Grants of Stock Options. The following table sets forth information
concerning individual grants of stock options made during the period from
January 1, 1997 to December 31, 1997 to the Named Executive Officers:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
NUMBER OPTIONS OF STOCK PRICE
OF SHARES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES IN OR BASE FOR OPTION TERMS(2)
OPTIONS FISCAL PRICE PER EXPIRATION --------------------
NAMES GRANTED YEAR SHARE DATE 5% 10%
----- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Strange, Jr..... -- -- -- --
Terence D. Jung........... 100,000 33% $0.30 11/2007
Michael J. Faulkner....... 100,000 33% $0.30 11/2007
William D. McClellan,
Jr...................... -- -- -- --
James T. Breland.......... 50,000 16% $0.30 11/2007
</TABLE>
- ---------------
(1) Stock appreciation rights were not granted during fiscal 1997.
(2) These amounts represent certain assumed rates of appreciation over the terms
of the options in accordance with rates specified in applicable federal
securities regulations. Actual gains, if any, on stock option exercises and
Common stock holdings are dependent on the future performance of the Common
Stock and overall market conditions. There can be no assurance that the
amounts reflected in the table will be achieved.
Option Exercises and Fiscal Year End Values. The following table sets
forth at December 31, 1997 the number of options and the value of unexercised
options held by the Named Executive Officers. None of these individuals
exercised any options during the last fiscal year.
FISCAL YEAR END OPTION
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUES OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert F. Strange, Jr.................... 62,500 237,500 $ $
Terence D. Jung.......................... 45,000 325,000
Michael J. Faulkner...................... -- 100,000
William D. McClellan, Jr................. 33,333 166,667
James T. Breland......................... -- 50,000
</TABLE>
- ---------------
(1) Based upon an assumed initial public offering price of $ .
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<PAGE> 44
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Strange
providing for an annual base salary of $195,000 with a five year term.
Additionally, the Company has entered into employment agreements with Messrs.
Jung, Ryan, Faulkner, McClellan and Breland providing for annual base salaries
of $185,000, $150,000, $140,000, $130,000 and $120,000, respectively, with
initial terms of three years with an automatic renewal for two additional years
unless prior notice of termination is provided. The Company may terminate any of
these employment agreements (i) for cause, (ii) without cause upon no more than
60 days prior notice, or (iii) upon death or disability of the employee.
Generally, if the employee is terminated by the Company without cause, the
Company is required to pay such employee a lump sum severance equal to one-half
the applicable annual base salary during the initial period and a full annual
base salary if terminated during the extended term. In addition, upon a change
in control, the Company will pay the employee any accrued salary, benefits or
reimbursements and the employee's options to acquire shares of Common Stock will
fully vest and become immediately exercisable. With the exception of Mr. Jung's
agreement, each of the other agreements prohibit the employee from competing
with the Company for a period of one year following termination of employment.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Restated Certificate of Incorporation, as amended, contains
indemnification provisions which require the Company to indemnify such persons
against certain liabilities and expenses to which they may become subject by
reason of their service as a director or officer of the Company. The Restated
Certificate of Incorporation, as amended, also provides that the Company will
indemnify its officers, directors, employees and agents to the fullest extent
permitted by law with respect to any claims made against such person by reason
of the fact that such person was serving as officer, director, employee or agent
of the Company, or serving at the Company's request as a director, officer,
partner, trustee or agent of an entity affiliated with the Company.
1996 STOCK OPTION PLAN
In September 1996, the Board of Directors and the stockholders of the
Company approved the 1996 Stock Option Plan. The 1996 Stock Option Plan provides
for the granting of stock options ("Options") to directors, executive officers,
certain other key employees and certain non-employee consultants of the Company.
Within certain limitations provided by the 1996 Stock Option Plan, such Options
may include provisions regarding vesting, exercise price, the amount of each
grant and other terms as shall be approved by the Board of Directors or by a
committee designated by the Board. Options granted under the 1996 Stock Option
Plan may be either options that qualify as "incentive stock options," within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Options"), or those that do not qualify as such
("Nonqualified Options"). The 1996 Stock Option Plan, which permits up to
1,500,000 shares of Common Stock to be issued, terminates in September 2006. As
of the date of the Offering, 1,245,000 Options are outstanding and of
these Options are vested.
The 1996 Stock Option Plan is administered by the Board of Directors or by
the Compensation Committee of the Board, which committee, to the extent
required, will be constituted so as to qualify for certain exemptions under Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and to satisfy the requirements of Section 162(m) of the Code. Subject to the
terms of the 1996 Stock Option Plan, the Board of Directors or the Compensation
Committee determines the persons to whom Options are granted and the terms and
the number of shares covered by each Option. The term of each Option may not
exceed ten years from the date the Option is granted, or five years in the case
of an Incentive Option granted to a holder of more than 10% of the fully diluted
capital stock of the Company. Subject to the terms of each Option Agreement,
Options may become exercisable six months after the date of grant and may
continue to be exercisable, in whole or in part, up to ten years after the date
of grant, as determined by the Board of the Compensation Committee.
43
<PAGE> 45
The 1996 Stock Option Plan provides that all Non-qualified Options and
Incentive Options which are not exercisable on the date of termination of an
optionholder's employment generally expire when the optionee ceases to be
affiliated with the Company, except in the event of a change in control of the
Company; however, the Board of Directors or the Compensation Committee may, in
its discretion, permit the holder to exercise unvested Options following such
termination for specified periods of time if the six-month waiting period has
been satisfied, or upon the death or disability of the holder. Options may not
be transferred other than by will or the laws of descent and distribution, and
during the lifetime of an optionee may be exercised only by the optionee. The
1996 Stock Option Plan provides that each stock option agreement with respect to
any Non-qualified Option or Incentive Option shall specify the effects of
termination of employment or consulting on exercisability of such options.
The 1996 Stock Option Plan contains a provision accelerating the
exercisability of Options upon the occurrence of specified events, including
merger, consolidation, dissolution or liquidation of the Company, sale of all or
substantially all of the assets of the Company, acquisition, ownership or
control of more than 50% of the outstanding shares of voting Common Stock by any
person or entity and a change in a majority of the Board of Directors as a
result of or in connection with a contested election of directors. The
acceleration of vesting of Options in the event of a merger or other similar
event may be seen as an anti-takeover provision and may have the effect of
discouraging a proposal for merger, a takeover attempt or other efforts to gain
control of the Company.
Payment on the exercise of an Option may be in cash, by check or, at the
discretion of the Board, by delivery of shares of Common Stock with a "fair
market value," as defined in the 1996 Stock Option Plan, equal to the aggregate
exercise price, or by means of a "cashless exercise" involving the sale of
shares by, or a loan from, a broker.
The following options have been issued under the 1996 Stock Option Plan.
Mr. Strange has received options to purchase 150,000 shares over the initial 36
month period of his employment at an exercise price of $.01 per share, and has
also received options to purchase an additional 150,000 shares over the
subsequent 24 month period of his employment at an exercise price of $.50 per
share. Mr. Jung has received options to purchase 135,000 shares over the initial
36 month period of his employment at an exercise price of $.01 per share,
options to purchase an additional 135,000 shares over the subsequent 24 month
period of his employment at an exercise price of $.50 per share, and options to
purchase 100,000 shares over the final 48 month period of his initial five year
term of employment at an exercise price of $.30 per share. Mr. McClellan has
received options to purchase 100,000 shares over the initial 36 month period of
his employment at an exercise price of $.01 per share, and has also received
options to purchase an additional 100,000 shares over the subsequent 24 month
period of his employment at an exercise price of $.50 per share. Mr. Grigsby has
received options to purchase 25,000 shares over the initial 36 month period of
his employment at an exercise price of $.03 per share. Messrs. Faulkner, Breland
and Metoyer received options to purchase 100,000, 50,000 and 15,000 shares,
respectively, over the initial 60 month period of their employment at $.30 per
share. Ms. Speak has received options to purchase 10,000 shares over the initial
60 month period of her employment at $1.00 per share. Effective with his
employment, Mr. Ryan will receive options to purchase 100,000 shares over the
initial 36 month period of his employment at an exercise price of $1.50 per
share, and will also receive options to purchase an additional 50,000 shares
over the subsequent 24-month period of his employment at an exercise price equal
to the initial public offering price.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In December 1997, the Board of Directors of the Company approved the
Non-Employee Directors Stock Option Plan (the "Non-Employee Directors Stock
Option Plan"). Pursuant to further action by the Board of Directors and under
the terms of the Non-Employee Directors Stock Option Plan, the Company has
approved Non-qualified Options for each of the initial Non-Employee Directors as
follows (the "Non-Employee Director Awards"): (i) the automatic grant to each of
the initial Non-Employee Directors (including those elected to begin service
upon completion of the Offering) of options to purchase 10,000 shares, effective
as of the date of adoption of the Non-Employee Director Stock Option Plan at an
exercise price equal to $1.00 per share, (ii) the automatic grant to each
Non-Employee Director elected after the completion of the Offering of
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<PAGE> 46
options to purchase 5,000 shares, effective on the date of such person's initial
election as a director, at an exercise price equal to the fair market value of
the Common Stock on the date of such grant, and (iii) the automatic grant to
each Non-Employee Director of options to purchase 5,000 shares at each annual
meeting of stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months
following such person's election as a director, at an exercise price equal to
the fair market value of the Common Stock on the date of such grant. The Company
has reserved 250,000 shares of Common Stock for issuance pursuant to the
Non-Employee Director Awards; however, the Board of Directors may revoke at any
time the next automatic grant of options otherwise provided for pursuant to the
Non-Employee Director Awards. Each option granted pursuant to the Non-Employee
Director Awards shall be exercisable in full upon receipt and shall expire ten
years after the date of grant, unless sooner exercised or canceled due to
termination of service or death.
45
<PAGE> 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
Common Stock ownership as of the date of this Offering, by (i) each director and
executive officer of the Company, (ii) all directors and officers as a group and
(iii) each stockholder known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to all shares shown to be beneficially owned by them, except to the
extent such power is shared by a spouse under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
------------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(2) NUMBER PERCENT
------------------------------------ ------ ----------- ------ -------
<S> <C> <C> <C> <C>
Robert F. Strange, Jr.(1)(2)(3)................ 1,355,000 36.3%
Terence D. Jung(2)............................. 323,750 8.7%
Terry K. Dorsey................................ 200,000 5.4%
Richard C. Holdren............................. 200,000 5.4%
William D. McClellan, Jr.(2)................... 181,667 4.9%
Raymond P. Landry(2)(3)........................ 35,000 *
George S. Conomikes(2)......................... 10,000 *
Philip A. Tuttle(2)............................ 10,000 *
James D. Weaver(2)............................. 10,000 *
Richard A. Silver, M.D.(2)..................... 10,000 *
Charles C. Wells, Jr., M.D.(2)................. 10,000 *
All executive officers, directors and persons
nominated to become directors as a group (15
persons)(2).................................. 1,971,250 52.8%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 400,000 shares held by Robert F. Strange, Jr. as Trustee for the
benefit of the Robert F. Strange, Jr. Family Trust; 200,000 shares held by
Robert F. Strange, Jr. as Trustee for the benefit of Robert F. Strange, Jr.
Children's Trust; 200,000 shares held by Robert F. Strange, Jr. as Trustee
for the benefit of the Marian Strange Cheatham Family Trust; 50,000 shares
held by Robert F. Strange, Jr. as Trustee for the benefit of the Robert F.
Strange, Sr. Trust.
(2) Includes 75,000 shares, 73,750 shares and 41,667 shares issuable upon
exercise of outstanding stock options to Messrs. Strange, Jung and
McClellan, respectively, which are exercisable within 60 days of the
Offering. Additionally, includes 10,000 shares issuable upon exercise of
outstanding stock options to each of Messrs. Landry, Conomikes, Tuttle,
Weaver, Silver and Wells, and an aggregate of 266,250 shares issuable to
all executive officers and directors as a group.
(3) Does not include $1,600,000 and $50,000 worth of shares of Common Stock
issuable upon exercise of outstanding warrants held by Messrs. Strange and
Landry, respectively.
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<PAGE> 48
CERTAIN TRANSACTIONS
Set forth below is a description of transactions entered into between the
Company and certain of its stockholders, executive officers or directors.
Certain of the relationships between the Company and such persons may result in
conflicts of interest between the Company and such persons.
In connection with the organization of the Company, on November 1, 1995,
the Company issued 400,000 shares to Robert F. Strange, Jr., 400,000 shares to
the Robert F. Strange, Jr. Family Trust, 200,000 shares to the Robert F.
Strange, Jr. Children's Trust, and 200,000 shares to the Marian Strange Cheatham
Family Trust (hereinafter, the trusts are collectively the "RFS Trusts"). Mr.
Strange is trustee of each of the RFS Trusts and as such, is entitled to vote
all shares of Common Stock held by such trusts on all matters which come before
the stockholders of the Company. Mr. Strange currently serves as Chairman of the
Board, Chief Executive Officer and Director of the Company. On November 1, 1995,
the Company issued an additional 415,000 shares to seven other persons providing
assistance in connection with the organization of the Company, including 200,000
shares to Richard C. Holdren, 40,000 shares to Terry K. Dorsey, and 15,000
shares issued to John Mark Strange, the cousin of Robert F. Strange, Jr. All of
the foregoing shares were purchased for a cash consideration equal to the par
value of the shares acquired (i.e. $.001 per share).
During the period from December 19, 1995 through the date of this
Prospectus, the Company issued an additional 1,845,000 shares of Common Stock to
22 persons. Those sales included 160,000 shares issued to Terry K. Dorsey. All
of the shares issued by the Company during the period described above were
issued for a cash purchase price equivalent to $.001 per share. Among the shares
issued during the period, 300,000 shares were issued in conjunction with
one-year loans in the aggregate amount of $300,000 made by the purchasers of
such shares to the Company, including 30,000 shares purchased by Robert F.
Strange, Jr. in connection with one year loans to the Company in the amounts of
$30,000, and 25,000 shares purchased by Raymond P. Landry in connection with a
one year loan to the Company in the amount of $25,000.
In connection with the employment of Terence D. Jung, President and Chief
Operating Officer, William D. McClellan, Jr., Vice President of Finance and Paul
M. Grigsby, Vice President of Operational Services, the Company issued 135,000
shares, 100,000 shares and 10,000 shares of Common Stock, respectively. The
shares issued Messrs. Jung and McClellan were issued at a purchase price of
$.001, and Mr. Grigsby's shares were issued at a purchase price of $.03 per
share. As of April 30, 1997, Messrs. Jung and Mr. McClellan purchased an
additional 65,000 shares and 40,000 shares, respectively, for a purchase price
of $.05 per share. On October 1, 1997, Mr. Jung purchased an additional 50,000
shares for a purchase price of $.25 per share. Mr. Jung, Mr. McClellan and Mr.
Strange have received certain options to acquire Common Stock under terms of
their respective employment agreements. See "Executive Compensation."
Mr. Dorsey and Mr. Holdren provided consulting services to the Company
related to the acquisition of physician practices primarily during 1996 and
1997. Messrs. Dorsey and Holdren were paid $155,000 and $153,940, respectively,
by the Company for these consulting services.
In addition to the foregoing transactions, Robert F. Strange, Jr. has
loaned $784,000 to fund operations of the Company under terms of unsecured
promissory notes, payable on demand, and accruing interest at a rate of twelve
percent per annum. In connection with the Company's May 31, 1997 private
placement of 12% promissory notes and warrants to purchase Common Stock, Mr.
Strange exchanged $300,000 of such unsecured promissory notes for a 12%
promissory note of the Company in the principal amount of $300,000, and warrants
to purchase up to $600,000 worth of Common Stock based on the Offering price
exercisable at $0.05 per share. In connection with the Company's October 31,
1997 private placement of 12% promissory notes and warrants to purchase Common
Stock, Mr. Strange exchanged the remaining $484,000 of such promissory notes
together with $16,000 of accrued interest thereon for a 12% promissory note of
the Company in the principal amount of $500,000, and warrants to purchase up to
$1,000,000 worth of Common Stock based on the Offering Price exercisable at
$0.25 per share. Also in connection with the Company's May 31, 1997 private
placement of 12% promissory notes and warrants to purchase Common Stock, Raymond
P. Landry loaned the Company $25,000 in return for a 12% promissory note of the
Company in the principal amount of $25,000, and warrants to purchase up to
$50,000 worth of Common Stock based on the Offering Price exercisable at $0.05
per share.
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<PAGE> 49
TRANSACTIONS WITH FOUNDING AFFILIATES
The following table provides certain information concerning the
Transactions:
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
----------------------------------------
SHARE VALUE
PROMISSORY AT OFFERING
FOUNDING AFFILIATED PRACTICE LOCATION CASH NOTE PRICE
---------------------------- -------- ---- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1. Physician Surgery Center(1) Houma, LA $ 6,960(2) $ 2,983(3) --
2. Neurology Associates(4) Macon, GA 2,958 2,248 $ 2,248
3. Tucson Orthopaedic Fracture & Tucson, AZ 1,810 1,535(6)(7) 1,855
Surgery Associates, Ltd.(5)
4. Lee S. Pollack, M.D., P.A. Houston, TX 2,200 700 500
5. Desert Neurosurgery of Tucson, Tucson, AZ 1,075 625(7) 1,100
P.C.
6. Bone & Joint Surgical Clinic(8) Houma, LA 1,375 915 460
7. San Augustine Family Medical Houston, TX 1,000 500 1,000
Clinic, L.L.P.(9)
8. A. D. Walker, Jr. (A.P.M.C.) Houma, LA 935 525 600
9. Louis Berman, M.D., P.A. Houston, TX 780 315 470
10. Dr. Paul E. Wakim, Inc. Fountain Valley, CA 381 330 440
11. Walter F. Abendschein, M.D., Chevy Chase, MD 440 270 400(10)
P.A.
12. Cherry Way Orthopedics Pittsburgh, PA 325 365 390
13. Justo S. Avila, Jr., M.D., Houston, TX 315 315(7) 420
P.A.(11)
14. Central Georgia Center for Sleep Macon, GA 397 302 302
Disorders, Inc.
15. Scott Forrer, M.D. Tucson, AZ 444 229 172
16. Roy Gettel, M.D.(12) Tucson, AZ 290 165 220
------- ------- -------
Totals $21,685 $12,322 $10,577
======= ======= =======
</TABLE>
- ---------------
(1) The Company has agreed to guarantee $1,100,000 of debt to be undertaken by
the Physician Surgery Center to expand its facilities after consummation of
the Offering. The Company will also assume $ of the outstanding
indebtedness of the Physician Surgery Center as of the Closing of the
Offering.
(2) Includes $198,865 paid as earnest money by the Company to be applied
against the purchase price. If the transaction does not close without fault
of the Company, such earnest money shall be returned to the Company.
(3) The value of the promissory note is subject to upward adjustment based upon
the actual earnings for the Physician Surgery Center for the 12 months
immediately prior to the closing of the Offering. This promissory note is
also convertible into shares of Common Stock at the option of the
members of this Founding Affiliate, based on the Offering price.
(4) Dr. Charles C. Wells, Jr. owns % of this Founding Affiliate, and will
become a director of the Company on consummation of the Offering.
(5) Dr. Richard A. Silver is the sole owner of this Founding Affiliate, and
will become a director of the Company on consummation of the Offering.
(6) This promissory note is convertible into shares of Common Stock at the
option of the owner of this Founding Affiliate, based on the Offering
price.
(7) Promissory Notes are subject to downward adjustments if the revenue of this
Founding Affiliate in future periods fall below certain levels.
48
<PAGE> 50
(8) The Company will loan $1,250,000 to the Physician Owner of this Founding
Affiliate upon the closing of the Offering. The loan will bear interest at
a rate of 7% with installments of principal and interest payable annually
over six years. The note is secured by a pledge of the shares of Common
Stock and the Promissory Note to be received by the Physician Owner of this
Founding Affiliate in the Transaction.
(9) The Master Transaction Agreement requires that the Company pay monthly
extension payments of $10,000 to this Founding Affiliate until the
consummation of the Offering. As of the date of this Prospectus, the
Company has paid $ . Unless extended, the Master Transaction
Agreement expires April 30, 1998.
(10) The Shares of Common Stock are deliverable at closing of the Offering.
(11) The Master Transaction Agreement requires that the Company pay monthly
extension payments of $2,500 to this Founding Affiliate until the
consummation of the Offering. As of the date of this Prospectus, the
Company has paid $ . Unless extended, the Master Transaction
Agreement expires April 30, 1998.
(12) The consideration paid by the Company is subject to upward adjustment if
the revenue of this Founding Affiliate for the 12 months immediately
subsequent to the closing of the Offering exceeds certain levels.
COMPANY POLICY
In the future, any material transactions between the Company and directors,
officers, employees or other affiliates of the Company are anticipated to be
minimal and will, in any case, be approved in advance by a majority of the
Board, including a majority of disinterested members of the Board.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, the authorized capital stock of the Company consists of 30,000,000
shares of common stock, par value $.001 per share, and 2,000,000 shares of
serial preferred stock, $.001 par value per share ("Preferred Stock"). As of the
Offering date, there were 3,460,000 shares of Common Stock outstanding, and no
shares of Preferred Stock outstanding. On closing of the Transactions and the
Offering, the Company will have outstanding shares of Common Stock,
shares will be reserved for issuance to the Founding Affiliates and no
shares of Preferred Stock will be outstanding. In addition, shares of Common
Stock will be reserved for issuance pursuant to Warrants which will become
immediately exercisable upon completion of the Offering.
The following description of the Company's Capital Stock is a summary and
does not purport to be complete. This summary does not give effect to applicable
statutory or common law and is subject in all respects to the applicable
provisions of the Company's Restated Certificate of Incorporation, as amended,
which is included as an exhibit to the Registration Statement of which the
Prospectus is part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which the stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to cumulative voting
rights. Therefore, holders of a majority of the shares voting for the election
of directors can elect all of the directors. The holders of Common Stock are
entitled to dividends in such amounts and at such times as may be declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation or dissolution, holders of Common Stock are
entitled to share ratably in all net assets available for distribution to
holders of Common Stock. Holders of Common Stock have no redemption, conversion,
or preemptive rights.
PREFERRED STOCK
None of the Company's authorized Preferred Stock is outstanding. The
Preferred Stock may be issued from time to time by the Board of Directors in one
or more series. Subject to the provisions of the Company's Restated Certificate
of Incorporation, as amended, and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
WARRANTS AND OPTIONS
As of the date of the Prospectus, the Company has outstanding warrants to
purchase 27,000 shares of Common Stock. The Company issued such warrants to
third party consultants for services rendered. Each warrant has a three year
term and entitles the holder to purchase one share of Common Stock at an
exercise price of $1.00 per share.
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<PAGE> 52
The Company also has outstanding 4,559 warrants to purchase $9,117,000
worth of Common Stock based on the share price under the Offering, exercisable
at prices ranging from $.01 to $.25 per share. The warrants may be exercised
immediately upon the successful completion of the Offering. The warrants expire
three years from their date of grant, and if the Company does not successfully
complete an initial public offering prior to such expiration, then each warrant
shall entitle the holder to purchase 500 shares of Common Stock at a weighted
average purchase price of $.20 per share.
The exercise price and the number of shares purchasable upon the exercise
of each warrant are subject to adjustment upon the occurrence of certain events,
including the issuance of a dividend paid in stock, or a combination,
subdivision, or reclassification of shares of Common Stock, or a stock split or
reverse stock split. Warrant holders are not entitled, in such capacity, to
receive dividends or to consent or receive notice as stockholders in respect of
any meeting of stockholders for the election of directors of the Company or any
other matter, or to vote at any such meeting, or to exercise any rights
whatsoever as stockholders of the Company.
The Company has issued certain options to purchase shares of Common Stock
to certain executives of the Company. See "Executive Compensation."
REGISTRATION RIGHTS
Transactions. In connection with the Transactions, the Company has agreed
to grant the former stockholders of the Founding Affiliates certain registration
rights with respect to the Common Stock to be issued to such stockholders in the
Transactions. Under the terms of each Master Transaction Agreement, if the
Company proposes to file a registration statement with the SEC to register
shares of its Common Stock (other than in connection with the Offering), it must
notify such stockholders of such proposed registration, and give them the
opportunity to include their shares of Common Stock in the registration, subject
to certain conditions. The stockholders can participate in only such
registrations by the Company which occur between years two through five of the
anniversary of the closing of this Offering, and the Company is not obligated to
register any shares of Common Stock which are eligible to be sold pursuant to
Rule 144(k) of the Securities Act (or any successor provision with substantially
the same effect). The Company is also obligated to pay all costs associated with
the registration of the Common Stock, except for the fees and expenses of legal
counsel for such stockholders.
Founders. The Company has also granted registration rights to certain
founding stockholders of the Company holding in the aggregate 300,000 shares of
Common Stock. These stockholders were granted registration rights by the Company
because they also advanced to the Company an aggregate of $300,000 in cash for
purposes of working capital. Included is 30,000 shares of Common Stock held by
Robert F. Strange, Jr., the Chief Executive Officer and Chairman of the Board of
the Company, and 25,000 shares of Common Stock held by Raymond P. Landry, a
director of the Company. Under their separate agreements with the Company, if
the Company proposes to file a registration statement with the SEC to register
shares of its Common Stock (other than in connection with the Offering), it must
notify such stockholders of such proposed registration, and allow them the
opportunity to participate in such registration, subject to certain conditions.
Under their agreements with the Company, these founding stockholders also have
the right to demand the Company to register their shares of Common Stock under
the Securities Act. In such a case, the stockholders and the Company will enter
into an underwriting agreement in customary form with the managing underwriter,
and the Company may also include some of its own shares of Common Stock in the
registration if the managing underwriter so agrees. The Company is only
obligated to effect one such demand registration for the benefit of these
stockholders.
Warrants. Pursuant to the terms of its outstanding warrants, if the
Company proposes at any time to register any of its Common Stock under the
Securities Act, it must also give timely notice to the holders of the warrants
of its intention to do so. The holders then have the option to join their shares
of Common Stock (after exercise of the warrants) in the public offering, subject
to certain conditions. The Company is also not obligated under such a situation
to register shares freely tradeable under Rule 144(k) of the Securities Act or
any successor provision, but will bear all normal and customary expenses related
to such registration.
51
<PAGE> 53
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General Corporation
Law ("Section 203") generally provides that a person who, together with
affiliates and associates owns, or within three years did own, 15% or more of
the outstanding voting stock of a corporation subject to the statute (an
"Interested Stockholder"), but less than 85% of such stock, may not engage in
certain business combinations with the corporation for a period of three years
after the date on which the person became an Interested Stockholder unless (i)
prior to such date, the corporation's board of directors approved either the
business combination or the transaction in which the stockholder became an
Interested Stockholder or (ii) subsequent to such date, the business combination
is approved by the corporation's board of directors and authorized at a
stockholders' meeting by a vote of at least two-thirds of the corporation's
outstanding voting stock not owned by the Interested Stockholder. Section 203
defines the term "business combination" to encompass a wide variety of
transactions with or cause by an Interested Stockholder, including mergers,
asset sales, and other transaction in which the Interested Stockholder receives
or could receive a benefit on other than a pro rata basis with other
stockholders.
The provisions of Section 203, coupled with the authority of the board of
directors to issue Preferred Stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
the Company. The provision also could discourage, impede or prevent a merger,
tender offer or proxy context, even if such event would be favorable to the
stockholders. The stockholders of the Company, by adopting an amendment to the
Company's Restated Certificate of Incorporation, as amended, may elect not to be
governed by Section 203, which election would be effective 12 months after such
adoption. Currently, however, neither the Company's Restated Certificate of
Incorporation, as amended, nor the Bylaws exclude the Company from the
restrictions imposed by Section 203.
SPECIAL PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND
DELAWARE LAW. The provisions of the Restated Certificate of Incorporation, as
amended, of the Company may be deemed to have an anti-takeover effect or may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in such stockholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by a
stockholder.
Pursuant to the Restated Certificate of Incorporation, as amended, the
Board of Directors may by resolution establish one or more series of preferred
stock, having such number of shares, designation, relative voting rights,
dividend rates, liquidation, or other rights, preferences and limitations as may
be fixed by the Board of Directors without any further stockholder approval.
Such rights, preferences, privileges and limitations as may be established could
have the effect of impeding or discouraging the acquisition of control of the
Company.
The Restated Certificate of Incorporation, as amended, also requires that
certain business combinations and reorganizations affecting the Company be
approved by at least (i) seventy-five (75%) of the stockholders of the Company
entitled to vote thereon, and (ii) at least a majority of the shares entitled to
vote thereon, not including shares deemed beneficially owned by certain related
persons, including any person, who together with "affiliates" and "associates"
of such person, as defined in the Delaware General Corporation Law, beneficially
owns 10% or more of the outstanding shares of Common Stock of the Company
(collectively, "Related Persons"). The provisions of the preceding sentence do
not apply to such business combinations and reorganizations which have been
approved in advance by a two-third's vote of the members of the board of
directors, not including the votes of any directors affiliated with the related
persons, but such transactions must still comply with other provisions of the
Company's Restated Certificate of Incorporation, as amended, and applicable law.
LIMITATION OF DIRECTOR LIABILITY. Section 102(b)(7) of the Delaware General
Corporation Law ("Section 102(b)") authorizes corporations to limit or to
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. Although Section 102(b) does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Restated Certificate of Incorporation, as amended,
limits the liability of directors to the Company or its stockholders to the
fullest extent permitted by Section 102(b). Specifically, directors of the
Company will not be personally liable for monetary damages for
52
<PAGE> 54
breach of a director's fiduciary duty as a director, except liability for: (i)
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law, or (iv) any transaction from which the
director derived an improper personal benefit.
INDEMNIFICATION. To the maximum extent permitted by law, the Restated
Certificate of Incorporation, as amended, provides for mandatory indemnification
of directors and officers of the Company against all expense, liability and loss
to which they may become subject, or which they may incur, as a result of being
or having been a director or officer of the Company.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Common Stock is .
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Transactions and the Offering, shares of Common
Stock will be outstanding, and shares of Common Stock will be reserved
for issuance to the Founding Affiliates. See "Certain Transactions-Transactions
with Founding Affiliates." In addition, shares of Common Stock will be
reserved for issuance pursuant to Warrants which will become immediately
exercisable upon completion of the Offering. The shares of Common
Stock offered hereby will be freely tradeable unless acquired by affiliates of
the Company. All the remaining shares of Common Stock to be outstanding on the
closing of the Transactions and the Offering may be resold publicly only
following their effective registration under the Securities Act or pursuant to
an exemption from the registration requirements of that act, such as Rule 144
thereunder.
When the Offering closes, the Company also will have outstanding (i)
options to purchase up to a total of 1,245,000 shares and 60,000 shares of
Common Stock which were (or will have been) granted pursuant to the 1996 Stock
Option Plan and the Non-Employee Director Stock Option Plan, respectively, and
(ii) warrants which provide for the issuance of up to shares of Common
Stock. The Company intends to file a registration statement on Form S-8 to
register the shares issuable pursuant to its 1996 Stock Option Plan and the
Non-Employee Director Stock Option Plan. After that registration statement
becomes effective, the shares registered thereby generally will on issuance be
available for sale in the open market by holders who are not affiliates of the
Company and, subject to the volume and other limitations of Rule 144, by holders
who are affiliates of the Company. See "Management--1996 Stock Option Plan" and
"--the Non-Employee Director Stock Option Plan."
In general, under Rule 144, if a minimum of one year has elapsed since the
later of the date of acquisition of the restricted securities from the Company
or an affiliate of the Company, the holder (or holders whose shares of Common
Stock are aggregated), of such restricted securities, including holders who may
be deemed "affiliates of the Company," is 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 the Common Stock (approximately
shares on completion of the Offering) or (ii) the average weekly
reported volume of trading of the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about the Company. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the one year holding
period. Under Rule 144(k), if a period of at least two years has elapsed since
the later of the date on which restricted securities were acquired from the
Company or an affiliate of the Company, a holder of such restricted securities
who is not an affiliate at the time of the sale and has not been an affiliate
for at least three months prior to the sale is entitled to sell the shares
immediately without regard to the volume limitations and other conditions of
Rule 144 described above. The foregoing summary of Rule 144 is not intended to
be a complete description thereof and is qualified in its entirety by reference
thereto. The SEC has proposed certain amendments to Rule 144 that would, among
other things, eliminate the manner of sale requirements and revise the notice
provisions of that rule. The SEC has also solicited comments on other possible
changes to Rule 144, including possible revisions to the one- and two-year
holding periods and volume limitations described above.
The Company and its directors, executive officers, stockholders and all
persons who receive shares of Common Stock in connection with the Transactions
have agreed not to directly or indirectly, offer for sale, sell, contract to
sell, grant any option or other right for the sale of, or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into shares of Common Stock prior
to the expiration of one year after the date of this Prospectus (the "Lockup
Period"), without the prior written consent of Pennsylvania Merchant Group
except that the Company may issue Common Stock in connection with the
Transactions and in connection with future acquisitions, on exercise of the
warrants and pursuant to Awards under the 1996 Stock Option Plan and the
Non-Employee Director Stock Option Plan, respectively, provided that the
recipients of those shares agree not to offer or sell any of those shares during
the Lockup Period.
54
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Pennsylvania Merchant Group is acting as
representative (the "Representative"), has agreed to purchase from the Company,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Pennsylvania Merchant Group...............................
---------
Total.....................................................
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the Representative.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock, at the public offering price less the
underwriting discount, as set forth on the cover of the Prospectus. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common
Stock offered. The underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of Common Stock
offered hereby.
The Company, its officers and directors and certain stockholders, have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any securities of the Company which are substantially similar
to the shares of Common Stock or which are convertible or exchangeable for
securities which are substantially similar to the shares of Common Stock without
the prior written consent of Pennsylvania Merchant Group except for the shares
of Common Stock offered in connection with the Offering.
The Representative has informed the Company that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares. The
initial public offering price was negotiated among the Company and the
Representative. Among the factors considered in determining the
55
<PAGE> 57
initial public offering price of the Common Stock, in addition to prevailing
market conditions, were the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "PHTR".
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the Offering. The Underwriters
may also impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
Offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933. The
Underwriting Agreement provides that at Closing, the Representative will be paid
a non-accountable expense allowance equal to 1% of the aggregate public offering
price (including over-allotment option).
Pennsylvania Merchant Group, the Representative of the several Underwriters
listed above, acted as placement agent in connection with a private placement of
the Company's securities which commenced November 1997 and was consummated
December 1997, for which it has received normal and customary fees. In
connection therewith, the Company also granted Pennsylvania Merchant Group a
right of first offer to act as a managing underwriter or placement agent for
public or private offerings of the Company's securities until November 1999.
Pennsylvania Merchant Group has also acted as financial advisor to the Company
in connection with the Transactions, for which it will receive at Closing, for
nominal consideration, transferable warrants, each warrant entitling
the holder to purchase one share of Common Stock at a price of $ (120%
of the initial public offering price), and being exercisable for a period of
four years commencing one year after the date of this Prospectus.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Chamberlain, Hrdlicka, White,
Williams & Martin of Houston, Texas and Baker & Hostetler LLP of Houston, Texas,
and for the Underwriters by Pepper Hamilton LLP. A member of Chamberlain,
Hrdlicka, White, Williams & Martin holds 50,000 shares of Common Stock, 10
warrants to purchase $2,000 worth of Common Stock based on the share price under
the Offering, exercisable at $.01 per share and the Company's $10,000 promissory
note due June 30, 1998. A member of Baker & Hostetler holds 10,000 shares of
Common Stock.
EXPERTS
The audited financial statements of the Company as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 1996, for the period from
inception at November 1, 1995 to December 31, 1995, and for the period from
inception at November 1, 1995 to December 31 1997 and the audited financial
statements of Physicians Surgery Center as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the
56
<PAGE> 58
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting. The report of Price
Waterhouse LLP on the financial statements of the Company contains an
explanatory paragraph relating to the Company's ability to continue as a going
concern.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance that a reference is made to a contract or other document
filed as an exhibit to the Registration Statement, each such statement is
qualified in all respects by such reference. A copy of the Registration
Statement may be examined without charge at the Commission's principal offices
at 450 Fifth Street, N. W., Room 1024, Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any part thereof may be obtained
from the Public Reference Section of the Commission upon payment of certain fees
prescribed by the Commission. Copies of such materials may also be obtained over
the Internet at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.
57
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Physicians Trust, Inc.
Report of Independent Accountants......................... F-2
Balance Sheet............................................. F-3
Statement of Operations................................... F-4
Statement of Common Stockholders' Equity (Deficit)........ F-5
Statement of Cash Flows................................... F-6
Notes to Financial Statements............................. F-7
Physician Surgery Center
Report of Independent Accountants......................... F-14
Balance Sheet............................................. F-15
Statement of Operations................................... F-16
Statement of Members' Equity.............................. F-17
Statement of Cash Flows................................... F-18
Notes to Financial Statements............................. F-19
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Physicians Trust, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of common stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Physicians
Trust, Inc. (the Company) at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years ended December 31,
1997 and 1996, the period from inception (November 1, 1995) to December 31, 1995
and the period from inception (November 1, 1995) to December 31, 1997, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe our audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plan in regard to these matters are
also described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Houston, Texas
February 20, 1998
(except as to Note 9
which is as of March 3, 1998)
F-2
<PAGE> 61
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,842 $ 311
Prepaids and other current assets......................... 37 4
------- ------
Total current assets.............................. 1,879 315
------- ------
Computer equipment.......................................... 468
Furniture and fixtures...................................... 87 24
Less -- accumulated depreciation............................ (23) (4)
------- ------
532 20
------- ------
Deferred transaction costs.................................. 480 127
Deferred equity offering costs.............................. 142 9
Deferred financing costs.................................... 221 58
------- ------
$ 3,254 $ 529
======= ======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, net of unamortized warrant discounts of
$3,068 and $124........................................ $ 1,737 $ 782
Accounts payable and other accrued liabilities............ 436 64
Accrued interest.......................................... 195 28
Accrued compensation costs................................ 223 62
Accrued professional fees................................. 881 431
------- ------
Total current liabilities......................... 3,472 1,367
------- ------
Redeemable preferred stock, $.001 par value, 2,000,000
shares authorized; no shares issued or outstanding
Common stockholders' equity (deficit):
Common stock, $.001 par value, 30,000,000 shares
authorized, 3,460,000 and 3,090,000 shares issued and
outstanding, respectively.............................. 3 3
Additional paid-in capital................................ 64
Common stock warrants..................................... 3,435 124
Deficit accumulated during development stage.............. (3,720) (965)
------- ------
Total common stockholders' deficit................ (218) (838)
------- ------
Commitments and contingencies (Note 7)......................
------- ------
$ 3,254 $ 529
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED (NOVEMBER 1, (NOVEMBER 1,
DECEMBER 31, 1995) THROUGH 1995) THROUGH
----------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Development stage expenses:
Professional fees....................... $ 934 $ 620 $ 10 $ 1,564
Compensation and benefits............... 758 182 940
Office expenses......................... 131 70 201
Travel and related costs................ 135 51 186
Compensation expense incurred in
connection with the issuance of
common stock......................... 37 37
Depreciation............................ 19 4 23
---------- ---------- ---------- ----------
2,014 927 10 2,951
---------- ---------- ---------- ----------
Loss from operations...................... (2,014) (927) (10) (2,951)
Other expense:
Interest expense........................ 741 28 769
---------- ---------- ---------- ----------
Net loss.................................. $ (2,755) $ (955) $ (10) $ (3,720)
---------- ---------- ---------- ----------
Loss per share:
Basic and diluted....................... $ (.82) $ (.41) $ (.01) $ (1.41)
---------- ---------- ---------- ----------
Weighted average shares outstanding....... 3,352,986 2,327,295 1,643,750 2,638,913
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
---------------- ADDITIONAL COMMON DURING
PAR PAID-IN STOCK DEVELOPMENT
SHARES VALUE CAPITAL WARRANTS STAGE TOTAL
--------- ----- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, inception (November 1, 1995)...
Issuance of Common Stock for cash....... 1,965,000 $2 $ 2
Net loss................................ $ (10) (10)
--------- -- --- ------ ------- -------
BALANCE, December 31, 1995.............. 1,965,000 2 (10) (8)
Issuance of Common Stock for cash....... 1,325,000 1 1
Cancellation of Common Stock............ (200,000)
Issuance of Common Stock warrants in
connection with notes payable......... $ 124 124
Net loss................................ (955) (955)
--------- -- --- ------ ------- -------
BALANCE, December 31, 1996.............. 3,090,000 3 124 (965) (838)
Issuance of Common Stock for cash....... 305,000 $22 22
Issuance of Common Stock warrants in
connection with notes payable......... 3,311 3,311
Issuance of Common Stock below market
value................................. 65,000 42 42
Net loss................................ (2,755) (2,755)
--------- -- --- ------ ------- -------
BALANCE, December 31, 1997.............. 3,460,000 $3 $64 $3,435 $(3,720) $ (218)
========= == === ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED (NOVEMBER 1, (NOVEMBER 1,
DECEMBER 31, 1995) THROUGH 1995) THROUGH
---------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
------- ----- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities: --
Net loss................................... $(2,755) $(955) $(10) $(3,720)
Noncash adjustments:
Depreciation............................ 19 4 23
Amortization of financing costs......... 196 196
Amortization of debt discount related to
common stock warrants................. 367 367
Compensation expense incurred in
connection with the issuance of common
stock................................. 37 37
Cash provided (used) by changes in:
Prepaids and other current assets....... (28) (4) (32)
Accounts payable and accrued
liabilities........................... 680 439 9 1,128
------- ----- ---- -------
Net cash used by operating
activities....................... (1,484) (516) (1) (2,001)
------- ----- ---- -------
Cash flows from investing activities:
Acquisition of equipment................... (194) (24) (218)
Payment of deferred transaction costs...... (282) (16) (298)
------- ----- ---- -------
Net cash used by investing activities... (476) (40) (516)
------- ----- ----
Cash flows from financing activities:
Payment of deferred financing costs........ (339) (41) (380)
Payment of deferred equity offering
costs................................... (75) (75)
Proceeds from issuance of notes payable.... 3,898 856 50 4,804
Payment of notes payable................... (15) (15)
Proceeds from sale of common stock......... 22 1 2 25
------- ----- ---- -------
Net cash provided by financing
activities....................... 3,491 816 52 4,359
------- ----- ---- -------
Increase (decrease) in cash.................. 1,531 260 51 1,842
Cash:
Beginning of period........................ 311 51
------- ----- ---- -------
End of period.............................. $ 1,842 $ 311 $ 51 $ 1,842
======= ===== ==== =======
Noncash transactions:
Deferred transaction costs in accrued
professional fees....................... $ 71 $ 111 $ 182
Deferred equity offering cost in accrued
professional fees....................... 58 9 67
Deferred financing costs in accrued
professional fees....................... 20 17 37
Deferred compensation expense on options
granted................................. 5 5
Issuance of common stock warrants.......... 3,311 124 3,435
Conversion of interest to long term debt... 16 16
Purchase of equipment through direct
financing............................... 337 337
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 65
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Physicians Trust, Inc. (the Company), a Delaware corporation, was organized
in November 1995 as a physician practice management company concentrating on the
affiliation, administrative management and development of orthopedic, neurology,
neurosurgery, pain management and rheumatology physician practices, and related
ancillary services such as integrated diagnostic services and outpatient
surgical systems throughout the United States.
To date, the Company has been engaged in developing its business plan and
physician practice affiliation model; recruiting management and operational
personnel; identifying, contacting and presenting its business plan and
physician practice affiliation model to numerous physician groups; obtaining and
structuring financing for the Company's operations and physician practice
affiliations; and related development efforts. As of February 20, 1998, the
Company has executed master transaction agreements with 14 physician practices
for the purchase of the nonmedical assets of the practices and entry into
40-year management agreements with the physician practices. In addition, the
Company has entered into purchase agreements to acquire the assets of a sleep
disorder center and a controlling interest in a surgery center. Execution of the
master transaction agreements, purchase of the sleep disorder center and an
interest in the surgery center are referred to in these footnotes as the
"Transactions." The Transactions are to become effective concurrently with the
Company's initial public offering (IPO) of the Company's common stock.
The following is a summary of the Company's significant accounting
policies:
REVENUE RECOGNITION
The Company expects to recognize revenue based on contractual fees earned
under long-term management services agreements with affiliated physician
practices and ancillary services provided in support of these practices. Since
the Company is in the developmental stage and has not entered into any long-term
management services agreements as of December 31, 1997, it has not yet
recognized any revenue.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 establishes standards
for computing and presenting earnings per share (EPS). Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The Company's diluted EPS is equal to Basic EPS for 1997, 1996 and 1995 as the
effect of exercising or converting the Company's outstanding options and
warrants into common stock is antidilutive. Options and warrants to purchase
1,102,000 and 770,000 shares of common stock in 1997 and 1996, respectively, and
warrants to purchase $9,117 and $620 worth of common stock at the IPO price in
1997 and 1996, respectively, were excluded from the Company's diluted EPS.
EQUIPMENT
Equipment is stated at cost. Depreciation of equipment is provided for
using the straight-line method over the estimated useful life of three to five
years.
F-7
<PAGE> 66
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TRANSACTION COSTS
Costs incurred directly related to and affecting the Transactions,
primarily professional fees, are deferred and will be recorded as a component of
the transaction cost in the period that the Transactions are consummated.
Deferred transaction costs related to physician practice affiliations which are
not consummated are expensed in the period that management determines the
affiliation with the physician practice is unlikely.
DEFERRED FINANCING COSTS
Costs directly associated with the completion of debt financing
transactions are deferred and recognized as interest expense using the imputed
interest method over the debt term.
DEFERRED EQUITY OFFERING COSTS
Costs directly associated with the completion of the initial registration
are deferred and will be recognized as a reduction of proceeds from the equity
offering.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using the enacted tax rates in effect in the years in
which the differences are expected to reverse. In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as disclosures of contingent assets and
liabilities. Because of inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.
Deferred transaction costs and deferred equity offering costs have been
capitalized as management believes the Company will successfully execute the
planned IPO. If the IPO is not successfully completed, such costs may be
impaired and charged to results of operations.
F-8
<PAGE> 67
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. NOTES PAYABLE
Notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -----
<S> <C> <C>
Stockholder notes payable ranging from $10 to $60 bearing
interest at 12%; principal and interest due at various
times from March 1998 through May 1998.................... $ 285 $ 300
Promissory notes payable ranging from $10 to $100 bearing
interest at 12%; principal and interest due at the earlier
of the initial public offering or June 30, 1998........... 310 310
Promissory notes payable ranging from $25 to $300 bearing
interest at 12% principal and interest due at the earlier
of the initial public offering or October 31, 1998........ 710
Promissory notes payable ranging from $15 to $500 bearing
interest at 12% principal and interest due at the earlier
of the initial public offering or December 31, 1998....... 3,500
Majority stockholder demand notes ranging from $3 to $62
bearing interest at 12% per annum......................... 296
------- -----
4,805 906
Unamortized warrant discount................................ (3,068) (124)
------- -----
$ 1,737 $ 782
======= =====
</TABLE>
Stockholder notes at December 31, 1997 and 1996 include $30 due to the
majority stockholder.
Promissory notes bearing interest at 12% were made with accredited
investors in three debt offerings. The debt offerings sold the notes in $1 units
which included one detachable warrant for each $1 in debt principal. The Company
issued 4,210 and 310 detachable warrants in the years ended December 31, 1997
and 1996, respectively. Each warrant has a three-year term and entitles the
holder to purchase up to $2 worth of shares of the Company's common stock, based
on the per share price in an initial public offering of the Company's common
stock at a weighted average exercise price of $0.20 per share. Each warrant may
be exercised any time after the IPO until expiration. If the Company does not
complete an IPO prior to the expiration of the warrant, each entitles the holder
to purchase up to 500 shares of the Company's common stock at a weighted average
exercise price of $0.20 per share.
In December 1997 the Company amended the 1996 debt offering to extend the
maturity date from December 31, 1997 to the earlier of the IPO date or June 30,
1998. As an incentive to defer principal and accrued interest payments related
to the 1996 debt offering, the debt holders were issued 39 warrants. Each
warrant has a three-year term and entitles the holder to purchase up to $2 worth
of shares of the Company's common stock at an average exercise price of $0.01
per share. Each warrant may be exercised any time after the IPO until
expiration. If the Company does not complete an IPO prior to the expiration of
the warrant, each entitles the holder to purchase up to 500 shares of the
Company's common stock at an average exercise price of $0.01 per share.
The fair market value of the detachable warrants totaled $3,435 determined
as of the dates of issuance. The warrant value is recognized as a component of
the Company's stockholders' equity and as a discount to the related 12%
promissory notes. The discount is charged to interest expense over the terms of
the promissory notes. For the year ended December 31, 1997, $367 was charged to
interest expense associated with such warrant discounts.
F-9
<PAGE> 68
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 30, 1997, the Company issued 27,000 warrants to third party
consultants for services rendered. Each warrant has a three-year term and
entitles the holder to purchase one share of the Company's common stock at an
exercise price of $1.00 per share. These warrants were valued at $0.49 per share
based on independent appraisal.
During the years ended December 31, 1997 and 1996, the Company issued $488
and $296, respectively, in demand notes bearing interest at 12% per annum to the
majority stockholder. In 1997, the majority stockholder converted these demand
notes, plus $16 in accrued interest, into 800 units of promissory notes bearing
interest at 12% per annum.
3. INCOME TAXES
At December 31, 1997, the Company has a net operating loss carryforward of
approximately $3,711 available for federal income tax purposes which expires in
2011 to 2012. The net operating loss has resulted in a net deferred tax asset of
approximately $1,410. Because the Company has a history of losses, management
has provided a valuation allowance in full for the net deferred tax asset.
4. CAPITAL STOCK
The Company issued 1,370,000 shares of common stock in 1996 and 1,965,000
shares of common stock in 1995 for cash at the fair market value price of $0.001
per share.
During the period from January 1997 through April 1997, the Company issued
180,000 and 105,000 shares of common stock for cash at a price of $0.001 and
$0.05, respectively, per share. The shares issued during the period January 1997
through April 1997 were valued at $0.13 per share based on an independent
appraisal. Furthermore, in June 1997 and October 1997, respectively, the Company
issued 20,000 and 65,000 shares of common stock to members of management at
average cash prices of $0.15 and $0.25 per share. These shares were valued at
$0.20 and $0.25 per share, respectively, based on an independent appraisal. The
difference between the cash received for the shares of common stock issued
during the periods January 1997 through April 1997 and June 1997 through October
1997 and the fair value of those shares as of the dates of issuance has been
recognized as compensation expense totaling $37 in the statement of operations
for the year ended December 31, 1997.
At December 31, 1997, shares of common stock are reserved for issuance in
connection with the future exercise of 4,559 warrants to purchase up to $2 worth
of common stock per warrant, based on the Company's IPO price per share, with a
weighted average exercise price of $0.20 per share. The number of shares to be
issued in connection with all warrants will be the result of dividing $9,117 by
the effective IPO price per share. Additionally, at December 31, 1997, 1,075,000
shares of common stock are reserved for issuance in connection with the
Company's stock option plan (see Note 5).
F-10
<PAGE> 69
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTION PLAN
The Company sponsors a stock option plan through which eligible employees
may be granted options to purchase up to 1,500,000 shares of Company common
stock. Option prices and other terms are determined by the Board of Directors.
Transactions for the years ended December 31, 1997, 1996 and 1995 for employee
stock options granted under the plan are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- ---------------
<S> <C> <C>
Balance, December 31, 1995................................ 0
Granted during the year ended December 31, 1996......... 770,000 $ 0.25
---------
Balance, December 31, 1996................................ 770,000 $ 0.25
Granted during the year ended December 31, 1997......... 305,000 $ 0.26
---------
Balance, December 31, 1997................................ 1,075,000 $ 0.25
=========
Exercisable at December 31, 1995.......................... -- --
Exercisable at December 31, 1996.......................... 12,500 $0.001
Exercisable at December 31, 1997.......................... 147,500 $0.002
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING WEIGHTED-AVERAGE DECEMBER 31, WEIGHTED-AVERAGE
PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
-------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.001-0.10.......... 425,000 2.1 years $0.004 147,500 $0.002
$0.11-0.50........... 650,000 4.1 years $ 0.42
--------- -------
Total...... 1,075,000 147,500
--------- -------
</TABLE>
In accordance with Accounting Principles Board Opinion No. 25, the Company
has recorded $5 for deferred compensation resulting from common stock options
granted at a price less than the fair market value of the common stock at the
date of grant. The deferred option compensation is being amortized over the
vesting period.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's stock option
plan been determined based on the fair market value at grant for awards in 1997
and 1996 consistent with the provisions of SFAS No. 123, the Company's net loss
and loss per share would not have differed materially from that computed under
APB 25.
Options granted in 1997 and 1996 had weighted average per share fair values
of $0.16 and zero, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Expected dividend yield..................................... 0% 0%
Expected stock price votability............................. 50% 50%
Expected life............................................... 4.0 years 4.0 years
Expected risk-free interest rate............................ 5.4% 5.4%
</TABLE>
F-11
<PAGE> 70
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
In December 1997, the Company established the Nonemployee Director Stock
Option Plan which provides for granting of options to purchase up to 250,000
shares of common stock by nonemployees and directors of the Company.
On December 30, 1997 the Company granted, to its directors, 60,000 options
at an exercise price of $1 per share. The options vest immediately and have a
contractual life of two years.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's payables, accrued liabilities and notes payable are current
and recorded on normal terms and, accordingly, are believed by management to
approximate fair value.
8. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company leases office space, furniture and certain equipment under
noncancelable operating leases. Rental expense under operating leases totaled
$69 and $32 for the periods ended December 31, 1997 and 1996, respectively.
Future minimum obligations under noncancelable operating leases are $176 in
1998, $176 in 1999, $10 in 2000 and zero thereafter.
Stockholder notes payable (Note 2) represent short-term notes due to
certain of the Company's stockholders. Related interest expense for years ended
December 31, 1997 and 1996 was $82 and $28, respectively.
Certain of the Company's stockholders provide legal and other services to
the Company and are reimbursed. Certain stockholders are also affiliated with
companies and institutions that provide legal services to the Company.
9. PLANNED TRANSACTIONS
Upon consummation of the Transactions, the Company will enter into a
Management Service Agreement with each physician practice under which the
Company will become the exclusive manager and administrator of nonmedical
services relating to the operation of the physician practice. The actual terms
of the various Management Service Agreements vary from the description below on
a case-by-case basis, depending on negotiations with the individual physician
practice and the requirements of applicable law and governmental regulations.
The Company has incurred losses and has generated no revenues since its
inception through the development period, during which the transaction targets
have been identified and the terms of its affiliations negotiated. The Company
also has liabilities in excess of its assets which affect its ability to
continue as a going concern. The master transaction agreements with the
physician practices expire no later than May 15, 1998 and will require further
negotiation if the registration period for the IPO extends beyond that date.
Management believes it will successfully complete the IPO with adequate funds to
finalize the affiliations. Furthermore, management believes it will successfully
negotiate and secure a credit facility to combine with the IPO proceeds to meet
the Company's financial obligations. However, there can be no assurance that a
successful IPO can be achieved prior to the expiration of the master transaction
agreements, or such activities will be successful or that proceeds will be
adequate for funding the operations of the business over the next 12 months.
F-12
<PAGE> 71
PHYSICIANS TRUST, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MANAGEMENT SERVICES FEE CALCULATION
The following table categorizes by the type of Management Services
Agreement, the historical patient revenue and the historical operating expenses,
excluding physicians' compensation, for the year ended December 31, 1997 for the
physician practices which had entered into Letters of Intent prior to December
31, 1997. Total fees payable by the physician practices to the Company under the
Management Services Agreements will consist of the sum of (i) operating expense
reimbursement, (ii) the percentage based management services fee and (iii)
percentage-based ancillary services fees. The table below demonstrates the
calculation of the management services fees under each type of Management
Services Agreement:
<TABLE>
<CAPTION>
REVENUE LESS
GROSS OPERATING ANCILLARY
REVENUE EXPENSES SERVICES TOTALS
------- ------------ --------- -------
<S> <C> <C> <C> <C>
Number of physician practices................. 1 13 2 16
==== ======= ====== =======
Historical 1997 patient revenue of physician
practices................................... $790 $16,581 $5,336 $22,707
Historical 1997 operating expenses of
physician practices......................... 302 7,274 3,707 11,283
---- ------- ------ -------
Historical 1997 operating income.............. $488 $ 9,307 $1,629 $11,424
==== ======= ====== =======
Percentage based management services fees
derived from Management Services
Agreements.................................. $153 $ 3,746 $ 233 $ 4,132
==== ======= ====== =======
</TABLE>
The percentage management fee above is not necessarily representative of
the results to be achieved in the future. The table above does not include the
operations of the Company nor any additional overhead or any revenue impact that
may result from the Company's management efforts.
F-13
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Physician Surgery Center
In our opinion, the accompanying balance sheet and the related statements
of operations, members' equity and cash flows present fairly, in all material
respects, the financial position of Physician Surgery Center at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 20, 1998
F-14
<PAGE> 73
PHYSICIAN SURGERY CENTER
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 33 $ 2
Accounts receivable, net of allowance for doubtful
accounts of $366 and $249.............................. 1,105 871
Prepaid assets............................................ 63 65
Inventory................................................. 143 146
------ ------
Total current assets.............................. 1,344 1,084
------ ------
Property and equipment:
Building.................................................. 2,092 2,049
Land...................................................... 203 203
Medical equipment......................................... 1,204 1,087
Furniture, fixtures and office equipment.................. 77 69
Less -- accumulated depreciation.......................... (429) (122)
------ ------
Total property and equipment...................... 3,147 3,286
Other assets................................................ 133 184
------ ------
Total assets...................................... $4,624 $4,554
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 200 $ 256
Current capital lease obligation.......................... 303 226
Current portion of notes payable.......................... 61 2,151
------ ------
Total current liabilities......................... 564 2,633
Long-term portion, notes payable............................ 1,545 32
Long-term capital lease obligation.......................... 1,023 1,284
------ ------
Total liabilities................................. 3,132 3,949
------ ------
Members' equity............................................. 1,492 605
------ ------
Commitments and contingencies (Note 6)
------ ------
Total liabilities and members' equity............. $4,624 $4,554
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 74
PHYSICIAN SURGERY CENTER
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net patient revenues........................................ $4,665 $1,638
------ ------ ------
Costs and expenses:
Compensation costs and medical services................... 899 384
Other direct costs........................................ 911 264
Selling, general and administrative....................... 989 455 $ 5
Depreciation.............................................. 307 122
Amortization.............................................. 40 19
------ ------ ------
3,146 1,244 5
------ ------ ------
Income (loss) from operations............................... 1,519 394 (5)
Interest expense............................................ (404) (155)
Interest and other income (expense)......................... 2 3
------ ------ ------
Net income (loss)........................................... $1,117 $ 239 $ (2)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 75
PHYSICIAN SURGERY CENTER
STATEMENT OF MEMBERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $ 245
------
Members' contributions.................................... 55
Net loss.................................................. (2)
------
BALANCE, December 31, 1995.................................. 298
Members' contributions.................................... 68
Net income................................................ 239
------
BALANCE, December 31, 1996.................................. 605
Members' contributions.................................... 17
Members' distributions.................................... (247)
Net income................................................ 1,117
------
BALANCE, December 31, 1997.................................. $1,492
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 76
PHYSICIAN SURGERY CENTER
STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:--
Net income (loss)......................................... $ 1,117 $ 239 $ (2)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 307 122
Amortization........................................... 40 19
Changes in assets and liabilities:
Accounts receivable, net............................. (234) (871)
Prepaid assets....................................... 2 (65)
Inventory............................................ 3 (146)
Other assets......................................... 11 (103) (89)
Accounts payable and accrued expenses................ (56) 256 (30)
------- ------- ------
Net cash provided (used) by operating
activities...................................... 1,190 (549) (121)
------- ------- ------
Cash flows from investing activities:
Purchase of property and equipment........................ (126) (1,283) (545)
------- ------- ------
Net cash used by investing activities............. (126) (1,283) (545)
------- ------- ------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,815 371
Payments for notes payable................................ (577) (3)
Payments for capital leases............................... (226) (70)
Capital contributions by members.......................... 17 68 55
Distributions to members.................................. (247)
------- ------- ------
Net cash provided (used) by financing
activities...................................... (1,033) 1,810 426
------- ------- ------
Net change in cash and equivalents.......................... 31 (22) (240)
Cash and equivalents:
Beginning of period....................................... 2 24 264
------- ------- ------
End of period............................................. $ 33 $ 2 $ 24
======= ======= ======
Supplemental disclosure:
Interest paid............................................. $ 405 $ 153 --
======= ======= ======
Purchase of capital lease assets............................ $ 42 $ 1,580 --
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 77
PHYSICIAN SURGERY CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Physician Surgery Center (the Company), a Louisiana limited liability
company, was incorporated on August 14, 1994 for the purpose of providing an
outpatient surgery center for the Houma, Louisiana area.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and other short-term
securities with original maturities of less than three months.
INVENTORY
Inventory consists of pharmaceuticals and supplies which are stated at the
lower of cost or market. Cost is recorded on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation for equipment,
furniture and fixtures is provided using the straight-line method over the
estimated useful lives of the respective assets of five to seven years. The
building is depreciated using the straight-line method over an estimated useful
life of 31 years.
ORGANIZATION COST
Organization cost includes legal, accounting, management and certain other
start-up expenses incurred in the organization of the Company, which is expected
to benefit the Company in future periods. These costs, in the amount of $193,
were incurred from inception to August 1996 when the facility commenced
operations. These costs are capitalized and recorded as other noncurrent assets
and amortized over a five-year period.
REVENUE RECOGNITION
Revenues for services rendered to patients by the Company are recognized
when the services are provided based on established charges reduced to the net
amounts estimated to be collectible for patients covered under contractual
adjustments and by allowances for doubtful accounts.
The Company has agreements with various Health Maintenance Organizations
(HMOs) to provide medical services to subscribing participants. Under these
agreements, the Company receives monthly capitation payments based on the number
of each HMO's participants, regardless of services actually performed by the
Company.
For the year ended December 31, 1997, approximately 44% of the Company's
net patient revenues were derived from indemnity insurance companies, 28% were
derived from federal and state government programs and 21% of the Company's
accounts receivable were due from managed care.
INCOME TAXES
The Company is a pass-through entity and is not liable for federal or state
income tax, and therefore no income tax expense or income tax asset/liability
has been recorded. Income is allocated to the members based upon their ownership
interest, and the income is taxed to the members at their individual income tax
rate.
F-19
<PAGE> 78
PHYSICIAN SURGERY CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as disclosures of contingent assets and
liabilities. Because of inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.
2. ACCOUNTS RECEIVABLE
The company has entered into agreements with third-party payors who provide
for payments to the Company which are different from established rates. Services
rendered to Medicare and Medicaid program beneficiaries are paid based on a cost
reimbursement methodology. As such, the Company is reimbursed at predetermined
rates for surgeries performed.
3. DEBT
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
Promissory notes payable, line of credit.................... $ 1 $ 500
Demand promissory notes ranging from $33 to $1,200.......... 1,633
Promissory notes payable ranging from $32 to $1,181 bearing
interest at 10.4% with monthly principle payments......... 1,605 50
------ ------
$1,606 $2,183
====== ======
</TABLE>
During 1996, the Company entered into various borrowing agreements with a
third-party lender for the purposes of purchasing real estate and building a
surgery facility, and purchasing equipment. The demand notes were secured by
certain cash accounts, accounts receivable, real estate, life insurance
contracts and the personal guarantee of the partners of the Company. The rate
approximated 9.25% for the applicable periods in 1997 and 1996. The borrowings
accrued interest at the Chase Manhattan Bank prime rate plus one percent. During
1997, these demand notes were converted into promissory notes with varying
maturities bearing interest at 10.4%.
The Company has an available line of credit with a maximum borrowing limit
of the lower of $500 or 70% of outstanding accounts receivable that are less
than 120 days outstanding. The note bears interest at one percent above the
prime rate and is secured by certain cash and accounts receivable accounts of
the Company. This rate approximates 9.25% for 1997 and 1996. At December 31,
1997 and 1996, the Company had outstanding balances of $1 and $500,
respectively.
The future debt maturity obligations as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998................................................ $ 61
1999................................................ 57
2000................................................ 49
2001................................................ 55
2002................................................ 1,384
------
$1,606
======
</TABLE>
F-20
<PAGE> 79
PHYSICIAN SURGERY CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE COMMITMENTS
The Company is the lessee of certain equipment which are recognized as
capital leases in accordance with Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The title of the leased equipment will transfer
to the Company upon expiration of the lease, and as such, the assets and
liabilities under capital leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the assets.
The following is an analysis of the property under capital leases by major
classes:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Building.................................................... $ 512 $ 512
Medical equipment........................................... 1,082 1,040
Office furniture and equipment.............................. 28 28
------ ------
1,622 1,580
Less: Accumulated amortization.............................. (355) (114)
------ ------
$1,267 $1,466
====== ======
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998...................................................... $ 514
1999...................................................... 515
2000...................................................... 496
2001...................................................... 297
------
Total minimum lease payments...................... 1,822
Less: Amount representing estimated executory costs (such as
taxes, maintenance and insurance), including profit
thereon, included in total minimum lease payments......... (94)
------
Net minimum lease payments.................................. 1,728
Less: Amount representing interest.......................... (402)
------
Present value of net minimum lease payments................. $1,326
======
</TABLE>
The Company has entered into certain operating lease obligations. At
December 31, 1997, 1996 and 1995, these operating obligations were not
significant.
5. RELATED PARTY TRANSACTIONS
During 1994, the Company entered into a management agreement with a company
operated by a member owner to render management, administration, accounting,
purchasing and operations support. Under the management agreement, the company
is required to pay a monthly management fee equal to 5% of the net revenue of
the Company. Net revenue under the agreement includes revenue from all sources,
less contractual allowances for Medicare, Medicaid and other payors. Management
fees under this contract totaled $244 and $88 for the years ended December 31,
1997 and 1996, respectively. There were no management fee expenses for the year
ended December 31, 1995.
F-21
<PAGE> 80
PHYSICIAN SURGERY CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, a relative of a member owner sold medical equipment to the
Company under a capital lease obligation with a recorded asset value of $86.
6. COMMITMENTS AND CONTINGENCIES
The Company maintains insurance with respect to medical malpractice risks
on a claims-made basis in amounts management believes to be adequate. Management
is not aware of any outstanding claims which would exceed insurance coverage or
would have a material impact on the Company's financial position, results of
operations or cash flows upon resolution.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's payables, accrued liabilities, capital lease obligations and
notes payable are recorded on normal terms and, accordingly, are believed by
management to approximate fair value.
8. SUBSEQUENT EVENT
The Company has entered into a letter of intent to negotiate the sale of
70% of net operating assets. The member owners are also negotiating an agreement
whereby the purchaser will manage the outpatient surgery center on a long-term
basis.
F-22
<PAGE> 81
============================================================
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 7
Use of Proceeds............................. 16
Dividend Policy............................. 16
Dilution.................................... 17
Capitalization.............................. 18
Selected Financial Data..................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 20
Business.................................... 23
Management.................................. 38
Security Ownership of Certain Beneficial
Owners and Management..................... 46
Certain Transactions........................ 47
Description of Capital Stock................ 50
Shares Eligible for Future Sale............. 54
Underwriting................................ 55
Legal Matters............................... 56
Experts..................................... 56
Additional Information...................... 57
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT 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.
============================================================
============================================================
[PHYSICIANS TRUST, INC. LOGO]
Common Stock
------------------------
PROSPECTUS
------------------------
PENNSYLVANIA MERCHANT
GROUP
Dated , 1998
============================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses (other than
underwriting discounts and commissions) payable by the Registrant in connection
with the issuance and distribution of the securities being registered. All
amounts are estimates except for the fees payable to the SEC.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $10,856
-------
NASD Filing Fee............................................. 4,380
-------
NASDAQ Listing Fee.......................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue sky fees and expenses (including counsel fees)......... *
Printing Costs.............................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total....................................................... $
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the Company
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Restated Certificate
of Incorporation, as amended, contains provisions eliminating a director's
personal liability for monetary damages to the Company and its stockholders
arising from a breach of a director's fiduciary duty except for liability (a)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the DGCL, or (d) for any transaction from which the director derived an improper
personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
II-1
<PAGE> 83
Under Section of the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, the Company, its officers and directors, and persons who
control the Company, within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by the Company that were not registered under the Securities Act.
In connection with the organization of the Company, on November 1, 1995,
the Company issued and sold 1,615,000 shares of Common Stock to 11 accredited
investors for $.001 per share.
From December 19, 1995 through January 10, 1997, the Company issued to 9
accredited investors Non-Negotiable 12% Promissory Notes in the aggregate
principal amount of $300,000. In connection with such promissory notes, the
Company issued and sold 300,000 shares of Common Stock to such accredited
investors for $.001 per share.
From June 6, 1996 through February 11, 1997, the Company issued and sold
925,000 shares of Common Stock to 9 accredited investors for $.001 per share.
From June 6, 1996 through September 12, 1997, the Company issued 12% demand
notes in the aggregate principal amount of $784,000 to Robert F. Strange, Jr. On
May 31, 1997, in exchange for the cancellation of $300,000 of principal on such
demand notes, the Company issued 300 units to Robert F. Strange, Jr. Each unit
consists of (i) a 12% Promissory Note in the principal amount of $1,000, and
(ii) a warrant to purchase up to $2,000 worth of shares of Common Stock based on
the initial public offering price per share of the Common Stock, exercisable at
a price of $.05 per share. On October 31, 1997, in exchange for the cancellation
of $484,000 of principal and $16,000 of interest on such demand notes, the
Company issued 500 units to Robert F. Strange. Each unit consists of (i) a 12%
Promissory Note in the principal amount of $1,000, and (ii) a warrant to
purchase up to $2,000 worth of shares of Common Stock based on the initial
public offering price per share of the Common Stock, exercisable at a price of
$.25 per share. The demand notes were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. The issuance of the shares of
Common Stock in exchange such demand notes was exempt from registration under
the Securities Act pursuant to Section 3(a)(9) thereof.
On October 21, 1996, the Company issued and sold an aggregate of 235,000
shares of Common Stock to Terence D. Jung, President and Chief Operating Officer
of the Company, and William D. McClellan, Jr., Vice President of Finance and
Secretary of the Company, for $.001 per share in connection with their
employment by the Company.
On December 18, 1996, the Company issued and sold an aggregate of 55,000
shares of Common Stock to certain employees of the Company for $.001 per share.
On December 31, 1996, pursuant to Rule 506 of Regulation D, the Company
issued and sold 310 units to 8 accredited investors for the consideration of
$1,000 per unit, with each unit consisting of (i) a twelve percent (12%)
promissory note, each in the principal amount of $1,000, and (ii) a warrant to
purchase up to $2,000 worth of shares of the Common Stock based on the Company's
initial public offering price per share, exercisable at $.01 per share.
On April 30, 1997, the Company issued and sold an aggregate of 105,000
shares of Common Stock to Terence D. Jung and William D. McClellan, Jr. for $.05
per share.
On June 19, 1997, the Company issued and sold shares of Common Stock to the
following employees of the Company for $.001 per share and $.03 per share,
respectively: Paul Grigsby--10,000; Craig Cordola--10,000.
On October 1, 1997, the Company issued and sold shares of Common Stock to
the following parties for $.25 per share for such shares: Lyle Anderson--15,000;
Terence D. Jung--50,000.
II-2
<PAGE> 84
On October 31, 1997, pursuant to Rule 506 of Regulation D, the Company
issued and sold 410 units to 13 accredited investors for the consideration of
$1,000 per unit, with each unit consisting of (i) a twelve percent (12%)
promissory note, each in the principal amount of $1,000, and (ii) a warrant to
purchase up to $2,000 worth of shares of Common Stock based on the Company's
initial public offering price per share, exercisable at $.05 per share.
On December 30, 1997, the Company issued to the following parties, in
exchange for services provided, warrants to subscribe for and purchase from the
Company, at a price of $1.00 per share, the number of shares of Common Stock
indicated: Despina Caldwell--19,000 shares; Paul Vige--1,000 shares; David
Dumay--3,500 shares; George Poole--3,500 shares.
On December 31, 1997, pursuant to Rule 506 of Regulation D, the Company
issued and sold 3,000 units to 52 accredited investors for the consideration of
$1,000 per unit, with each unit consisting of (i) a twelve percent (12%)
promissory note, each in the principal amount of $1,000, and (ii) a warrant to
purchase up to $2,000 worth of shares of the Common Stock, based on the
Company's initial public offering price per share, exercisable at $.25 per
share.
Except as otherwise indicated, the Company believes that the transactions
described above were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as transactions not involving any public offering
because such securities were sold to a limited group of person, each of which
was believed to have been a sophisticated investor or had a pre-existing
business or personal relationship with the Company or its management and was
purchasing for investment without a view to further distribution. In each case
the Company took steps to ensure that the purchaser was acquiring securities for
purposes of investment and not with a view to distribution, including execution
of an agreement by each purchaser concerning such purchaser's investment intent.
Restrictive legends were placed on stock certificates evidencing the shares
and/or agreements relating to the right to purchase such shares described above.
See "Certain Transactions" for a discussion of the issuance of shares of
Common Stock in connection with the Transactions with the Founding Affiliates.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation, as
amended
3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificates.
4.2 -- Form of Common Stock Warrant issued to private investors.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin as to the legality of the securities being
registered.
*5.2 -- Opinion of Baker & Hostetler, L.L.P. as to compliance
with health care regulation.
*10.1 -- Master Transaction Agreement, dated as of February 3,
1997, by and among Physicians Trust, Inc., Walter F.
Abendschein, M.D., P.A., and Walter F. Abendschein, M.D.
*10.2 -- Master Transaction Agreement, dated as of May 21, 1997,
by and among Physicians Trust, Inc., Justo S. Avila, Jr.,
M.D., P.A., and Justo S. Avila, M.D.
</TABLE>
II-3
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*10.3 -- Master Transaction Agreement, dated as of February 28,
1997, by and among Physicians Trust, Inc., Cherry Way
Orthopaedics, P.C., and Mark R. Foster, Ph.D., M.D.
*10.4 -- Master Transaction Agreement, dated as of June 6, 1997,
by and among Physicians Trust, Inc., San Augustine Family
Medicine Clinic, L.L.P., Jerry McShane, M.D. and David W.
Spinks, M.D.
*10.5 -- Master Transaction Agreement, dated as of April 17, 1997,
by and among Physicians Trust, Inc., Paul E. Wakim, D.O.
(A.P.M.C.) and Paul E. Wakim, D.O.
10.6 -- Master Transaction Agreement, dated as of July 7, 1997,
by and among Physicians Trust, Inc., A. D. Walker, Jr.
(A.P.M.C.) and A. D. Walker, Jr., M.D., with Exhibit
A -- Asset Purchase Agreement; Exhibit C -- Management
Services Agreement; Exhibit F -- Clinic Operating
Agreement; Exhibit H -- Subordinated, non-negotiable
Promissory Note and, Exhibit I -- Physician Employment
Agreement.
*10.7 -- Master Transaction Agreement, dated as of November 8,
1997, by and among Physicians Trust, Inc., Lee S.
Pollack, M.D., P.A. and Lee S. Pollack, M.D.
*10.8 -- Master Transaction Agreement, dated as of October 7,
1997, by and among Physicians Trust, Inc., Desert
Neurosurgery of Tucson, P.C. and Ronald A. Bernstein,
M.D.
*10.9 -- Master Transaction Agreement, dated as of October 7,
1997, by and among Physicians Trust, Inc., Tucson
Orthopaedic & Fracture Surgery Associates, Ltd., and
Richard A. Silver, M.D.
*10.10 -- Purchase Agreement for Units of Membership in Surgical,
LLC, dated as of February 6, 1998, by and among
Physicians Trust, Inc., Surgical, L.L.C. and the members
of Surgical, L.L.C.
*10.11 -- Master Transaction Agreement, dated as of February 6,
1998, by and among Physicians Trust, Inc., Louis Berman,
M.D., P.A. and Louis Berman, M.D.
*10.12 -- Master Transaction Agreement, dated as of February 11,
1998, by and among Physicians Trust, Inc., Scott Forrer,
M.D., sole proprietorship and Scott Forrer, M.D.
*10.13 -- Master Transaction Agreement dated as of February 16,
1998, by and among Physicians Trust, Inc., Roy R. Gettel,
M.D., sole proprietorship and Roy R. Gettel, M.D.
*10.14 -- Master Transaction Agreement dated as of March 3, 1998,
by and among Physicians Trust, Inc., Bone & Joint
Surgical Clinic and Christopher Cenac, M.D., F.A.C.S.
*10.15 -- Master Transaction Agreement dated as of February 20,
1998, by and among Physicians Trust, Inc., Central
Georgia Center for Sleep Disorders, Inc., Charles C.
Wells, M.D., Joseph Brogdan, M.D., Thomas D. Hope, M.D.,
G. M. Shoffner, M.D., John Speigel, M.D. and Stella Irro
Tsai, M.D.
*10.16 -- Master Transaction Agreement dated as of February 20,
1998, by and among Physicians Trust, Inc., Neurology
Associates, Joseph Brogdan, M.D., Thomas D. Hope, M.D.,
Christina Mayville, M.D., G. M. Shoffner, M.D., John
Speigel, M.D., Stella Irro Tsai, M.D. and Charles C.
Wells, M.D.
10.17 -- Physicians Trust, Inc. 1996 Stock Option Plan.
10.18 -- Physicians Trust, Inc. Non-Employee Directors Stock
Option Plan.
10.19 -- Employment Agreement, as of October 1, 1996, by and
between Physicians Trust, Inc. and Robert F. Strange, Jr.
10.20 -- Employment Agreement, as of October 16, 1996, by and
between Physicians Trust, Inc. and William D. McClellan,
Jr.
</TABLE>
II-4
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.21 -- Employment Agreement, as of November 1, 1996, by and
between Physicians Trust, Inc. and Terence D. Jung.
*10.22 -- Employment Agreement, as of November 3, 1997, by and
between Physicians Trust, Inc. and Michael J. Faulkner.
*10.23 -- Employment Agreement, as of November 10, 1997, by and
between Physicians Trust, Inc. and James T. Breland.
*10.24 -- Employment Agreement, as of March 16, 1998, by and
between Physicians Trust, Inc. and Dwight P. Ryan.
*21.1 -- List of Subsidiaries of Physicians Trust, Inc.
23.1 -- Consent of Price Waterhouse LLP
*23.2 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
*23.3 -- Consent of Baker & Hostetler, LLP (included in Exhibit
5.2).
23.4 -- Consent of Richard A. Silver, M.D.
23.5 -- Consent of Charles C. Wells, Jr., M.D.
*24.1 -- Powers of Attorney (included herein on Signature Pages)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
(*) To be filed by Amendment.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a 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) That for the 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.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-5
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on March , 1998.
PHYSICIANS TRUST, INC.
By: ROBERT F. STRANGE, JR.
------------------------------------
Robert F. Strange, Jr.
Chairman of the Board of Directors
and
Chief Executive Officer
Each individual whose signature appears below constitutes and appoints
Robert F. Strange, Jr. and William D. McClellan, Jr., and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorney-in-fact and agents, or his or their substitutes, may lawfully
do or cause to be done by virtue hereof.
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>
ROBERT F. STRANGE, JR. Chairman of the Board, March , 1998
- --------------------------------------------- Chief Executive Officer
Robert F. Strange, Jr. (Principal Executive Officer)
TERENCE D. JUNG President, Chief Operating Officer, March , 1998
- --------------------------------------------- Director
Terence D. Jung
WILLIAM D. MCCLELLAN, JR. Vice President of Finance March , 1998
- --------------------------------------------- (Principal Financial and
William D. McClellan, Jr. Accounting Officer)
GEORGE S. CONOMIKES Director March , 1998
- ---------------------------------------------
George S. Conomikes
RAYMOND P. LANDRY Director March , 1998
- ---------------------------------------------
Raymond P. Landry
PHILIP A. TUTTLE Director March , 1998
- ---------------------------------------------
Philip A. Tuttle
JAMES D. WEAVER Director March , 1998
- ---------------------------------------------
James D. Weaver
</TABLE>
II-6
<PAGE> 88
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation, as
amended
3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificates.
4.2 -- Form of Common Stock Warrant issued to private investors.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin as to the legality of the securities being
registered.
*5.2 -- Opinion of Baker & Hostetler, L.L.P. as to compliance
with health care regulation.
*10.1 -- Master Transaction Agreement, dated as of February 3,
1997, by and among Physicians Trust, Inc., Walter F.
Abendschein, M.D., P.A., and Walter F. Abendschein, M.D.
*10.2 -- Master Transaction Agreement, dated as of May 21, 1997,
by and among Physicians Trust, Inc., Justo S. Avila, Jr.,
M.D., P.A., and Justo S. Avila, M.D.
*10.3 -- Master Transaction Agreement, dated as of February 28,
1997, by and among Physicians Trust, Inc., Cherry Way
Orthopaedics, P.C., and Mark R. Foster, Ph.D., M.D.
*10.4 -- Master Transaction Agreement, dated as of June 6, 1997,
by and among Physicians Trust, Inc., San Augustine Family
Medicine Clinic, L.L.P., Jerry McShane, M.D. and David W.
Spinks, M.D.
*10.5 -- Master Transaction Agreement, dated as of April 17, 1997,
by and among Physicians Trust, Inc., Paul E. Wakim, D.O.
(A.P.M.C.) and Paul E. Wakim, D.O.
10.6 -- Master Transaction Agreement, dated as of July 7, 1997,
by and among Physicians Trust, Inc., A. D. Walker, Jr.
(A.P.M.C.) and A. D. Walker, Jr., M.D., with Exhibit
A -- Asset Purchase Agreement; Exhibit C -- Management
Services Agreement; Exhibit F -- New Clinic Operating
Agreement; Exhibit H -- Subordinated, non-negotiable
Promissory Note and, Exhibit I -- Physician Employment
Agreement.
*10.7 -- Master Transaction Agreement, dated as of November 8,
1997, by and among Physicians Trust, Inc., Lee S.
Pollack, M.D., P.A. and Lee S. Pollack, M.D.
*10.8 -- Master Transaction Agreement, dated as of October 7,
1997, by and among Physicians Trust, Inc., Desert
Neurosurgery of Tucson, P.C. and Ronald A. Bernstein,
M.D.
*10.9 -- Master Transaction Agreement, dated as of October 7,
1997, by and among Physicians Trust, Inc., Tucson
Orthopaedic & Fracture Surgery Associates, Ltd., and
Richard A. Silver, M.D.
*10.10 -- Purchase Agreement for Units of Membership in Surgical,
LLC, dated as of February 6, 1998, by and among
Physicians Trust, Inc., Surgical, L.L.C. and the members
of Surgical, L.L.C.
*10.11 -- Master Transaction Agreement, dated as of February 6,
1998, by and among Physicians Trust, Inc., Louis Berman,
M.D., P.A. and Louis Berman, M.D.
*10.12 -- Master Transaction Agreement, dated as of February 11,
1998, by and among Physicians Trust, Inc., Scott Forrer,
M.D., sole proprietorship and Scott Forrer, M.D.
*10.13 -- Master Transaction Agreement dated as of February 16,
1998, by and among Physicians Trust, Inc., Roy R. Gettel,
M.D., sole proprietorship and Roy R. Gettel, M.D.
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*10.14 -- Master Transaction Agreement dated as of March 3, 1998,
by and among Physicians Trust, Inc., Bone & Joint
Surgical Clinic and Christopher Cenac, M.D., F.A.C.S.
*10.15 -- Master Transaction Agreement dated as of February 20,
1998, by and among Physicians Trust, Inc., Central
Georgia Center for Sleep Disorders, Inc., Charles C.
Wells, M.D., Joseph Brogdan, M.D., Thomas D. Hope, M.D.,
G. M. Shoffner, M.D., John Speigel, M.D. and Stella Irro
Tsai, M.D.
*10.16 -- Master Transaction Agreement dated as of February 20,
1998, by and among Physicians Trust, Inc., Neurology
Associates, Joseph Brogdan, M.D., Thomas D. Hope, M.D.,
Christina Mayville, M.D., G. M. Shoffner, M.D., John
Speigel, M.D., Stella Irro Tsai, M.D. and Charles C.
Wells, M.D.
10.17 -- Physicians Trust, Inc. 1996 Stock Option Plan.
10.18 -- Physicians Trust, Inc. Non-Employee Directors Stock
Option Plan.
10.19 -- Employment Agreement, as of October 1, 1996, by and
between Physicians Trust, Inc. and Robert F. Strange, Jr.
10.20 -- Employment Agreement, as of October 16, 1996, by and
between Physicians Trust, Inc. and William D. McClellan,
Jr.
10.21 -- Employment Agreement, as of November 1, 1996, by and
between Physicians Trust, Inc. and Terence D. Jung.
*10.22 -- Employment Agreement, as of November 3, 1997, by and
between Physicians Trust, Inc. and Michael J. Faulkner.
*10.23 -- Employment Agreement, as of November 10, 1997, by and
between Physicians Trust, Inc. and James T. Breland.
*10.24 -- Employment Agreement, as of March 16, 1998, by and
between Physicians Trust, Inc. and Dwight P. Ryan.
*21.1 -- List of Subsidiaries of Physicians Trust, Inc.
23.1 -- Consent of Price Waterhouse LLP
*23.2 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
*23.3 -- Consent of Baker & Hostetler, LLP (included in Exhibit
5.2).
23.4 -- Consent of Richard A. Silver, M.D.
23.5 -- Consent of Charles C. Wells, Jr., M.D.
*24.1 -- Powers of Attorney (included herein on Signature Pages).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
(*) To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PHYSICIANS TRUST, INC.
PHYSICIANS TRUST, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That by the unanimous written consent of the Board of
Directors of the Corporation, the director adopted resolutions setting forth a
proposed amendment of the Restated Certificate of Incorporation of the
Corporation and declaring such amendment to be advisable and calling a meeting
of the stockholders of said corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be amended by striking out the first sentence of
Article V and by substituting in lieu of said sentence, the following
new sentence:
"The aggregate number of shares of all classes of capital
stock which the Corporation has authority to issue is
32,000,000 of which 30,000,000 are to be shares of common
stock, $.001 par value per share, and of which 2,000,000 are
to be shares of serial preferred stock, $.001 par value per
share."
SECOND: That, thereafter, pursuant to resolutions of the Board of
Directors of the Corporation, a special meeting of stockholders of the
Corporation was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware at which meeting
the necessary number of shares as required by statute were voted in favor of
the amendment.
THIRD: That said amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, PHYSICIANS TRUST, INC. has caused this certificate
to be signed by Robert F. Strange, Jr., its Chief Executive Officer, this 28th
day of September, 1997.
PHYSICIANS TRUST, INC.
By: /s/ ROBERT F. STRANGE, JR.
-----------------------------------------------
Robert F. Strange, Jr., Chief Executive Officer
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
OF
PHYSICIANS TRUST, INC.
This Restated Certificate of Incorporation of Physicians Trust, Inc.,
originally incorporated in the State of Delaware on December 27, 1994, has been
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware to read as follows:
ARTICLE I
NAME
The name of the Corporation is Physicians Trust, Inc. (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is 802
West Street, in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is Inc. Plan (USA).
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to transact all
lawful business for which corporations may be incorporated pursuant to the laws
of the State of Delaware. The Corporation shall have all the powers of a
corporation organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 10,000,000 of which 8,000,000 are to
be shares of common stock, S.001 par value per share, and of which 2,000,000 are
to be shares of serial preferred stock, $.001 par value per share. The shares
may be issued by the Corporation from time to time as approved by the board of
directors of the Corporation without the approval of the stockholders except as
otherwise provided
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in this Article V or the rules of a national securities exchange if applicable.
The consideration for the issuance of the shares shall be paid to or received by
the Corporation in full before their issuance and shall not be less than the par
value per share. The consideration for the issuance of the shares shall be cash,
services rendered, personal property (tangible or intangible), real property,
leases of real property or any combination of the foregoing. In the absence of
actual fraud in the transaction, the judgment of the board of directors as to
the value of such consideration shall be conclusive. Upon payment of such
consideration such shares shall be deemed to be fully paid and nonassessable. In
the case of a stock dividend, the part of the surplus of the Corporation which
is transferred to stated capital upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
the common stock shall exclusively possess all voting power. Subject to the
provisions of this Certificate, each holder of shares of common stock shall be
entitled to one vote for each share held by such holders.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class or series of
stock having preference over the common stock as to the payment of dividends,
the full amount of dividends and sinking fund or retirement fund or other
retirement payments, if any, to which such holders are respectively entitled in
preference to the common stock, then dividends may be paid on the common stock,
and on any class or series of stock entitled to participate therewith as to
dividends, out of any assets legally available for the payment of dividends, but
only when and as declared by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such
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series, and the qualifications, limitation or restrictions thereof, including,
but not limited to determination of any of the following:
(1) the distinctive serial designation and the number of
shares constituting such series;
(2) the rights in respect of dividends, if any, to be paid on
the shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment or date or dates for
dividends, and the participating or other special rights, if any, with
respect to dividends;
(3) the voting powers, full or limited, if any, of the shares
of such series;
(4) whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions upon
which such shares may be redeemed;
(5) the amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(6) whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and, if so entitled, the amount of such
fund and the manner of its application, including the price or prices
at which such shares may be redeemed or purchased through the
application of such funds;
(7) whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(8) the subscription or purchase price and form of
consideration for which the shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
serial preferred stock and whether such shares may be reissued as
shares of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except the times from which dividends on shares which may be issued from time to
time of any such series may begin to accrue.
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ARTICLE VI
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock or caring any right to purchase stock
may be issued pursuant to resolution of the board of directors of the
Corporation to such persons, firms, corporations or associations, whether or not
holders thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
ARTICLE VII
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences or indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. No action that is required or permitted to be taken by the
stockholders of the Corporation at any annual or special meeting of stockholders
may be effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the board of directors of the Corporation.
B. Special meeting of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which as been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the bylaws of the
Corporation, include the power and authority to call such meetings but such
special meetings may not be called by another person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the bylaws
may provide.
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ARTICLE IX
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals at an annual meeting or such proposals at a special meeting, he or she
shall give notice thereof in writing, delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation of less than
thirty days nor more than sixty days prior to any such meeting; provided,
however, that if less than forty days' notice of the meeting is given to
stockholders, such written notice shall be delivered or mailed, as prescribed,
to the Secretary of the Corporation not later than the close of the tenth day
following the day on which notice of the meeting was mailed to stockholders.
Each such notice given by a stockholder with respect to nominations for the
election of directors shall set forth (1) the name, age, business address and,
if known, residence address of each nominee proposed in such notice, (2) the
principal occupation or employment of each such nominee, and (3) the number of
shares of stock of the Corporation which are beneficially owned by each such
nominee. In addition, the stockholder making such nomination shall promptly
provide any other information reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with
respect to business proposals to bring before a meeting shall set forth in
writing as to each manner: (1) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (2) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business; (3) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (4) any
material interests the stockholder in such business. Notwithstanding anything in
this Certificate to the contrary, no business shall be conducted at the meeting
except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may,
if the facts warrant, determine and declare to such meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if he
should so determine, he shall so declare to the meeting and the defective
nomination or proposal shall be disregarded and laid over for action at the next
succeeding adjourned, special or annual meeting of the stockholders taking place
thirty days or more thereafter. This provision shall not require the holding of
any adjourned or special meeting of stockholders for the purpose of considering
such defective nomination or proposal.
ARTICLE X
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall
be such number, not less than one nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation), as shall
be provided from time to time in a resolution adopted
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by the board of directors, provided that no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director, and
provided further that no action shall be taken to decrease or increase the
number of directors from time to time unless at least two-thirds of the
directors then in office shall concur in said action. Exclusive of directors, if
any, elected by holders of preferred stock, vacancies in the board of directors
of the Corporation, however caused, and newly created directorships shall be
filled by a vote of two-thirds of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of the class to which the
director has been chosen expires and when the director's successor is elected
and qualified. The board of directors shall be classified in accordance with the
provisions of Section B of this Article.
B. Classified Board. The board of directors of the Corporation (other
than directors which may be elected by the holders of preferred stock), shall be
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes shall
be as nearly equal in number as the then total number of directors constituting
the entire board of directors shall permit, exclusive of directors, if any,
elected by holders of preferred stock, with the terms of office of all members
of one class expiring each year. Should the number of directors not be equally
divisible by three, the excess director or directors shall be assigned to
Classes I or II as follows: (1) if there shall be an excess of one directorship
over the number equally divisible by three, such extra directorship shall be
classified in Class I; and (2) if there be an excess of two directorships over a
number equally divisible by three, one shall be classified in Class I and the
other in Class II. At the organizational meeting of the Corporation, directors
of Class I shall be elected to hold office for a term expiring at the first
annual meeting of stockholders, directors of Class II shall be elected to hold
office for a term expiring at the second succeeding annual meeting of
stockholders and directors of Class III shall be elected to hold office for a
term expiring at the third succeeding annual meeting thereafter. Thereafter, at
each succeeding annual meeting, directors of each class shall be elected for
three year terms. Notwithstanding the foregoing, the director whose term shall
expire at any annual meeting shall continue to serve until such time as his
successor shall have been duly elected and shall have qualified unless his
position on the board of directors shall have been abolished by action taken to
reduce the size of the board of directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the position(s) to
be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the Corporation be increased, other
than directors which may be elected by the holders of preferred stock, the
additional directorships shall be allocated among classes as appropriate so that
the number of directors in each class is as specified in the immediately
preceding paragraph.
Whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the board of directors shall include said
directors so elected and not be in addition to the number of
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directors fixed as provided in this Article X. Notwithstanding the foregoing,
and except as otherwise may be required by law, whenever the holders of any one
or more series of preferred stock of the Corporation elect one or more directors
of the Corporation, the terms of the director or directors elected by such
holders shall expire at the next succeeding annual meeting of stockholders.
ARTICLE XI
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the bylaws
of the Corporation, any director or all the directors of a single class (but not
the entire board of directors) of the Corporation may be removed, at any time,
but only for cause and only by the affirmative vote of the holders of at least
75% of the voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. Notwithstanding the foregoing, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article XI shall not apply with respect to the
director or directors elected by such holders of preferred stock.
ARTICLE XII
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this Article XII, and
in addition to any other vote required by law, the affirmative vote required by
law, the affirmative vote of the holders of (i) at least 75% of the voting power
of the outstanding shares entitled to vote thereon (and, if any class or series
of shares is entitled to vote thereon separately the affirmative vote of the
holders of at least 75% of the outstanding shares of each such class or series),
and (ii) at least a majority of the outstanding shares entitled to vote thereon,
not including shares deemed beneficially owned by a Related Person (as
hereinafter defined), shall be required in order to authorize any of the
following:
(a) any merger or consolidation of the Corporation or a subsidiary
of the Corporation with or into a Related person (as hereinafter
deemed);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or pledge, of all or any
Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a
subsidiary) or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation;
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(d) any sale, lease, exchange, transfer or other disposition
of all or any Substantial Part of the assets of a Related Person to the
Corporation or a subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person other than on a pro
rata basis to all holders of capital stock of the Corporation of the
same class or classes held by the Related person, pursuant to a stock
split, stock dividend or distribution or warrants or rights, and other
than in connection with the exercise or conversion of securities
exercisable for or convertible into securities of the Corporation or
any of its subsidiaries which securities have been distributed pro rata
to all holders of capital stock of the Corporation;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the
Corporation, or any recapitalization involving the common stock of the
Corporation or any similar transaction (whether or not with or into or
otherwise involving a Related Person) that has the effect directly or
indirectly, of increasing by more than 1% the proportionate share of
the outstanding shares of any class of equity or convertible securities
of the Corporation or any subsidiary that are directly or indirectly
owned by any Related Person; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article XII.
(2) Such affirmative vote shall be required notwithstanding
any other provision of this Certificate, any provision of law, or any agreement
with any regulatory agency or national securities exchange which might otherwise
permit a lesser vote or no vote; provided, however, that in no instance shall
the provisions of this Article XII require the vote of greater than 85% of the
voting power of the outstanding shares entitled to vote thereon for the approval
of a Business Combination.
(3) The term "Business Combination" as used in this Article I
shall mean any transaction which is referred to in any one or more of
subparagraphs A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved in advance by a two-thirds vote of the Continuing Directors (as
hereinafter defined; provided, however, that such approval shall only be
effective if obtained at a meeting at which a continuing Director Quorum (as
hereinafter defined) is present.
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C. For the purposes of this Article XII the following definitions
apply:
(1) The term "Related Person" shall mean and include (i) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" or "associates" (as those terms are
defined in the Act) "beneficially owns" (as that there is deemed in the
Act) in the aggregate 10% or more of the outstanding shares of the
common stock of the Corporation; and (ii) any "affiliate" or
"associate" (as those terms are defined in the Act) of any such
individual, Corporation, partnership or other person or entity;
provided, however, that the term "Related Person" shall not include the
Corporation, any subsidiary of the Corporation, any employee benefit
plan, employee stock plan of the Corporation or of any subsidiary of
the Corporation, or any trust established by the Corporation in
connection with the foregoing, or any person or entity organized,
appointed, established or holding shares of capital stock of the
Corporation for or pursuant to the terms of any such plan, nor shall
such term encompass shares of capital stock of the Corporation held by
any of the foregoing (whether or not held in a fiduciary capacity or
otherwise). Without limitation, any shares of the common stock of the
Corporation which any Related Person has the right to acquire pursuant
to any agreement, or upon exercise or conversion rights, warrants or
options, or otherwise, shall be deemed "beneficially owned" by such
Related Person.
(2) The term "Substantial Part" shall mean more than 25% of
the total assets of the entity at issue, as of the end of its most
recent fiscal year ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of
the board of directors of the Corporation who is unaffiliated with and
who is not the Related Person and was a member of the board prior to
the time that the Related Person became a Related Person, and any
successor of a Continuing Director who is unaffiliated with and who is
not the Related Person and is recommended to succeed a Continuing
Director by a majority of Continuing Directors then on the board.
(4) The term "Continuing Director Quorum" shall mean
two-thirds of the Continuing Directors capable of exercising the powers
conferred on them.
ARTICLE XIII
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is
in the best interests of the Corporation and of the stockholders, when
evaluating a Business Combination (as defined in Article XII) or a tender or
exchange offer, the board of directors of the Corporation shall in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant; (A) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees and customers, creditors and other
elements of the communities in which the Corporation and its subsidiaries
operate
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or are located;(B) the business and financial condition and earnings prospects
of the acquiring person or entity, including, but not limited to, debt service
and other existing financial obligations, financial obligations to be incurred
in connection with the acquisition and other likely financial obligations of the
acquiring person or entity and the possible effect of such conditions upon the
Corporation and its subsidiaries and the other elements of the communities in
which the Corporation and its subsidiaries operate or are located; and (C) the
competence, experience, and integrity of the acquiring person or entity and its
or their management.
ARTICLE XIII
INDEMNIFICATION
Any person who was or is a party or is or is threatened to be made a
party to any threatened pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the corporation to the
full extent then permitted by law against expenses (including counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid in settlement
incurred by him in connection with such action, suit, or proceeding. Such right
of indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Article XIV. Such right of
indemnification shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, partner, trustee, or agent and shall inure to
the benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article XIV shall not be deemed exclusive of
any other rights which may be provided now or in the future under any provision
currently in effect or hereafter adopted of the bylaws, by any agreement, by
vote of stockholders, by resolution of disinterested directors, by provisions of
law, or otherwise.
ARTICLE XV
LIMITATIONS ON DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (A) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (B) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (C) under Section 174 of the General Corporation Law of the State of
Delaware, or (D) for any transaction from which the director derived any
improper personal benefit. If the General Corporation law of the State of
Delaware is amended after the date of filing of this Certificate to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
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Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE XVI
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
adopt, repeal, alter, amend and rescind the bylaws of the Corporation by a vote
of two-thirds of the board of directors. Notwithstanding any other provision of
this Certificate or the bylaws of the Corporation, and in addition to any
affirmative vote required by law (and notwithstanding the fact that some lesser
percentage may be specified by law), the bylaws shall be adopted, repealed,
altered, amended or rescinded by the stockholders of the Corporation only by the
vote of the holders of not less than 75% of the voting power of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed adoption, repeal, alteration, amendment or rescission is included
in the notice of such meeting), or, as set forth above, by the board of
directors.
ARTICLE XVII
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to the provisions hereof, the Corporation reserves the right to
repeal, alter, amend or rescind any provision contained in this Certificate in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing at any time and from time to time, the provisions set forth in
Articles VIII, IX, X, XI, XII, XIII, XIV, XV, XVI and this Article XVII may be
repealed, altered, amended or rescinded in any respect only if the same is
approved by the affirmative vote of the holders of not less than 75% of the
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting).
THIS RESTATED CERTIFICATE OF INCORPORATION was duly adopted by written
consent of the stockholders in accordance with the applicable provisions of
Section 228, 242 and 245 of the General Corporation Law of the State of Delaware
and written notice of the adoption of this Restated Certificate of Incorporation
has been given as provided by Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to such notice.
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IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by its President and attested by its Secretary as of the 1st day of
November, 1995.
ATTEST: PHYSICIANS TRUST, INC.
By: /s/ ROBERT L. SONFIELD, JR. By: /s/ ROBERT F. STRANGE, JR.
----------------------------------- ----------------------------------
Robert L. Sonfield, Jr. Robert F. Strange, Jr., President
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EXHIBIT 3.2
BY LAWS
OF
PHYSICIANS TRUST
AS ADOPTED NOVEMBER 1, 1995
<PAGE> 2
PHYSICIANS TRUST
A DELAWARE CORPORATION
BY LAWS
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
The principal executive office of Physicians Trust, Inc. (the
"Corporation") shall be at 8968 Kirby Drive, Houston, Texas 77054. The
Corporation may also have offices at such other places within or without the
State of Texas as the board of directors shall from time to time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings
of stockholders shall be held at the principal executive office of the
Corporation or at such other place within or without the State of Delaware as
the board of directors may determine and as designated in the notice of such
meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the
stockholders of the Corporation for any purpose or purposes may be called at
any time by the board of directors of the Corporation, or by a committee of the
board of directors which has been duly designated by the board of directors and
whose powers and authorities, as provided in a resolution of the board of
directors or in the By Laws of the Corporation, include the power and authority
to call such meetings but such special meetings may not be called by another
person or persons.
SECTION 4. Conduct of Meetings. Annual and special meetings
shall be conducted in accordance with these By Laws or as otherwise prescribed
by the board of directors. The chairman or the chief executive officer of the
Corporation shall preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting
is called shall be mailed by the secretary or the officer performing his
duties, not less than ten days nor more than fifty days before the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on the stock
transfer books or records of the Corporation as of the record date prescribed
in Section 6, with postage thereon prepaid. If a stockholder be present at a
meeting, or in writing waive notice thereof before or after the meeting, notice
of the meeting to such stockholder
<PAGE> 3
shall be unnecessary. When any stockholders' meeting, either annual or
special, is adjourned for thirty days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. It shall not be necessary
to give any notice of the time and place of any meeting adjourned for less than
thirty days or of the business to be transacted at such adjourned meeting,
other than an announcement at the meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or stockholders entitled to receive
payment of any dividend, or in order to make a determination of stockholders
for any other proper purpose, the board of directors shall fix in advance a
date as the record date for any such determination of stockholders. Such date
in any case shall be not more than sixty days, and in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action, requiring such determination of stockholders, is to be taken.
When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make, at least ten
days before each meeting of stockholders, a complete record of the stockholders
entitled to vote at such meeting or any adjournment thereof, with the address
of and the number of shares held by each. The record, for a period of ten days
before such meeting, shall be kept on file at the principal executive office of
the Corporation, whether within or outside the State of Texas, and shall be
subject to inspection by any stockholder for any purpose germane to the meeting
at any time during usual business hours. Such record shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder for any purpose germane to the meeting during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the stockholders entitled to examine such record
or transfer books or to vote at any meeting of stockholders.
SECTION 8. Quorum. One-fourth of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than one-fourth of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing by the stockholder or by his
duly authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the stockholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid after eleven months from the date of its execution unless
otherwise provided in the proxy.
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SECTION 10. Voting. At each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held. Unless otherwise provided by the Certificate of Incorporation,
by statute, or by these By Laws, a majority of those votes cast by stockholders
at a lawful meeting shall be sufficient to pass on a transaction or matter,
except in the election of directors, which election shall be determined by a
plurality of the votes of the shares present in person or by proxy at the
meeting and entitled to vote on the election of directors.
SECTION 11. Voting of Shares in the Name of Two or More Persons.
When ownership of stock stands in the name of two or more persons, in the
absence of written directions to the Corporation to the contrary, at any
meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose name shares of stock stand,
the vote or votes to which these persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or by proxy at
such meeting, but no votes shall be cast for such stock if a majority cannot
agree.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by any officer, agent or proxy as
the By Laws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name. Shares standing in the name of
a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer
thereof into his name if authority to do so is contained in an appropriate
order of the court or other public authority by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
stockholders, the chairman of the board or the board of directors may appoint
any persons, other than nominees for office, as inspectors of election to act
at such meeting or any adjournment thereof. The number of inspectors shall be
either one or three. If the board of directors so appoints either one or three
inspectors, that appointment shall not be altered at the meeting. If inspectors
of election are not so appointed, the chairman of the board may make such
appointment at the meeting. In case any person
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<PAGE> 5
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all
stockholders.
SECTION 14. Nominating Committee. The board of directors or a
committee appointed by the board of directors shall act as nominating committee
for selecting the management nominees for election as directors. Except in the
case of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the secretary at least twenty days prior to the date of the annual meeting.
Provided such committee makes such nominations, no nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in writing and
delivered to the secretary of the Corporation in accordance with the provisions
of the Corporation's Certificate of Incorporation.
SECTION 15. New Business. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as provided in the
Corporation's Certificate of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be under the direction of its board of directors. The
chairman shall preside at all meetings of the board of directors.
SECTION 2. Number, Term and Election. The number of directors of
the Corporation shall be such number, not less than one nor more than 15
(exclusive of directors, if any, to be elected by holders of preferred stock of
the Corporation), as shall be provided from time to time in a resolution
adopted by the board of directors, provided that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds
of the directors then in office shall concur in said action. Exclusive of
directors, if any, elected by holders of preferred stock, vacancies in the
board of directors of the Corporation, however caused, and newly
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<PAGE> 6
created directorships shall be filled by a vote of two-thirds of the directors
then in office, whether or not a quorum, and any director so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of the class to which the director has been chosen expires and when the
director's successor is elected and qualified. The board of directors shall be
classified in accordance with the provisions of Section 3 of this Article III.
SECTION 3. Classified Board. The board of directors of the
Corporation (other than directors which may be elected by the holders of
preferred stock) shall be divided into three classes of directors which shall
be designated Class I, Class II and Class III. The members of each class shall
be elected for a term of three years and until their successors are elected and
qualified. Such classes shall be as nearly equal in number as the then total
number of directors constituting the entire board of directors shall permit,
exclusive of directors, if any, elected by holders of preferred stock, with the
terms of office of all members of one class expiring each year. Should the
number of directors not be equally divisible by three, the excess director or
directors shall be assigned to Classes I or II as follows: (1) if there shall
be an excess of one directorship over the number equally divisible by three,
such extra directorship shall be classified in Class I; and (2) if there be an
excess of two directorships over a number equally divisible by three, one shall
be classified in Class I and the other in Class II. At the organizational
meeting of the Corporation, directors of Class I shall be elected to hold
office for a term expiring at the first annual meeting of stockholders,
directors of Class II shall be elected to hold office for a term expiring at
the second succeeding annual meeting of stockholders and directors of Class III
shall be elected to hold office for a term expiring at the third succeeding
annual meeting thereafter. Thereafter, at each succeeding annual meeting,
directors of each class shall be elected for three year terms. Notwithstanding
the foregoing, the director whose term shall expire at any annual meeting shall
continue to serve until such time as his successor shall have been duly elected
and shall have qualified unless his position on the board of directors shall
have been abolished by action taken to reduce the size of the board of
directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the position(s)
to be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the Corporation be increased,
other than directors which may be elected by the holders of preferred stock,
the additional directorships shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph.
Whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting separately as a class, to elect
one or more directors of the Corporation, the board of directors shall include
said directors so elected and not be in addition to the number of directors
fixed as provided in this Article III.
Notwithstanding the foregoing, and except as otherwise may be required
by law, whenever the holders of any one or more series of preferred stock of
the Corporation elect one or more
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directors of the Corporation, the terms of the director or directors elected by
such holders shall expire at the next succeeding annual meeting of
stockholders.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held at such time and place as shall be determined by
resolution of the board of directors without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman, the chief
executive officer or one-third of the directors. The person calling the special
meetings of the board of directors may fix any place as the place for holding
any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings
by means of telephone conference or similar communications equipment by which
all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person.
SECTION 6. Notice. Written notice of any special meeting shall
be given to each director at least two days previous thereto delivered
personally or by telegram or at least seven days previous thereto delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid if mailed or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the secretary. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. Quorum. One-third of the number of directors fixed
by Section 2 shall constitute a quorum for the transaction of business at any
meeting of the board of directors, but if less than one-third is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time. Notice of any adjourned meeting shall be given in the same manner as
prescribed by Section 5 of this Article III.
SECTION 8. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless a greater number is prescribed by these By Laws,
the Certificate of Incorporation, or the General Corporation Law of the State
of Delaware.
SECTION 9. Action Without a Meeting. Any action required or
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
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SECTION 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Corporation addressed to the chairman. Unless otherwise specified therein such
resignation shall take effect upon receipt thereof by the chairman.
SECTION 11. Vacancies. Any vacancy occurring on the board of
directors shall be filled in accordance with the provisions of the
Corporation's Certificate of Incorporation. Any directorship to be filled by
reason of an increase in the number of directors may be filled by the
affirmative vote of two-thirds of the directors then in office or by election
at an annual meeting or at a special meeting of the stockholders held for that
purpose. The term of such director shall be in accordance with the provisions
of the Corporation's Certificate of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board
of directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive
compensation for service on the board of directors. Members of either standing
or special committees may be allowed such compensation as the board of
directors may determine.
SECTION 14. Age Limitation. No person 70 years or more of age shall
be eligible for election, reelection, appointment or reappointment to the board
of the Corporation. No director shall serve as such beyond the annual meeting
of the Corporation immediately following the director becoming 70 years of age.
This age limitation does not apply to an advisory director.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation,
and may prescribe the duties, constitution and procedures thereof. Each
committee shall consist of one or more directors of the Corporation appointed
by the chairman. The chairman may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
The chairman shall have power at any time to change the members of, to
fill vacancies in, and to discharge any committee of the board. Any member of
any such committee may resign at any time by giving notice to the Corporation;
provided, however, that notice to the board, the chairman of the board, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a
majority of the authorized number of directors at any meeting of the board
called for that purpose.
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ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be
a chairman, a president, one or more vice presidents, a secretary and a
treasurer, each of whom shall be elected by the board of directors. The board
of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the
Corporation may require. The officers shall have such authority and perform
such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. Election and Term of Office. The officers of the
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
stockholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer
in accordance with state law; but no such contract shall impair the right of
the board of directors to remove any officer at any time in accordance with
Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of
two-thirds of the board of directors whenever, in its judgment, the best
interests of the Corporation will be served thereby, but such removal, other
than for cause, shall be without prejudice to the contract rights, if any, of
the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall
be fixed from time to time by the board of directors, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
SECTION 6. Age Limitation. No person 70 or more years of age
shall be eligible for election, reelection, appointment or reappointment as an
officer of the Corporation. No officer shall serve beyond the annual meeting of
the Corporation immediately following the officer becoming 70 or more years of
age.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law,
and except as otherwise prescribed by the Corporation's Certificate of
Incorporation or these By Laws with respect to certificates for shares, the
board of directors or the executive committee may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by one or more officers,
employees or agents of the Corporation in such manner, including in facsimile
form, as shall from time to time be determined by resolution of the board of
directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may
select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the
Corporation shall be represented by certificates signed by the chairman of the
board of directors or the president or a vice president and by the treasurer or
an assistant treasurer or the secretary or an assistant secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent, or registered by a
registrar, other than the Corporation itself or an employee of the Corporation.
If any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before the certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates
representing shares issued by the Corporation shall set forth upon the face or
back that the Corporation will furnish to any stockholder upon request and
without charge a full statement of the designations, preferences, limitations,
and relative rights of the shares of each class authorized to be issued, the
variations in the relative rights and preferences between the shares of each
such series so far as the same have been fixed and determined, and the
authority of the board of directors to fix and determine the relative rights
and preferences of subsequent series.
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Each certificate representing shares shall state upon the face
thereof: that the Corporation is organized under the laws of the State of
Delaware; the name of the person to whom issued; the number and class of
shares, the designation of the series, if any, which such certificate
represents; the par value of each share represented by such certificate, or a
statement that the shares are without par value. Other matters in regard to
the form of the certificate shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued
for any share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for
the issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital
stock of the Corporation shall be made only on its stock transfer books.
Authority for such transfer shall be given only to the holder of record thereof
or by his legal representative, who shall furnish proper evidence of such
authority, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Corporation. Such transfer shall be made only on
surrender for cancellation of the certificate for such shares. The person in
whose name shares of capital stock stand on the books of the Corporation shall
be deemed by the Corporation to be the owner thereof for all purposes.
SECTION 6. Lost Certificates. The board of directors may direct
a new certificate to be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. When authorizing such issue of a new
certificate, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate, or his legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the last day of
December of each year. The Corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by
and responsible to the board of directors.
ARTICLE IX
DIVIDENDS
Dividends upon the stock of the Corporation, subject to the provisions
of the Certificate of Incorporation, if any, may be declared by the board of
directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property or in the Corporation's own stock.
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ARTICLE X
CORPORATION SEAL
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of Incorporation,
these By Laws may be repealed, altered, amended or rescinded by the
stockholders of the Corporation only by vote of not less than 75% of the voting
power of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting). In addition, the board of directors
may repeal, alter, amend or rescind these By Laws by vote of two-thirds of the
board of directors at a legal meeting held in accordance with the provisions of
these By Laws.
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EXHIBIT 4.2
COMMON STOCK WARRANT
PHYSICIANS TRUST, INC.
EXERCISABLE, SUBJECT TO CONDITIONS, PRIOR TO
5:30 P.M. CENTRAL TIME ON DECEMBER 31, 2000
DECEMBER 31, 1997 THAT NUMBER OF WARRANTS
DETERMINED IN SECTION 1
THESE SECURITIES (THE "SECURITIES") HAVE BEEN (I) ACQUIRED FOR INVESTMENT; (II)
ISSUED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES LAWS OF VARIOUS STATES; AND (III) ISSUED AND SOLD IN RELIANCE UPON
THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "1933
ACT"). THE SECURITIES CANNOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER
THAN PURSUANT TO (A) AN EFFECTIVE REGISTRATION UNDER THE 1933 ACT OR ANY
TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE WITH THE 1933 ACT; AND (B)
EVIDENCE SATISFACTORY TO THE ISSUER OF COMPLIANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO
RELY UPON AN OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE
WITH THE ABOVE LAWS.
THESE SECURITIES ARE SUBJECT TO THE HOLDER'S AGREEMENT NOT TO SELL OR OTHERWISE
TRANSFER SUCH SECURITIES FOR A PERIOD OF TIME TO BE DETERMINED BY THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. IN THE EVENT THAT THE COMPANY ELECTS TO
LIST ITS COMMON STOCK ON THE NASDAQ NATIONAL MARKET SYSTEM.
________________________________________________________________________________
This Common Stock Warrant ("Warrant") is issued as of the date set
forth above by Physicians Trust, Inc., a Delaware corporation (the "Company"),
to __________________________ or registered assigns (the "Holder"). This
Warrant is part of a series of Common Stock Warrants issued in connection with
the offer and sale by the Company of 3,000 investment units ("Units"), each of
which consists of (i) a Warrant to purchase up to $2,000 worth of the Company's
common stock based on the initial public offering price per share of the common
stock, at an exercise price of $.25 per share, and (ii) a 12% Promissory Note
(individually a "Note" and collectively the "Notes") in the principal amount of
$1,000 (up to $2,500,000 in the aggregate) to the purchasers thereof
(collectively, the "Holders").
W I T N E S S E T H:
1. Issuance of Warrant; Term. In consideration for the purchase
contemporaneously herewith of ____ Units, and for other good and valuable
consideration, the receipt and sufficiency
<PAGE> 2
of which are hereby acknowledged, the Company hereby grants to the Holder,
subject to the provisions hereinafter set forth, the right to purchase up to
$_______ worth of the Company's Common Stock based on the initial public
offering price per share of the Common Stock, at an exercise price of $.25 per
share. This Warrant shall be exercisable by the Holder at any time after the
successful completion of the Company's initial public offering of its Common
Stock ("IPO"), and prior to the expiration of the three year period beginning
as of the date hereof, and ending on or prior to 5:30 p.m. Central Time on
December 31, 2000 (the "Termination Date").
2. Exercise Price. The exercise price (the "Exercise Price") per
share for the Shares of Common Stock that may be purchased pursuant to the
terms of this Warrant shall be $.25 per share. If the Company does not complete
the IPO prior to the Termination Date, then the Warrant shall be exercisable
for _____ (Number of Units x 500) shares at a price of $.25 per share, which
has been arbitrarily determined and is not based on any established criteria
for determining the value of common stock.
3. Exercise of Warrants.
(a) Exercise Procedures. Prior to the Termination
Date, this Warrant may be exercised at any time, from time to time, by the
Holder hereof, subject to the conditions set forth herein, by (i) delivering to
the Company the written notice on the Form of Exercise to purchase attached
hereto as Exhibit "A," specifying the number of Shares that the Holder has
elected to purchase, at the following address: 1300 Post Oak Boulevard, Suite
1800, Houston, Texas 77056 ("Company Office"), Attention: President, or such
other address as the Company shall designate by written notice to the Holder,
(ii) surrendering this Warrant to the Company, and (iii) delivering to the
Company payment (in the manner set forth in Section 3.(b) hereof) of the
aggregate Exercise Price for the Shares to be purchased. The date of the
exercise of the purchase of any Shares to be purchased pursuant to this Warrant
shall be deemed to be the date of receipt by the Company of the Form of Exercise
duly completed and signed by the Holder, this Warrant and the appropriate
aggregate Exercise Price.
(b) Payment of Exercise Price; Expenses. The aggregate
Exercise Price for the Shares to be purchased pursuant to the exercise of this
Warrant shall be paid to the Company at the Company Office in cash, by wire
transfer or by certified or official bank check. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section 3.(b),
except that, in the case of stock certificates that have been registered in a
name or names other than the names of the registered holder of this Warrant,
funds sufficient to pay all stock transfer taxes which shall be payable upon
the execution and delivery of such stock certificate or certificates, shall be
paid by the registered holder hereto to the Company at the time of delivering
this Warrant to the Company as mentioned above.
(c) Exercise of All Warrants. If the Holder exercises
this Warrant, he must exercise it in whole and not in part, and upon surrender
of this Warrant at the Company Office by the registered Holder hereof in person
or by attorney and the Form of Exercise duly authorized in writing, the Holder
shall purchase all Shares eligible for purchase hereunder.
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<PAGE> 3
(d) Denominations of Warrants. This Warrant may be
exchanged for new Warrants in different denominations at the option of the
Holder by the surrender of this Warrant to the Company at the Company Office
accompanied by written instructions setting forth the denominations of the new
Warrants.
(e) Fractional Shares. No fractional shares of Common
Stock will be issued upon the exercise of this Warrant, but in lieu thereof, a
cash payment will be made to the Holder in an amount equal to any fractional
share resulting from the calculation of the number of Shares to be purchased in
accordance with the provisions in Section 1 hereof multiplied by the Exercise
Price determined in Section 2 hereof.
4. Anti-dilution Protection. The applicable Exercise Price per
share determined in Section 2 hereof and the number of Shares issuable upon
exercise of this Warrant determined in Section 1 hereof are subject to
adjustment from time to time upon the occurrence hereafter of certain
transactions by the Company, including dividends of stock or other securities
or property, stock splits, reverse stock splits, subdivisions, combinations,
recapitalizations, reorganizations, reclassifications, consolidations, mergers
or sales of properties and assets and dissolution (collectively,
"Reorganization"). In the event that the outstanding Common Stock of the
Company is at any time increased or decreased solely by reason of a
Reorganization, appropriate adjustments in the number and kind of such
securities then subject to this Warrant shall be made effective as of the date
of such occurrence so that the interest of the Holder upon exercise will be the
same as it would have been had such Holder owned the underlying securities
immediately prior to the occurrence of such event. Such adjustment shall be
made successively whenever any Reorganization shall occur. Notwithstanding the
foregoing, no adjustment shall be required under this Section 4 until the
cumulative adjustments result in a dilution to the Holder of 5% or more.
5. Transferability. The Warrants are separate and detachable
securities, transferable on the books of the Company at the Company Office by
the registered Holder hereof in person or by attorney duly authorized in
writing, upon surrender of this Warrant to the Company for transfer. Upon any
such transfer, a new Warrant to purchase a like number of Shares will be issued
to the transferee or transferees in exchange for this Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of an agreement of indemnity (without security therefor, and upon
surrender and cancellation of this Warrant, if mutilated), the Company will
make and deliver a new Warrant of like tenor, in lieu of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes) and other charges payable
in connection with the preparation, execution and delivery of this Warrant
pursuant to this Section.
6. Warrant Holder Not a Shareholder. No Holder of this Warrant
shall be entitled, solely by reason of being a Holder hereof, to possess any
right or privilege as a shareholder of the Company, including without
limitation, the right to vote or receive dividends or be deemed for any purpose
the holder of Common Stock or of any other securities of the Company which may
at any time be issuable on the exercise hereof, until the Holder shall have
exercised all or any part of this Warrant in accordance with the provisions set
forth in Section 3 hereof. Nothing contained herein shall be construed to
confer upon the Holder, as such, any of the rights of a shareholder of the
Company or
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<PAGE> 4
any right to vote upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or otherwise) or, to receive notice
of the meetings, until the Warrant shall have been exercised as provided in
Section 3 hereof.
7. Covenants and Conditions. The provisions of this Warrant are
subject to the following covenants and conditions:
(a) Restricted Shares. Neither this Warrant nor the
Shares have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state (the "Blue Sky Laws").
By purchasing a Note and receiving this Warrant, the Holder hereof acknowledges
that the Holder is acquiring this Warrant for investment purposes only, for his
own account and not with a view to the distribution or resale of this Warrant
without an effective registration for this Warrant under the Securities Act and
applicable Blue Sky Laws or an opinion of counsel reasonably satisfactory to
the Company and its counsel that registration is not required under the
Securities Act or any applicable Blue Sky Laws. The Shares issued upon exercise
of this Warrant shall be restricted securities under the Securities Act and
applicable Blue Sky Laws, and the certificates representing the Shares shall
bear a restrictive legend in substantially the same form as set forth on the
cover page of this Warrant.
If requested by the National Association of Securities
Dealers, Inc. ("NASD") in connection with listing of the Company's Common Stock
on the NASDAQ National Market System, or by a Lead Underwriter for the IPO,
Holder will enter into an Agreement to refrain from any sale or transfer of
this Warrant and the Shares for a minimum of 180 days from the effective date of
the IPO or for such longer period of time as may be determined by NASD.
Other legends as required under federal or state laws may be
placed on the certificates evidencing any Shares purchased hereunder. The
Holder hereof agrees to execute such other documents and instruments as counsel
for the Company reasonably deems necessary to effect the compliance of the
issuance of this Warrant and any Shares issued upon exercise hereof with
applicable federal and state securities laws.
(b) Reservation of Shares. The Company covenants and
agrees that the Shares to be issued upon the exercise of this Warrant shall,
upon issuance and payment therefor in accordance with the terms hereof, be
legally and validly authorized, issued and outstanding, fully paid and
nonassessable and free from preemptive rights. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be sufficient
to permit the exercise in full of this Warrant and all other outstanding
Warrants, taking into account for this purpose, any adjustments to the Shares
purchasable under this Warrant as provided under Section 4 hereof.
(c) Affirmative and Restricted Covenants. The Company
will at all times take such action in good faith as may be necessary or
appropriate in order to preserve the rights of the Holder. The Company will
not, by amendment of its certificate of incorporation, enter into any
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<PAGE> 5
reorganization, transfer of assets, consolidation, merger, issue or sale of
securities or otherwise avoid or take any action which would have the effect of
avoiding the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in carrying out all of the provisions of this Warrant and in taking all such
action as may be necessary or appropriate in order to protect the rights of the
holders of this Warrant against dilution or other impairment.
(d) Financial Information. So long as this Warrant or
any part hereof remains outstanding, the Company shall furnish to the Holder,
upon request: (i) unaudited, quarterly financial statements of the Company
within forty-five (45) days after the end of each fiscal quarter; (ii)
financial statements of the Company for each fiscal year within ninety (90)
days after the end of the fiscal year, audited by a national accounting firm;
and (iii) such other financial information of the Company as the Holder may
reasonably request in writing, provided that such other financial information
is prepared by the Company in the ordinary course.
8. Incidental Registration. If the Company at any time proposes
to register any of its Common Stock under the Securities Act for sale to the
public, whether for its own account or for the account of other security
holders or both (except with respect to the IPO, a merger or acquisition for
stock or registration statements on Forms S-4, S-8 or another form not
available for registering the Shares for sale to the public), each such time it
will give written notice to the Holders of its intention so to do. Upon the
written request of any such Holder, received by the Company within 30 days
after the giving of any such notice by the Company, to register any of its
Shares, the Company will use its best efforts to cause the Shares as to which
registration shall have been so requested to be included in the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by the
Holder of such Shares. In the event that any Registration pursuant to this
Section 8 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of Shares to be included in such an underwriting may
be reduced (pro rata among the requesting Holders based upon the number of
Shares owned by such Holders and the Company) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 8 without thereby incurring
any liability to the Holders, and the Company is under no obligation to
register Shares eligible for resale under Rule 144(k), as in effect at the
time, or any other applicable exemption from the registration requirements of
the Securities Act.
9. Indemnification.
(a) Indemnification by the Company. The Company shall, to
the full extent permitted by law, indemnify and hold harmless each Holder of
Shares included in any registration statement filed in connection with a
registration under Section 8 hereof, its directors and officers, and each other
Person, if any, who controls any such Holder within the meaning of the
Securities Act, against any losses, claims, damages, expenses or liabilities,
joint or several (together, "Losses"), to which such Holder or any such
director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any
5
<PAGE> 6
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse such Holder and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided that the Company shall not be liable
in any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such Holder specifically stating that it is for use in the preparation thereof.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or any such director, officer
or controlling Person, and shall survive the transfer of Shares by such Holder.
The Company shall also indemnify each other Person who participates (including
as an underwriter) in the offering or sale of the Shares, their officers and
directors and each other Person, if any, who controls any such participating
Person within the meaning of the Securities Act to the same extent as provided
above with respect to Holders of Shares.
(b) Indemnification of the Holders. Each Holder of Shares
which are included or are to be included in any registration statement filed in
connection with any registration under Section 8 hereof, as a condition to
including Shares in such registration statement, shall, to the full extent
permitted by law, indemnify and hold harmless the Company, its directors and
officers, and each other Person, if any, who controls the Company within the
meaning of the Securities Act, against any Losses to which the Company or any
such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Holder specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement; provided,
however, that the obligation to provide indemnification pursuant to this
Section 9.(b) shall be several, and not joint and several, among such
Indemnifying Parties on the basis of the number of Shares included in such
registration statement, and the aggregate amount which may be recovered from
any Holder of Shares pursuant to the indemnification provided for in this
Section 9.(b) in connection with any registration and sale of Shares shall be
limited to the total proceeds (including commissions and underwriting
discounts) received by such Holder from the sale of such Shares. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer of such Shares by such Holder. Such Holders
shall also indemnify each other Person who
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<PAGE> 7
participates (including as an underwriter) in the offering or sale of Shares,
their officers and directors and each other Person, if any, who controls any
such participating Person within the meaning of the Securities Act to the same
extent as provided above with respect to the Company.
(c) Notices of Claims, etc. Promptly after receipt by an
Indemnified Party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 9.(a) or 9.(b), such Indemnified Party
will, if a claim in respect thereof is to be made against an Indemnifying Party
pursuant to such subsections, give written notice to the latter of the
commencement of such action, provided that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under the preceding paragraphs of this Section 9, except to the
extent that the Indemnifying Party is actually prejudiced by such failure to
give notice. In case any such action is brought against an Indemnified Party,
the Indemnifying Party shall be entitled to participate in and, unless, in the
reasonable judgment of any Indemnified Party, a conflict of interest between
such Indemnified Party and any Indemnifying Party exists with respect to such
claim, to assume the defense thereof, jointly with any other Indemnifying Party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party or Indemnified Parties shall
have the right to employ one counsel to represent it or them if, in the
reasonable judgment of the Indemnified Party or Indemnified Parties, it is
advisable for it or them to be represented by separate counsel by reason of
having legal defenses which are different from or in addition to those
available to the Indemnifying Party, and in that event the reasonable fees and
expenses of such one counsel shall be paid by the Indemnifying Party. If the
Indemnifying Party is not entitled to, or elects not to, assume the defense of
a claim, it will not be obligated to pay the fees and expenses of more than one
counsel for the Indemnified Parties with respect to such claim, unless in the
reasonable Judgment of any Indemnified Party a conflict of interest may exist
between such Indemnified Party and any other Indemnified Parties with respect
to such claim, in which event the Indemnifying Party shall be obligated to pay
the fees and expenses of such additional counsel for the Indemnified Parties.
No Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such claim
or litigation. No Indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
(d) Contribution. If the indemnity and reimbursement
obligation provided for in any subsection of this Section 9 is unavailable or
insufficient to hold harmless an Indemnified Party in respect of any Losses (or
actions or proceedings in respect thereof) referred to therein, then the
Indemnifying Party shall contribute to the amount paid or payable by the
Indemnified Party as a result of such Losses (or actions or proceedings in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on
the other hand, in connection with statements or omissions which resulted in
such Losses, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Indemnifying Party or
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<PAGE> 8
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this paragraph were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the first sentence of this
paragraph. The amount paid by an Indemnified Party as a result of the Losses
referred to in the first sentence of this Section 9.(d) shall be deemed to
include any legal and other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any Loss which is the
subject of this Section 9.(d).
No Indemnified Party guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to
that specified in the preceding paragraphs of this Section 9 (with appropriate
modifications) shall be given by the Company and each Holder of Shares with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act reasonable and customary in scope and effect. The provisions
of this Section 9 shall be in addition to any other rights to indemnification
or contribution which an Indemnified Party may have pursuant to law, equity,
contract or otherwise.
(f) Indemnification Payments. The indemnification
required by this Section 9 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills
are received or Losses are incurred.
10. Covenants Relating to Rule 144. Following the Company's
initial public offering of Common Stock, the Company will file reports in
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and take such
other actions and furnish any Holder with such other information as such Holder
may request in order to avail itself of such rule or any other rule or
regulation of the Commission allowing such Holder to sell any Shares without
registration, and will, at its expense, forthwith upon the request of any
Holder, deliver to such Holder a certificate, signed by the Company's principal
financial officer, stating (a) the Company's name, address and telephone number
(including area code), (b) the Company's Internal Revenue Service
identification number, (c) the Company's Commission file number, (d) the number
of shares of each class of stock outstanding as shown by the most recent report
or statement published by the Company, and (e) whether the Company has filed
the reports required to be filed under the Exchange Act for a period of at
least 90 days prior to the date of such certificate and in addition has filed
the most recent annual report required to be filed thereunder. If at any time
the Company is not required to file reports in compliance with either Section
13 or Section 15(d) of the Exchange Act, the Company at its expense will,
forthwith upon the written request of the Holder of any Shares, make available
adequate current public information with respect to the Company within the
meaning of paragraph (c)(2) of Rule 144.
11. Definitions. Unless the context otherwise requires, (i) words
of any gender include each other gender; (ii) words using the singular or
plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer
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<PAGE> 9
to this entire Warrant; and (iv) the term "Section" refers to the specified
Section of this Warrant. Whenever this Warrant refers to a number of days, such
number shall refer to calendar days unless Business Days are specified. Except
as otherwise specifically indicated, the following terms will have the
following meanings for all purposes of this Warrant:
(a) "Business Day" means a day other than Saturday,
Sunday or any other day on which banks located in the State of New York are
authorized or obligated to close.
(b) "Common Stock" means shares of the Company's common
stock, par value $.001 per share, as constituted on the date of this Warrant,
and any stock into which such Common Stock shall have been changed or any stock
resulting from any reclassification of such Common Stock.
(c) "Commission" means the United States Securities and
Exchange Commission, or any successor governmental agency or authority.
(d) "Company" means Physicians Trust, Inc.
(e) "Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(f) "Holder" means the initial Holder of this Warrant and
any transferee, successors or assigns.
(g) "Holders" means the initial Holders of the Warrants
and any transferee, successors or assigns.
(h) "Indemnified Party" means a party entitled to
indemnity in accordance with Section 9.
(i) "Indemnifying Party" means a party obligated to
provide indemnity in accordance with Section 9.
(j) "Lead Underwriter" means, with respect to any Public
Offering, the underwriter managing such Public Offering.
(k) "Losses" has the meaning ascribed to it in Section
9.(a).
(l) "NASD" means the National Association of Securities
Dealers, Inc.
(m) "Notes" means the $1,000 principal amount of 12%
Promissory Notes being offered and sold by the Company pursuant to a Private
Placement Memorandum dated October 31, 1997.
(n) "Person" means any natural person, corporation,
general partnership, limited partnership, proprietorship, other business
organization, trust, union or association.
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(o) "Public Offering" means any offering of Common Stock
to the public, either on behalf of the Company or any of its security Holders,
pursuant to an effective registration statement under the Securities Act.
(p) "Rule 144(k)" means subparagraph (k) of Rule 144
promulgated by the Commission under the Securities Act, and any successor
provision thereto.
(q) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(r) "Shares" means the shares of Common Stock issuable to
the Holders of the Warrants upon the exercise thereof, and any additional
shares of Common Stock issued or distributed by way of a dividend, stock split
or other distribution in respect of the Shares.
(s) "Warrant" means this Warrant.
(t) "Warrants" means the series of Warrants being granted
by the Company in connection with the offering and sale of the Notes.
12. Miscellaneous.
(a) Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally or by facsimile transmission or mailed
(first class postage prepaid) to the parties at the following addresses or
facsimile numbers: (i) if to the Holder, to the name, address and facsimile
number set forth in the Subscription Agreement executed in connection with the
purchase of the Notes and this Warrant or any other address or facsimile number
delivered to the Company in writing or to the name, address and facsimile
number of any transferee of this Warrant recorded on the books of the Company
as instructed on the form of Assignment attached hereto as Exhibit "B"; and
(ii) if to the Company, to Physicians Trust, Inc., 1300 Post Oak Boulevard,
Suite 1800, Houston, Texas 77056, Facsimile No. (713) 622-2227.
With respect to any other Holder of Shares, such notices,
requests and other communications shall be sent to the addresses set forth in
the stock transfer records regularly maintained by the Company. All such
notices, requests and other communications will (i) if delivered personally to
the address as provided in this Section, be deemed given upon delivery, (ii) if
delivered by facsimile transmission to the facsimile number as provided in this
Section, be deemed given upon receipt, and (iii) if delivered by mail in the
manner described above to the address as provided in this Section, be deemed
given upon receipt (in each case regardless of whether such notice, request or
other communication is received by any other Person to whom a copy of such
notice is to be delivered pursuant to this Section 12.(a)). Any party from time
to time may change its address, facsimile number or other information for the
purpose of notices to that party by giving notice specifying such change to the
other parties hereto.
(b) Waiver. Any term or condition of this Warrant may be
waived at any time by the Holder, but no such waiver shall be effective unless
set forth in a written instrument duly executed
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by or on behalf of the Holder. No waiver by the Holder of any term or condition
of this Warrant, in any one or more instances, shall be deemed to be or
construed as a waiver of the same term or condition of this Warrant on any
future occasion.
(c) Successors and Assigns. This Warrant inures to the
benefit of and is enforceable by the Holder hereof and the Holder's respective
successors and assigns.
(d) Headings. The headings used in this Warrant have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
(e) Invalid Provisions. If any provision of this Warrant
is held to be illegal, invalid or unenforceable under any present or future
law, and if the rights or obligations of the Holder hereof will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Warrant will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (iii) the
remaining provisions of this Warrant will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (iv) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of this
Warrant a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
(f) Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the conflicts of laws principles thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed and delivered
by the duly authorized officer of the Company as of December 31, 1997.
PHYSICIANS TRUST, INC.
By: /s/ ROBERT F. STRANGE, Jr.
--------------------------------------------
Robert F. Strange, Jr., Chief Executive Officer
Attest:
/s/ WILLIAM D. MCCLELLAN
- -------------------------------
William D. McClellan, Secretary
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FORM OF EXERCISE
(Form of exercise to be executed by the Holder at the time of exercise)
To: Physicians Trust, Inc.:
The undersigned, Holder of this Warrant hereby (1) irrevocably
exercises the undersigned's right to purchase _______ shares of Common Stock as
determined in Section 1 hereof, which the undersigned is entitled to purchase
under the terms of the Warrant, and (2) delivers the aggregate Exercise Price
for the number of Shares of Common Stock so purchased, as determined in Section
2 hereof, in the amount of $_________ in cash, by wire transfer or by certified
or official bank check.
Please issue the certificate for shares of Common Stock in the name
of, and pay any cash for any fractional share to:
- --------------------------------------------------------------------------------
Print or type name
- --------------------------------------------------------------------------------
Social Security or Other Identifying Number
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
Dated:
-----------------
- -------------------------------------------------------------------------------
Signature of Holder
(Signature must conform in all respects to name of
Holder as specified on the face of this Warrant)
(Signature Medallion Guaranteed): Date:
-----------------
(If the Common Stock, cash in lieu of fractional shares, or if otherwise
requested by the Company, a signature guarantee is required.)
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ASSIGNMENT
(Form of assignment to be executed if the
Holder desires to transfer the Warrant)
FOR VALUE RECEIVED, ______________ hereby sells, assigns, and
transfers unto ("Transferee") this Warrant together with all right, title or
interest therein and does hereby irrevocably appoint _______________ attorney
to transfer the Warrant on the books of the Company with full power of
substitution in the premises.
Print name of
Transferee:
---------------------------------------------------------------------
Address of
Transferee:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Nos. of Transferee (Home) (Business)
--------------- ----------------
Facsimile No. of Transferee
---------------
Dated:
-------------------
- -------------------------------------------------------------------------------
Signature of Holder
(Signature must conform in all respects to name of
Holder as specified on the face of this Warrant)
(Signature Medallion Guaranteed): Date:
----------------
13
<PAGE> 1
EXHIBIT 10.6
MASTER TRANSACTION AGREEMENT
BY AND AMONG
PHYSICIANS TRUST, INC.
OLD CLINIC
A.D. WALKER, JR., (A.P.M.C.)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Assumed Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.6 Contribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8 Environmental Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.11 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.12 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.13 Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.14 Hazardous Wastes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.15 Indemnity Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.16 Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.17 Investment Representations Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.18 Management Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.19 Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.20 Medical Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.21 NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.22 NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.23 New Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.24 New Clinic Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.25 New Clinic Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.26 New Clinic Operating Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.27 New Clinic Organizational Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.28 Nonmedical Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.29 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.30 Old Clinic Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.31 Old Clinic Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.32 Old Clinic Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.33 Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.34 Physician Indemnified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.35 Physician Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.36 Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.37 PTI Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.38 PTI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.39 PTI Indemnified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
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<TABLE>
<S> <C>
Section 1.40 Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.41 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.42 SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.43 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.44 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.45 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.46 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.47 Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.48 Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 RESTRUCTURING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Pre-Closing Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Employment and Other Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Execution of Management Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Noncompetition and Confidentiality Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3 REPRESENTATIONS OF THE PHYSICIAN PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1 Representations of the Physician Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.2 Representations of the Physician . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 4 REPRESENTATIONS OF PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.1 Representations of PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 5 PRE-CLOSING COVENANTS OF OLD CLINICAND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.2 Access to Information and Records Before Closing . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 6 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1 Filing of Registration Statement; Other Action . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.2 Compliance with Conditions Precedent; Further Assurances . . . . . . . . . . . . . . . . . . . 23
Section 6.3 Certain Notifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.4 Amendment to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.5 Physician Parties to Obtain Own Tax Advice . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.6 Investment Representations and Covenants of Physician . . . . . . . . . . . . . . . . . . . . . 25
Section 6.7 No Corporate Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.8 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.9 Rule 144 Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.10 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 7 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.1 Conditions Precedent to the Obligations of All Parties . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
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Section 7.2 Conditions Precedent to the Obligations of PTI . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Conditions Precedent to the Obligations of the Physician Parties . . . . . . . . . . . . . . . 29
ARTICLE 8 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Deliveries to PTI at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.3 Deliveries to the Physician Parties at the Closing . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 9 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.1 Termination by Mutual Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2 Termination by PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.3 Termination by the Physician Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.4 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 10 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.1 Indemnification by the Physician Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.2 Indemnification by PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.4 Defense of Third Party Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.5 Payment of Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.6 Liquidated Damages; Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 11 PIGGYBACK REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.1 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.2 Covenants of PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.3 Covenants of the Physician . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.4 Indemnification of Physician . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.5 Indemnification of PTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.6 Defense of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.7 Non-Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 12 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.1 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.2 Arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.3 Applicable Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.2 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.4 Parties Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.6 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<TABLE>
<S> <C> <C>
Section 13.7 Entire Agreement; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 13.8 Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.9 Reformation Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.13 Announcements and Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 13.14 Antidilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 13.15 No Tax Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 13.16 No Rights as Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 13.17 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 13.18 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 13.19 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
A Asset Purchase Agreement
B Contribution Agreement
C Management Services Agreement
D New Clinic Charter
E New Clinic Bylaws
F New Clinic Operating Agreement
G New Clinic Organizational Minutes
H Subordinated, Non-negotiable Promissory Note
I Physician Employment Agreement
J Security Agreement
K General Bill of Sale, Conveyance, Transfer and Assignment and Agreement
Regarding Assumption of Liabilities
</TABLE>
<PAGE> 6
MASTER TRANSACTION AGREEMENT
This Master Transaction Agreement ("Master Transaction Agreement"),
dated and effective as of July 7, 1997, is by and among PHYSICIANS TRUST, INC.,
a Delaware corporation ("PTI"); A.D. WALKER, JR. (A.P.M.C.), a Louisiana
professional medical corporation ("Old Clinic"); and A.D. WALKER, JR., M.D.
("Physician").
RECITALS
A. Physician is a physician licensed to practice medicine in the
State of Louisiana. Physician currently conducts his orthopedic medical
practice through Old Clinic.
B. Physician desires to restructure his medical practice
currently conducted through Old Clinic by consummation of the transactions
described in this Master Transaction Agreement.
C. The parties to this Master Transaction Agreement desire to set
forth the terms and conditions upon which the restructuring described above
shall be accomplished and to agree upon other matters set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE 1 DEFINITIONS
For purposes of this Master Transaction Agreement, the following
terms, in addition to other capitalized terms used in this Master Transaction
Agreement that are defined elsewhere herein, shall have the meanings set forth
herein.
Section 1.1 Asset Purchase Agreement. The Asset Purchase Agreement
to be executed by and between PTI and Old Clinic, substantially in the form set
forth in Exhibit A.
Section 1.2 Assumed Obligations. As defined in Section 2.3 of the
Asset Purchase Agreement.
Section 1.3 Closing. The closing of the transactions contemplated by
this Master Transaction Agreement.
Section 1.4 Closing Date. As defined in Section 2.2 hereof.
Section 1.5 Code. The Internal Revenue Code of 1986, as amended.
1
<PAGE> 7
Section 1.6 Contribution Agreement. The Contribution Agreement to be
executed between the Physician and New Clinic substantially in the form set
forth in Exhibit B.
Section 1.7 Disclosure Schedule. The disclosure schedule attached
hereto setting forth, with reference to the applicable section and subsection
of this Master Transaction Agreement, certain information and exceptions to the
representations, warranties and covenants of the Physician Parties.
Section 1.8 Environmental Claim. As defined in Section 10.1(a)(iv)
hereof.
Section 1.9 Environmental Laws. As defined in Section 3.1(m) hereof.
Section 1.10 ERISA. As defined in Section 3.1(l) hereof.
Section 1.11 Exchange Act. The Securities Exchange Act of 1934, as
amended.
Section 1.12 GAAP. Generally accepted accounting principles,
consistently applied.
Section 1.13 Governmental Authority. Any national, state,
provincial, local or tribal governmental, judicial or administrative authority
or agency.
Section 1.14 Hazardous Wastes. As defined in Section 3.1(m) hereof.
Section 1.15 Indemnity Loss. As defined in Section 10.1(a) hereof.
Section 1.16 Initial Public Offering. The initial public offering of
PTI Common Stock contemplated by the Registration Statement.
Section 1.17 Investment Representations Schedules. The schedule
attached hereto setting forth exceptions to the Physician's representations,
warranties and covenants set forth in Section 6.6 hereof.
Section 1.18 Management Services Agreement. The Management Services
Agreement to be executed between PTI and New Clinic substantially in the form
set forth in Exhibit C.
Section 1.19 Market Price. The market price per share of PTI Common
Stock determined in the following manner: (i) the closing price (which shall be
the last reported sales price, or, in case no such sales take place on such
date, the average of the closing bid and the asked prices) per share of the PTI
Common Stock on the principal national securities exchange on which the PTI
Common Stock is then listed or admitted to trading, if the PTI Common Stock is
then listed or admitted to trading on any national securities exchange; (ii) if
the PTI Common Stock is not then so listed on a national securities exchange,
the average of the closing bid and asked prices of the PTI Common Stock in the
over-the-counter market as reported by NASDAQ; (iii) if the PTI
2
<PAGE> 8
Common Stock is not then quoted by NASDAQ, as furnished by any member of NASD
selected by PTI for that purpose; or (iv) if no member of NASD furnishes quotes
with respect to the PTI Common Stock, an amount determined in good faith by the
board of directors of PTI.
Section 1.20 Medical Assets. As defined in Section 2.2 of the Asset
Purchase Agreement.
Section 1.21 NASD. The National Association of Securities Dealers,
Inc.
Section 1.22 NASDAQ. The National Association of Securities Dealers
Automated Quotation System.
Section 1.23 New Clinic. Bayou Orthopedic Center, A Professional
Medical Corporation, a Louisiana professional medical corporation formed in
accordance with the terms of this Master Transaction Agreement.
Section 1.24 New Clinic Charter. The Articles of Incorporation of
New Clinic substantially in the form set forth in Exhibit D.
Section 1.25 New Clinic Bylaws. The bylaws of New Clinic
substantially in the form set forth in Exhibit E.
Section 1.26 New Clinic Operating Agreement. The operating agreement
of New Clinic substantially in the form set forth in Exhibit F.
Section 1.27 New Clinic Organizational Minutes. The organizational
minutes of New Clinic substantially in the form set forth in Exhibit G.
Section 1.28 Nonmedical Assets. As defined in Section 2.1 of the
Asset Purchase Agreement.
Section 1.29 Note. The subordinated, non-negotiable promissory note
to be delivered to Physician at the Closing pursuant to this Master Transaction
Agreement substantially in the form set forth in Exhibit H.
Section 1.30 Old Clinic Audited Financial Statements. As defined in
Section 3.1(d) hereof.
Section 1.31 Old Clinic Balance Sheet. As defined in Section 3.1(d)
hereof.
Section 1.32 Old Clinic Balance Sheet Date. As defined in Section
3.1(d) hereof.
Section 1.33 Physician Employment Agreement. The Physician
Employment Agreement to be executed between Physician and New Clinic
substantially in the form set forth in Exhibit I.
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Section 1.34 Physician Indemnified Persons. As defined in Section
10.2 hereof.
Section 1.35 Physician Parties. The Physician and Old Clinic.
Section 1.36 Practice. The orthopedic, medical and all other related
health-care practices conducted from time to time by Old Clinic prior to
Closing and New Clinic on and after the Closing.
Section 1.37 PTI Audited Financial Statements. As defined in Section
4.1(e) hereof.
Section 1.38 PTI Common Stock. The Common Stock, par value $.001 per
share, of PTI.
Section 1.39 PTI Indemnified Persons. As defined in Section 10.1(a)
hereof.
Section 1.40 Real Property Leases. As defined in Section 2.1(h) of
the Asset Purchase Agreement.
Section 1.41 Registration Statement. As defined in Section 6.1(a)
hereof.
Section 1.42 SEC. The Securities and Exchange Commission.
Section 1.43 Securities. The Note and the shares of PTI Common Stock
to be issued to the Physician pursuant to this Master Transaction Agreement.
Section 1.44 Securities Act. The Securities Act of 1933, as amended.
Section 1.45 Taxes. As defined in Section 3.1(j) hereof.
Section 1.46 Termination Date. As defined in Section 9.4 hereof.
Section 1.47 Trading Day. Any day on which the New York Stock
Exchange Inc. or any successor entity is open for trading, or if the New York
Stock Exchange, Inc. and its successors cease to conduct a securities trading
business, any day on which any national securities exchange is open for
trading.
Section 1.48 Transaction Documents. This Master Transaction
Agreement, the Contribution Agreement, the Physician Employment Agreement, the
Management Services Agreement, the New Clinic Charter, the New Clinic Bylaws,
the New Clinic Operating Agreement, the New Clinic Organizational Minutes, the
Note, the Asset Purchase Agreement, the joinder of New Clinic contemplated by
Section 2.1(c) hereof and each other document and instrument executed and
delivered at this Closing.
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ARTICLE 2 RESTRUCTURING
Section 2.1 Pre-Closing Actions. Prior to the Closing, the following
actions shall occur in the order set forth in this Section 2.1:
(a) the Physician and Old Clinic shall terminate any
existing employment and other agreements, oral, written or otherwise,
between the Physician and Old Clinic;
(b) the Physician shall cause New Clinic to be duly
organized and, to that end, shall cause (i) the New Clinic Charter to
be filed with the Secretary of State of the State of Louisiana, (ii)
the New Clinic Bylaws to be executed and delivered, (iii) the New
Clinic Operating Agreement to be executed and delivered, (iv) the New
Clinic Organizational Minutes to be approved and (v) interests of New
Clinic to be issued to the Physician in the amount set forth in the
New Clinic Organizational Minutes for the consideration described
therein; and
(c) New Clinic shall execute and deliver a joinder to
this Master Transaction Agreement pursuant to which it agrees to be
bound by the terms and provisions of this Article 2, Section 6.7 and
Article 12 hereof.
Section 2.2 Closing. The Closing shall take place at 10:00 a.m.,
local time, at the offices of Chamberlain, Hrdlicka, White, Williams & Martin,
1200 Smith Street, Suite 1400, Houston, Texas, on the first day following the
satisfaction of each condition set forth in Article 7 hereof, including
consummation of the transactions contemplated by the Initial Public Offering.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date." At the Closing, the steps set out below will occur as provided herein.
(a) Asset Purchase Agreement. Old Clinic and PTI
shall execute and deliver the Asset Purchase Agreement, and subject to
its terms and conditions, on the Closing Date the Old Clinic shall
transfer, assign, convey and deliver the Assets to PTI, free and clear
of all security interests, liens, claims and encumbrances (other than
statutory liens arising in the ordinary course of business or other
liens that do not materially detract from the value or interfere with
the use of such properties or assets), PTI shall accept and acquire
the Assets from Old Clinic, and assume the Assumed Liabilities, and
PTI shall pay to Old Clinic the purchase price provided in the Asset
Purchase Agreement.
(b) Distribution of Medical Assets; Dissolution of
Old Clinic. After the occurrence of the events described in
Subsection (a) of this Section 2.2, Old Clinic shall dissolve and
convey, assign and distribute its remaining assets (consisting solely
of cash and Medical Assets) to the Physician.
(c) Contribution of Medical Assets. After the
occurrence of the events described in Subsection (b) of this Section
2.2, Physician and New Clinic shall execute and
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deliver a Contribution Agreement pursuant to which the Physician
shall contribute his undivided interest in the Medical Assets to New
Clinic.
Section 2.3 Employment and Other Arrangements. At the Closing, after
the occurrence of the events described in Section 2.2, New Clinic and the
Physician shall execute and deliver the Physician Employment Agreement,
complete with the noncompetition covenant attached thereto and forming a part
thereof, and the New Clinic Operating Agreement.
Section 2.4 Execution of Management Services Agreement. At the
Closing, after the occurrence of the events described in Section 2.3, PTI and
New Clinic shall execute and deliver the Management Services Agreement, and in
consideration of causing New Clinic to execute and deliver the Management
Services Agreement, PTI shall deliver the following consideration to the
Physician in the amounts and on the dates set forth below:
(a) At the Closing, PTI shall deliver to Physician
cash in the amount of $555,000. Payment of the cash amount may be
made, at the election of PTI, by delivery of a PTI check or by wire
transfer to bank accounts designated by the Physician.
(b) At the Closing, PTI shall deliver to the
Physician a Note in the original principal amount of $525,000. Such
Note shall bear interest at 7% per annum with interest paid annually.
The principal shall be paid in three separate payments of $175,000,
$175,000, and $175,000, on the third, fourth, and fifth anniversaries
of the Closing, respectively. Provided, however, that, to secure for
PTI the benefits contemplated by this Master Transaction Agreement,
and as an additional inducement for the performance by Physician of
his obligations hereunder and under the Physician Employment
Agreement, and in recognition that PTI's obligation to deliver cash
and securities to the Physician hereunder was incurred in reliance on
the assurances of the Physician contained in the respective
Transaction Documents, and that a material violation of the covenants
and obligations of Physician contained in any of the Transaction
Documents would result in a failure of consideration to PTI:
(i) in the event that PTI is entitled to indemnification from
Physician pursuant to Sections 10.1, 10.4 or 11.5 hereof, then PTI, at
its sole discretion, shall be entitled to set off any amount up to the
full amount of all Indemnity Losses and other payments entitled to be
received by PTI from the Physician pursuant to such provisions as
provided in Section 10.5 below; and
(ii) in the event that the Physician Employment Agreement
between New Clinic and Physician is terminated prior to the fifth
anniversary of the Closing Date, by New Clinic "for cause" (as defined
in the Physician Employment Agreement) or as a result of a Physician
Termination (as defined in the Physician Employment Agreement), then
PTI, at PTI's sole discretion, shall be entitled to cancel and set off
all amounts payable under the Note (or any renewal or replacement
thereof) delivered to the Physician pursuant to this
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Section 2.4(b), and upon such election by PTI, such Note shall be
deemed canceled, discharged and paid in full, and the Physician shall
redeliver such Note to PTI; provided, however, that in no event shall
PTI have any right to set-off against, cancel or recover any amount
payable to Physician under such Note after such amount has been paid
to such Physician.
(c) At any time after two years following the Closing
Date, at the election of the Physician, PTI will issue and deliver to
the Physician, such number of validly issued, fully paid and
nonassessable shares of PTI Common Stock having an aggregate value of
$600,000, based upon the Initial Public Offering Price; provided, that
notwithstanding the foregoing, no fractional share of PTI Common Stock
will be issued and in lieu thereof, the Physician will be entitled to
receive a cash payment reflecting the Physician's proportionate
interest in a share of PTI Common Stock multiplied by the Initial
Public Offering Price; provided, however, that, to secure for PTI the
benefits contemplated by this Master Transaction Agreement, and as an
additional inducement for the performance by the Physician of his
obligations hereunder and under the Physician Employment Agreement,
and in recognition that PTI's obligation to deliver cash and
securities to the Physician hereunder was incurred in reliance on the
assurances of the Physician contained in the respective Transaction
Documents, and that a material violation of the covenants and
obligations of the Physician contained in any of the Transaction
Documents would result in a failure of consideration to PTI:
(i) in the event that PTI is entitled to indemnification from
the Physician pursuant to Sections 10.1, 10.4 or 11.5 hereof, then
PTI, at its sole discretion, shall be entitled to set off any amount
up to the full amount of all Indemnity Losses and other payments
entitled to be received by PTI from Physician, as provided in Section
10.5 below, by canceling a number of shares of PTI Common Stock
entitled to be received by the Physician hereunder, and by terminating
PTI's obligation to deliver such shares to the Physician, which
represent an amount, valued at the average Market Price per share
during the ten Trading Days immediately preceding the date payment was
due under Section 10.5, which is equal to the amount of such Indemnity
Losses and other payments due to PTI which PTI has elected to set off;
and
(ii) in the event that the Physician Employment Agreement
between New Clinic and the Physician is terminated prior to the fifth
anniversary of the Closing Date by New Clinic for "cause" (as defined
in the Physician Employment Agreement) or as a result of a Physician
Termination (as defined in the Physician Employment Agreement), then
PTI, at PTI's sole discretion, shall be entitled to cancel any and all
shares of PTI Common Stock entitled to be received by Physician
hereunder and PTI shall be entitled to terminate its obligation to
deliver any and all such shares to be delivered to the Physician
pursuant to this Section 2.4(c), and upon such election by PTI, all
such shares, and all Physician rights with respect thereto, shall be
deemed canceled, discharged and terminated in all respects; provided,
however, that in no event shall PTI have any right to set-off
against,
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cancel or recover any shares of PTI Common Stock after such shares
have been delivered to such Physician.
(d) PTI's remedies provided in Sections 2.4(b) and
2.4(c) above are not, and shall not be deemed to be, exclusive
remedies for breach of any provision of this Agreement or any other
Transaction Document, and PTI may elect to exercise any or all
applicable remedies available under such Sections, together with any
or all other remedies available to PTI under the Transaction
Documents, and any or all remedies available at law or in equity.
(e) With regard to Physician hereunder, provided that
Physician is not in default or other breach under the terms of any
Transaction Documents, in the event that (i) PTI defaults in payments
of principal or interest due under terms of its Note delivered to
Physician, and PTI fails to cure such default within any applicable
grace period provided in such instrument, or (ii) PTI fails to issue
and deliver duly authorized, validly issued, fully paid and
nonassessable shares of PTI Common stock within sixty days following
written notice from Physician of his election to take delivery of such
shares pursuant to Section 2.4(c) above, or (iii) PTI or its
affiliates, successors or assigns, breaches any obligation owed to New
Clinic or Physician under this Master Transaction Agreement or any
agreement executed pursuant to the provisions hereof and fails to cure
such breach as provided in the applicable agreement, then, in either
such event, upon ninety days' prior written notice from such Physician
to PTI: (") Physician at his option shall be entitled to repurchase
the assets acquired by PTI pursuant to the Asset Purchase Agreement
pursuant to the terms and conditions provided therein, except that the
Physician shall assume the role of buyer, and PTI shall assume the
role of seller; (B) the purchase price for all such assets shall be an
amount equivalent to the book value thereof; (C) concurrently with
closing of the Physician's repurchase of assets, Physician, New Clinic
and PTI will each consent to termination of all obligations arising
under Physician Employment Agreement, and each will agree to immediate
termination of all compensation payable thereunder for periods after
the repurchase closing date; (D) PTI's remaining payment obligations
under this Master Transaction Agreement, including all payment
obligations under the Note and all obligations to deliver PTI Common
Stock, shall be deemed canceled, discharged and terminated in all
respects; (E) the Management Services Agreement will be terminated,
canceled and discharged; and (F) Physicians shall be entitled to
retain all cash and PTI Common Stock previously paid or delivered to
him. In any such event, PTI, New Clinic and Physician shall execute
all documents and instruments reasonably required to consummate the
transactions described above; and PTI shall use its reasonable best
efforts to insure that Physician acquires such assets free and clear
of any liens.
Section 2.5 Noncompetition and Confidentiality Covenants. In
connection with the consummation of the transactions contemplated by this
Master Transaction Agreement, and by executing and delivering certain of the
other Transaction Documents, the Physician Parties and New Clinic will be
entering into certain noncompetition and confidentiality covenants. The
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Physician Parties and New Clinic recognize that such covenants are an essential
part of the transactions contemplated by this Master Transaction Agreement and
certain other Transaction Documents and that, but for the contemplated
agreement of the Physician Parties to comply with such covenants, PTI would not
have entered into this Master Transaction Agreement.
ARTICLE 3 REPRESENTATIONS OF THE PHYSICIAN PARTIES
Section 3.1 Representations of the Physician Parties. The Physician
Parties jointly and severally represent and warrant to PTI that:
(a) Organization, Valid Authorization and Good
Standing. Old Clinic is a Louisiana professional medical corporation
duly organized, validly existing and in good standing under the laws
of the State of Louisiana. New Clinic will be a professional medical
corporation duly organized, validly existing and in good standing
under the laws of the State of Louisiana on and after the Closing
Date. Old Clinic has the power and authority to own all of its
properties and assets and to conduct the Practice prior to the Closing
Date. New Clinic will have the power and authority to own all of its
properties and assets and to conduct the Practice on and after the
Closing Date. Old Clinic has, and New Clinic will have, the power and
authority to enter into the Transaction Documents to which it is a
party and to carry out its obligations thereunder. The execution and
delivery of the Transaction Documents to which Old Clinic will be a
party and the consummation of the transactions contemplated thereby
have been duly and validly authorized by Old Clinic, and no other
corporate or other proceedings on the part of Old Clinic are necessary
to authorize such Transaction Documents and the transactions
contemplated thereby. The execution and deliver of the Transaction
Documents to which New Clinic will be a party and the consummation of
the transactions contemplated thereby will be duly and validly
authorized by New Clinic, and no other corporate or other proceedings
on the part of New Clinic will be necessary to authorize such
Transaction Documents and the transactions contemplated thereby. This
Master Transaction Agreement has been duly and validly executed and
delivered by Old Clinic and constitutes the valid and binding
agreement of Old Clinic enforceable against it in accordance with its
terms. Each Transaction document executed and delivered by Old Clinic
or New Clinic will upon such execution and deliver constitute the
valid and binding agreement of such party enforceable against it in
accordance with its terms, except as enforcement in general may be
limited by any applicable bankruptcy, insolvency, reorganization or
other laws affecting creditor's rights generally or by the application
of equitable remedies.
(b) Compliance. Except as disclosed on the
Disclosure Schedule, the execution and delivery of the Transaction
Documents and the consummation of the transactions contemplated
thereby by Old Clinic and New Clinic will not (i) violate any
provision of their respective organizational documents, (ii) violate
any material provisions of or result in the breach of or entitle any
part to accelerate (whether after the giving of notice or lapse of
time or both) any material obligation under, any mortgage, lien,
lease,
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contract, license, instrument or any other agreement to which Old
Clinic is a party or New Clinic, on the Closing Date, will be a party,
(iii) result in the creation or imposition of any material lien,
charge, pledge, security interest or other material encumbrance upon
any property of Old Clinic or New Clinic or (iv) to the best of the
Physician Parties' knowledge, violate or conflict with any order,
award, judgment or decree or other material restriction or any law,
ordinance or regulation to which Old Clinic or New Clinic or its
property is or will be subject.
(c) Approvals. To the best of Physician Parties'
knowledge, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority
or other person is required in connection with the execution and
delivery of the Transaction Documents by Old Clinic or New Clinic or
the consummation by it of the transactions contemplated thereby,
except for those consents or approvals set forth in the Disclosure
Schedule.
(d) Financial Statements. Old Clinic has furnished
to the PTI Old Clinic's audited financial statements for the year
ended December 31, 1995, and for the nine months ended September 30,
1996, consisting of a balance sheet, the related statements of income
and changes in stockholders' equity, (collectively, the "Audited
Financial Statements"). Except as disclosed on the Disclosure
Schedule, Old Clinic's Audited Financial Statements (i) have been
prepared in accordance with GAAP, (ii) are true, complete and correct
in all material respects as of the respective dates and for the
respective periods above stated and (iii) fairly present the financial
position of Old Clinic at such dates and the results of its operations
for the periods ended on such dates. Except as set forth in the
Disclosure Schedule, each of Old Clinic's Audited Financial Statements
reflects all of the liabilities and obligations of Old Clinic that are
required to be reflected or disclosed therein in accordance with GAAP.
For purposes of this Master Transaction Agreement, the balance sheet of
Old Clinic included in Old Clinic's Audited Financial Statements is
referred to as the "Old Clinic Balance Sheet" and the date thereof is
referred to as the "Old Clinic Balance Sheet Date."
(e) Undisclosed Liabilities. To the best of the
Physician Parties' knowledge, Old Clinic does not have any liability
(whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated,
whether due or to become due, and whether choate or inchoate)
individually or in the aggregate in excess of $5,000, and there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against Old Clinic
giving rise to any liability, except as set forth on Old Clinic
Balance Sheet, or on the Disclosure Schedule.
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(f) Absence of Changes or Events. Except as set
forth on the Disclosure Schedule, since the Old Clinic Balance Sheet
Date, Old Clinic has conducted the Practice only in the ordinary
course of business, and Old Clinic has not:
(i) Incurred any obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to
become due, whether individually or in the aggregate, that has
had or might have a material adverse effect on Old Clinic or
the Practice;
(ii) Pledged or subjected to any material lien,
charge, security interest or any other encumbrance or
restriction on any of its assets;
(iii) Sold, transferred, leased to others or
otherwise disposed of any of its assets material to the
operation of the Practice, except in the ordinary course of
the business of Old Clinic;
(iv) Canceled or compromised any material debt
or claim, or waived or released any right of substantial
value;
(v) Received any notice of termination of any
contract, lease or other agreement, or suffered any damage,
destruction or loss that, individually or in the aggregate,
has had or might have a material adverse effect on Old Clinic
or the Practice;
(vi) Instituted, settled or agreed to settle any
litigation, action, proceeding or arbitration;
(vii) Failed to replenish its inventory or
supplies in a normal and customary manner or made any material
purchase commitment other than in the ordinary course of
business of Old Clinic;
(viii) Failed to pay any accounts or note
payable or any other obligations on a timely basis consistent
with the practices of Old Clinic during the three-month period
ending with the date of execution of the letter of intent
among PTI and the Physician Parties;
(ix) Entered into any material transaction,
contract or commitment other than in the ordinary course of
the business of Old Clinic;
(x) Suffered any event or events, whether
individually or in the aggregate, that has had or could be
reasonably expected to have a material adverse effect on the
financial condition, results of operations, properties,
assets, liabilities, business, operations or prospects of Old
Clinic or the Practice;
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(xi) Made any material change in the rate of
compensation, commission, bonus or other remuneration payable,
or paid or agreed to pay any material bonus, extra
compensation, pension, severance or vacation pay, to any
partner or employee;
(xii) Issued any equity interests, declared or
paid any distribution or entered into any agreement or
understanding to do or engage in any of the foregoing actions;
(xiii) Engaged in any activities or practices
other than the Practice; or
(xiv) Entered into any agreement or made any
commitment to take any of the actions described in Subsections
(i) through (xiii) inclusive of this Section 3.1(f).
(g) Litigation. Except as disclosed on the
Disclosure Schedule, there are no material claims, actions, suits,
proceedings (arbitration or otherwise) or investigations pending or,
to the best of the Physician Parties' knowledge, threatened against
Old Clinic or the Practice at law or in equity in any court or before
or by any Governmental Authority, and, to the best of the Physician
Parties' knowledge, there are no, and have not been any, facts,
conditions or incidents that may result in any such actions, suits,
proceedings (arbitration or otherwise) or investigations. To the best
of the Physician Parties' knowledge, neither Old Clinic nor the
Practice is in default in respect of any judgment, order, writ,
injunction or decree of any court or other Governmental Authority.
(h) Permits; Compliance with Laws. Old Clinic has
all permits, licenses, orders, and approvals of all Governmental
Authorities material to the conduct of the Practice, a true and
correct list of which is set forth on the Disclosure Schedule. To the
best of the Physician Parties' knowledge, all such permits, licenses,
orders and approvals are in full force and effect, and no suspension
or cancellation of any of them is pending or threatened. To the best
of the Physician Parties' knowledge, none of such permits, licenses,
orders or approvals, and no application for any of such permits,
licenses, orders or approvals, will be adversely affected by the
consummation of the transactions contemplated by this Master
Transaction Agreement or any other Transaction Document. Except as
set forth on the Disclosure Schedule, no consent or approval is
required for, and no other impediment or restriction exists that will
prohibit or limit, the transfer of any of such permits, licenses,
orders and approvals (and any applications therefor) in accordance
with the terms of the Transaction Documents. The Physician Parties
have not received any written notice of violation that Old Clinic in
its conduct of the Practice has not complied in any material respects
with any rule or regulation of any Governmental Authority having
authority over Old Clinic, including without limitation, agencies
concerned with occupational safety, environmental protection,
employment practices, and Medicare and
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Medicaid requirements applicable to Old Clinic's billing procedures
(except denials of claims in the ordinary course of business).
(i) Insurance. The Disclosure Schedule sets forth a
complete and correct list of all insurance policies obtained and
maintained by Old Clinic or the Physician in connection with the
operation of the Practice. Such insurance policies are in full force
and effect, and all premiums due on such policies have been paid. The
insureds under each such policy have complied in all material respects
with the provisions of all such policies. Except as set forth on the
Disclosure Schedule, no consent or approval is required for, and no
other impediment or restriction exists that will prohibit or limit,
the transfer of any such insurance policies included within the
Nonmedical Assets in accordance with the terms of the Asset Purchase
Agreement. Old Clinic and the Physician have made available to PTI
complete and correct copies of all such policies, together with all
riders and amendments thereto. Old Clinic and the Physician have also
set forth on the Disclosure Schedule a list of malpractice insurance
policies previously maintained within the last ten (10) years by them.
They have also set forth on such Disclosure Schedule a list of all
malpractice claims and similar types of claims, actions or proceedings
asserted against any of the Physician or Old Clinic at any time within
the last ten (10) years.
(j) Tax Matters. To the best of the Physician
Parties' knowledge, all federal, state, local and foreign tax returns
required to be filed by Old Clinic prior to the date hereof have been
filed on a timely basis with the appropriate Governmental Authorities
in all jurisdictions in which such returns are required to be filed
and all such returns are true and correct. To the best of the
Physician Parties' knowledge, all federal, state, local and foreign
income, franchise, sales, use, property, and all other taxes, fees,
assessments or other governmental charges (including withholding
taxes), and all interest and penalties thereon (all of the foregoing,
collectively "Taxes") due from, or properly accruable by, Old Clinic
with respect to taxable periods ending on or prior to, and the portion
of any interim period through, the date hereof have been fully and
timely paid or, in the case of Taxes for which payment is not yet
required, properly and fully accrued for on Old Clinic Audited
Financial Statements (or, in the case of Taxes that have accrued since
Old Clinic Balance Sheet Date, on Old Clinic Audited Financial
Statements). PTI will not after the Closing owe, or be liable
directly or indirectly, to any other person or entity for any taxes
imposed upon Old Clinic. Old Clinic is not currently the subject of
any audit, examination or any similar investigation by any
Governmental Authority. The Disclosure Schedule sets forth all
audits, examinations or similar investigations of Old Clinic by any
Governmental Authority since January 1, 1991. The consummation of the
transactions contemplated by the Asset Purchase Agreement will not be
subject to any sales or other transfer tax of any state or local
taxing authority.
(k) Contracts. Set forth on the Disclosure Schedule
is a complete and correct list of all material agreements, contracts
and commitments, written or oral, to which Old Clinic is a party or by
which it or any of its properties or the Practice is bound,
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including without limitation: (i) mortgages indentures, note, letters
of credit, security agreements and other agreements and instruments
relating to the borrowing of money by or extension of credit to or by
Old Clinic; (ii) employment and consulting agreements, employee
benefit, profit-sharing and retirement plans and all collective
bargaining agreements; (iii) all joint venture or partnership
agreements to which Old Clinic is a party; (iv) licenses of software
and any patent, trademark and other intellectual property rights; (v)
agreements or commitments for capital expenditures; (vi) brokerage or
finder's agreements; (vii) agreements regarding clinical research; and
(viii) agreements with payors, leases for real or personal property
and contracts to provide medical or healthcare services. Old Clinic
has made available to PTI complete and correct copies of all written
agreements, contracts and commitments, together with all amendments
thereto, and accurate descriptions of all oral agreements, set forth
on the list on the Disclosure Schedule. All such agreements,
contracts and commitments are in full force and effect and, to the
best of the Physician Parties' knowledge, all parties thereto have
performed all material obligations required to be performed by them to
date, are not in default in any material respect thereunder, and have
not violated any representation or warranty, explicit or implied,
contained therein. No claim or default by any party has been made or
is now pending under any such agreement, contract or commitment, and,
to the best of the Physician Parties' knowledge, no event has occurred
and is continuing that with notice or the passing of time or both
would constitute a default thereunder or would excuse performance by
any party thereto. Except as set forth in the Disclosure Schedule, no
consents or approvals are required under the terms of any agreement
listed on the Disclosure Schedule in connection with any of the
transactions contemplated by the Transaction Documents including,
without limitation, the transfer of any such agreement pursuant to the
Asset Purchase Agreement.
(l) Employee Benefit Plans. Except as set forth on
the Disclosure Schedule, neither Old Clinic nor any other entity,
whether or not incorporated, which is deemed to be under common
control (as defined in Section 414 of the Code or 4001(b) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
with Old Clinic ("Commonly Controlled Entity") maintains or
contributes to any employee pension benefit plan (as defined in
Section 3(2) of ERISA) that is a defined contribution plan described
in Section 3(34) of ERISA or Section 414(i) of the Code, or that is a
defined benefit plan described in Section 3(35) of ERISA or Section
414(j) of the Code, and that gives, or will give, rise to any
liability of Old Clinic for (i) any premium payments due under Section
4007 of ERISA with respect to any such defined benefit plan, or (ii)
any unpaid minimum funding contributions that would result in the
imposition of a lien on any assets of Old Clinic pursuant to Section
412(c)(11) of the Code or Section 302(c)(11) of ERISA. Neither Old
Clinic nor any Commonly Controlled Entity sponsors or sponsored, or
maintains or maintained, any defined benefit plan (described in the
immediately preceding sentence) that has been, or will be, terminated
in a manner that would result in any liability of Old Clinic to the
Pension Benefit Guaranty Corporation or that would result in the
imposition of a lien on any assets of Old Clinic pursuant to Section
4068 of ERISA.
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At no time during the five (5) consecutive year period immediately
preceding the first day of the year in which the Closing Date occurs
has Old Clinic or any Commonly Controlled Entity participated in or
contributed to any multiemployer plan defined in Section 4001(a)(3) of
ERISA, or Section 414(f) of the Code, nor during such period has Old
Clinic or any Commonly Controlled Entity had an obligation to
participate in or contribute to any such multiemployer plan. Except
as set forth on the Disclosure Schedule, Old Clinic is not obligated
under any agreement or other arrangement pursuant to which
compensation or benefits will become payable as a result of the
consummation of the transactions contemplated in this Master
Transaction Agreement. Neither Old Clinic nor any of its respective
directors, officers, employees or agents, has, with respect to any
employee benefit plan (as defined in Section 3(3) of ERISA), that is
or has been established by or contributed to, or with respect to which
costs or liabilities are accrued by Old Clinic engaged in any conduct
that would result in any material taxes or penalties on prohibited
transactions under Section 4975 of the Code or under Section 502(i) or
(1) of ERISA or in breach of fiduciary duty liability under Section
409 of ERISA which, in the aggregate, could be material to the
business, financial condition or results of operation of Old Clinic,
taken as a whole, and no actions, investigations, suits or claims with
respect to the fiduciaries, administrators or assets of any such
employee benefit plan (other than routine claims for benefits) is
pending or threatened, which, in the aggregate, could reasonably be
expected to give rise to material liability of Old Clinic, or which
could be material to the business, financial condition or results of
operations of Old Clinic, taken as a whole. None of the Old Clinic
welfare benefit plans (as defined in Section 3(1) of ERISA) provides
for or promises retiree medical, disability or life insurance benefits
to any current or former employee, officer or director of Old Clinic
other than Acontinuation coverage" required under the Controlled
Omnibus Budget Reconciliation Act of 1985. Any and all plans,
policies, programs or arrangements of Old Clinic or any Commonly
Controlled Entity which are subject to Section 4980B of the Code have
been and are in compliance with the requirements of Section 4980B of
the Code and Part 6 of Title I of ERISA. Old Clinic will remain fully
liable with respect to all plans, programs, policies or other
arrangements, including but not limited to any pension,
profit-sharing, thrift or other retirement plan; deferred
compensation; or any other pension benefit plan of any kind; stock
ownership, stock purchase, performance share, bonus or other incentive
plan; severance plan; disability, medical, dental, vision or other
health plan; life insurance or death benefit plan; vacation, sick
leave, holiday or other paid leave plan; cafeteria plan, medical
flexible spending account reimbursement plan; dependent care plan; or
any other welfare benefit plan of any kind; or any other benefit plan,
policy, program or arrangement whether or not any such plan, policy,
program or other arrangement is, or is intended to be, qualified under
Section 401(a) of the Code, and whether or not any such plan, policy,
program or arrangement is subject to the provisions of ERISA, and PTI
will not be required to assume by law or under any form of any such
plans, policies, programs or arrangements any of the liabilities for
or under such plans, policies, programs or arrangements.
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(m) Environmental Protection. Old Clinic has
obtained all permits, licenses and other authorizations that are
required for the conduct of its Practice under any federal, state and
local laws and the regulations promulgated thereunder relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of hazardous
substances, materials or wastes (collectively, "Hazardous Wastes"),
into the environment (including, without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of Hazardous Wastes (collectively,
"Environmental Laws"). Old Clinic and the Practice is in material
compliance with all terms and conditions of such required permits,
licenses and authorizations, and is also in compliance with all
applicable Environmental Laws. Except as set forth on the Disclosure
Schedule, no consent or approval is required for, and no other
impediment or restriction exists that will prohibit or limit, the
transfer of such permits, licenses and authorizations in accordance
with the terms of the Asset Purchase Agreement. There are no pending
or, to the best of Physician Parties' knowledge, threatened,
investigations, actions or proceedings of whatsoever nature involving
Old Clinic or the Practice arising under any Environmental Law.
(n) Labor Matters. Except as described on the
Disclosure Schedule, none of the employees of Old Clinic is
represented by any union or other collective bargaining
representative, and there are no contracts for the employment of any
officer or employee of Old Clinic in effect. Old Clinic is not aware
of any organizational efforts by any union directed towards any of the
employees of Old Clinic. Except as listed on the Disclosure Schedule,
there has not been, nor to the knowledge of Old Clinic is there
threatened or contemplated, any strike, slowdown, picketing or work
stoppage by any employees of Old Clinic, any lockout of any of such
employees or any labor trouble or other occurrence, event or condition
of a similar character materially affecting, individually or in the
aggregate, the operations, assets, properties or prospects of Old
Clinic or the Practice.
(o) Employees. The Disclosure Schedule sets forth a
complete list of the names and positions held of all employees of Old
Clinic, and the current annual rate of compensation (including
bonuses) paid to each such employee.
(p) Brokers. All negotiations relating to the
Transaction Documents and the transactions contemplated hereby have
been carried on without the intervention of any person acting on
behalf of the Physician Parties as a group in such manner as to give
rise to any valid claim for any broker's or finder's fee or similar
compensation.
(q) Disclosure. To the best of the Physician
Parties' knowledge, no representation, warranty or statement made by
any of the Physician Parties in this Master Transaction Agreement or
any of the exhibits or schedules hereto, or any agreements,
certificates, documents or instruments delivered or to be delivered to
PTI in accordance with this Master Transaction Agreement or the other
Transaction Documents, contains or
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will contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which
they were made, not misleading. The Physician Parties do not know of
any fact or condition (other than general economic conditions or
legislative or administrative changes in health-care delivery) which
materially adversely affects, or in the future may materially adverse
affect, the condition, properties, assets, liabilities, business,
operations or prospects of the Practice which has not been set forth
herein or in the Disclosure Schedule.
Section 3.2 Representations of the Physician. Physician represents
and warrants to PTI as to himself that:
(a) Valid Authorization. Physician is competent and
has full power, capacity and authority to enter into the Transaction
Documents to which he is a party and to carry out his obligations
thereunder. This Master Transaction Agreement has been duly and
validly executed and delivered by Physician and constitutes the valid
and binding agreement of Physician enforceable against him in
accordance with its terms. Each Transaction Document executed and
delivered at the Closing by the Physician will upon such execution and
delivery constitute the valid and binding agreement of the Physician
enforceable against the Physician in accordance with its terms, except
as enforcement in general may be limited by any applicable bankruptcy,
insolvency, reorganization or other laws affecting creditor's rights
generally or by the application of equitable remedies.
(b) Compliance. Except as set forth on the Disclosure
Schedule, the execution and delivery of the Transaction Documents and
the consummation of the transactions contemplated thereby by Physician
will not (i) violate any material provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any material obligation under any
mortgage, lien, lease, contract, license, instrument or any other
agreement to which the Physician is a party, (ii) result in the
creation or imposition of any material lien, charge, pledge, security
interest or other encumbrance upon any property of the Physician or
(iii) to the best of the Physician's knowledge, violate or conflict
with any order, award, judgment or decree or other material
restriction or any law, ordinance or regulation to which the Physician
or the property of the Physician is subject.
(c) Approvals. To the best of Physician's knowledge,
no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority or other person
is required in connection with the execution and delivery of the
Transaction Documents by the Physician or the consummation by the
Physician of the transactions contemplated thereby.
(d) Litigation. Except as disclosed on the
Disclosure Schedule, there are no claims, actions, suits or
proceedings (arbitration or otherwise) pending or, to the
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Physician's knowledge, threatened against the Physician at law or at
equity in any court or before or by any Governmental Authority arising
out of or otherwise relating to the Physician's practice of medicine,
and to Physician's knowledge, there are no, and within the last five
(5) years have not been any, facts, conditions or incidents that may
result in any such actions, suits, proceedings (arbitration or
otherwise) or investigations. The Physician is not in default in
respect of any judgment, order, writ, injunction or decree of any
court or other Governmental known to the Physician. Except as set
forth on the Disclosure Schedule, there have been no disciplinary,
revocation or suspension proceedings or similar types of claims,
actions or proceedings, hearings or investigations against any of the
Physician or Old Clinic within the last five (5) years.
(e) Permits. To the best of the Physician's
knowledge, the Physician has all permits, licenses, orders and
approvals of all Governmental Authorities necessary to perform the
services performed by the Physician in connection with the conduct of
the Practice. All such permits, licenses, orders and approvals are in
full force and effect and no suspension or cancellation of any of them
is pending or threatened. To the best of the Physician's knowledge,
none of such permits, licenses, orders or approvals, and no
application for any of such permits, licenses, orders or approvals
will be adversely affected by the consummation of the transactions
contemplated by the Transaction Documents. The Physician is a
participating physician, as such terms is defined by the Medicare
program, and the Physician has not been disciplined, sanctioned or
excluded from the Medicare program and has not been subject to any
plan of correction imposed by any professional review body within the
last five (5) years.
(f) Staff Privileges. The Disclosure Schedule lists
all hospitals at which the Physician has full staff privileges. Such
staff privileges have not been revoked, surrendered, suspended or
terminated, and to the Physician's knowledge, there are no, and have
not been any, facts, conditions or incidents that may result in any
such revocation, surrender, suspension or termination.
(g) Brokers. All negotiations relating to the
Transaction Documents and the transactions contemplated hereby have
been carried on without the intervention of any person acting on
behalf of the Physician in such manner as to give rise to any valid
claim for any broker's or finder's fee or similar compensation.
(h) Intentions. Except as set forth on the
Disclosure Schedule, from and after the Closing Date, the Physician
intends to continue practicing medicine on a full-time basis for the
next five (5) years with New Clinic and does not know of any fact or
condition that materially adversely affects, or in the future may
materially adversely affect, his ability or intention to practice
medicine on a full-time basis for the next five years with New Clinic.
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(i) Disclosure. The Physician does not know of any
fact or condition (other than general economic conditions or
legislative or administrative changes in healthcare delivery) that
materially adversely affects, or in the future may materially
adversely affect, the condition, properties, assets, liabilities,
business, operations or prospects of the Practice that has not been
set forth herein or in the Disclosure Schedule.
ARTICLE 4 REPRESENTATIONS OF PTI
Section 4.1 Representations of PTI. PTI jointly and severally
represents and warrants to Physician that:
(a) Organization, Valid Authorization and Good
Standing. PTI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. PTI has the
power and authority to own all of its properties and assets and to
conduct its business. PTI has the power and authority to enter into
the Transaction Documents to which it is a party and to carry out its
obligations thereunder. The execution and delivery of the Transaction
Documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly and validly
authorized by the Board of Directors of PTI, and no other corporate or
other proceedings on the part of PTI are necessary to authorize the
Transaction Documents and the transactions contemplated thereby. This
Master Transaction Agreement has been duly and validly executed and
delivered by PTI and constitutes the valid and binding agreement of
PTI enforceable against PTI, in accordance with its terms. Each
Transaction Document executed and delivered at the Closing by PTI will
upon such execution and delivery constitute the valid and binding
agreement of PTI, enforceable against PTI in accordance with its
terms.
(b) Compliance. The execution and delivery of the
Transaction Documents and the consummation of the transactions
contemplated thereby by PTI will not (i) violate any provision of
their respective charters or bylaws, (ii) violate any material
provision of or result in the breach of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease,
contract, license, instrument or any other agreements to which PTI is
a party, (iii) result in the creation or imposition of any material
lien, charge, pledge, security interest or other encumbrance upon any
property of PTI or (iv) violate or conflict with any order, award,
judgment or decree or other material restriction or any law, ordinance
or regulation to which PTI or the property of PTI is subject.
(c) Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Authority or other person is required in connection with
the execution and delivery of the Transaction Documents by PTI or the
consummation by PTI of the transactions contemplated thereby, except
for (i) any filings and approvals required under the rules and
regulations of the Securities and
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Exchange Commission, and (ii) (filings and approvals required by the
Blue Sky laws of the various states.
(d) Capitalization. The authorized capital stock of
PTI consists of (i) 8,000,000 shares of PTI Common Stock of which, as
of the date of this Master Transaction Agreement, of which 3,270,000
shares are issued and outstanding, and (ii) 2,000,000 shares of Serial
Preferred Stock, $.001 par value per share, none of which is
outstanding. All of the issued and outstanding shares of PTI Common
Stock are, and all shares of PTI Common Stock to be issued pursuant to
the transactions described in Article 2 of this Master Transaction
Agreement will be, validly issued, fully paid and non-assessable.
(e) Financial Statements. PTI has furnished to the
Physician Parties PTI's audited financial statements for the year
ended December 31, 1995, and for the nine-month period ending
September 30, 1996, consisting of a balance sheet, the related
statement of income and changes in stockholders' equity (the "PTI
Audited Financial Statements"). Except as disclosed on the Disclosure
Schedule, the PTI Audited Financial Statements (i) have been prepared
in accordance with GAAP, (ii) are true, complete and correct in all
material respects as of their date and for the period above stated and
(iii) fairly present the financial position of PTI at such date and the
results of its operations for the period ended on such date. Except as
set forth on the Disclosure Schedule, the PTI Audited Financial
Statements reflect all of the liabilities and obligations of PTI that
are required to be reflected or disclosed therein in accordance with
GAAP.
(f) Litigation. Except as disclosed on the
Disclosure Schedule, there are no claims, actions, suits, proceedings
(arbitration or otherwise) or investigations pending or, to either of
PTI's knowledge, threatened against PTI at law or in equity in any
court or before or by any Governmental Authority, and, to PTI's
knowledge, there are no, and have not been any, facts, conditions or
incidents that may result in any such actions, suits, proceedings
(arbitration or otherwise) or investigations. PTI is not in default
in respect of any judgment, order, writ, injunction or decree of any
court or other Governmental Authority.
(g) Brokers. All negotiations relating to the
Transaction Documents and the transactions contemplated hereby have
been carried on without the intervention of any person acting on
behalf of PTI in such manner as to give rise to any valid claim for
any broker's or finder's fee or similar compensation.
(h) Disclosure. No representation, warranty or
statement made by PTI in this Master Transaction Agreement or any of
the exhibits or schedules hereto, or any agreements, certificates,
documents or instruments delivered or to be delivered to the Physician
Parties in accordance with this Master Transaction Agreement or the
other Transaction Documents or in the Private Placement Memorandum
dated December 31,
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1996, together with, or as amended by, any supplement to such Private
Placement Memorandum, 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 contained herein or therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE 5 PRE-CLOSING COVENANTS OF OLD CLINIC
AND THE PHYSICIAN
Section 5.1 Conduct of Business. From the date hereto to the
Closing, except with the prior written consent of PTI, or except as otherwise
provided for in this Master Transaction Agreement, Old Clinic will, and the
Physician will use their best efforts to cause Old Clinic to:
(a) carry on its business in, and only in, the usual,
regular and ordinary course in substantially the same manner as
heretofore and use its best efforts to preserve intact its present
business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
contractors, institutional healthcare providers, healthcare
professionals and others having business dealings with it to the end
that its goodwill and going business shall be unimpaired on the
Closing Date;
(b) keep in full force and effect insurance
comparable in amount and scope of coverage to insurance now carried by
it;
(c) perform all of its obligations under agreements,
contracts and instruments relating to or affecting its properties,
assets and business;
(d) maintain its books of account and records in the
usual, regular and ordinary manner;
(e) comply with all statutes, laws, ordinances, rules
and regulations applicable to it and to the conduct of its business;
(f) not enter into, assume or amend in any material
respect, any agreement, contract or commitment of the character
referred to in Section 3.1(k);
(g) not merge or consolidate with or purchase
substantially all of the assets of, or otherwise acquire, any
corporation, partnership, association or other business;
(h) not sell, transfer or convey all or substantially
all of the assets of Old Clinic;
(i) not take, or permit to be taken, any action which
is represented and warranted in Section 3.1(f) not to have been taken
since Old Clinic Balance Sheet Date;
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(j) promptly advise PTI in writing of any material
adverse change in its financial condition, results of operations,
properties, assets, liabilities, business operations or prospects or
in the Practice;
(k) not increase salaries or other compensation of
employees of Old Clinic;
(l) not issue any shares or other equity interests or
effect any stock split or other reclassification or declare or pay any
dividends or similar types of distributions;
(m) not create, incur, assume, guarantee or otherwise
become directly or indirectly liable with respect to any indebtedness
for borrowed money other than in the ordinary course of business under
agreements existing on the date hereof and identified on the
Disclosure Schedule;
(n) not solicit, facilitate or encourage any
inquiries or proposals for the acquisition of its stock, assets or
business, or authorize or permit any officer, director, employee,
investment banker, attorney or other representative, directly or
indirectly, on its behalf, to cooperate or negotiate with, or
otherwise to provide any information to, any person or entity with
respect to such inquiries or proposals, or accept any offer from any
such person or entity to purchase Old Clinic or its business or assets
or stock in whole or in part;
(o) pay all account payables and collect all account
receivables of the Practice only in the ordinary course of business
consistent with prudent past practice, not accelerate collection of
accounts receivable or defer payment of accounts payable in
anticipation of the Closing and not purchase drugs or supplies on
terms and conditions not in the ordinary course, consistent with past
practice; and
(p) not enter into any agreement or understanding to
do or engage in any of the foregoing actions described in Subsections
(f) through (i) and (k) through (o).
Section 5.2 Access to Information and Records Before Closing. PTI
may, at its expense, prior to the Closing date, make, or cause to be made, such
investigation of the Practice, and of the assets, liabilities, operations and
properties of Old Clinic and of its financial and legal condition as PTI deems
necessary or advisable to familiarize itself with such matters. Old Clinic
shall permit PTI and its representatives (including legal counsel and
independent accountants) upon reasonable notice to have full access to the
properties and relevant books and records of Old Clinic and of the Practice, at
reasonable business hours, and will cause its employees to furnish PTI with
such financial and operating data and other information and copies of documents
with respect to the services, operations and properties of Old Clinic and the
Practice as PTI may from time to time request.
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ARTICLE 6 ADDITIONAL AGREEMENTS
Section 6.1 Filing of Registration Statement; Other Action.
(a) PTI, Physician, Old Clinic and New Clinic shall
cooperate in the preparation of the registration statement on Form S-1
(or other appropriate Form) to be filed by PTI with the SEC under the
Securities Act in connection with its Initial Public Offering
(including the prospectus constituting a part thereof, the
"Registration Statement"). PTI shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry
out the transactions contemplated by this Agreement, and Physician,
Old Clinic, and New Clinic shall furnish all information concerning
the Physician, Old Clinic, and New Clinic as may be reasonably
requested in connection with any such action.
(b) Physician, Old Clinic, New Clinic and PTI
represent and warrant that none of the information or documents
supplied or to be supplied by it specifically for inclusion in the
Registration Statement, by exhibit or otherwise, will, at the time the
Registration Statement and each amendment and supplement thereto, if
any, become effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. Physician, Old Clinic, and New Clinic, respectively,
shall agree with PTI as to the information and documents supplied by
the Physician, Old Clinic and New Clinic for inclusion in the
Registration Statement and each shall indicate such information and
documents in a letter to be delivered at Closing (the "Information
Letter"). Physician, Old Clinic and New Clinic shall be entitled to
review the Registration Statement and each amendment thereto, if any,
prior to the time each becomes effective under the Securities Act.
(c) Physician, Old Clinic and New Clinic shall, upon
request, furnish PTI with all information concerning itself and such
other matters as may be reasonably requested by PTI in connection with
the preparation of the Registration Statement and each amendment or
supplement thereto, or any other statement, filing, notice or
application made by or on behalf of each such party to any
governmental entity in connection with the transactions contemplated
by this Agreement.
Section 6.2 Compliance with Conditions Precedent; Further Assurances.
(a) Each party hereto shall use such party's good
faith efforts to cause the conditions precedent to the Closing set
forth in Article 7 hereof to be fulfilled and, subject to the terms
and conditions herein provided, to take, or cause to be taken, all
action, and to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this
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Master Transaction Agreement and the other Transaction Documents.
Each party hereto covenants and agrees that it will cooperate with
each of the other parties hereto and use its reasonable efforts to (i)
procure upon reasonable terms and conditions all consents and
approvals necessary to the transactions contemplated by this Agreement
(ii) complete or obtain all necessary filings, registrations,
certificates, and authorizations necessary or advisable for the
transactions contemplated by this Agreement and for the use of the
Nonmedical Assets, (iii) satisfy all requirements prescribed by law
for, and all conditions, to, the consummation of the transactions
contemplated by this Agreement, and to (iv) effect the transactions
contemplated by this Agreement. In case at any time after the Closing
any further actions are necessary or desirable to carry out the
purposes of this Master Transaction Agreement or the other Transaction
Documents, each party shall take all such necessary actions.
(b) Without limiting the generality of the foregoing,
the Physician Party shall use its best efforts to cause the
satisfaction of the conditions precedent set forth in Section 7.1
hereof and the conditions precedent set forth in Section 7.2 hereof.
Section 6.3 Certain Notifications. At all times from the date hereof
until the Closing, each party shall promptly notify the others in writing of
the occurrence of any event which will or may result in the failure to satisfy
any of the conditions specified in Article 7.
Section 6.4 Amendment to Schedules. Each party hereto agrees that,
with respect to the representations and warranties of such party contained in
this Agreement, such party shall have the continuing obligation until Closing
to supplement or amend promptly the Schedules with respect to any matter that
would have been or would be required to be set forth or described in the
Schedules in order to not materially breach any representation, warranty or
covenant of such party contained herein; provided that no amendment or
supplement to a Schedule that constitutes or reflects, individually or in the
aggregate, a material adverse change to the Practice or the Nonmedical Assets
may be made unless PTI consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a material
adverse change to PTI may be made unless the Physician and Old Clinic consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 7.1, 7.2 and 7.3 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
6.4. In the event that the Physician or Old Clinic seeks to amend or
supplement a Schedule pursuant to this Section 6.4 and PTI does not consent to
such amendment or supplement, or PTI seeks to amend or supplement a Schedule
pursuant to this Section 6.4 and Physician and Old Clinic do not consent, this
Agreement shall be deemed terminated by mutual consent.
Section 6.5 Physician Parties to Obtain Own Tax Advice. Each of the
Physician Parties represents and warrants that it has relied, and covenants and
agrees that in connection with the transactions contemplated by this Master
Transaction Agreement, it will rely, solely on its own
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advisors to determine the tax consequences of the transactions contemplated
hereunder, and that no representation or warranty has been made by any party as
to the tax consequences of such transactions.
Section 6.6 Investment Representations and Covenants of Physician.
(a) The Physician understands that the Securities
will not be registered under the Securities Act or any state
securities laws on the grounds that the issuance of the Securities is
exempt from registration pursuant to Section 4(2) of the Securities
Act or Regulation D promulgated under the Securities Act and
applicable state securities laws, and that the reliance of PTI on such
exemptions is predicated in part on the Physician's representations,
warranties, covenants and acknowledgments set forth in this Section
6.6.
(b) Except as disclosed on the Investment
Representations Schedule attached hereto, Physician represents and
warrants that he is an "accredited investor" as defined in Rule 501
promulgated under the Securities Act.
(c) The Physician represents and warrants that the
Securities to be acquired by such Physician upon consummation of the
transactions described in Article 2 of this Master Transaction
Agreement will be acquired by the Physician for his own account, not
as a nominee or agent, and without a view to resale or other
distribution within the meaning of the Securities Act and the rules
and regulations thereunder, except as contemplated in Article 11
hereof, and that the Physician will not distribute any of the
Securities in violation of the Securities Act.
(d) The Physician represents and warrants that the
address set forth below his name in the Investment Representations
Scheduleis the Physician's principal residence.
(e) The Physician (i) acknowledges that the
Securities issued to the Physician at the Closing must be held
indefinitely by Physician unless subsequently registered under the
Securities Act or an exemption from registration is available, (ii) is
aware that any routine sales of Securities made pursuant to Rule 144
under the Securities Act may be made only in limited amounts and in
accordance with the terms and conditions of that Rule and that in such
cases where the Rule is not applicable, compliance with some other
registration exemption will be required, and (iii) is aware that Rule
144 is not currently available for use by such Physician for resale of
any of the Securities to be acquired by Physician upon consummation of
the transactions described in Article 2 of this Master Transaction
Agreement.
(f) The Physician represents and warrants to PTI that
he has such knowledge and experience in financial and business matters
such that he is capable of evaluating the merits and risks of an
investment in any of the Securities to be acquired by
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the Physician upon consummation of the transactions described in
Article 2 of this Master Transaction Agreement.
(g) The Physician confirms that he has received and
read the Confidential Private Placement Memorandum of PTI dated
December 31, 1996, together with any supplement thereto. The
Physician also confirms that PTI has made available to the Physician
the opportunity to ask questions of and receive answers from it
concerning the terms and conditions of his investment in the
Securities, and has received, to his satisfaction, such additional
information, in addition to that set forth herein, about PTI's
operations and the terms and conditions of the offering as Physician
has requested.
(h) In order to ensure compliance with the provisions
of Subsection (c) hereof, the Physician agrees that after the Closing
the Physician will not sell or otherwise transfer or dispose of
Securities or any interest therein (unless such shares have been
registered under the Securities Act) without first complying with
either of the following conditions, the expenses and costs of
satisfaction of which shall be fully borne and paid for by such
Physician:
(i) PTI shall have received a written
legal opinion from legal counsel, which opinion and counsel
shall be satisfactory to PTI in the exercise of its reasonable
judgment, indicating that the proposed transfer will not be in
violation of any of the registration provisions of the
Securities Act and the rules and regulations promulgated
thereunder; or
(ii) PTI shall have received an opinion from its
own counsel to the effect that the proposed transfer will not
be in violation of any of the registration provisions of the
Securities Act and the rules and regulations promulgated
thereunder.
The Physician also agrees that the certificates or instruments
representing the Securities to be issued to the Physician pursuant to
this Master Transaction Agreement may contain a restrictive legend
noting the restrictions on transfer described in this Article and
required by federal and applicable state securities laws, provided
that this Subsection 6.6(h) shall no longer be applicable to any
Securities following their transfer pursuant to a registration
statement effective under the Securities Act or in compliance with
Rule 144.
Section 6.7 No Corporate Practice. No Physician Party has knowledge
that the actions, transactions or relationships arising from, and contemplated
by the Transaction Documents violate any law, rule or regulation relating to
the corporate practice of medicine. Each Physician Party accordingly agrees
that such Physician Party will not, in an attempt to void or nullify any
Transaction Document or any relationship involving PTI or any Physician Party,
sue, claim, aver, allege or assert that any such Transaction Document or any
such relationship violates any law, rule or regulation relating to the
corporate practice of medicine; provided, however, such Physician
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Party is entitled to make any such claim, assessment, allegation or assertion
if such Physician Party reasonably believes, on advice from counsel, that
failure to terminate such Transaction Document or such relationship will
subject such Physician Party to material liability or will materially adversely
affect such Physician Party's right to practice medicine.
Section 6.8 Current Public Information. At all times following the
registration of any of PTI's securities under the Securities Act or Exchange
Act pursuant to which PTI becomes subject to the reporting requirements of the
Exchange Act, PTI shall use commercially reasonable efforts to comply with the
requirements of Rule 144 under the Securities Act, as such Rule may be amended
from time to time (or any similar rule or regulation hereafter adopted by the
SEC) regarding the availability of current public information to the extent
required to enable any holder of shares of PTI Common Stock to sell such shares
without registration under the Securities Act pursuant to Rule 144 (or any
similar rule or regulation). Upon the request of any holder of the shares of
PTI Common Stock issued pursuant to the Asset Purchase Agreement, PTI will
deliver to such holder a written statement as to whether PTI has complied with
such requirements.
Section 6.9 Rule 144 Covenant. PTI represents and warrants that the
holding period, as determined by Rule 144(d)(3)(iii) enacted under the
Securities Act of 1933, as in effect on the date hereof (the "Holding Period"),
for any shares of PTI Common Stock acquired by Physician pursuant to Section
2.4(c) of the Master Transaction Agreement commences on the Closing Date. In
the event that a Physician elects to sell any of such shares pursuant to Rule
144 within sixty days of receipt thereof and is unable to do so by reason of
the Holding Period being deemed to have commenced on a date later than the
Closing Date (other than by reason of a change in the law), then (i) the
Physician shall promptly notify PTI of such inability and provide PTI with the
opportunity for five business days after receipt of such notice (the
"Assistance Period") to assist the Physician in effecting the proposal sale and
(ii) in the event that such proposed sale is not effected within the Assistance
Period, PTI shall redeem a number of such shares of PTI Common Stock from the
Physician up to a number equal to the quotient determined by dividing the
Physician's Tax Liability by the value per share used to calculate such Tax
Liability. For purposes of this Section 6.9, a Physician's "Tax Liability"
shall be determined by multiplying the number of shares that are delivered to
the Physician at a given time by the Market Price on such date (or such lesser
price as the Physician represents he intends to use for purposes of preparing
his applicable income tax return), and then multiplying such product by the
highest stated federal and state income rate applicable to individuals.
Section 6.10 Corporate Existence. During the term of the Management
Services Agreement, New Clinic shall, and the Physician shall cause New Clinic
to, maintain and preserve in full force and effect its corporate existence.
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ARTICLE 7 CONDITIONS
Section 7.1 Conditions Precedent to the Obligations of All Parties.
The obligations of the parties to complete the Closing shall be subject to the
fulfillment, at or prior to the time of the Closing, of each of the following
conditions:
(a) all permits, approvals, waivers and consents of
any Governmental Authority or of any third party necessary or
appropriate for consummation of the Closing shall have been obtained;
(b) no preliminary or permanent injunction or other
order of a court or other Governmental Authority in the United States
shall have been issued and be in effect, and no United States federal
or state statute, rule or regulation shall have been enacted or
promulgated after the date hereof and be in effect, that (i) prohibits
the consummation of the Closing or (ii) imposes material limitations
after the Closing on the ability of New Clinic to own and operate the
Practice or to manage the Practice pursuant to the Management Services
Agreement;
(c) there shall not be any action or proceeding
commenced by or before any court or other Governmental Authority in
the United States that challenges the consummation of the Closing or
seeks to impose material limitations on the ability of New Clinic to
own and operate the Practice or PTI to manage the Practice pursuant to
the Management Services Agreement; and
(d) the parties to the Asset Purchase Agreement shall
have agreed to its schedules.
Section 7.2 Conditions Precedent to the Obligations of PTI. The
obligations of PTI to complete the Closing shall be subject to the fulfillment,
at or prior to the time of the Closing of each of the following conditions:
(a) except for such changes as permitted or
contemplated by this Master Transaction Agreement, the representations
and warranties of the Physician Parties contained in this Master
Transaction Agreement shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect
as if made at and as of the Closing Date;
(b) the Physician Parties shall have performed,
complied with and fulfilled all the covenants, agreements, obligations
and conditions required by any of the Transaction Documents to be
performed, complied with or fulfilled by them prior to or at the
Closing;
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(c) since the date of this Master Transaction
Agreement, there shall not have occurred any event or events, whether
individually or in the aggregate, that have had or that reasonably
could be expected to have a material adverse effect on the financial
condition, results of operations, properties, assets, liabilities,
business, operations or prospects of Old Clinic or the Practice;
(d) the Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to Closing, PTI shall have
received all state securities and "Blue Sky" permits necessary, in its
sole discretion, to consummate the transactions contemplated hereby.
(e) PTI shall have received all of the instruments,
documents and other items described in Section 8.2 hereof.
Section 7.3 Conditions Precedent to the Obligations of the Physician
Parties. The obligations of the Physician Parties to complete the Closing
shall be subject to the fulfillment at or prior to the time of the Closing, of
each of the following conditions:
(a) except for such changes as permitted or
contemplated by this Master Transaction Agreement and except for
increases in the number of issued and outstanding shares of PTI Common
Stock, the representations and warranties of PTI contained in this
Master Transaction Agreement shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect
as if made at and as of the Closing Date;
(b) PTI shall have performed, complied with and
fulfilled all of the covenants, agreements, obligations and conditions
required by any of the Transaction Documents to be performed, complied
with or fulfilled by them prior to or at the Closing;
(c) since the date of this Master Transaction
Agreement, there shall not have occurred any event or events, whether
individually or in the aggregate, that have had or that reasonably
could be expected to have a material adverse effect on the financial
condition, results of operations, properties, assets, liabilities,
business, operations or prospects of PTI;
(d) the Physician Parties shall have received from
the PTI Parties all of the instruments, documents and other items
described in Section 8.3 hereof.
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ARTICLE 8 CLOSING
Section 8.1 Closing.
(a) The Closing shall take place at the offices of
Chamberlain, Hrdlicka, White, Williams & Martin, 1200 Smith Street,
Suite 1400, Houston, Texas, at 10:00 A.M. on the Closing Date.
(b) At the Closing, the parties shall complete the
transactions provided for in Sections 2.2, 2.3, and 2.4 in the
sequence specified in Article 2 hereof.
Section 8.2 Deliveries to PTI at the Closing. At the Closing, and
simultaneously with the deliveries to the Physician Parties specified in
Section 8.3 hereof, and in addition to any other deliveries required to be made
to PTI pursuant to any other Transaction Document at the Closing, the Physician
Parties shall deliver or cause to be delivered to PTI the following:
(a) the New Clinic Charter, the New Clinic Bylaws and
the New Clinic Organizational Minutes;
(b) the joinder of New Clinic contemplated by Section
2.1(c) hereof;
(c) the Management Services Agreement duly executed
by New Clinic;
(d) the Asset Purchase Agreement duly executed by Old
Clinic;
(e) the Contribution Agreement duly executed by the
Physician and New Clinic;
(f) the Physician Employment Agreement duly executed
by the Physician and New Clinic, together with the noncompetition
covenant;
(g) the New Clinic Operating Agreement duly executed
by the Physician and New Clinic; and
(h) such other closing documents, certificates and
instruments as are contemplated by the other Transaction Documents or
as shall have been reasonably requested by PTI and as are customarily
delivered in connection with transactions of the type contemplated
herein.
Section 8.3 Deliveries to the Physician Parties at the Closing. At
the Closing, and simultaneously with the deliveries to PTI specified in Section
8.2, and in addition to any other deliveries required to be made to a Physician
Party pursuant to any other Transaction Document at the Closing, PTI shall
deliver or cause to be delivered to the Physician Parties the following:
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(a) the Asset Purchase Agreement duly executed by
PTI;
(b) the Management Services Agreement duly executed
by PTI;
(c) such other closing documents, certificates and
instruments as are contemplated by the other Transaction Documents or
as shall have been reasonably requested by the Physician Parties and
as are customarily delivered in connection with transactions of the
type contemplated herein; and
(d) the consideration required to be delivered by PTI
at the Closing pursuant to the Transaction Documents.
ARTICLE 9 TERMINATION
Section 9.1 Termination by Mutual Agreement. This Master Transaction
Agreement may be terminated by the mutual agreement in writing of the parties
hereto at any time prior to the Closing.
Section 9.2 Termination by PTI. If at any time prior to or at the
Closing (a) any of the Physician Parties shall have failed to perform in any
respect any of their respective covenants or obligations, at the time required
to be performed, set forth in this Master Transaction Agreement or the other
Transaction Documents and such failure has not been or cannot be cured to the
reasonable satisfaction of PTI within a reasonable time; (b) any representation
or warranty of any of the Physician Parties contained herein or in any of the
other Transaction Documents is false or misleading in any material respect; (c)
any of the Physician Parties shall fail to make any deliveries specified in
Section 8.2; or (d) any of the conditions set forth in Sections 7.1 or 7.2
shall not have been satisfied in any respect (and such failure cannot be cured
to the reasonable satisfaction of PTI prior to Closing) or waived in writing by
PTI, all obligations of PTI under this Master Transaction Agreement (other than
its obligations under Sections 13.3 and 13.13) may be terminated by PTI.
Section 9.3 Termination by the Physician Parties. If at any time
prior to or at the Closing (a) PTI shall have failed to perform in any respect
any of their respective covenants or obligations, at the time required to be
performed, set forth in this Master Transaction Agreement or the other
Transaction Documents and such failure has not been or cannot be cured to the
reasonable satisfaction of the Physician Parties within a reasonable time; (b)
any representation or warranty of PTI contained herein or in any of the other
Transaction Documents is false or misleading in any material respect; (c) PTI
shall fail to make any deliveries specified in Section 8.3; or (d) any of the
conditions set forth in Sections 7.1 or 7.3 shall not have been satisfied in
any respect (and such failure cannot be cured to the reasonable satisfaction of
the Physician Parties prior to Closing) or waived in writing by the Physician
Parties, all obligations of the Physician Parties under this Master Transaction
Agreement (other than their obligations under Sections 13.3 and 13.13) may be
terminated by the Physician Parties.
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Section 9.4 Termination Date. Unless terminated by mutual agreement
of the parties prior to Closing, this Master Transaction Agreement shall
continue in full force and effect until October 31, 1997, and it shall continue
in full force and effect thereafter unless terminated prior to Closing by
delivery of written notice of termination at the election of either the
Physician Parties, on the one hand, or PTI on the other (the date of such
notice to be the "Termination Date"). If Closing fails to occur as a result of
the breach of this Master Transaction Agreement by PTI on the one hand, or any
of the Physician Parties, on the other, this Master Transaction Agreement may
be extended for a reasonable time to facilitate Closing at the election of the
non-breaching party. In the event of termination of this Master Transaction
Agreement pursuant to the provisions of this Section, a party that is not in
material breach of this Master Transaction Agreement shall stand fully released
and discharged with respect to any and all obligations under this agreement.
In the event that the Conditions Precedent to Closing are not satisfied because
of the breach of any representation, warranty or covenant of any party hereto,
each party shall be entitled to pursue, exercise and enforce any and all
remedies, rights, powers and privileges available hereunder or at law or in
equity.
ARTICLE 10 INDEMNIFICATION
Section 10.1 Indemnification by the Physician Parties.
(a) Except as provided in Section 10.1(b) and subject
to the limitations set forth in Section 10.6, each of the Physician
Parties, jointly and severally, hereby agrees to indemnify, defend and
hold PTI, and its respective officers, directors, employees and
shareholders (collectively, "PTI Indemnified Persons") harmless from
and against all demands, suits, claims, actions or causes of action,
assessments, losses, damages, liabilities, liens, settlements,
penalties, and forfeitures, and reasonable costs and expenses incident
thereto (including reasonable attorneys' fees) (collectively, the
"Indemnity Losses" and individually, an "Indemnity Loss"), asserted
against or suffered or incurred, directly or indirectly, by any of the
PTI Indemnified Persons and resulting from:
(i) any misrepresentation in or breach of the
representations or warranties of any of the Physician Parties
or the failure of any of the Physician Parties to perform any
of their respective covenants or obligations contained in this
Master Transaction Agreement or the Asset Purchase Agreement;
(ii) except with respect to the Assumed
Obligations and except with respect to any liabilities
relating to or arising from the provision of professional
medical services (or failure to provide professional medical
services), the operation of the Practice or the use of the
Nonmedical Assets or the Medical Assets by Old Clinic prior to
the Closing including, but not limited to, any and all
obligations or liabilities of any of the Physician Parties of
any kind, description or character, direct or indirect,
absolute or contingent, known or unknown;
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(iii) any liability for Taxes arising out of, or
by virtue of, or based on any Physician Party; or
(iv) any Environmental Claim (as hereinafter
defined) arising out of or based upon (i) operation of the
properties covered by the Real Property Leases on or prior to
the Closing Date or (ii) operation of the Practice, on or
prior to the Closing Date. For purposes of this Agreement,
the term "Environmental Claim" means any liabilities,
responsibilities, third party (including private parties,
governmental agencies and employees) actions, lawsuits, claims
or proceedings (whether they arise under common law or statute
or are recognized now or at a later time and regardless of
form including strict liability and negligence) which relate
to or arise from or in connection with any Environmental Law
or Hazardous Wastes, including, but not limited to, any
liability which relates to or arises from or in connection
with any investigation, remediation, or removal of any
Hazardous Wastes.
(b) Notwithstanding the foregoing provisions of
Section 10.1(a), the Physician Parties shall not be obligated to
jointly and severally indemnify, defend or hold the PTI Indemnified
Parties harmless from and against any Indemnity Losses asserted
against or suffered or incurred by any of the PTI Indemnified Parties
and resulting from any misrepresentation in or breach of any
representation of Physician contained in Section 3.2 hereof or Section
6.6 hereof or from the failure of Physician to perform any of the
Physician's covenants or obligations contained in the Non-Competition
Covenant attached to the Asset Purchase Agreement. In each of these
cases, the Physician shall severally and not jointly indemnify, defend
and hold PTI harmless from and against all Indemnity Losses asserted
against or suffered or incurred by any of the PTI Indemnified Parties
and resulting from any misrepresentation in or breach of such
representations of the Physician or from the failure of the Physician
to perform any of such covenants or obligations.
Section 10.2 Indemnification by PTI. Subject to the limitations set
forth in Section 10.6, PTI, jointly and severally, hereby agrees to indemnify,
defend and hold the Physician Parties and their respective officers, directors,
employees, partners and shareholders (collectively "Physician Indemnified
Persons") harmless from and against any Indemnity Loss asserted against or
suffered or incurred by any of the Physician Indemnified Persons and resulting
from:
(a) any misrepresentation in or breach of the
representations and warranties of PTI or the failure of PTI to perform
any of their respective covenants or obligations contained in this
Master Transaction Agreement or in the Asset Purchase Agreement;
(b) the use of the Nonmedical Assets after the
Closing;
(c) the Assumed Obligations;
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(d) any liability for Taxes arising out of, or by
virtue of, or based on PTI; or
(e) any Environmental Claim arising out of or based
upon the operation of the business of PTI on or prior to the Closing
Date.
Section 10.3 Notice. If any person or entity has reason to believe
that he, she or it has suffered or incurred (or has a reasonable belief that
he, she or it will suffer or incur) any Indemnity Loss subject to indemnity
hereunder, such person or entity shall so notify the indemnifying party
promptly in writing describing such loss or expense, the amount thereof, if
known, and the method of computation of such Indemnity Loss, all with
reasonable particularity. If the nature of the Indemnity Loss set forth in the
notice does not involve any third party claim, and if the indemnifying party
does not respond to the indemnified party in writing contesting the existence
of amount of any Indemnity Loss within thirty (30) days after delivery of such
notice, then such indemnifying party shall be obligated to pay, and shall pay
in accordance with Section 10.5, the amount of the Indemnity Loss set forth in
such notice to the indemnified party. If any action at law, suit in equity,
administrative action or arbitration or mediation proceeding is instituted by
or against a third party with respect to which any person intends to claim any
liability or expense as an Indemnity Loss under this Article 10, such person
shall promptly notify the indemnifying party of such action. The failure to
give or to timely give any notice required by this Section 10.3 shall not
relieve the party from whom indemnity is sought of any of its obligations under
this Article 10, except to the extent that such failure results in actual
prejudice to the indemnifying party.
Section 10.4 Defense of Third Party Claim.
(a) With respect to any action at law, suit in
equity, administrative action or arbitration or mediation proceeding
that is instituted by or against a third party with respect to which
any person intends to claim any liability or expense under this
Article 10, the indemnifying party shall have ten (10) business days
after receipt of the notice with respect thereto referred to in the
first sentence of Section 10.3 to notify the indemnified party that it
elects to conduct and control any action, suit or proceeding with
respect to such claim; provided, however, that no such election may be
made with respect to any action, suit or proceeding by a taxing
authority with respect to any consolidated, combined or unitary return
filed by PTI or any of its affiliates. If the indemnifying party does
not give such notice, the indemnified person shall have the right to
defend, contest, settle or compromise such action, suit or proceeding
in the exercise of its exclusive discretion, and the indemnifying
party shall, upon request from the indemnified person, promptly pay
the indemnified person in accordance with the other terms and
conditions of this Article 10 the amount of any Indemnity Loss subject
to indemnity hereunder resulting from its liability to the third party
claimant. If the indemnifying party gives such notice, it shall have
the right to participate in, and, to the extent that it shall desire,
to undertake, conduct and control, through counsel of its own choosing
(which counsel shall be satisfactory to the
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indemnified party in the reasonable judgment of the indemnified party
and shall not, except with the consent of the indemnified party, be
counsel to the indemnified party) and at its sole expense, the conduct
and settlement of such action, suit or proceeding, and the indemnified
person shall cooperate with the indemnifying party in connection
therewith; provided, however, that (i) the indemnifying party shall
not thereby permit to exist any lien, encumbrance or other adverse
charge securing the claims indemnified hereunder upon any asset of the
indemnified person, (ii) the indemnifying party shall not thereby
consent to the imposition of any injunction against the indemnified
person without the written consent of the indemnified person, (iii)
the indemnifying party shall permit the indemnified person to
participate in such conduct or settlement through counsel chosen by
the indemnified person, but the fees and expenses of such counsel
shall be borne by the indemnified person except as provided below, and
(iv) upon a final determination of such action, suit or proceeding,
the indemnifying party shall promptly reimburse to the extent required
under this Article 10 the indemnified person for the full amount of
any Indemnity Loss resulting from such action, suit or proceeding and
all reasonable and related expenses incurred by the indemnified
person, other than fees and expenses of counsel for the indemnified
person incurred after the assumption of the conduct and control of
such action, suit or proceeding by the indemnifying party (except as
provided below); provided further, however, that such fees and
expenses of counsel for the indemnified party shall be borne by the
indemnifying party if (i) the employment of counsel by the indemnified
party has been authorized in writing by the indemnifying party, (ii)
the indemnified party has reasonably concluded (based on the advice of
counsel) that there may be legal defenses available to it that are
different from or in addition to those available to the indemnifying
party, (iii) a conflict or potential conflict exists (based on advice
of counsel to the indemnified party) between such party and the
indemnifying party in which case the indemnifying party will not have
the right to direct the defense of such action on behalf of the
indemnified party, or (iv) the indemnifying party has not in fact
employed counsel to assume the defense of such action within a
reasonable time after giving notice of its intent to assume such
defense. So long as the indemnifying party is contesting any such
action in good faith, the indemnified person shall not pay or settle
any such action, suit or proceeding. Notwithstanding the foregoing,
the indemnified person shall have the right to pay or settle any such
action, suit or proceeding, provided that in such event the
indemnified person shall waive any right to indemnity therefor from
the indemnifying party and no amount in respect thereof shall be
claimed as an Indemnity Loss under this Article 10.
(b) If requested by the indemnifying party, the
indemnified person agrees to cooperate with the indemnifying party and
its counsel in contesting any claim which the indemnifying party
elects to contest or, if appropriate, in making any counterclaim
against the person asserting the claim, or any cross-complaint against
any person asserting the claim, or any cross-complaint against any
person and further agrees to take such other action as reasonably may
be requested by an indemnifying party to reduce any loss or expense
for which the indemnifying party would have responsibility, but the
indemnifying
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party will reimburse the indemnified person for any expenses incurred
by it in so cooperating or acting at the request of the indemnifying
party.
(c) The indemnified person agrees to afford the
indemnifying party and its counsel the opportunity to be present at,
and to participate in, conferences with all persons, including
governmental authorities, asserting any claim against the indemnified
person or conferences with representatives of or counsel for such
persons.
Section 10.5 Payment of Losses. Except as specifically set forth in
any other section of this Master Transaction Agreement or the Asset Purchase
Agreement with respect to payment of losses, which section shall govern payment
of losses with respect to matters set forth therein, the indemnifying party
shall pay to the indemnified person in cash the amount of any Indemnity Loss to
which the indemnified person may become entitled by reason of the provisions of
this Agreement, such payment to be made within sixty (60) business days after
any such amount of losses is finally determined either pursuant to mutual
agreement of the parties, pursuant to the second sentence of Section 10.3,
pursuant to the provisions of Section 10.4(a), pursuant to the provisions of
Section 11.4 or Section 11.5, or pursuant to the dispute resolution provisions
set forth in Article 12 or pursuant to a final, unappealable binding judgment
of a court with jurisdiction. If Physician is the indemnifying party and fails
to make payment as contemplated by this Section 10.5, PTI, at its election,
shall be entitled to (i) cancel the number of shares of the PTI Common Stock
entitled to be received by such indemnifying party and terminate its obligation
to deliver such number of shares of PTI Common Stock, which number of shares,
valued at the average Market Price per share during the ten Trading Days
immediately preceding the date payment was due under this Section 10.5,
represent an amount equal to or less than the amount of Indemnity Loss, or (ii)
set off all or any amounts payable under the Note held by the Physician,
representing the amount equal to or less than the amount of the Indemnity Loss,
or both of the foregoing, but in no event shall PTI be entitled to offset
amounts in excess of the Indemnity Loss pursuant to this Section 10.5. Such
indemnifying party agrees to redeliver to PTI any Note that, as a result of the
exercise of set-off rights, is paid in full.
Section 10.6 Liquidated Damages; Limitations. Notwithstanding
anything contained to the contrary in this Master Transaction Agreement, a
Party's right to recover any amounts under the indemnification provisions of
this Article 10 shall be determined or limited as provided in this Section
10.6.
(a) In the event that the Physician Parties fail or
refuse to close the transactions contemplated herein for any reason
other than the failure to satisfy the conditions to closing set forth
in Article 7 on or before the Termination Date, then the Physician
Parties shall pay liquidated damages to PTI in the amount of $50,000
in cash. The parties agree that the amount of such liquidated damages
represents a reasonable estimate of the costs and expense incurred by
PTI in anticipation of the transaction contemplated herein, and is
not, and shall not be deemed to be a penalty and shall be recoverable
in lieu of all other damages.
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(b) All representations, warranties and indemnities
made by the parties shall survive the Closing and shall thereafter
terminate and expire twenty-four (24) months after the Closing Date,
except that representations, warranties (Section 3.1(j)) and
associated indemnities with respect to tax matters, and
representations, warranties and associated indemnities with respect to
environmental matters (Section 3.1(m)), shall survive for a period
equal to the statute of limitations applicable to any claim arising
from or attributable to such matters; provided, however, that
notwithstanding the foregoing, the rights and obligations with respect
to indemnification as provided in this Article 10 shall continue with
respect to any matter for which indemnification has been properly
sought pursuant to the terms and conditions of this Master Transaction
Agreement prior to the expiration of any such survival period.
(c) The Physician Parties' liabilities to PTI
Indemnified Persons pursuant to this Article 10 shall be limited as
follows: with respect to any claim for indemnification under Section
10.1, no PTI Indemnified Parties shall be entitled to indemnification
pursuant to Article 10 until the PTI Indemnified Parties in the
aggregate have suffered or incurred Indemnity Losses of $5,000, and
each Physician Party's obligations under this Article 10 shall be
limited to $2,045,000; provided, however, that nothing contained in
this Section 10.6(c) shall be deemed to limit or impair PTI's right to
seek injunction or other equitable relief for a Physician's breach of
any provision set forth in the Non-Competition Covenant attached to
the Asset Purchase Agreement.
(d) PTI's liabilities to Physician Indemnified
Persons pursuant to this Article 10 shall be limited as follows: with
respect to any claim for indemnification under Section 10.2, no
Physician Indemnified Person shall be entitled to indemnification
pursuant to Article 10 shall be limited as follows: with respect to
any claim for indemnification under Section 10.2, no Physician
Indemnified Person shall be entitled to indemnification pursuant to
Article 10 until the Physician Indemnified Persons in the aggregate
have suffered or incurred Indemnity Losses of $5,000, and PTI's
obligations under this Article 10 shall be limited to $2,045,000.
ARTICLE 11 PIGGYBACK REGISTRATION RIGHTS
Section 11.1 Registration Rights. In the event that PTI proposes to
file a registration statement with the SEC on Form S-1, S-2, S-3, S-18 or such
other comparable successor form as may be prescribed from time to time by the
SEC (a "Registration Statement") with the SEC with respect to an underwritten
public offering by PTI or PTI Common Stock for cash, whether or not for PTI's
own account, during the period commencing on the date of the second anniversary
of the Closing Date and ending on the fifth anniversary of the Closing Date,
PTI shall give written notice of such proposed filing to the Physician at least
fifteen (15) days before the anticipated filing date (in which notice PTI shall
use its best efforts to name the proposed managing underwriters of such
offering and the anticipated price range per share of PTI Common Stock), and
such notice shall offer the Physician the opportunity to register such number
of the Physician's shares of PTI
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Common Stock as the Physician may request in writing within ten (10) days after
receipt of such notice; provided, however, that the maximum number of shares of
PTI Common Stock that the Physician may request to include shall be equal to
the lesser of (i) that fraction of his shares of PTI Common Stock which equals
the maximum fraction of shares of PTI Common Stock held by any person having
piggyback registration rights (other than PTI or the Physician) that such other
person is permitted to request to include in such filing and (ii) 50% of the
Physician's shares of PTI Common Stock. Notwithstanding the foregoing, if the
managing underwriter of such offering advises PTI that the total number of
shares of PTI Common Stock which PTI, the Physician and any other persons
intend to include in such offering would adversely affect the success of such
offering, then the amount of shares of PTI Common Stock to be offered for the
account of the Physician shall be reduced to the extent necessary to reduce the
total number of shares of PTI Common Stock to be included in such offering to
the amount recommended by such managing underwriter; provided that if shares of
PTI Common Stock are being offered for the account of other persons as well as
PTI, such reduction shall not represent a greater fraction of the number of
shares of PTI Common Stock requested to be registered by the Physician than the
fraction of similar reductions imposed on such other persons over the amount of
securities requested to be registered by such other persons. Nothing contained
herein shall require PTI to (a) reduce the amount of shares of PTI Common Stock
to be offered by PTI in such offering for any reason or (b) include any shares
of PTI Common Stock of any Physician in any public offering for which a
Registration Statement is or is proposed to be filed if such shares of PTI
Common Stock are, at the time of effectiveness of such Registration Statement,
eligible to be sold under paragraph (k) of Rule 144 under the Securities Act
(or any successor provision with substantially the same effect). Nothing in
this Article 11 shall create any liability on the part of PTI to the Physician
if PTI for any reason should decide not to file a Registration Statement or
decide not to request that the Registration Statement be declared effective or
otherwise elect not to consummate the public offering contemplated thereby.
The rights hereunder are subject to the condition that if Physician desires to
include shares of PTI Common Stock in the public offering agrees to timely
execute and deliver the underwriting agreement to be executed and delivered by
PTI and the other sellers, if any, in connection with such public offering.
Section 11.2 Covenants of PTI.
(a) PTI hereby covenants and agrees:
(i) To take such steps as may be necessary to
comply with the Blue Sky laws of such states as the managing
underwriter may reasonably request; provided that in no event
shall PTI be obligated to qualify to do business in any state
where it is not so qualified or to take any action which would
subject it to unlimited service of process in any state where
it is not at such time so subject;
(ii) To use reasonable efforts to cause the
Registration Statement to become effective and to keep the
Registration Statement effective for such period as may be
required under the terms of the underwriting agreement
relating thereto,
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to file such post-effective amendments as may be necessary to
keep any prospectus contained in such Registration Statement
true and complete during such period as the Registration
Statement shall be effective, and to furnish and file such
other amendments, supplements, and other documents the
managing underwriter may reasonably request;
(iii) To supply such numbers of prospectuses as
may be reasonably required by the managing underwriter;
(iv) To pay the costs and expenses of
Registration Statement incurred by PTI, including without
limitation all registration and Blue Sky filing fees, all fees
and expenses of PTI's counsel (but not the fees and expenses
of counsel for the Physician), all accounting costs (including
costs associated with the preparation of interim period
financial statements) incurred by PTI, NASD fees, printing
costs, experts' fees and expenses incurred by PTI, costs of
post-effective amendments, and all other usual and customary
expenses in connection with the Registration Statement, except
for the Physician's pro rata share of underwriting discounts
and selling commissions (calculated in the manner set forth in
this Article 11); and
(v) With respect to any Registration Statement
filed pursuant to this Article 11, to cooperate with the
underwriters to the best of its abilities and to enter into an
underwriting agreement with such underwriters containing such
representations, warranties, covenants and indemnities on the
part of PTI as are usual and customary in an underwritten
public sale of common stock.
(b) In the event that, subsequent to the Closing
Date, PTI grants registration rights to physicians in connection with
PTI's or a wholly owned subsidiary's management of such physicians'
medical practice pursuant to a management agreement or similar
arrangement, and if the terms of such registration rights relating to
limitations with respect to (i) the period during which registration
rights may be exercised and (ii) the percentage of shares of PTI
Common Stock that are registrable are superior to the terms of the
registration rights relating to such limitations granted pursuant to
this Article 11, then, without the taking of any additional action,
such terms of registration rights granted pursuant to this Article 11
shall be amended to equal such terms of the subsequently granted
registration rights.
Section 11.3 Covenants of the Physician. The Physician hereby
covenants and agrees:
(a) To cooperate with PTI in its compliance with all
federal and state securities laws, including without limitation
providing such information and signing such documents as are
reasonably necessary to effect a registration;
(b) To pay his pro rata portion (calculated on the
basis of the ratio of the
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<PAGE> 45
aggregate offering price attributable to the shares of the Physician
being registered and sold in relation to the aggregate offering price
attributable to the total number of securities being registered and
sold, including securities being registered and sold by other selling
stockholders) of the underwriting discounts and selling commissions
and to pay all the fees and disbursements of his counsel; and
(c) In addition to the transfer restrictions
otherwise provided for herein, if so requested by PTI, Physician will
agree, whether or not the Physician elects to cause the registration
of his shares pursuant to this Article 11, not to sell or otherwise
dispose of any shares of PTI Common Stock (other than the shares
covered by such registration, which may be sold in accordance with the
plan or plans of distribution described in the Registration Statement)
owned by the Physician for a period of the shorter of (i) the lock-up
period applicable to PTI or (ii) one hundred twenty (120) days
following the effective date of such registration statement or a
registration statement in connection with the Initial Public Offering.
Section 11.4 Indemnification of Physician. In connection with the
Initial Public Offering and whenever registration with respect to any shares of
a Physician's PTI Common Stock is affected under the Securities Act pursuant
hereto, PTI will indemnify and hold harmless the Physician, each underwriter,
the directors, officers, employees and agents of each underwriter, and each
person, if any, who controls each underwriter within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, liabilities, expenses and damages (including any and
all investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out or are based on any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement or any prospectus included in such registration statement or any
amendment or supplement to the registration statement or any such prospectus or
the omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading, provided that PTI will not be liable to the Physician to the extent
that such loss, claim, liability, expense or damage is based on an untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to PTI by any of the Physician Parties, or by any of the
Physician Parties through any attorney-in-fact, expressly for inclusion in the
registration statement or any prospectus included in such registration
statement.
Section 11.5 Indemnification of PTI. In connection with the Initial
Public Offering and whenever registration with respect to any shares of a
Physician's PTI Common Stock is effected under the Securities Act pursuant
hereto, the Physician will indemnify and hold harmless PTI, each of PTI's
directors, each of PTI's officers, each person who controls PTI within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
each underwriter, the
40
<PAGE> 46
directors, officers, employees and agents of each underwriter, and each person,
if any, who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement or any prospectus included in such registration
statement or any amendment or supplement to the registration statement or any
such prospectus or the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements
in it not misleading, provided that the Physician will not be liable except to
the extent that such loss, claim, liability, expense or damage arises from or
is based upon an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information furnished in
writing to PTI by the Physician, or by the Physician through any attorney-in-
fact, expressly for inclusion in the registration statement or any prospectus
included in such registration statement.
Section 11.6 Defense of Claim. Promptly after receipt by an
indemnified party of notice of the commencement of any action, the indemnified
party shall notify the indemnifying party in writing of the commencement
thereof if a claim in respect thereof is to be made against an indemnifying
party under this Article 11, but the omission of such notice shall not relieve
the indemnifying party from liability which it may have to the indemnified
party under this Article 11, except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice, and shall not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Article 11. In case any action is brought
against the indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and to the extent that it chooses, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided however, that (i) if the indemnifying party fails to take
reasonable steps necessary to defend diligently the claim within twenty (20)
days after receiving notice from the indemnified party that the indemnified
party believes the indemnifying party has failed to diligently defend such
claim, or (ii) if the indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably
shall have concluded that there are legal defenses available to the indemnified
party which are not available to the indemnifying party, or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then the indemnified party
shall have the right to assume or continue its own defense as set forth above
and the indemnifying party shall reimburse each indemnified party for the costs
of such defense as
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provided in Sections 11.4 and 11.5. In no event shall the indemnifying party
be responsible for the fees of more than one firm of counsel for all
indemnified parties.
Section 11.7 Non-Transferability. The registration rights and
benefits set forth herein, including indemnification by PTI, are granted for
the sole and personal benefit of the Physician and may not be transferred or
assigned.
ARTICLE 12 ARBITRATION
Section 12.1 Scope. Unless otherwise specifically provided in any
other Transaction Document, the parties hereto agree that any claim,
controversy, dispute or disagreement between or among any of the parties to any
of the Transaction Documents arising out of or relating to any Transaction
Document (other than claims involving any noncompetition or confidentiality
covenant) shall be governed exclusively by the terms and provisions of this
Article 12; provided, however, that the terms and provisions of this Article 12
shall not preclude any party hereto from seeking, or a court of competent
jurisdiction from granting, a temporary restraining order, temporary injunction
or other equitable relief for any breach of (i) any noncompetition or
confidentiality covenant in any Transaction Document or (ii) any duty,
obligation, covenant, representation or warranty, the breach of which may cause
irreparable harm or damage.
Section 12.2 Arbitrators. In the event any claim or claims for an
Indemnity Loss is brought by any of PTI or any of the Physician Parties
(including New Clinic), or there is any other claim, controversy, dispute or
disagreement among any of PTI or the Physician Parties (including New Clinic)
arising out of or relating to any Transaction Document, and the parties are
unable to resolve such claim, controversy, dispute or disagreement within
thirty (30) days after notice is first delivered pursuant to Section 10.3, the
disagreement within thirty (30) days after notice is first delivered pursuant
to Section 10.3, the parties agree to select arbitrators to hear and decide all
such claims under this Article 12. If such claim, controversy, dispute or
disagreement is between any of the Physician Parties (including New Clinic), on
the one hand, and PTI, on the other hand, then the Physician Parties (including
New Clinic) shall select one arbitrator and PTI shall select one arbitrator.
If such claim, controversy, dispute or disagreement is between any of the
Physician Parties (including New Clinic), on the one hand, and New Clinic, on
the other hand, then such Physician Parties shall select one arbitrator and New
Clinic shall select one arbitrator. The two arbitrators so chosen shall then
select a third arbitrator who is experienced in the matter or action that is
subject to such arbitration. If such matter or action involves healthcare
issues, then the third arbitrator shall have such qualifications as would
satisfy the requirements of the National Health Lawyers Association Alternative
Dispute Resolution Service. Each of the arbitrators chosen shall be impartial
and independent of all parties to the Transaction Documents. If either of the
parties fails to select an arbitrator within twenty days after the end of such
thirty-day period, or if the arbitrators chosen fail to select a third
arbitrator within twenty days, then any party may in writing request the judge
of the United States District Court for the District of Louisiana senior in
term of service to appoint the arbitrator or arbitrators and, subject to this
Article 12, such arbitrators shall hear all arbitration matters arising under
this Article 12.
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Section 12.3 Applicable Rules.
(a) Each arbitration hearing shall be held at a place
in Houma, Louisiana acceptable to a majority of the arbitrators. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to the
extent such rules do not conflict with the terms hereof. The decision
of a majority of the arbitrators shall be reduced to writing and shall
be binding on the parties. Judgment upon the award(s) rendered by a
majority of the arbitrators may be entered and execution had in any
court of competent jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of
enforcement. The charges and expenses of the arbitrators shall be
shared equally by the parties to the hearing.
(b) The arbitration shall commence within ten (10)
days after the arbitrators are selected in accordance with the
provisions of this Article 12. In fulfilling their duties with
respect to determining the amount of an Indemnity Loss, the
arbitrators may consider such matters as, in the opinion of the
arbitrators, are necessary or helpful to make a proper valuation. The
arbitrators may consult with and engage disinterested third parties to
advise the arbitrators. The arbitrators shall not add any interest
factor reflecting the time value of money to the amount of any
Indemnity Loss and shall not award any punitive damages.
(c) If any of the arbitrators selected hereunder
should die, resign or be unable to perform his or her duties
hereunder, the remaining arbitrators or such senior judge (or such
judge's successor) shall select a replacement arbitrator. The
procedure set forth in this Article 12 for selecting the arbitrators
shall be followed from time to time as necessary.
(d) As to any determination of the amount of an
Indemnity Loss, or as to the resolution of any other claim,
controversy, dispute or disagreement, that under the terms hereof is
made subject to arbitration, no lawsuit based on such claimed
Indemnity Loss or such resolution shall be instituted by any of PTI or
the Physician Parties (including New Clinic), other than to compel
arbitration proceedings or enforce the award of a majority of the
arbitrators.
(e) All privileges under Louisiana and federal law,
including attorney-client and work-product privileges, shall be
preserved and protected to the same extent that such privileges would
be protected in a federal court proceeding applying Louisiana law.
ARTICLE 13 MISCELLANEOUS
Section 13.1 Taxes. The Physician Parties will pay all transfer
taxes, sales and other taxes and charges, if any, which may become payable in
connection with the transactions contemplated by the Transaction Documents.
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Section 13.2 Remedies Not Exclusive. No remedy conferred by any of
the specific provisions of this Master Transaction Agreement or any other
Transaction Document is intended to be exclusive of any other remedy, and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise. Provided, however the right to recover any amount under
the indemnification provision of Article X shall be determined and limited
exclusively as provided in Section 10.6. The election of any one or more
remedies by any party hereto shall not constitute a waiver of the right to
pursue other available remedies.
Section 13.3 Expenses. Whether or not the transactions contemplated
by this Master Transaction Agreement are consummated, each of the parties
hereto shall pay the fees and expenses of its counsel, accountants and other
experts incident to the negotiation and preparation of the Transaction
Documents and consummation of the transactions contemplated thereby. The
Physician Parties will pay the amount of one-half of the bookkeeping and
accounting fees related to the audit of the Practice by PTI, but such payment
shall not exceed, in any event, $10,000.
Section 13.4 Parties Bound. Except to the extent otherwise expressly
provided herein, this Master Transaction Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
representatives, administrators, guardians, successors and assigns; and no
other person shall have any right, benefits or obligation hereunder.
Section 13.5 Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Master Transaction Agreement shall be sufficient in all respects if given
in writing and delivered in person, by telecopy, by overnight courier or by
registered or certified mail, postage prepaid, return receipt requested, to the
receiving party at the following address:
If to PTI, addressed to:
Physicians Trust, Inc.
1900 West Loop South, Suite 890
Houston, Texas 77027
Attention: Robert F. Strange, Jr.
Telecopy: (713) 622-2227
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With copies to:
Chamberlain, Hrdlicka, White,
Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
Attention: Robert J. Viguet, Jr.
Telecopy: (713) 658-2553
If to the Physician Parties, addressed to:
________________________
869 Verret Street
Houma, Louisiana 70361
Attention: A.D.Walker, Jr., M.D.
Telecopy:
With copies to: Sidney C. Sundbery
P.O. Box 3017
Houma, Louisiana 70361
or to such other address as such party may have given to the other parties by
notice pursuant to this Section 13.5. Notice shall be deemed given on the date
of delivery, in the case of personal delivery or telecopy, or on the delivery
or refusal date, as specified on the return receipt, in the case of overnight
courier or registered or certified mail.
Section 13.6 Choice of Law. This Master Transaction Agreement shall
be construed, interpreted, and the rights of the parties determined in
accordance with, the laws of the State of Louisiana except with respect to
matters of law concerning the internal affairs of any corporate or partnership
entity which is a party to or the subject of this Master Transaction Agreement,
and as to those matters the law of the state of incorporation or organization
of the respective entity shall govern. The parties agree that if a controversy
or claim between or among them arises out of or in relation to this Master
Transaction and results in litigation, the courts of Terrebonne Parish,
Louisiana shall have jurisdiction to hear and decide such matter, and the
parties hereto submit to jurisdiction to such courts.
Section 13.7 Entire Agreement; Amendments and Waivers. This Master
Transaction Agreement, together with other Transaction Documents and all
exhibits and schedules hereto and thereto, constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representatives
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or other agreements between the parties in connection with the subject matter
hereof. No supplement, modification or waiver of this Master Transaction
Agreement shall be binding unless it shall be specifically designated to be a
supplement, modification or waiver of this Master Transaction Agreement and
shall be executed in writing by the party to be bound thereby. No waiver of
any of the provisions of this Master Transaction Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any
of the provisions of this Master Transaction Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
Section 13.8 Letter of Intent. Without limiting the generality of
the foregoing section, the provisions of the Letter of Intent between PTI and
the Physician, shall terminate and cease to be of any force or effect at and
upon the Closing.
Section 13.9 Reformation Clause. The parties acknowledge that
federal and state law and regulations applicable to business transactions in
which physicians and other healthcare provides own equity interests in
healthcare companies are in a state of flux, and that as such laws and
regulations, and interpretations of such laws and regulations by the courts and
regulatory authorities, evolve, the transactions contemplated by this Master
Transaction Agreement may be prohibited by, or become economically impractical
due to, such laws and regulations. If such event occurs, the parties each
agree to negotiate in good faith such changes to the structure and terms of the
transactions provided for in this Master Transaction Agreement as may be
necessary to make these transactions, as restructured, lawful under applicable
laws and regulations, without materially disadvantaging either party.
Section 13.10 Assignment. The Master Transaction Agreement may not
be assigned by operation of law or otherwise except that PTI shall have the
right to assign this Master Transaction Agreement, at any time, to any direct
or indirect wholly owned subsidiary of PTI. No such assignment shall relieve
PTI of its obligations hereunder.
Section 13.11 Attorneys' Fees. Except as otherwise specifically
provided herein, if any action or proceeding is brought by any party with
respect to this Master Transaction Agreement or the other Transaction
Documents, or with respect to the interpretation, enforcement or breach hereof,
the prevailing party in such action shall be entitled to an award of all
reasonable costs of litigation or arbitration, including, without limitation,
attorneys' fees, to be paid by the losing party, in such amounts as may be
determined by the court having jurisdiction of such action or proceeding or by
the arbitrators deciding such action or proceeding.
Section 13.12 Further Assurances. From time to time hereafter and
without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated by the Transaction Documents or as shall be reasonably necessary
or appropriate in
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connection with the carrying out of the parties' respective obligations
hereunder or the purposes of this Master Transaction Agreement.
Section 13.13 Announcements and Press Releases. Any press releases
or any other public announcements concerning this Master Transaction Agreement
or the other Transaction Documents shall be approved by both PTI and Old
Clinic; provided, however, that if any party reasonably believes that it has a
legal obligation to make a press release and the consent of the other party
cannot be obtained, then the release may be made without such approval.
Section 13.14 Antidilution.
(a) The existence of PTI's obligation to issue shares
of PTI Common Stock pursuant to Section 2.4(c) of this Master
Transaction Agreement shall not affect in any way the right or power
of PTI or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in
PTI's capital structure or its business, or any merger or
consolidation of PTI, or any issue of bonds, debentures, preferred or
prior preference stock ahead of, or affecting the PTI Common Stock, or
the rights thereof, as the dissolution or liquidation of PTI, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of similar character or
otherwise.
(b) If PTI effects a subdivision or consolidation of
shares of PTI Common Stock or other capital readjustment, the payment
of a stock dividend, or other increase or reduction of the number of
shares of PTI Common Stock outstanding, without receiving compensation
therefor in money, services or property, then the number of shares of
PTI Common Stock subject to issuance pursuant to Section 2.4(c) of
this Master Transaction Agreement shall be appropriately adjusted in
such a manner to entitle the Physician to receive the name total
number and class of shares as it would have received had it received
shares of PTI Common Stock immediately prior to the event requiring
the readjustment. In the event of any capital reorganization or
reclassification of the capital stock of PTI, any consolidation or
merger of PTI with or into another corporation, or any sale, lease or
disposition of all or substantially all of the assets of PTI that is
effected in such a manner that holders of shares of PTI are entitled
to receive additional shares, other securities and/or property
(including cash) with respect to or in exchange for shares of PTI
Common Stock, PTI shall, as a condition precedent to such transaction,
cause effective provisions to be made so that the Physician shall
thereafter have the right to receive the kind and amount of additional
shares, other securities and/or other property receivable upon such
event as it would have received had it received the shares of PTI
Common Stock immediately prior to the event.
Section 13.15 No Tax Representations. Each party acknowledges that
it is relying solely on its advisors to determine the tax consequences of the
transactions contemplated hereunder and
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that no representation or warranty has been made by any party as to the tax
consequences of such transactions.
Section 13.16 No Rights as Stockholder. No Physician shall have any
rights as a stockholder with respect to any shares of PTI Common Stock until
the issuance of a stock certificate for such shares. Except as otherwise
provided in Section 13.14, no adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to such date
any such stock certificate issued.
Section 13.17 Multiple Counterparts. This Master Transaction
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 13.18 Headings. The headings of the several Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Master Transaction Agreement.
Section 13.19 Severability. Each article, section, subsection and
lesser section of this Master Transaction Agreement constitutes a separate and
distinct undertaking, covenant or provision hereof. In the event that any
provision of this Master Transaction Agreement shall finally be determined to
be unlawful, such provision shall be deemed severed from this Master
Transaction Agreement, but every other provision of this Master Transaction
Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties have caused this Master Transaction
Agreement to be duly executed as of July 7, 1997.
PHYSICIANS TRUST, INC.
a Delaware corporation
By: /s/ ROBERT F. STRANGE, JR.
---------------------------------------------
Name: Robert F. Strange, Jr.
-------------------------------------------
Title: Chief Executive Officer
------------------------------------------
A.D. WALKER, JR, (A.P.M.C.)
a Louisiana professional medical corporation
By: /s/ A.D. WALKER, JR., M.D.
---------------------------------------------
Name: A.D. Walker, Jr., M.D.
-------------------------------------------
Title: President
-----------------------------------------
PHYSICIAN
/s/ A.D. WALKER, JR., M.D.
-------------------------------------------------
A.D. Walker, Jr., M.D.
49
<PAGE> 55
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
PHYSICIANS TRUST, INC.
AND
A.D. WALKER, JR., (A.P. M. C.)
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 TERMS OF ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Medical Assets . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Assumption of Obligations and Liabilities . . . . . . . 4
Section 2.4 Purchase Price . . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Tax Allocation . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 REPRESENTATIONS OF THE PHYSICIAN PARTIES . . . . . . . . . . . . . 5
Section 3.1 Representations of the Physician Parties . . . . . . . 5
ARTICLE 4 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1 Documents to be Delivered by Old Clinic . . . . . . . . 7
Section 4.2 Documents to be Delivered by PTI . . . . . . . . . . . 8
ARTICLE 5 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1 Indemnification . . . . . . . . . . . . . . . . . . . . 8
Section 5.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.3 Remedies Not Exclusive . . . . . . . . . . . . . . . . 8
Section 5.4 Parties Bound . . . . . . . . . . . . . . . . . . . . . 8
Section 5.5 Choice of Law . . . . . . . . . . . . . . . . . . . . . 8
Section 5.6 Entire Agreement; Amendments and Waivers . . . . . . . 8
Section 5.7 Reformation Clause . . . . . . . . . . . . . . . . . . 9
Section 5.8 Assignment . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.9 Further Assurances . . . . . . . . . . . . . . . . . . 9
Section 5.10 Multiple Counterparts . . . . . . . . . . . . . . . . . 9
Section 5.11 Headings . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.12 Severability . . . . . . . . . . . . . . . . . . . . . 10
Section 5.13 Survival of Representations and Warranties . . . . . . 10
Section 5.14 Notices . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.15 Prorations . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.16 Commercial Reasonableness . . . . . . . . . . . . . . . 10
EXHIBITS
A General Bill of Sale, Conveyance, Transfer and Assignment, and
Agreement Regarding Assumption of Liabilities
</TABLE>
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and A.D. Walker, Jr. (A.P.M.C.) i
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SCHEDULES
2.1(b) Accounts Receivable
2.1(c) Personal Property Lease
2.1(d) Assumed Contracts
2.1(e) Tangible Personal Property
2.1(g) Licenses
2.1(h) Real Property Leases
2.2(e) Medical Licenses
2.3(a) Accounts Payable
2.5 Tax Allocation
3.1(a) Title Exceptions
3.1(c) Inventory Exceptions
3.1(d) Accounts Receivable Exceptions
3.1(e) Tangible Personal Property Exceptions
3.1(f) Lease Exceptions
3.1(g) Assumed Contract Exceptions
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Asset Purchase Agreement"), dated and
effective for all purposes as of the close of business on ____________, 1997,
is by and between PHYSICIANS TRUST, INC., a Delaware corporation ("PTI"), and
A.D. WALKER, JR., (A PROFESSIONAL MEDICAL CORPORATION), a Louisiana
professional medical corporation ("Old Clinic").
RECITALS
A. In connection with the transactions contemplated by the Master
Transaction Agreement, dated and effective as of ________________, 1997, among
PTI, Old Clinic and A.D. Walker, Jr., M.D. (the "Master Transaction
Agreement"), Old Clinic desires to sell and transfer all of its nonmedical
assets, and PTI desires to purchase and acquire such nonmedical assets.
B. In addition, in connection with the transactions contemplated by
the Master Transaction Agreement, Old Clinic desires to transfer to PTI certain
liabilities of Old Clinic, and PTI desires to assume such liabilities of Old
Clinic.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreement set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agrees as
follows:
ARTICLE 1
DEFINITIONS
Any capitalized term not defined herein shall have the meaning ascribed
to such term in the Master Transaction Agreement.
ARTICLE 2
TERMS OF ASSET PURCHASE
Section 2.1 Purchase and Sale. Subject to the terms and conditions
herein set forth and in the Master Transaction Agreement, and in reliance upon
the representations and warranties set forth herein and in the Master
Transaction Agreement, Old Clinic agrees to sell, convey, assign, transfer and
deliver to PTI, and PTI agrees to purchase and acquire, the assets consisting
of all the assets (other than cash and the Medical Assets specified in Section
2.2 hereof) owned by Old Clinic as a going concern as of the Closing Date, of
every kind, character and description, whether tangible, real, personal or
mixed, and wheresoever located, whether carried on the books of Old Clinic or
not carried on the books of Old Clinic due to having been expensed, fully
depreciated, or otherwise (the
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"Nonmedical Assets"), including without limitation the following (except to the
extent that any of the following are specifically enumerated as Medical Assets
in Section 2.2 hereof):
(a) All of the inventory owned by Old Clinic ("Inventory");
(b) All accounts receivable or other rights to receive payment
owing to Old Clinic as set forth and described on Schedule 2.1(b)
("Accounts Receivable");
(c) All of Old Clinic's rights in, to and under all leases of
supplies, instruments, equipment, furniture, machinery and other items
of tangible personal property ("Personal Property Leases"), including
without limitation the Personal Property Leases described on Schedule
2.1(c);
(d) All of Old Clinic's rights in, to and under all contracts,
agreements, insurance policies, purchase orders and commitments (the
"Assumed Contracts"), including without limitation the Assumed Contracts
described on Schedule 2.1(d);
(e) All tangible personal property (including supplies,
instruments, equipment, furniture and machinery) owned by Old Clinic
("Tangible Personal Property"), including without limitation the
Tangible Personal Property described on Schedule 2.1(e); but not
including the excluded Tangible Personal Property identified as such on
Schedule 2.1(e);
(f) All books and records of Old Clinic, including without
limitation, all credit records, payroll records, computer records,
computer programs, contracts, agreements, operating manuals, schedules
of assets, correspondence, books of account, files, papers, books and
all other public and confidential business records (together the
"Business Records"), whether such Business Records are in hard copy form
or are electronically or magnetically stored;
(g) All franchises, licenses, permits, certificates, approvals
and other governmental authorizations necessary to own and operate any
of the other Nonmedical Assets, a complete and correct list of which is
set forth on the Schedule 2.1(g) (the "Licenses");
(h) The leasehold estates created by, and all rights conferred
on Old Clinic under or by virtue of, all real property lease agreements
(such real property lease agreements are hereinafter referred to as
"Real Property Leases" and the parcels of real property in which Old
Clinic has a leasehold interest and that are subject to the Real
Property Leases are hereinafter referred to as "Leased Property"),
including without limitation estates created by, and rights conferred
under, the Real Property Leases described on Schedule 2.1(h), and any
and all estates, rights, titles and interests in, to and under all
warehouses, storage facilities,
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buildings, works, structures, fixtures, landings, constructions in
progress, improvements, betterments, installations and additions
constructed or located on or attached or affixed to the Leased Property;
(i) All (i) United States and foreign patents, patent
applications, trademarks, trademark applications and registrations,
service marks, service mark applications and registrations, copyrights,
copyright applications and registrations and trade names, fictitious
names and assumed names of Old Clinic; (ii) proprietary data and
technical, manufacturing know-how and information (and all materials
embodying such information) of Old Clinic; (iii) developments,
discoveries, inventions, ideas and trade secrets of Old Clinic; and (iv)
rights to sue for past infringement (all of the foregoing, collectively,
"Intellectual Property");
(j) All of Old Clinic's right, title and interest in, to and
under all telephone numbers used in connection with the Practice,
including all extensions thereto;
(k) All rights in, to and under all representations,
warranties, covenants and guaranties made or provided by third parties
to or for the benefit of Old Clinic with respect to any of the other
Nonmedical Assets or with respect to the Medical Assets; and
(l) All of Old Clinic's prepaid expenses, prepaid insurance,
deposits and other similar items ("Prepaid Items").
If and to the extent the assignment of any personal property lease, real
property lease, contract, agreement, purchase order, work order, commitment,
license, permit, certificate or approval constituting a Nonmedical Asset shall
require the consent of another party thereto, then (i) such personal property
lease, real property lease, contract, agreement, purchase order, work order,
commitment, license, permit, certificate or approval shall constitute a
Personal Property Lease, Real Property Lease, Assumed Contract or License, as
the case may be, only upon and subject to receipt of such consent; (ii) such
personal property lease, real property lease, contract, agreement, purchase
order, work order, commitment, license, permit, certificate or approval shall
not be a Personal Property Lease, Real Property Lease, Assumed Contract or
License, as the case may be, if and for so long as the attempted assignment
would constitute a breach thereof; and (iii) Old Clinic shall cooperate fully
with PTI in seeking such consent or reasonable arrangement designed to provide
to PTI the benefits, claims or rights arising hereunder.
Section 2.2 Medical Assets. Old Clinic shall not sell, convey,
assign, transfer or deliver to PTI, and PTI shall not be obligated to acquire
(or make any payments or otherwise discharge any liability or obligation of Old
Clinic with respect to), the following assets of Old Clinic (the "Medical
Assets"):
(a) Any of Old Clinic's right, title and interest in, to or
under, or possession of, all drugs, pharmaceuticals, products,
substances, items or devices whose purchase,
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possession, maintenance, administration, prescription or security
requires the authorization or order of a licensed health care provider
or requires a permit, registration, certification or any other
governmental authorization held by a licensed health care provider as
specified under any federal or state law, or both;
(b) Any of Old Clinic's right, title and interest in and to
records of identity, diagnosis, evaluation or treatment of patients;
(c) Any of Old Clinic's right, title and interest in, to and
under insurance policies covering or relating to medical malpractice;
(d) Any goodwill relating to or attributable to or arising
from the other Old Clinic Medical Assets;
(e) Any franchises, licenses, permits, certificates, approvals
and other governmental authorizations necessary to desirable to own and
operate any of the other Medical Assets, a complete and correct list of
which is set forth on Schedule 2.2(e); and
(f) Any of Old Clinic's right, title or interest in, to or
under any contract or agreement that requires performance by a licensed
health care provider under federal or applicable state law ("Medical
Contracts").
Section 2.3 Assumption of Obligations and Liabilities. At the
Closing, PTI shall assume and agree to pay or perform, promptly as they become
due, only those obligations and liabilities of Old Clinic expressly set forth
below in this Section 2.3 (the "Assumed Obligations"). Except for the Assumed
Obligations, PTI shall not assume or be deemed to have assumed and shall not be
responsible for any other obligation or liability of Old Clinic, direct or
indirect, known or unknown, choate or inchoate, absolute or consignment,
including without limitation (i) any and all obligations regarding any foreign,
Federal, state or local income, sales, use, franchise or other tax liabilities
(ii) any and all obligations or liabilities relating to any of fees or expenses
of the Physician Parties' counsel, accountants or other experts incident to the
negotiation and preparation of the Transaction Documents and consummation of
the transactions contemplated thereby, and (iii) any and all liabilities
relating to or arising from the provision of professional medical services (or
failure to provide professional medical services) prior to the Closing Date.
The Assumed Obligations are:
(a) The accounts and notes payable and other obligations of
Old Clinic specifically set forth on Schedule 2.3(a) and incurred in
connection with the operation of the Practice arising in the ordinary
course of business consistent with past practices and not incurred in
violation of any law or in breach of any duty existing as of the date
hereof; and
(b) The obligations or liabilities of Old Clinic that relate
to periods, events or circumstances occurring on or after the effective
date in, to and under the Personal Property Leases listed on Schedule
2.1(c), the Real Property Leases listed on Schedule 2.1(h) and the
Assumed Contracts listed on Schedule 2.1(d); provided, however, that (i)
each of such Personal Property Leases listed on Schedule 2.1(c), Real
Property Leases listed on Schedule
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2.1(h) and the Assumed Contracts listed on Schedule 2.1(d) shall be on
the same terms and conditions as are in effect prior to and on the
effective date, (ii) PTI shall assume no obligation or liability in, to
or under any such lease, agreement or order that is not included on the
Schedule 2.1(c), Schedule 2.1(h) or Schedule 2.1(d), and (iii) PTI shall
assume no obligation or liability in, to or under any illegal agreement,
lease or purchase order, or any other obligations, the performance of
which would be illegal.
Section 2.4 Purchase Price. PTI agrees that, subject to the terms and
conditions of this Asset Purchase Agreement, and in full consideration for the
aforesaid sale, transfer, conveyance, assignment and delivery of the Nonmedical
Assets to PTI, and the assumption of the Assumed Obligations by PTI, PTI shall
deliver to Old Clinic on the Closing Date an amount equal to the sum of
$130,000 plus the lesser of $250,000 or 90% of the scheduled value of the
Accounts Receivable as of the Closing Date ("Purchase Price"). Payment of such
cash amount may be made, at the election of PTI, by delivery of a PTI check or
by wire transfer to a bank account designated by Old Clinic.
Section 2.5 Tax Allocation. The Purchase Price plus the Assumed
Obligations constitute, for federal income tax purposes, the total
consideration paid by PTI for the Nonmedical Assets (the "Tax Consideration").
The Tax Consideration shall be allocated among the Nonmedical Assets in the
manner set forth on Schedule 2.5. The allocation set forth on Schedule 2.5 is
based on the fair market value of the assets acquired, and the allocation is
intended to be in compliance with Section 1060 of the Code. PTI and Old Clinic
agree to use the allocations in Schedule 2.5 in all tax returns or statements
filed with any taxing authority. PTI and Old Clinic agree to file timely the
applicable Forms 8594 attached to the Schedule 2.5 with their respective
federal income tax returns for the taxable year in which the Closing Date
occurs.
ARTICLE 3
REPRESENTATIONS OF THE PHYSICIAN PARTIES
Section 3.1 Representations of the Physician Parties. The Physician
Parties jointly and severally represent and warrant to PTI that:
(a) Title to Nonmedical Assets. Except as set forth on
Schedule 3.1(a), Old Clinic is the owner and has as of the date hereof,
good and marketable title to the Nonmedical Assets, free and clear of
any and all liens, charges, pledges, claims, security interests,
exceptions or other encumbrances of any kind.
(b) Inventory. Except as set forth on Schedule 3.1(c), to the
best of the Physician Parties' knowledge: (i) the Inventory is in its
originally manufactured condition, fit for the use which intended, free
from any known defect and in a quality and quantity usable in the
ordinary course of business; (ii) the Inventory does not contain
material amounts of items that are slow-moving, obsolete or of below-
standard quality; (iii) the qualities and quantities of Inventory are
reasonable and warranted in the present and anticipated circumstances of
the Practice; and (iv) there has been no decrease in the physical
Inventory since the Old Clinic Balance Sheet Date, other than in the
ordinary course of business.
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(c) Accounts Receivable. Except as set forth on Schedule
3.1(d), the Accounts Receivable are in the aggregate valid, binding and
legally enforceable obligations (except as enforcement may be limited by
any applicable bankruptcy, insolvency, reorganization or other laws
affecting creditor's rights generally or by general equitable remedies)
and are owned by Old Clinic free and clear of all liens and
encumbrances, and except for contractual allowances and reserves for bad
debts, in the aggregate will not be subject to any offset, counterclaim
or other adverse claim or defense, and may be sold and transferred to
PTI. The Accounts Receivable arose in the ordinary and usual course of
the business and the amounts stated on the books and records of Old
Clinic. No warranty is given that the Accounts Receivable are
collectable and any such warranty is expressly disclaimed and released.
(d) Tangible Personal Property. Except as set forth on
Schedule 3.1(e), the Tangible Personal Property is in good operating
condition, working order and repair (normal wear and tear excepted) and
is fully suitable for the uses for which it is employed in the conduct
of the Practice.
(e) Leases. With respect to each of the Real Property Leases
and Personal Property Leases, except as set forth on Schedule 3.1(f) and
Schedule 3.1(g):
(i) such lease is legal, valid, binding, enforceable
and in full force and effect;
(ii) such lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical
terms following the Closing;
(iii) no party to such lease is in material breach or
default, and no event has occurred that, with notice or lapse of
time, would constitute a material breach or default or permit
termination, modification or acceleration thereunder;
(iv) no party to such lease has repudiated in writing
any provision thereof;
(v) there are no disputes, oral agreements or
forbearance programs in effect as to such lease;
(vi) to the best of the Physician Parties' knowledge,
the owner of the property leased pursuant to such lease has good
and marketable title to such property free and clear of any
security interest, mortgage, easement, covenant or other
restriction, except for recorded easements, covenants or other
restrictions that do not impair current use, occupancy or value,
or the marketability of title of the property subject thereto;
and
(vii) Old Clinic has performed and satisfied in full each
material obligation to be performed by Old Clinic under such
lease.
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<PAGE> 64
(f) Contract Rights. Except as set forth on Schedule 3.1(g),
each of the Assumed Contracts is valid and enforceable and is in full
force and effect, and there is no material default or existing condition
that, with the giving of notice or the passage of time, would constitute
such a default by Old Clinic or by any parties thereto. Old Clinic has
performed and satisfied in full each material obligation required to be
performed by Old Clinic under each assumed contract. If services are to
be provided to Old Clinic under any such Assumed Contract, such services
have been and are being performed satisfactorily and timely,
substantially in accordance with terms of such Assumed Contract.
(g) Prepaid Items. Each of the Prepaid Items may be
transferred to PTI without the necessity of obtaining any consent or
approval.
(h) Accounts Payable. Each of the Accounts Payable was
incurred in the ordinary course of business of Old Clinic, may be
transferred to PTI and is due and payable in the ordinary course of
business of Old Clinic consistent with past practices.
(i) Completeness and Conditions of Assets. The Nonmedical
Assets, together with the Medical Assets, include all the properties
necessary to conduct the Practice as presently conducted and as proposed
to be conducted, and the Nonmedical Assets include all the properties
necessary to perform the Assumed Obligations.
ARTICLE 4
CLOSING
Section 4.1 Documents to be Delivered by Old Clinic. At the Closing,
pursuant to this Asset Purchase Agreement, Old Clinic shall deliver, or cause
to be delivered, to PTI the following:
(a) Bills of sale, endorsements, assignments, drafts, checks
or other instruments, as to all Nonmedical Assets, and any other
appropriate instruments in such reasonable or customary form as shall be
requested by PTI and its counsel and reasonably satisfactory to Old
Clinic and its counsel, including without limitation the General Bill of
Sale, Conveyance, Transfer and Assignment and Agreement Regarding
Assumption of Liabilities covering all the Nonmedical Assets and the
Assumed Obligations substantially in the form attached hereto as Exhibit
A;
(b) Evidence satisfactory to PTI that all liens, claims,
pledges, security interests and other encumbrances on the Nonmedical
Assets have been released;
(c) All consents to assignment or other documents contemplated
by the second paragraph of Section 2.1 hereof; and
(d) Such further certificates, schedules, exhibits or other
instruments as may be necessary to consummate the transactions herein
contemplated.
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<PAGE> 65
Section 4.2 Documents to be Delivered by PTI. At the Closing,
pursuant to this Asset Purchase Agreement, PTI shall deliver the following
appropriate instruments of assumption, as to all Assumed Obligations, and any
other appropriate instruments in such reasonable or customary form as shall be
requested by Old Clinic and its counsel and reasonably satisfactory to PTI and
its counsel, including without limitation the General Bill of Sale, Conveyance,
Transfer and Assignment, and Agreement Regarding Assumption of Liabilities
covering all the Nonmedical Assets and Assumed Obligations, substantially in the
form attached hereto as Exhibit A.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Indemnification. The liability of the partners hereto in
respect of a breach of a representation, warranty, covenant, indemnity or
agreement contained in or arising in connection with this Purchase Agreement
shall be governed by the terms of Article 10 of the Master Transaction
Agreement.
Section 5.2 Taxes. Old Clinic will pay all transfer taxes, sales and
other taxes and charges, if any, which may become payable in connection with
the transactions contemplated by the Transaction Documents.
Section 5.3 Remedies Not Exclusive. No remedy conferred by any of the
specific provisions of this Asset Purchase Agreement is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not constitute a
waiver of the right to pursue other available remedies.
Section 5.4 Parties Bound. Except to the extent otherwise expressly
provided herein, this Asset Purchase Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,
representatives, administrators, guardians, successors and assigns; and no
other person shall have any right, benefit or obligation hereunder.
Section 5.5 Choice of Law. This Asset Purchase Agreement shall be
construed, interpreted, and the rights of the parties determined in accordance
with, the laws of the State of Louisiana except with respect to matters of law
concerning the internal affairs of any corporate or partnership entity which is
a party to or the subject of this Asset Purchase Agreement, and as to those
matters the law of the state of incorporation or organization of the respective
entity shall govern. The Parties agrees that if a controversy or claim between
them arises out of or in relation to this Asset Purchase Agreement and results
in litigation, the courts of Terrebonne Parish, Louisiana and the courts of the
United States of America located in Terrebonne Parish, Louisiana shall have
jurisdiction to hear and decide such matter, and Old Clinic and PTI submit to
jurisdiction to such courts.
Section 5.6 Entire Agreement; Amendments and Waivers. This Asset
Purchase Agreement, together with the other Transaction Documents and all
Exhibits and Schedules hereto
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<PAGE> 66
and thereto, constitutes the entire agreement between the parties pertaining to
the subject matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof.
No supplement, modification or waiver of this Asset Purchase Agreement shall be
binding unless it shall be specifically designated to be a supplement,
modification or waiver of this Asset Purchase Agreement and shall be executed
in writing by the Party to be bound thereby. No waiver of any of the
provisions of this Asset Purchase Agreement shall be deemed or shall constitute
a waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Section 5.7 Reformation Clause. It is the intention of the parties
hereto to conform strictly to applicable laws regarding the practice and
regulation of medicine, whether such laws are now or hereafter in effect,
including the laws of the United States of America, the State of Louisiana or
any other applicable jurisdiction, and including any subsequent revisions to,
or judicial interpretations of, those laws, in each case to the extent they are
applicable to this Asset Purchase Agreement (the "Applicable Laws").
Accordingly, if the transfer of any Nonmedical Assets by Old Clinic or PTI
violates any Applicable Law, then the parties hereto agree as follows: (a) the
provisions of this Section 5.7 shall govern and control; (b) if neither of the
parties hereto is materially economically disadvantaged, then any Nonmedical
Asset, the transfer of which violates any Applicable Law, shall be deemed to
have never been transferred to PTI; (c) if one or more of the parties hereto is
materially economically disadvantaged, then the parties hereto agree to
negotiate in good faith such changes to the structure and terms of the
transactions provided for in this Asset Purchase Agreement as may be necessary
to make these transactions, as restructured, lawful under applicable laws and
regulations, without materially disadvantaging either party; (d) this Asset
Purchase Agreement shall be deemed reformed; and (e) the parties to this Asset
Purchase Agreement shall execute and deliver all documents or instruments
necessary to effect or evidence the provisions of this Section 5.7.
Section 5.8 Assignment. This Asset Purchase Agreement may not be
assigned by operation of law or otherwise except that PTI shall have the right
to assign this Asset Purchase Agreement, at any time, to any direct or indirect
wholly-owned subsidiary of PTI. No such assignment shall relieve PTI of its
obligations hereunder.
Section 5.9 Further Assurances. From time to time hereafter and
without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated by the Transaction Documents or as shall be reasonably necessary
or appropriate in connection with the carrying out of the parties' respective
obligations hereunder or the purposes of this Asset Purchase Agreement.
Section 5.10 Multiple Counterparts. This Asset Purchase Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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Section 5.11 Headings. The headings to the sections and schedules of
this Asset Purchase Agreement are inserted for convenience only and shall not
affect the meaning or interpretation of this Asset Purchase Agreement.
Section 5.12 Severability. Each article, subsection and lesser section
of this Asset Purchase Agreement constitutes a separate and direct undertaking,
covenant or provision hereof. In the event that any provision of this Asset
Purchase Agreement shall finally be determined to be unlawful, such provision
shall be deemed severed from this Asset Purchase Agreement, but every other
provision of this Asset Purchase Agreement shall remain in full force and
effect.
Section 5.13 Survival of Representations and Warranties. All
representations, warranties and indemnities made by the parties in this Asset
Purchase Agreement shall survive the Closing and shall thereafter terminate and
expire twenty-four (24) months after the closing Date, except that
representations, warranties and associated indemnities with respect to
environmental matters and tax matters shall survive for a period equal to the
respective statute of limitations applicable to any claim arising from or
attributable to such matters; provided, however, that notwithstanding the
foregoing, the rights and obligations with respect to indemnification as
provided in Article 10 of the Master Transaction Agreement shall continue with
respect to any matter for which indemnification has been properly sought
pursuant to the terms and conditions of this Asset Purchase Agreement and the
Master Transaction Agreement prior to the expiration of any such survival
period.
Section 5.14 Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Asset Purchase Agreement shall be sufficient in all respects if given in
writing and delivered in person, by telecopy, by overnight courier, or by
registered or certified mail, postage prepaid, return receipt requested, to the
receiving party at the address of the parties set forth in the Master
Transaction Agreement or to such other address as such party may have given to
the other party pursuant to this Section 5.14. Notice shall be deemed given on
the date of delivery, in the case of personal delivery or telecopy, or on the
delivery or refusal date, as specified on the return receipt, in the case of
overnight courier or registered or certified mail.
Section 5.15 Prorations. Old Clinic and PTI agree that all utility,
insurance, maintenance, operating and other similar expenses and ad valorem,
property and other taxes shall be divided or prorated between Old Clinic and
PTI based on their respective periods of ownership and occupancy through and
after the Closing Date.
Section 5.16 Commercial Reasonableness. The parties to this Asset
Purchase Agreement hereby agree that they shall perform their obligations
hereunder in a commercially reasonable manner.
(SIGNATURES ON FOLLOWING PAGE)
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A.D. WALKER, JR., (A.P.M.C.)
a Louisiana professional medical corporation
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
PHYSICIANS TRUST, INC.,
a Delaware corporation
By:
----------------------------------
Robert F. Strange, Jr., President
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EXHIBIT A
GENERAL BILL OF SALE, CONVEYANCE, TRANSFER AND ASSIGNMENT, AND AGREEMENT
REGARDING ASSUMPTION OF LIABILITIES
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SCHEDULE 2.1(b)
ACCOUNTS RECEIVABLE
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SCHEDULE 2.1(c)
PERSONAL PROPERTY LEASES
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SCHEDULE 2.1(d)
ASSUMED CONTRACTS
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SCHEDULE 2.1(e)
TANGIBLE PERSONAL PROPERTY
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SCHEDULE 2.1(g)
LICENSES
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SCHEDULE 2.1(h)
REAL PROPERTY LEASES
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SCHEDULE 2.2(e)
MEDICAL LICENSES
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SCHEDULE 2.3(a)
ACCOUNTS PAYABLE
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SCHEDULE 2.5
TAX ALLOCATION
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SCHEDULE 3.1(a)
TITLE EXCEPTIONS
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SCHEDULE 3.1(c)
INVENTORY EXCEPTIONS
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SCHEDULE 3.1(d)
ACCOUNTS RECEIVABLE EXCEPTIONS
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SCHEDULE 3.1(e)
TANGIBLE PERSONAL PROPERTY EXCEPTIONS
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SCHEDULE 3.1(f)
LEASE EXCEPTIONS
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SCHEDULE 3.1(g)
ASSUMED CONTRACT EXCEPTIONS
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MANAGEMENT SERVICES AGREEMENT
Dated as of the _________ day of ________, 1997
by and between
PHYSICIANS TRUST, INC.
and
BAYOU ORTHOPEDIC CENTER,
A PROFESSIONAL MEDICAL CORPORATION
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 3. Services to be Provided by Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1 Overall Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 General Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4 Acquisition and Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.5 Financial Planning and Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.6 Inventory and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.7 Advertising and Public Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.8 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.9 Provider and Payor Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.10 Quality Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.11 Other Consulting and Advisory Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.12 Events Excusing Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4. Obligations of the Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.1 Employment of Physician Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.2 Professional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3 Medical Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.4 Clinic's Internal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.5 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.7 Ancillary Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.8 Premises and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.9 Clinic Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 5. Joint Planning Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.1 Formation and Operation of the Joint Planning Board . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 6. Restrictive Covenants and Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.1 Restrictive Covenants of the Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.2 Restrictive Covenants and Liquidated Damages Provisions . . . . . . . . . . . . . . . . . . . . . 22
Section 6.3 Enforcement of Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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ARTICLE 7. Financial and Security Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.1 Service Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.2 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.3 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.4 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 8. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 9. Insurance and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.1 Insurance to be Maintained by the Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.2 Insurance to be Maintained by Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.3 Continuing Liability Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.4 Additional Insured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.6 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 10. Term and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.1 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.2 Extended Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.3 Termination by the Clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.4 Termination by Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.5 Effective Date of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.6 Purchase of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.7 Terms of Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.8 Exceptions to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.9 Effect Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 11. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.3 Waiver of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.4 Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.6 Contract Modifications for Prospective Legal Events . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.7 Parties In Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.11 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.12 Arbitration and Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.13 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.15 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
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Section 11.16 Reference to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.17 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.18 Inflation Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.20 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXHIBITS
7.4 Security Agreement
SCHEDULES
- ---------
3.3 Facilities
4.1 Physician Employment Agreement
4.3 Medical Practice
4.9(c) Clinic Plans
</TABLE>
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<PAGE> 89
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement"), dated as of
______________, 1997, is by and among Physicians Trust, Inc., a Delaware
corporation, ("PTI"), and its affiliates (collectively, "Administrator") and
Bayou Center Orthopedic Center, A Professional Medical Corporation, a
Louisiana professional medical corporation (the "Clinic").
WITNESSETH:
WHEREAS, the Clinic will conduct a medical orthopedic practice in the
Houma, Louisiana area and will provide professional orthopedic care and
products to the general public; and
WHEREAS, Administrator is in the business of owning certain assets of
medical clinics and providing consulting, administrative, and other support
services to and furnishing medical practices with the necessary facilities,
equipment, non-physician personnel, supplies and nonphysician support staff
services; and
WHEREAS, the Clinic desires to obtain the services of Administrator in
performing functions so as to permit the Clinic to devote its efforts on a
concentrated and continuous basis to the rendering of medical services to its
patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE 1.
Definitions
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following definitions shall apply:
(a) "Acquisition" shall mean the acquisition of assets
described in the Acquisition Agreements.
(b) "Acquisition Agreements" shall mean the Asset
Purchase Agreement of even date herewith by and between Administrator and
Clinic of even date herewith and the Master Transaction Agreement dated
_______, 1997, by and between Administrator, Clinic and certain physicians.
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(c) "Acquisition Consideration" shall mean the PTI
Common Stock and other consideration furnished pursuant to the Acquisition
Agreements by PTI in connection with the Acquisition.
(d) "Acquisition Effective Date" shall mean the date
the Acquisition is effective pursuant to the terms of the Acquisition
Agreements.
(e) "Adjustments" shall mean any adjustments
for uncollectible accounts, discounts, Medicare and Medicaid disallowances,
workers' compensation, employee/dependent health care benefit programs,
professional courtesies and other activities to the extent they do not generate
a collectible fee or offset a fee previously recorded.
(f) "Administrator Expense" shall mean,
pursuant to GAAP applied on a consistent basis:
(i) Any corporate overhead charges of
Administrator or PTI and other items incurred by
Administrator or PTI that are not incurred
specifically for the purpose of providing services
to the Clinic or are not directly attributable to
the Clinic as reasonably determined by
Administrator, including, without limitation,
salaries and benefits of executive officers of
Administrator or PTI, except as otherwise provided
for in the definition of Clinic Expenses.
(ii) Any amortization of any intangible
asset resulting from the Acquisition.
(iii) Any depreciation attributable to
increases in the book value of tangible depreciable
assets resulting from the Acquisition.
(iv) Any legal and accounting expenses
incurred by Administrator or PTI in connection with
the Acquisition.
(v) All taxes of Administrator,
including but not limited to state and federal
income taxes and franchise taxes, but excluding
state and federal employee taxes related to
employees who provide services for the Clinic,
property taxes on assets used by the Clinic and
other taxes specifically included in Clinic
Expenses.
(vi) Any other expenses specifically
included in "Administrator Expenses" in this
Agreement.
(g) "Affiliate" with respect to any person
shall mean a person that directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with,
such person. Neither Administrator nor the Clinic is deemed to be an Affiliate
of the other.
(h) "Ancillary Expenses" shall mean, pursuant
to GAAP applied on a consistent basis, all operating and non-operating expenses
of Administrator or PTI, without mark-up, incurred in the
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operation of Ancillary Services on behalf of the Clinic pursuant to this
Agreement, and all operating and non-operating expenses of the Clinic incurred
by the Clinic in the operation of Ancillary Services on behalf of the Clinic,
including, without limitation, all expenses normally included within the
definition of Clinic Expenses and specifically including all costs associated
with Technical Employees.
(i) "Ancillary Revenue" for any month shall
mean, all fees and income of the Clinic Administrator or PTI that, pursuant to
GAAP applied on a consistent basis, should be recorded each month (net of
Adjustments) by or on behalf of the Clinic from the provision of Ancillary
Services to the patients of the Clinic.
(j) "Ancillary Services" shall mean any and all
services, products or other fee generating activities provided to the patients
of the Clinic and not resulting from direct professional medical services or
incident to such professional medical services by Physician Employees of the
Clinic.
(k) "Clinic" shall include the Clinic as
defined in the first paragraph of this Agreement and all satellite locations
and related businesses of such Clinic.
(l) "Clinic Expenses" shall mean, pursuant to
GAAP applied-on a consistent basis, all operating and non-operating expenses of
Administrator or PTI, without mark-up, incurred in the operation of the Clinic
pursuant to this Agreement, and all operating and non-operating expenses of the
Clinic incurred by the Clinic in the operation of the Clinic, including,
without limitation:
(i) Salaries, benefits and other direct
costs of all employees of Administrator or PTI who
perform services for the Clinic, and all salaries
and benefits of Physician Employees (other than
Clinic Physician Stockholders) if approved by the
Joint Planning Board, including, without
limitation, federal and state employee taxes and
costs of workers' compensation.
(ii) Direct costs of all employees or
consultants of Administrator and its Affiliates
engaged to provide services at or in connection
with the Clinic or who actually provide services at
or in connection with the Clinic for improved
performance, such as quality assurance, materials
management, purchasing program, charge and coding
analysis, physician recruitment and business office
consultant provided, however, only the portion of
expenses related to such employee or consultant,
without mark-up, that is reasonably allocable to
work performed at or for the benefit of the Clinic
shall be included in Clinic Expenses.
(iii) The obligations of Administrator or
PTI under leases or subleases for assets which are
leased or utilized for the benefit of the Clinic,
including, without limitation, any subleases
between any Affiliates included in Administrator,
provided that the rent payable under such subleases
shall not exceed the rent payable by such
Affiliate.
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(iv) Personal and intangible property
taxes assessed against Administrator's or its
Affiliate's assets which are leases or utilized for
the benefit of the Clinic, commencing on the date
of this Agreement.
(v) Interest expense on indebtedness (1)
assumed by Administrator or PTI as a result of the
Acquisition or (2) incurred by Administrator or PTI
(a) to finance or refinance obligations incurred by
Administrator or PTI as a result of the Acquisition
(except in connection with any interest expense
accrued under promissory notes or other obligations
payable by PTI or Administrator to Clinic Physician
Stockholders under the Acquisition Agreements)
and/or (b) in connection with making advances and
capital available to the Clinic and in providing
other services pursuant to this Agreement, to the
extent such indebtedness exceeds the net
intercompany account balance of the Clinic, which
interest expense shall be the actual cost incurred
by Administrator or PTI in obtaining such funds.
(vi) Any provider tax assessed against
the Clinic by the State and any sales and use taxes
assessed against the Clinic related to Clinic
operations or assessed against Administrator
related to services provided hereunder.
(vii) Expenses related to professional
meetings, seminars, dues and professional licensing
fees related to the business of the Clinic.
(viii) All expenses specifically included
in "Clinic Expenses" in this Agreement.
(ix) All professional liability insurance
premiums and deductibles related thereto, and all
expenses, whether for premiums or otherwise,
related to life insurance for any Clinic Physician
Stockholder where the beneficiary thereof is the
Clinic or the Administrator.
(x) Other expenses reasonably incurred
by Administrator in providing reasonable services
for the direct benefit of the Clinic and in
carrying out its obligations under this Agreement.
Provided, however, that, notwithstanding anything contained herein,
Administrator Expenses, Ancillary Expenses and Excluded Clinic Expenses shall
not be included in Clinic Expenses.
(m) "Clinic Funds " shall indicate for the
relevant period an amount equal to Revenues less than the sum of Clinic
Expenses and the Service Fee.
(n) "Clinic Physicians " shall mean physicians
employed by the Clinic, including physicians who are stockholders of, partners
of, or members in the Clinic.
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(o)"Clinic Physician Stockholders" shall mean those Physician
Employees who own an interest, directly or indirectly, in the equity capital of
the Clinic.
(p) "Clinic Plan" shall have the meaning set forth in Section
4.9(a).
(q) "Clinic Related Liabilities" shall have the meaning set
forth in Section 10.6(b).
(r) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(s) "Confidential and Proprietary Information" shall have the
meaning set forth in Section 6.1(b).
(t) "Current Physician Restrictive Covenants" shall have the
meaning set forth in Section 6.2.
(u) "Designated Health Services" shall have the meaning
assigned to such term in Stark.
(v) "Dispute" shall have the meaning set forth in Section
11.12.
(w) "ERISA" shall have the meaning set forth in Section
4.9(c).
(x) "Excluded Clinic Expenses" shall mean, pursuant to GAAP
applied on a consistent basis, (i) any salaries or other distributions made to
Clinic Physicians, whether for professional fee income or otherwise, and any
expenses related thereto, including payroll and other taxes associated
therewith, (ii) any federal, state or other income taxes applicable to the
Clinic, (iii) any expenses, whether for premiums or otherwise, related to life
insurance for any Clinic Physician where the beneficiary thereof is not the
Clinic or the Administrator, (iv) all costs, expenses and liabilities incurred
by the Clinic or Administrator in excess of the limits of professional
liability insurance, (v) any expenses described in any Physician Employment
Agreement for any Clinic Physician, (vi) any contributions to any Clinic Plan
for the benefit of any Clinic Physician, and (vii) any other expenses
specifically included in "Excluded Clinic Expenses" in this Agreement.
(y) "Fair Market Value" shall mean, as to any assets, the fair
market value of such assets as agreed upon by the parties hereto, or in the
event that the parties hereto cannot agree to such value by ninety (90) days
prior to the Purchase Closing, the fair market value of such assets as
determined by an Independent Financial Expert selected by Administrator;
provided, however, that if the Clinic shall object to such determination within
ten (10) days after being notified thereof by Administrator, the Clinic shall
within such ten-day period select an Independent Financial Expert to determine
the fair market value of such assets; provided further, that in the event that
the Independent Financial Experts selected by Administrator and the Clinic
cannot agree on the fair market value of such assets, then the two Independent
Financial Experts shall mutually select a third Independent Financial Expert to
determine the fair market value of such assets and the value determined by such
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their Independent Financial Exert shall be binding on the parties hereto. Each
such Independent Financial Expert may use any customary and generally accepted
method of determining fair market values, and shall take into account the
effect of any liens, claims or encumbrances (other than those arising out
Clinic Related Liabilities) that may reasonably by expected to have an effect
on the value of such assets. The cost of any Independent Financial Experts
retained by any person hereunder shall be paid one-half by Administrator and
one-half by the Clinic.
(z) "Federal Health Care Program" shall mean (i) any plan or
program that provides health benefits, whether directly, through insurance, or
otherwise, which is funded directly, in whole or in part, by the United States
Government (except for the Federal Employee Health Benefit Program); and (ii)
certain state health care programs (e.g., Medicare, Champus, Medicaid, the
Maternal and Child Health Services Block Grant Program, and the Social Services
Block Grant Program).
(aa) "Future Physician Restrictive Covenants" shall have the
meaning set forth in Section 6.2.
(bb) "GAAP" shall mean generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and the Securities
and Exchange Commission or in such other statements by such other entity or
other practices and procedures as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination. For purposes of this Agreement, GAAP shall be applied on
an accrual basis in a manner consistent with the historic practices of the
person to which the term applies.
(cc) "Independent Financial Expert" shall mean any entity
regularly engaged in the business of evaluating assets of medical clinics and
associated businesses which does not (and whose directors, officers, employees,
Affiliates or stockholders do not) have a material direct or indirect financial
interest in Administrator or any of its Affiliates or in the Clinic or any of
its Affiliates, which has not been, and at the time it is called upon to give
independent financial advice to the parties hereto is not (and none of whose
directors, officers, employees, Affiliates or stockholders is) a promoter,
director or officer of Administrator or any of its Affiliates or of the Clinic
or of its Affiliates, and which does not provide any advice or opinions to
Administrator or the Clinic except as an Independent Financial Expert.
(dd) "IRS" shall mean the Internal Revenue Service.
(ee) "Joint Planning Board" shall mean a two (2) member joint
board established pursuant to Section 5.1.
(ff) "LD Causes of Action" shall have the meaning set forth in
Section 6.3(a).
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(gg) "Liquidated Damages" shall have the meaning set forth in
Section 6.3(a).
(hh) "Liquidated Damages Provisions" shall have the meaning set
forth in Section 6.2.
(ii) "Managed Care Contracts" shall have the meaning set forth
in Section 3.9.
(jj) "Managed Care Payors" shall have the meaning set forth in
Section 3.9.
(kk) "Medical Waste" includes, but is not limited to, (i)
pathological waste, (ii) blood, (iii) sharps, (iv) wastes from surgery or
autopsy, (v) dialysis waste, including contaminated disposable equipment and
supplies, (vi) cultures and stocks of infectious agents and associated
biological agents, (vii) contaminated animals, (viii) isolation wastes, (ix)
contaminated equipment, (x) laboratory waste, (xi) any substance, pollutant,
material, or contaminant listed or regulated under any Medial Waste Law, and
(xii) other biological waste and discarded materials contaminated with or
exposed to blood, excretion, or secretions from human beings or animals.
(ll) "Medical Waste Laws" shall mean the following, including
regulations promulgated and orders issued thereunder, all as may be amended
from time to time: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 651 et
seq., (v) the United States Department of Health and Human Services, National
Institute for Occupational Safety and Health, Infectious Waste Disposal
Guidelines, Publication No. 88-119, and (vi) any other federal, state,
regional, county, municipal or other local laws, regulations and ordinances
insofar as they purport to control Medical Waste, or impose requirements
relating to Medical Waste.
(mm) "Payment Date" shall have the meaning set forth in Section
7.2.
(nn) "Personal Property" shall have the meaning set forth in
Section 3.3(b).
(oo) "Physician Employment Agreement" shall mean the employment
agreement entered into of even date herewith between the Clinic and any Clinic
Physician whether on the date hereof or on any date hereafter during the term
of this Agreement and any extension thereof.
(pp) "Physician Employees" shall mean (i) those individuals who
are physicians employed by, or shareholders, members or partners of, the
Clinic, or who are otherwise under contract or associated with the Clinic to
provide professional medical services to patients of the Clinic, (ii) Physician
Extender Employees and (iii) Technical Employees.
(qq) "Physician Extender Employees" shall mean those
individuals who are employed by or otherwise under contract or associated with
the Clinic as nurse anesthetists, physicians assistants, nurse practitioners or
similar positions, or any position that generates a professional charge, but
shall not include Technical Employees.
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(rr) "Plans" shall have the meaning set forth in Section
4.9(a).
(ss) "Premises" shall mean the premises provided to the Clinic
pursuant to Section 3.3.
(tt) "PTI Common Stock" shall mean the common stock, par value
$0.001 per share, of PTI.
(uu) "PTI Group" shall mean Administrator, PTI, the Clinic and
their Affiliates and all professional associations or corporations or other
entities for which Administrator, PTI, or their Affiliates provide management
services.
(vv) "Purchase Assets" shall have the meaning set forth in
Section 10.6(a).
(ww) "Purchase Closing" shall have the meaning set forth in
Section 10.7.
(xx) "Purchase Notice" shall have the meaning set forth in
Section 10.6(b).
(yy) "Purchase Price" shall have the meaning set forth in
Section 10.7.
(zz) "Restrictive Covenants" shall mean the Current Physician
Restrictive Covenants and the Future Physician Restrictive Covenants.
(aaa) "Revenues" for any month shall mean all fees and income of
the Clinic that, pursuant to GAAP applied on a consistent basis, should be
recorded each month (net of Adjustments) by or on behalf of the Clinic,
including, without limitation, the fees generated as a result of professional
medical services furnished to patients by Physician Employees and other fees or
income generated in their capacity as professionals, whether rendered in an
inpatient or outpatient setting, including, but not limited to, medical
director fees or technical fees from medical ancillary services and consulting
fees, but shall not include (i) any income or revenue received by any Physician
Stockholder individually from the activities listed in Schedule A to the
applicable Physician Employment Agreement, (ii) liquidated damages received by
the Clinic or the Administrator pursuant to Section 6.2 or 6.3, or (iii)
Ancillary Revenues as defined herein.
(bbb) "Service Fee" shall have the meaning set forth in Section
7.1(b).
(ccc) "Stark" shall mean 42 U.S.C. Section 1395nn and all rules
and regulations promulgated thereunder, as such may be amended or revised from
time to time.
(ddd) "State" shall mean the State of Louisiana.
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(eee) "Tax Returns" shall include all federal, state, local,
franchise, property and other tax returns.
(fff) "Technical Employees" shall mean those individuals who are
employed by or otherwise under contract or associated with the Clinic as
technicians to provide services in the diagnostic areas of the Clinic's
practice, such as laboratory employees and radiology technicians.
(ggg) "Termination Date" shall have the meaning set forth in
Section 10.5.
(hhh) "Termination Notice" shall have the meaning set forth in
Section 10.5(a).
ARTICLE 2.
Relationship of the Parties
The Clinic and Administrator intend to act and perform as independent
contractors, and the provisions hereof are not intended to create any
partnership, joint venture, agency or employment relationship between the
parties. Administrator and the Clinic agree that the Clinic shall retain the
exclusive authority to direct the medical, professional, and ethical aspects of
its medical practice. Administrator shall neither exercise control over nor
interfere with the physician-patient relationships of the Clinic, which shall
be maintained strictly between the physicians of the Clinic and their patients.
The parties hereby agree that the benefits to the Clinic hereunder do not
require, are not payment for and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Administrator or any of its Affiliates to any of the
Clinic's patients in any facility or laboratory controlled, managed or operated
by Administrator.
ARTICLE 3.
Services to be Provided by Administrator
SECTION 3.1 OVERALL FUNCTION. Administrator shall provide or
arrange for the services set forth in this Article 3 and the costs, fees,
expenses and other disbursements incurred by Administrator or PTI in connection
therewith shall be included in Clinic Expenses, except to the extent such
costs, fees or expenses are Excluded Clinic Expenses or Administrator Expenses.
Administrator is authorized to perform its services hereunder as is necessary
or appropriate for the efficient operation of the Clinic, including, without
limitation performance of some of the business office functions at locations
other than the Clinic. The Clinic will not act in a manner which would prevent
Administrator from performing its duties hereunder and will provide such
information and assistance to Administrator as is reasonably required by
Administrator to perform its services hereunder. Administrator shall use its
best efforts to cause its employees to comply with all applicable federal,
state and local laws, rules and regulations in its provision of services
hereunder.
SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
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(a) The Clinic hereby engages Administrator to
serve as its exclusive manager and administrator of non-physician services
relating to the operation of the Clinic, subject to matters reserved for the
Clinic or referred to the Joint Planning Board as herein contemplated, and
Administrator shall have all necessary authority to perform such services. The
Clinic agrees that the purpose and intent of this Agreement is to relieve the
Physician Employees to the maximum extent possible of the administrative,
accounting, purchasing, non-physician personnel and other business aspects of
its practice. Administrator agrees that the Clinic and Physician Employees, and
only the Clinic and Physician Employees, will perform the medical functions of
its practice. Administrator shall have no authority, directly or indirectly, to
perform or supervise, and shall not perform or supervise, any medical function.
Administrator may, however, advise the Clinic as to the relationship between
its performance of medical functions and overall administrative and business
functions of its practice to the extent permitted by applicable law.
(b) Administrator shall, in the name of and on
behalf of the-Clinic, bill patients, insurance companies and other third-party
payors and collect the professional fees for medical services rendered by the
Clinic in the Clinic, for services performed outside the Clinic for its
hospitalized patients, and for other professional and Clinic services and
products. The Clinic hereby appoints Administrator for the term of this
Agreement to be its true and lawful attorney-in-fact for the following
purposes: (i) to bill patients, insurance companies and other third-party
payors in the Clinic's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in the Clinic's name and on its behalf,
(iii) to receive payments on behalf of the Clinic from insurance companies,
prepayments received from health care plans, Medicare, Medicaid and all other
third party payors; (iv) to take possession of and endorse in the name of the
Clinic (and/or in the name of an individual physician), such payments intended
for the purpose of payment of a physician's bill related to the Clinic, and
notes, checks, money orders, insurance payments and other instruments received
in payment of accounts receivable; and (v) to initiate the institution of legal
proceedings in the name of the Clinic or a Physician Employee to collect any
accounts and monies owed to the Clinic or the Physician Employee, to enforce
the rights of the Clinic or the Physician Employee as creditor under any
contract or in connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or their fiscal
intermediaries) as third-party payors. All monies shall be accounted for by
Administrator as being distinctly attributable to the Clinic. The Clinic may
perform the functions or exercise the rights set forth in this Section 3.2(b)
only with the consent of Administrator. The Clinic shall execute a Power of
Attorney in form and substance acceptable to the parties hereto in connection
with the rights and powers granted to Administrator pursuant to this Section
3.2(b). The Clinic shall cooperate with and at the request of Administrator
shall provide reasonable assistance to Administrator regarding the functions
set forth herein. In the performance of the services described in this Section
3.2(b), Administrator shall use commercially reasonable efforts to collect such
professional fees and still comply with all applicable managed care contracts
and all applicable laws, rules and regulations.
(c) Administrator shall supply to the Clinic
the ordinary, necessary or appropriate services for the efficient operation of
the Clinic, including without limitation, necessary clerical,
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accounting, purchasing, payroll, legal bookkeeping and computer services,
information management, preparation of Tax Returns, printing, postage and
duplication services and medical transcribing services; provided, however, that
the Clinic may elect to prepare its own Tax Returns, in which case, the cost of
preparing such Tax Returns in excess of $1,500 per annum shall be included in
Excluded Clinic Expenses. Administrator shall prepare monthly unaudited
financial statements for the Clinic containing a balance sheet and income
statement, which shall be delivered to the Clinic as soon as practicable, but
not later than forty-five (45) days after the end of each calendar month. The
Clinic may elect to have an audit conducted with respect to such financial
statements, in which case the cost of such audit shall be included in Excluded
Clinic Expenses.
(d) Administrator shall maintain all files and
records relating to the operation of the Clinic, including, but not limited to,
accounting, billing, collection and customary financial records and patient
files. The management of all files and records shall comply with all applicable
federal, state and local statutes and regulations, and all files and records
shall be located so that they are readily accessible for patient care,
consistent with ordinary records management practices. The Clinic shall
supervise the preparation of, and direct the contents of, patient medical
records, all of which shall remain confidential. All original patient records
contributed to the Clinic by the Clinic Physicians shall be and remain the
property of the Clinic and Administrator. All original patient records created
after the Acquisition Effective Date by the Clinic shall be and remain the
property of the Clinic. At such time as this Agreement expires or terminates,
(i) Administrator will provide the Clinic with the original patient records
that it owns, if any, (or true and complete copies thereof, if Administrator
shall be prevented by any applicable laws, regulations or accreditation
policies from providing the Clinic with the original records), of all
continuing patients of the Clinic, but subject to applicable laws, regulations
and accreditation policies, Administrator shall be permitted to retain true and
complete copies of such records (and shall retain the original records if, for
any of the foregoing reasons, it is prevented from providing them to the
Clinic), and (ii) subject to applicable laws, regulations and accreditation
policies, the Clinic will, if requested by Administrator, provide Administrator
with true and complete copies of the original patient records that it owns.
Administrator hereby agrees to preserve the confidentiality of such patient
medical records and to use the information in such records only for the limited
purposes necessary to perform management services, and, within the limits of
its responsibilities hereunder, to ensure that provision is made for
appropriate care for patients of the Clinic.
(e) Administrator shall take such action in the
name of and on behalf of the Clinic to collect fees and pay in a timely manner
all Clinic Expenses, except as otherwise agreed among Administrator and the
Clinic.
(f) Administrator shall, upon the terms and at
the times as mutually agreed by Administrator and the Clinic (but in no event
less frequently than monthly), distribute the Clinic Funds to the Clinic, with
appropriate adjustments made to reflect any Clinic Expenses paid by the Clinic
and not reimbursed by Administrator or Revenues collected or received by the
Clinic and not remitted to Administrator.
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SECTION 3.3 FACILITIES.
(a) Administrator shall make available to the
Clinic the premises that are described in Schedule 3.3 attached hereto (the
"Premises") and such other real property acquired (with the consent of the
Clinic) and improvements made by Administrator or PTI for the use of the Clinic
hereunder; provided, that in the event Administrator's rights to use any such
Premises shall terminate, Administrator shall use its best efforts to provide
other suitable premises to be used by the Clinic, which premises shall be
approved by the Clinic, such approval not to be unreasonably withheld.
Administrator shall obtain for the Clinic all utilities reasonably required in
connection with the use of the Premises and shall provide for the proper
cleanliness of the Premises, including normal janitorial services and refuse
disposal. Administrator shall maintain the Premises and make all necessary
repairs thereto.
(b) Administrator shall provide the Clinic with
the use of the equipment, furniture, fixtures, furnishings and other personal
property acquired by PTI in the Acquisition, together with such other
equipment, furniture, fixtures, furnishings and other personal property
acquired by Administrator or PTI for the use of Clinic pursuant to the terms
hereof (collectively, the "Personal Property"). Administrator shall maintain
the Personal Property and make necessary repairs thereto.
(c) All costs, fees, expenses and other
disbursements incurred by Administrator, PTI or the Clinic in connection with
the Premises and the Personal Property, including, without limitation, all
costs of repairs, maintenance and improvements, utility expenses (i.e.,
telephone, electric, gas and water), janitorial services, refuse disposal, real
or personal property lease cost payments and expenses, interest, principal and
other debt service or refinancing payments and expenses, depreciation, taxes
and casualty, liability and other insurance, shall be included in Clinic
Expenses, provided that depreciation and principal payments for the same assets
shall not both be included in Clinic Expenses.
(d) Nothing herein shall be construed as
precluding Administrator or PTI from selling, leasing or otherwise disposing of
all or any part of its real property, improvements, Personal Property,
tradenames, trademarks and other intangible property; provided that any such
disposition shall not eliminate or diminish Administrator's obligations
hereunder.
SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision
is made by the Clinic to employ additional physicians or acquire physician
groups or practices and if requested by the Clinic, Administrator may, in its
sole discretion, assist the Clinic in the identification and selection of
physicians or physician groups or practices that may be beneficial in providing
the services and products of the Clinic. In the event that a decision is made
by the Clinic to pursue the employment of selected physicians or the
acquisition of a particular physician group or practice, Administrator may, in
its sole discretion, if requested by the Clinic, provide recruiting,
consulting, negotiating and other services and may provide for legal,
accounting and other professional advisor services in connection with such
transaction. Nothing contained herein shall be construed to require
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Administrator to provide any capital, funds or other assistance to the Clinic
in connection with the employment of physicians or acquisition of physician
groups or practices by the Clinic.
SECTION 3.5 FINANCIAL PLANNING AND BUDGETING.
(a) Subject to the terms contained herein,
Administrator will make funds available for capital expenditures and
improvements by Administrator on behalf of the Clinic. Requests for
expenditures and improvement projects shall be prepared by the Joint Planning
Board in consultation with the Clinic and Administrator. All requests for
capital expenditures and improvements at the Clinic in excess of $5,000
individually and $15,000 in the aggregate for any calendar year must be
approved by the Board of Directors of PTI.
(b) Administrator shall consult with the Clinic
and the Joint Planning Board in the preparation of all annual capital and
operating budgets. Annual budgets shall be subject to the review, amendment and
approval or disapproval of the Board of Directors of Administrator (or a
committee designated by such Board of Directors) and the Clinic. In the event
Administrator and the Clinic can not reach agreement on such budgets, the next
previously agreed to budgets shall remain in effect with an adjustment to all
items not to exceed ten percent (10%).
SECTION 3.6 INVENTORY AND SUPPLIES. Administrator shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are requested by the Clinic and which the Clinic
shall reasonably determine to be necessary in the operation of the Clinic.
Supplies and inventory to be used directly in patient care and providing
medical services shall be of the type and quality specified by the Clinic. Such
inventory, supplies and other materials shall be included in Clinic Expenses at
their cost to PTI or Administrator, as the case may be.
SECTION 3.7 ADVERTISING AND PUBLIC RELATIONS. In consultation
with the Joint Planning Board and the Clinic, Administrator shall implement
(and design where requested) any appropriate local public relations or
advertising program on behalf of the Clinic, with appropriate emphasis on
public awareness of the availability of services at the Clinic. Prior to
publication or distribution of marketing or public relations material or
information, Administrator shall submit such material to the Clinic for its
review and approval. Administrator shall also design and implement all national
or other non-local public relations or advertising programs on behalf of the
Clinic, the cost of which shall be included in Administrator Expenses, except
to the extent such national programs are reasonably designed to replace or
supplement the marketing benefits derived from local public relations or
advertising programs, in which case, such costs will be included in Clinic
Expenses. The parties hereto agree that all public relations and advertising
programs shall be conducted in compliance with applicable standards of medical
ethics, laws and regulations.
SECTION 3.8 PERSONNEL. Except as specifically provided in
Section 5.1(b) of this Agreement, Administrator shall employ or otherwise
retain and shall be responsible for selecting, hiring, training, suspending,
and terminating, all management, administrative, clerical, secretarial,
bookkeeping, accounting, payroll, billing and collection and other
nonprofessional personnel as Administrator
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deems reasonably necessary and appropriate for Administrator's performance of
its duties and obligations under this Agreement. Consistent with reasonably
prudent personnel management policies, Administrator shall seek and consider
the advice, input, and requests of the Clinic in regard to personnel matters.
Administrator shall have sole responsibility for determining the salaries and
providing such fringe benefits, and for withholding, as required by law, any
sums for income tax, unemployment insurance, social security, or any other
withholding required by applicable law or governmental requirement.
SECTION 3.9 PROVIDER AND PAYOR RELATIONSHIPS. Administrator
shall provide financial and business assistance to the Clinic in the
negotiation, establishment, supervision and maintenance of contracts and
relationships (collectively, the "Managed Care Contracts") with all managed
care, institutional health care providers and payors, health maintenance
organizations, preferred provider organizations, exclusive provider
organizations, Medicare, Medicaid and other similar persons (collectively,
"Managed Care Payors"). Approval, disapproval, termination or amendment of any
contract or relationship with such Managed Care Payors and the Clinic shall be
the responsibility of the Clinic and the Joint Planning Board; provided,
however, that should a contract or relationship between any Managed Care Payor
and the Clinic involve or affect a contract or relationship between a Managed
Care Payor and an Affiliate of Administrator or PTI or a person or entity
serviced or managed by Administrator, PTI or an Affiliate of PTI and a
consensus among such affected Affiliates and serviced entities cannot be
reached regarding the contract or relationship, then the ultimate decision as
to the approval, disapproval, termination or amendment of the contract or the
relationship between such Affiliates and other affected or involved serviced
clinics and such Managed Care Payor, and such decision involving the Clinic and
such Managed Care Payor, shall be made by the Board of Directors of PTI.
SECTION 3.10 QUALITY ASSURANCE. Subject to Article 2,
Administrator shall assist the Clinic in fulfilling its obligations to its
patients to maintain a high quality of medical and professional services. Any
expenses that are related to the overall maintenance of Administrator's quality
assurance program shall be included in Administrator Expenses; provided,
however, that any expenses related to such program that are incurred for
services provided for the direct benefit of the Clinic shall be included in
Clinic Expenses.
SECTION 3.11 OTHER CONSULTING AND ADVISORY SERVICE.
Administrator will provide such consulting and other advisory services as
requested by the Clinic in all areas of the Clinic's business functions,
including, without limitation, financial planning, acquisition and expansion
strategies, development of long-term business objectives and other related
matters.
SECTION 3.12 EVENTS EXCUSING PERFORMANCE. In the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies or
other events over which Administrator has no control, Administrator shall not
be liable to the Clinic for failure to perform any of the services required
hereunder and the Clinic shall not have the right to terminate this Agreement
pursuant to Section 10.3(b), for so long as such events continue and for a
reasonable period of time thereafter; provided, however, that if such events
continue and Administrator is not able to perform any of the
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services required hereunder for a period of 120 consecutive days or more,
either Administrator or Clinic may terminate this Agreement by written notice
to the other.
ARTICLE 4.
Obligations of the Clinic
SECTION 4.1 EMPLOYMENT OF PHYSICIAN EMPLOYEES. The Clinic shall
have complete control of and responsibility for the hiring, compensation,
supervision, training, evaluation and termination of its Physician Employees,
although, at the request of the Clinic, Administrator and/or the Joint Planning
Board shall consult with the Clinic with respect to such matters. The Clinic
shall conduct an appropriate and reasonable due diligence review in connection
with the hiring of any physician or the acquisition of any physician group or
practice, and shall compensate such physician employees in amounts not to
exceed amounts which are reasonable and customary for physicians of comparable
skill and experience in the community where the Clinic is located. Each of the
Clinic Physician Stockholders shall enter into a Physician Employment Agreement
substantially in the form attached as Schedule 4.1, unless otherwise agreed to
by PTI. Although Administrator may provide payroll and other related services
to the Clinic, the Clinic shall be solely responsible for the payment of such
Physician Employees' salaries and wages, payroll taxes and all other taxes now
or hereafter applicable to their employment. The Clinic and its Physician
Employees shall not have any claim under this Agreement or otherwise against
Administrator or PTI for workers' compensation, unemployment compensation or
Social Security benefits, all of which shall be the sole responsibility of the
Clinic. The Clinic shall only employ or contract with licensed physicians or
other persons meeting applicable credentialing guidelines established by the
Clinic and approved by the Joint Planning Board. The Clinic shall cooperate in
the obtaining and retaining of professional liability insurance by ensuring
that its Physician Employees, and other employees who may have malpractice
exposure or liability, are insurable and by participating in an ongoing risk
management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Clinic shall provide
professional services to patients in compliance at all times with ethical
standards, laws, rules and regulations applicable to the operations of the
Clinic and the Physician Employees. The Clinic shall ensure that each Physician
Employee has all required licenses, credentials, approvals or other
certifications to perform his or her duties and services for the Clinic. In the
event that any disciplinary actions or medical malpractice actions are
initiated against any Physician Employee, the Clinic shall promptly inform
Administrator of such action and the underlying facts and circumstances. The
Clinic shall carry out a program to monitor the quality of medical care
practiced at the Clinic. The Clinic shall employ such Physician Employees as is
necessary to provide efficient medical care to patients of the Clinic.
SECTION 4.3 MEDICAL PRACTICES. The Clinic shall use and occupy
the Premises exclusively for the practice of medicine and for providing other
related services and products. Unless otherwise approved in writing by
Administrator, which approval shall not be unreasonably withheld, it is
expressly acknowledged by the parties hereto that the medical practice or
practices conducted at the Clinic shall be conducted solely by physicians
associated with the Clinic, and, except as set forth on
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Schedule 4.3, no other physician or medical practitioners shall be permitted to
use or occupy the Clinic. The Clinic shall be solely and exclusively in control
of all aspects of the practice of medicine and the delivery of medical services
at the Clinic's facilities and at such outpatient surgery center, acute care
hospitals and other facilities as the Clinic may deem appropriate from time to
time. The rendition of all medical professional services, including, but not
limited to, diagnosis, treatment, surgery, therapy, the prescription of
medicine and drugs, and the supervision and preparation of medical reports
shall be the sole responsibility of the Clinic. Administrator shall have no
authority whatsoever with respect to the establishment of fees or charges for
the rendition of such services. From time to time, the Clinic in its discretion
will adopt and implement fee schedules for non-prepaid patients which shall be
reasonable in relation to fees generally being obtained in the same or similar
market areas and for all rebillings and recovery items on prepaid Managed Care
Contracts which are authorized and permitted by such contracts, a copy of which
and each amendment thereto shall be provided to Administrator for review no
later than thirty (30) days prior to the proposed effective date thereof.
SECTION 4.4 CLINIC'S INTERNAL MATTERS. The Clinic shall be
responsible for matters involving its corporate governance, employees and
similar internal matters, including, but not limited to, preparation and the
contents of such reports to regulatory authorities governing the Clinic as the
Clinic is required by law to provide, distribution of professional fee income
among the Clinic Physician Stockholders, which will be included in Excluded
Clinic Expenses; provided, however, that such compensation shall be consistent
with the Physician Employment Agreements for each Clinic Physician Stockholder.
The costs incurred in connection with the foregoing matters shall be Clinic
Expenses.
SECTION 4.5 NAME. Administrator agrees that the Clinic shall be
entitled to use on a nonexclusive and nontransferable basis for the term of
this Agreement the names "Physicians Trust, Inc." and "PTI" as may be necessary
or appropriate in the performance of the Clinic's services and obligations
hereunder.
SECTION 4.6 COMPLIANCE WITH LAWS. The Clinic shall, and shall
use its best efforts to cause the Physician Employees, to comply with all
applicable federal, state and local laws, rules, regulations and restrictions
in the conduct of the Clinic's business. Without limiting the generality of the
foregoing, the Clinic shall comply, and shall use its best efforts to cause
each Physician Employee to comply with all Medical Waste Laws applicable to the
operation of the Clinic in the generation, transportation, treatment, storage,
disposal or other handling of Medical Waste (to the extent that the Clinic or
the Physician Employees engage in such activities), and the Clinic shall not,
and shall use its best efforts to forbid any Physician Employee to:
(a) enter into any contract, lease, agreement
or arrangement, including, but not limited to, any joint venture or consulting
agreement, to provide services, lease space, lease equipment or engage in any
other venture or activity with any physician, hospital, pharmacy, home health
agency or other person or entity which is in a position to make or influence
referrals to, or
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otherwise generate business for the Clinic, if such transaction is in violation
of any applicable law, rule or regulation;
(b) knowingly and wilfully make or cause to be
made a false statement or representation of a material fact in any application
for any benefit or payment;
(c) fail to disclose knowledge by a claimant of
the occurrence of any event affecting the initial or continued right to any
benefit or payment on its behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment;
(d) knowingly and willfully pay, solicit or
receive any remuneration (including any kickback, bribe or rebate), directly or
indirectly, overtly or covertly, in cash or in kind or offer 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 a Federal health care program, or
(ii) in return for purchasing, leasing, or ordering, or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by a Federal health care
program; and
(e) refer a patient for Designated Health
Services to, or provide Designated Health Services to a patient upon a referral
from, an entity or person with which the physician or an immediate family
member has a financial relationship, other than as permitted by exceptions set
forth in Stark.
SECTION 4.7 ANCILLARY OPERATIONS. The Clinic shall not acquire,
establish or commence the operation of any satellite location, medical office,
ambulatory surgery center, health maintenance organization, preferred provider
organization, exclusive provider organization or similar entity or organization
established or operated by the Clinic after the date hereof without the prior
written consent of Administrator, which consent shall not be unreasonably
withheld.
SECTION 4.8 PREMISES AND PERSONAL PROPERTY. The Clinic shall
use its best efforts to prevent damage, excessive wear and tear, and
malfunction or other breakdown of the Premises and Personal Property or any
part thereof by the Physician Employees. The Clinic shall promptly inform
Administrator in writing of any and all necessary replacements, repairs or
maintenance to any of the Premises or Personal Properly and any failures of
equipment of which it becomes aware. The Clinic shall comply with all of the
covenants and provisions set forth in any leases or subleases for the Premises
entered into or assumed by Administrator, and Administrator agrees to provide
copies of all such leases to the Clinic.
SECTION 4.9 CLINIC EMPLOYEE BENEFIT PLANS.
(a) Effective on the Acquisition Effective
Date, the Clinic shall amend the tax-qualified retirement plan(s) described on
Schedule 4.9(c) (the "Clinic Plan") to provide that employees of the
Administrator who are classified as "leased employees" (as defined in Code
Section
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414(n)) of the Clinic shall be treated as Clinic employees for purposes of
eligibility and participation in the Clinic Plan. Not less often than annually,
the Clinic and the Administrator shall agree upon and identify in writing those
individuals to be classified as leased employees of the Clinic (the "designated
leased employees"). The Clinic and the Administrator shall establish mutually
agreeable procedures with respect to the participation of designated leased
employees in the Clinic Plan. Such procedures shall be designed to avoid the
tax disqualifications of the Clinic Plan, similar plans of clinics similarly
situated, and any similar plan sponsored or maintained by the Administrator
from time to time (collectively, the "Plans").
(b) If the Joint Planning Board determines that
the relationship between the Administrator and the Clinic (and other clinics
similarly situated) constitutes an "affiliated service group" (as defined in
Code Section 414(m)), the Administrator and the Clinic shall take such actions
as may be necessary to avoid the tax disqualification of the Plans. Such
actions may include the amendment, freeze, termination or merger of the Clinic
Plan.
(c) The Plans described on Schedule 4.9(c)
attached hereto are approved by Administrator. The Clinic shall not enter into
any new "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Security Act ("ERISA") without the express written consent of
Administrator. The Clinic shall not offer any retirement benefits or make any
material retirement payments other than under the Clinic Plan to any Clinic
Physician Stockholder without the express written consent of Administrator.
Except as otherwise required by law, the Clinic shall not materially amend,
freeze, terminate or merge the Clinic Plan without the express written consent
of Administrator. In the event of either of the foregoing, the Administrator's
consent shall not be withheld if such action would not jeopardize the
qualification of any of the Plans. The Clinic agrees to make such changes to
the Clinic Plan, including the freezing, termination, or merger of the Clinic
Plan, as may be approved by the Joint Planning Board and the Administrator, but
only if such changes are necessary to prevent the disqualification of any of
the Plans.
(d) Expenses incurred in connection with the
Clinic Plan or other Clinic employee benefit plans, including without
limitation the compensation of counsel, accountants, corporate trustees, and
other agents shall be included in Clinic Expenses.
(e) The employee benefit plan contribution and
administration expenses for the Physician Employees shall be included in the
Clinic's operating budget. The Clinic and the Administrator shall not make
employee benefit plan contributions or payments to the Clinic for their
respective employees in excess of such budgeted amounts unless required by law
or the terms of the Clinic Plan. The Administrator shall make contributions or
payments with respect to the Clinic Plan or other Clinic employee benefit
plans, as a Clinic Expense, on behalf of eligible Physician Employees (other
than Clinic Physicians), designated leased employees, and other eligible Clinic
employees. Clinic Physicians shall make contributions to the Clinic Plan as an
Excluded Clinic Expense. In the event the Clinic Plan or other Clinic employee
benefit is terminated, the Administrator shall be responsible, as a Clinic
Expense, for any funding liabilities related to eligible
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Physician Employees (other than Clinic Physicians), designated leased
employees, or other eligible Clinic employees.
(f) The Administrator shall have the sole and
exclusive authority to adopt, amend, or terminate any employee benefit plan for
the benefit of its employees, regardless of whether such employees are
designated leased employees, unless such actions would require the amendment,
freeze or termination of the Clinic Plan to avoid disqualification of the
Clinic Plan, in which case any such action would be subject to the express
prior written consent of the Joint Planning Board. The Administrator shall have
the sole and exclusive authority to appoint the trustee, custodian and
administrator of any such plan.
(g) From and after the Acquisition Effective
Date, the Clinic's employees and designated leased employees shall receive
credit for prior service with the Clinic's predecessor for vesting and
eligibility purposes under the Clinic Plan, but only to the extent such service
was actually recognized under the Clinic Plan immediately prior to the
Acquisition Effective Date.
(h) In the event that any "employee welfare
benefit plan" (as defined in ERISA Section 3(1)) maintained or sponsored by the
Clinic must be amended, terminated, modified, or changed as a result of the
Clinic and Administrator being deemed to be a part of an affiliated service
group, the Joint Planning Board will replace such plan or plans with a plan or
plans that provides those benefits approved by the Joint Planning Board. It
shall be the goal of the Joint Planning Board in such event to provide
substantially similar or comparable benefits if the same can be provided at a
substantially similar cost to the replaced plan.
ARTICLE 5.
Joint Planning Board
SECTION 5.1 FORMATION AND OPERATION OF THE JOINT PLANNING BOARD.
(a) The parties hereto shall establish a Joint
Planning Board which shall be responsible for developing long term strategic
planning objectives and management policies for the overall operation of the
Clinic and shall facilitate communication and interaction between Administrator
and the Clinic. The Joint Planning Board shall consist of two (2) members.
ClinicAdministrator shall designate, in its sole discretion, one (1) member of
the Joint Planning Board which member shall be an employee of PTI or the
Administrator. The Clinic shall designate, in its sole discretion, one (1)
member of the Joint Planning Board which member shall be a Clinic Physician of
the Clinic. Either party may change its designated Joint Planning Board member
at any time, with thirty (30) days advanced written notice to the other party.
The act of a majority of the members of the Joint Planning Board shall be the
act of the Joint Planning Board.
(b) The Joint Planning Board shall, in addition
to the responsibilities set forth elsewhere in this Agreement, have the
authority to (i) develop and assist the Clinic in implementing
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long-term strategic objectives, (ii) prepare proposals and make recommendations
to the Board of Directors of PTI regarding significant capital expenditures,
capital improvement and expansion projects on behalf of the Clinic, (iii) with
assistance of Administrator, prepare the annual capital and operating budgets
of the Clinic, (iv) consider and make recommendations regarding grievances
pertaining to matters not specifically addressed in this Agreement if such
matters are referred to it by the Clinic or Administrator, (v) make
recommendations to the Clinic regarding the number and type of physicians
required for the efficient operation of the Clinic, and (vi) make decisions and
recommendations regarding the Clinic Plan. Subject to Sections 3.4 and 4.1,
decisions regarding the hiring or firing of physicians shall be made solely by
the Clinic.
ARTICLE 6.
Restrictive Covenants and Liquidated Damages
The parties recognize that the services provided by Administrator
hereunder shall be feasible only if the Clinic operates an active medical
practice to which the physicians associated with the Clinic devote their full
business time and attention. Accordingly, the parties hereto agree as follows:
SECTION 6.1 RESTRICTIVE COVENANTS OF THE CLINIC.
(a) During the term of this Agreement and for a
period of one year thereafter, the Clinic shall not, without the prior written
consent of Administrator, (i) establish, operate or provide physician services
at any medical office, clinic or other health care facility providing services
similar to those provided by the Clinic, or (ii) engage or participate in any
business which engages in competition with the business conducted by PTI Group,
in either case, anywhere within 25 miles of any location of the PTI Group other
than locations of the Clinic existing on the date hereof.
(b) The Clinic recognizes the proprietary
interest of PTI Group in any Confidential and Proprietary Information (as
hereinafter defined) of PTI Group. The Clinic acknowledges and agrees that any
and all Confidential and Proprietary Information communications learned of,
developed or otherwise acquired by the Clinic during the term of this Agreement
shall be the property of PTI Group. The Clinic further acknowledges and
understands that its disclosure of any Confidential and Proprietary Information
will result in irreparable injury and damage to PTI Group. As used herein,
"Confidential and Proprietary Information" means all trade secrets and other
confidential and/or proprietary information of PTI Group, including information
derived from reports, investigations, research, work in progress, codes,
marketing and sales programs, financial projections, cost summaries, pricing
formula, contracts analyses, financial information, projections, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information (other than the
Clinic's original patient records) prepared or performed for, by or on behalf
of PTI Group by its employees, officers, directors, agents, representatives, or
consultants.
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(c) The Clinic acknowledges and agrees that PTI
Group is entitled to prevent the disclosure of Confidential and Proprietary
Information. The Clinic agrees that at all times during the term of this
Agreement and forever thereafter to hold in strictest confidence and not to
disclose to any person, firm or corporation, other than to Physician Employees
and persons engaged by Administrator to further the business of the Clinic, and
not to use except in the pursuit of the business of PTI Group, Confidential and
Proprietary Information, without the prior written consent of Administrator,
unless (i) such information becomes known or available to the public generally
through no wrongful act of the Clinic or its employees, (ii) disclosure is
required by law or the rule, regulation or order of any governmental authority
under color of law, provided, that prior to disclosing any Confidential and
Proprietary Information pursuant to this clause (ii), the Clinic shall, if
possible, give prior written notice thereof to the Administrator and provide
Administrator with the opportunity to contest such disclosure, or (iii) the
Clinic reasonably believes that such disclosure is required in connection with
a lawsuit to which the Clinic is a party.
(d) In the event of any termination of this
Agreement for any reason whatsoever, or at any time upon the request of
Administrator, the Clinic will promptly deliver to Administrator all documents,
data and other information in the Clinic's possession that contains any
Confidential and Proprietary Information. The Clinic shall not take or retain
any documents or other information, or any reproduction or excerpt thereof,
containing any Confidential and Proprietary Information, unless otherwise
authorized in writing by Administrator.
(e) In the event of any termination of this
Agreement for any reason whatsoever, or at any time upon the request of the
Clinic, the Administrator will promptly deliver to the Clinic all documents,
data and other information pertaining to trade secrets or other confidential
and/or proprietary information of the Clinic, unless such documents, data or
information is necessary for Administrator to perform its services hereunder,
in which case Administrator shall be able to retain such data or information
and shall furnish copies of such documents.
SECTION 6.2 RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
PROVISIONS. Each Physician Employment Agreement contains certain restrictive
covenants pertaining to covenants not to compete with and not to divulge the
confidential and proprietary information of Administrator and the Clinic ( the
"Current Physician Restrictive Covenants"). Each Physician Employment
Agreement contains certain provisions pertaining to the payment of liquidated
damages to the Clinic in certain cases of early termination of such Physician
Employment Agreement (the "Liquidated Damages Provisions"). During the term of
this Agreement, the Clinic shall not amend, alter or otherwise change any term
or provision of any Physician Employment Agreement without the prior written
consent of PTI. Following termination of this Agreement, the Clinic shall not
amend, alter or otherwise change any term or provision of the Restrictive
Covenants or Liquidated Damages Provisions ("Future Physician Restrictive
Covenants"), unless such provisions are no longer in force and effect pursuant
to the terms of the applicable Physician Employment Agreement at the time of
termination of this Agreement.
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SECTION 6.3 ENFORCEMENT OF PHYSICIAN EMPLOYMENT AGREEMENT.
(a) The Clinic hereby acknowledges that the
Acquisition Consideration and the terms and conditions of this Agreement were
determined based upon numerous factors, including the agreement of Clinic
Physician Stockholders to remain employed by the Clinic pursuant to the terms
of certain Physician Employment Agreements and to utilize the assets and
business overhead required to be provided by Administrator for a period of five
(5) years. Accordingly, in the event that the Clinic shall be entitled to any
liquidated damages (the "Liquidated Damages") pursuant to the terms of the
Liquidated Damages Provisions, (i) the Clinic shall pay to Administrator an
amount equal to such Liquidated Damages on the date such Liquidated Damages are
received by the Clinic or as otherwise provided in this Section 6.3(a), (ii) at
the request of Administrator, the Clinic shall assign to Administrator such
causes of action and/or other rights it has in connection with events and
actions giving rise to the Liquidated Damages (the "LD Causes of Action") and
shall cooperate with and provide reasonable assistance to Administrator with
respect to the pursuit of the LD Causes of Action by Administrator, and (iii)
at the request of Administrator, the Clinic shall seek any and all remedies at
law or in equity that it may have available to it in connection with the LD
Causes of Action. Administrator shall be entitled to receive all Liquidated
Damages and/or other damages or amounts recovered in connection with the LD
Causes of Action, which shall not be included in Revenues. The costs and
expenses incurred by the Clinic or Administrator in connection with pursuing
the LD Causes of Action shall be borne by Administrator and included in
Administrator Expenses. In the event that the Clinic has not initiated
proceedings to recover any Liquidated Damages due and owing to the Clinic
within sixty (60) days after a request by Administrator, the Clinic shall,
within five (5) days of a request by Administrator, pay to Administrator an
amount equal to such Liquidated Damages. In no event shall the payment by the
Clinic to Administrator of Liquidated Damages relieve the Clinic of its
obligation to assign the LD Causes of Action to Administrator, provided,
however, in the event that the Clinic pays Liquidated Damages to Administrator
pursuant to the immediately preceding sentence and the Clinic has assigned the
related LD Causes of Action to Administrator, Administrator shall prosecute
such LD Causes of Action and if Administrator recovers such Liquidated Damages,
Administrator shall reimburse the Clinic up to the amount paid to Administrator
by the Clinic out of any Liquidated Damages so recovered.
(b) The Clinic shall enforce the Physician
Employment Agreement, including, without limitation, the Restrictive Covenants.
Subject to Section 6.3(a) and the following sentence, the costs and expenses of
such enforcement shall be included in Clinic Expenses and all damages and other
amounts recovered thereby shall be included in Revenues. In the event that,
after a request by Administrator, the Clinic does not pursue any remedy that
may be available to it by reason of a breach or default of the Restrictive
Covenants or any other provision of the Physician Employment Agreements, upon
the request of Administrator, the Clinic shall assign to Administrator, such
causes of action and/or other rights it has with respect thereto; in which
case, all costs and expenses incurred in connection therewith shall be borne by
Administrator and shall be included in Administrator Expenses, and
Administrator shall be entitled to all damages and other amounts recovered
thereby.
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SECTION 6.4 REMEDIES. Administrator and the Clinic acknowledge
and agree that a remedy at law for any breach of the provisions of this Article
6 shall be inadequate, and therefore, either party shall be entitled to
specific performance and injunctive or other equitable relief in the event of
any such breach or attempted breach, in addition to any other rights or
remedies available to either party at law or in equity. Each party hereto
waives any requirement for the securing or posting of any bond in connection
with the obtaining of any such injunctive or other equitable relief. If any
provision of the Restrictive Covenants or this Article 6 relating to the
restrictive period, scope of activity restricted and/or the territory described
therein shall be declared by a court of competent jurisdiction to exceed the
maximum time period, scope of activity restricted or geographical area such
court deems reasonable and enforceable under applicable law, the time period,
scope of activity restricted and/or area of restriction held reasonable and
enforceable by the court shall thereafter be the restrictive period, scope of
activity restricted and/or the territory applicable to such provision of the
Restrictive Covenants or this Article 6. The invalidity or non-enforceability
of any provision of the Restrictive Covenants or this Article 6 in any respect
shall not affect the validity or enforceability of the remainder of the
Restrictive Covenants or this Article 6 or of any other provisions of this
Agreement.
ARTICLE 7.
Financial and Security Arrangements
SECTION 7.1 SERVICE FEES. The Clinic and Administrator agree
that the compensation set forth in this Article 7 is being paid to
Administrator in consideration of the services provided and the substantial
commitment and effort made by Administrator hereunder and any such fees have
been negotiated at arms' length and are fair, reasonable and consistent with
fair market value. Administrator shall be paid the following service fees:
(a) Management of Professional Services:
Administrator shall be reimbursed for the amount of all Clinic Expenses,
Excluded Clinic Expenses and Ancillary Expenses recorded by Administrator
pursuant to the terms of this Agreement;
(b) With respect to any period, Administrator
shall receive compensation equal to Revenues minus the sum of Clinic Expenses
and Excluded Clinic Expenses during such period; and
(c) Management of Ancillary Services: With
respect to any period, Administrator shall receive compensation equal to sixty
percent (60%) of the excess (if a positive number) of Ancillary Revenues over
Ancillary Expenses during such period.
SECTION 7.2 PAYMENTS. The amounts to be paid to Administrator
under this Article 7 shall be calculated by Administrator on the accrual basis
of accounting and shall be payable monthly. Payments due for each calendar
month shall be paid on the 15th day following the end of such month (or the
first preceding day that is a business day if the 15th day is not a business
day) (a "Payment Date"). Such amounts paid shall be estimates based upon
available information for such month,
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adjustments to the estimated payments shall be made to reconcile final amounts
due under Section 7.1 of the next Payment Date.
SECTION 7.3 REPAYMENT. Unless otherwise agreed to by
Administrator and the Clinic, the Clinic shall repay Administrator for any
amounts advanced to the Clinic to fund obligations of the Clinic as requested
by the Clinic on the first Payment Date following such advance. The Clinic
shall repay all indebtedness to Administrator in connection with funding for
capital expenditures or otherwise as agreed between the Clinic and
Administrator.
SECTION 7.4 SECURITY AGREEMENT. In order to enforce its rights
granted hereunder, the Clinic shall execute a Security Agreement in
substantially the form attached hereto as Exhibit 7.4 (the "Security
Agreement"), which Security Agreement grants a security interest in all of the
Clinic's accounts receivable (as more fully described in the Security
Agreement) to Administrator. In addition, the Clinic shall cooperate with
Administrator and execute all necessary documents in connection with the pledge
of such account receivable to Administrator or at Administrator's option, its
lenders. All collections in respect of such accounts receivable shall be
deposited in a bank account at a bank designated by Administrator. To the
extent that the Clinic comes into possession of any payments in respect of such
accounts receivable, the Clinic shall promptly remit such payments to
Administrator for deposit in bank accounts designated by Administrator.
ARTICLE 8.
Records
All records relating in any way to the operation of the Clinic (other
than original patient medical records contributed to the Clinic by the Clinic
Physician Stockholders and all original patients records created by the Clinic
after the Acquisition Effective Date) shall, subject to the obligations of the
Clinic to maintain patient medical records pursuant to Section 3.2(d), at all
times be the property of Administrator as set forth in Section 3.2(d). During
the term of this Agreement, and for a reasonable time thereafter, the Clinic or
its agents shall have reasonable access during normal business hours to the
Clinic's and Administrator's personnel and other financial records relating to
the Clinic, including, but not limited to, records of collections, expenses
with disbursements as kept by Administrator in performing Administrator's
obligations under this Agreements and the Clinic may copy any or all such
records.
ARTICLE 9.
Insurance and Indemnity
SECTION 9.1 INSURANCE TO BE MAINTAINED BY THE CLINIC. During
the term of this Agreement, the Clinic shall maintain comprehensive
professional liability insurance with such carrier as determined jointly by
Administrator and the Clinic, with limits per claim and per physician to be
agreed upon by Administrator and the Clinic and a separate limit of the Clinic
with such deductible
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as is mutually agreeable by Administrator and the Clinic. All malpractice
premiums and deductibles related thereto shall be included in Clinic Expenses.
All costs, expenses and liabilities incurred by the Clinic or Administrator in
excess of the limits of such policies shall be included in Excluded Clinic
Expenses.
SECTION 9.2 INSURANCE TO BE MAINTAINED BY ADMINISTRATOR. During
the term of this Agreement, Administrator will use commercially reasonable
efforts to provide and maintain, as a Clinic Expense, comprehensive
professional liability insurance for all professional employees of
Administrator, and comprehensive general liability and property insurance
covering the Clinic premises and operations with such limits or coverages as
may reasonably be determined to be appropriate by Administrator; provided that
Administrator must obtain the Clinic's approval in the event any such limits or
coverages are below the limits and coverages maintained as of the date of this
Agreement.
SECTION 9.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Clinic
shall obtain or require each of its Physician Employees to obtain comprehensive
liability insurance coverage under either a "tail policy" or a "prior acts
policy" with the same limits and deductibles as the insurance coverage provided
pursuant to Section 9.1, upon the termination of such physician's relationship
with the Clinic for any reason. In the event that neither the Clinic nor the
Physician Employee obtains such comprehensive liability insurance coverage,
Administrator may do so. The cost of such comprehensive liability insurance
coverage shall be included in Clinic Expenses unless such cost is borne by the
Physician Employee.
SECTION 9.4 ADDITIONAL INSURED. The Clinic and Administrator
agree to use their reasonable efforts to have each other named as an additional
insured on the other's respective professional liability insurance programs.
The additional cost, if any, associated therewith shall be a Clinic Expense.
SECTION 9.5 INDEMNIFICATION. The Clinic shall indemnify, defend
and hold Administrator, PTI and their respective officers, directors,
shareholders, employees, agents and consultants (other than such persons who
are also officers, directors, shareholders, employees, agents or consultants of
the Clinic) harmless, from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees), not covered by insurance (including self-insured insurance and
reserves), whenever arising or incurred, that are caused or asserted to have
been caused, directly or indirectly, by or as a result of the performance of
medical services or the performance of any intentional acts, negligent acts or
omissions by the Clinic and/or its shareholders, employees and/or
subcontractors (other than Administrator, PTI or their employees) during the
term of this Agreement. Administrator and PTI shall indemnify, defend and hold
the Clinic and its officers, shareholders, directors, employees, agents and
consultants harmless from and against any and all liabilities, losses, damages,
claims, causes of action and expenses (including reasonable attorneys' fees),
not covered by insurance (including self-insured insurance and reserves),
whenever arising or incurred, that are caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts or omissions by Administrator and/or its
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shareholders, employees and/or subcontractors (other than the Clinic or its
employees) during the term of this Agreement.
SECTION 9.6 GUARANTY. PTI hereby guarantees, absolutely and
unconditionally, the prompt performance by Administrator of all of its
obligations due to the Clinic under this Agreement.
ARTICLE 10.
Term and Termination
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence
on the date hereof and shall expire on the 40th anniversary hereof unless
earlier terminated pursuant to the terms of either Section 10.3 or Section 10.4
or automatically extended pursuant to the terms of Section 10.2
SECTION 10.2 EXTENDED TERM. Unless earlier terminated as
provided for in either Section 10.3 or Section 10.4, the term of this Agreement
shall be automatically extended for additional terms of five (5) years each,
unless either party delivers to the other party, not less than twelve (12)
months nor earlier than fifteen (15) months prior to the expiration of the
preceding term, written notice of such party's intention not to extend the term
of this Agreement.
SECTION 10.3 TERMINATION BY THE CLINIC. The Clinic may
terminate this Agreement by giving written notice thereof to Administrator
(after the giving of any required notices and the expiration of any applicable
waiting periods set forth below) upon the occurrence of any of the following
events:
(a) Administrator or PTI shall admit in writing
its inability to generally pay its debts when due, apply for or consent to the
appointment of a receiver, trustee or liquidator of all or substantially all of
its assets, file a petition in bankruptcy or make an assignment for the benefit
of creditors, or upon other action taken or suffered by Administrator or PTI,
voluntarily or involuntarily, under any federal or state law for the benefit of
creditors, except for the filing of a petition in involuntary bankruptcy
against Administrator or PTI which is dismissed within sixty (60) days
thereafter.
(b) Administrator or PTI shall default in the
performance of any material duty or material obligation imposed upon it by this
Agreement and such default shall continue for a period of sixty (60) days after
written notice thereof has been given to Administrator by the Clinic, provided
that the Clinic may terminate this Agreement, if and only if, such termination
shall have been approved by the affirmative vote of the holders of two-thirds
of the interest of the equity holders of the Clinic.
(c) A law firm with nationally recognized
expertise in health care law and acceptable to the parties hereto renders an
opinion to the parties hereto that (i) a material provision of this Agreement
is in violation of applicable law or any court or regulatory agency enters an
order finding
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a material provision of this Agreement is in violation of applicable law and
(ii) this Agreement can not be amended pursuant to Section 11.6 hereof to cure
such violation.
(d) A default by PTI or its affiliates in the
performance of any material duty or material obligation imposed upon it by the
Master Transaction Agreement or any greement executed pursuant thereto, which
default shall continue for a period of sixty (60) days after written notice has
been given to PTI by the Clinic.
SECTION 10.4 TERMINATION BY ADMINISTRATOR. Administrator may
terminate this Agreement by giving written notice thereof to the Clinic (after
the giving of and required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any of the following events:
(a) The Clinic shall admit in writing its
inability to generally pay its debts when due, apply for or consent to the
appointment of a receiver, trustee or liquidator of all or substantially all of
its assets, file a petition in bankruptcy or make an assignment for the benefit
of creditors, or upon other action taken or suffered by the Clinic, voluntarily
or involuntarily, under any federal or state law for the benefit of debtors,
except for the filing of a petition in involuntary bankruptcy against the
Clinic which is dismissed within sixty (60) days thereafter.
(b) The Clinic shall default in the performance
of any material duty or material obligation imposed upon it by this Agreement,
and such default shall continue for a period of sixty (60) days after written
notice thereof has been given to the Clinic by Administrator.
(c) A law firm with nationally recognized
expertise in health care law and acceptable to the parties hereto renders an
opinion to the parties hereto that (i) a material provision of this Agreement
is in violation of applicable law or any court or regulatory agency enters an
order finding a material provision of this Agreement is in violation of
applicable law and (ii) this Agreement can not be amended pursuant to Section
11.6 hereof to cure such violation.
(d) The Clinic or any Physician Employee (i)
engages in any conduct or is formally accused of conduct for which the
Physician Employees' license to practice medicine reasonably would be expected
to be subject to revocation or suspension, whether or not actually revoked or
suspended, or (ii) is otherwise disciplined by any licensing, regulatory or
professional entity or institution, the result of any of which event described
in clause (i) or (ii) does or reasonably would be expected to materially
adversely affect the Clinic.
SECTION 10.5 EFFECTIVE DATE OF TERMINATION. Any termination of
this Agreement shall be effective (the "Termination Date") as follows:
(a) Immediately upon receipt of a termination
notice pursuant to Section 10.3, Section 10.4 or Section 3.12 (a "Termination
Notice"); or
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(b) Upon the expiration of this Agreement
pursuant to Section 10.1 and 10.2.
SECTION 10.6 PURCHASE OF ASSETS. Upon the termination of this
Agreement, subject to the provisions set forth below, the Clinic shall have the
option to, and Administrator shall have the option to require the Clinic to:
(a) Purchase from Administrator or its
Affiliates, as the case may be, at Fair Market Value, all tangible assets of
Administrator or its Affiliates that relate primarily to the Clinic, other than
Administrator's or its Affiliates' accounting and financial records (the
"Purchase Assets"), including, but not limited to, without duplication, (i) all
equipment, furniture, fixtures, furnishings, inventory, supplies, improvements,
additions and leasehold improvements utilized by the Clinic, (ii) any real
estate owned by Administrator or its Affiliates that is occupied by or used for
the benefit of the Clinic, and (iii) all other tangible assets that would be
set forth on a balance sheet of Administrator or its Affiliates prepared as of
the date of the Purchase Closing relating primarily to the Clinic; and
(b) Assume all of the Administrator's and
Affiliates' liabilities, debt, payables and other obligations (including lease
and other contractual obligations), or portions thereof, which relate directly
or are directly attributable to the Clinic ( the "Clinic Related Liabilities").
The Clinic shall be able to exercise its option under this Section
(unless this Agreement is terminated pursuant to either Section 10.4(a),
10.4(b) or 10.4(d)) and Administrator shall be able to exercise its option
under this Section (unless this Agreement is terminated pursuant to either
Section 10.3(a) or 10.3(b) or 10.3(d)) (i) until the one-year anniversary of
the date of termination if this Agreement is not terminated pursuant to either
Section 10.3(b), 10.3(d) or 10.4(b) and (ii) immediately if this Agreement is
terminated pursuant to Section 10.3(b), 10.3(d) or 10.4(b), by giving written
notice to the other party as required (the "Purchase Notice") on or prior to
ninety (90) days before the Termination Date if this Agreement is terminated
pursuant to Sections 10.1 and 10.2. In connection with the purchase and sale of
the Purchase Assets pursuant to this Section 10.6, Administrator shall use its
commercially reasonable efforts to cause the Purchase Assets to be conveyed
free of any lien, claim or encumbrance, other than those arising out of the
Clinic Related Liabilities.
SECTION 10.7 TERMS OF PURCHASE. The closing of the transaction
contemplated by Section 10.6 (the "Purchase Closing") shall occur (a) on the
Termination Date if this Agreement expires pursuant to the terms of Sections
10.1 and 10.2, or (b) on a date mutually acceptable to the parties hereto that
shall be within 180 days after receipt of a Termination Notice (or such later
date as is necessary for Administrator to obtain lessor consents to the
assignment to the Clinic of leases of real and personal property to be assumed
by the Clinic). Subject to the conditions set forth below, at the Purchase
Closing, Administrator and/or its Affiliates, as the case may be, shall
transfer and assign the Purchase Assets to the Clinic, and in consideration
therefor, the Clinic shall (a) pay to Administrator an amount in cash or, at
the option of the Clinic (subject to the conditions set forth below), PTI
Common Stock (valued at the last reported sale price of PTI Common Stock on the
New York Stock Exchange or other exchange including the NASDAQ Stock Market, on
which the PTI
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Common Stock is then listed or the last quoted ask price on any
over-the-counter market through which the PTI Common Stock is then quoted on
the last mailing day immediately preceding the Purchase Closing), or some
combination of cash and PTI Common Stock equal to the Fair Market Value of the
Purchase Assets as of the Purchase Closing less an amount equal to the Clinic
Related Liabilities (the "Purchase Price") and (b) assume the Clinic Related
Liabilities. The Clinic may offset the Purchase Price by any amounts owed the
Clinic by Administrator under this Agreement. Each party shall execute such
documents or instruments as is reasonably necessary, in the opinion of each
party and its counsel, to effect the foregoing transactions. The Clinic shall
use its best efforts to cause each shareholder of the Clinic to execute such
documents or instruments as may be necessary to cause the Clinic to assume the
Clinic Related Liabilities and to release Administrator and/or its Affiliates,
as the case may be, from any liability or obligation with respect thereto. In
the event the Clinic desires to pay all or a portion of the Purchase Price in
shares of PTI Common Stock, such transaction shall be subject to the
satisfaction of each of the following conditions:
(a) The holders of such shares of PTI Common
Stock shall transfer to Administrator good, valid and marketable title to the
shares of PTI Common Stock, free and clear of all adverse claims, security
interests, liens, claims, proxies, options, stockholders' agreements and
encumbrances;
(b) The holders of such shares of PTI Common
Stock shall make such representations and warranties as to title to the stock,
absences of security interests, liens, claims, proxies, options, stockholders'
agreements and other encumbrances and other matters as reasonably requested by
Administrator; and
(c) All other terms and conditions of any such
proposed transaction and the effects thereof, including any legal or tax
consequences, shall be reasonably satisfactorily to Administrator.
SECTION 10.8 EXCEPTIONS TO PURCHASE. Notwithstanding anything
contained herein to the contrary, Administrator shall not be obligated to sell
the Purchase Assets to the Clinic if the Clinic is not able to pay the Purchase
Price pursuant to the terms set forth above and assume the Clinic Related
Liabilities at the Purchase Closing. In such event, the Clinic shall surrender
the Purchase Assets to Administrator as of the Purchase Closing. If the Clinic
fails to so surrender the Purchase Assets, Administrator may, without prejudice
to any other remedy which it may have hereunder or otherwise, enter the
Premises and take possession of the Purchase Assets and expel or remove the
Clinic and any other person who may be occupying the Premises or any part
thereof, by force if necessity, without being liable for prosecution or any
claim for damages therefor.
SECTION 10.9 EFFECT UPON TERMINATION. Upon the Termination
Date, this Agreement shall terminate and shall be of no further force and
effect; provided, however:
(a) Administrator and PTI shall use their best
efforts to cooperate with the Clinic for the appropriate transfer of management
services. Administrator shall not object to the employment
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by the Clinic of Administrator's or PTI's employees performing services solely
for the Clinic and located at the offices of the Clinic.
(b) Each party hereto shall provide the other
party with reasonable access to books and records owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it.
(c) On the Termination Date, the Clinic shall
(i) assign to Administrator, to the extent permitted by law, all accounts
receivable included in Revenues that have not been collected and have been
utilized and considered in the computation and payment of compensation to the
Clinic Physicians, and (ii) pay to Administrator an amount equal to such
accounts receivable (net of any related allowance for doubtful accounts
recorded in accordance with GAAP) that are not assigned to Administrator by the
Clinic. Any other amounts due and owing but unpaid to either Administrator or
the Clinic as of the Termination Date shall be paid promptly by the appropriate
party.
(d) Any and all covenants and obligations of
either party hereto which their terms or by reasonable implications are to be
performed, in whole or in part, after the termination of this Agreement, shall
survive such termination, including, without limitation, the obligations of the
parties pursuant to the following Sections: 6.1(b), 6.1(c), 6.1(d), 6.2, 6.3,
9.5, Article 7 and the applicable provisions of Article 11.
ARTICLE 11.
General Provisions
SECTION 11.1 ASSIGNMENT. Administrator shall have the right to
assign its rights hereunder without the consent of the Clinic to PTI or any
direct or indirect wholly-owned subsidiary of Administrator or PTI (that
remains a wholly-owned subsidiary of Administrator or PTI) so long as such
assignment does not create any material economic obligations hereunder. The
Clinic hereby agrees that Administrator has the right to grant a security
interest in its right to receive payments hereunder to any lending institution
from which Administrator or PTI obtains financing.
SECTION 11.2 AMENDMENTS. This Agreement shall not be modified
or amended except by a written document executed by both parties to this
Agreement, and such written modification(s) or amendment(s) shall be attached
hereto.
SECTION 11.3 WAIVER OF PROVISIONS. Any waiver of any terms and
conditions hereof must be in writing and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
SECTION 11.4 ADDITIONAL DOCUMENTS. Each of the parties hereto
agrees to execute any document or documents that may be requested from time to
time by the other party to implement or complete such party's obligations
pursuant to this Agreement.
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SECTION 11.5 ATTORNEYS' FEES. If legal action is commenced by
either party to enforce or defend its rights under this Agreement, the
prevailing party in such action shall be entitled to recover its costs and
reasonable attorneys' fees in addition to any other relief granted.
SECTION 11.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL
EVENTS. In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decisions, a regulatory agency or legal counsel in such a manner as to indicate
that this Agreement or any provision hereof may be in violation of such laws or
regulations, the Clinic and Administrator shall amend this Agreement as
necessary to preserve the underlying economic and financial arrangements
between the Clinic and Administrator and without substantial economic detriment
to either party. To the extent any act or service required of Administrator in
this Agreement should be construed or deemed, by any governmental authority,
agency or court, to constitute the practice of medicine, the performance of
said act or service by Administrator shall be deemed waived and forever
unenforceable and the provisions of this Section 11.6 shall be applicable.
Neither party shall claim or assert illegality as a defense to the enforcement
of this Agreement or any provision hereof, instead, any such purported
illegality shall be resolved pursuant to the terms of this Section 11.6 and
Section 11.9.
SECTION 11.7 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto.
Neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
SECTION 11.8 ENTIRE AGREEMENT. This Agreement and the
agreements contemplated hereby constitute the entire agreement of the parties
regarding the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 11.9 SEVERABILITY. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 11.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED
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AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES
GOVERNING CONFLICTS OF LAWS) OF THE STATE OF LOUISIANA.
SECTION 11.11 NO WAIVER; REMEDIES CUMULATIVE. No party hereto
shall by any act (except by written instrument pursuant to Section 11.3
hereof), delay, indulgence, omission or otherwise be deemed to have waived any
right or remedy hereunder or to have acquiesced in any default in or breach of
any of the terms and conditions hereof. No failure to exercise, nor any delay
in exercising, on the part of any party hereto, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
remedy set forth in this Agreement or otherwise conferred upon or reserved to
any part shall be considered exclusive of any other remedy available to any
party, but the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be deemed
expedient.
SECTION 11.12 ARBITRATION AND MEDIATION. The parties agree to
utilize the following procedure with regard to any contention or claim arising
out of or relating to this Agreement, or any breach thereof (a "Dispute");
provided, however, that the provisions in this Section 11.12. shall not be
applicable to any LD Cause of Action or other cause of action assigned to
Administrator pursuant to Section 6.3 or any Dispute or cause of action related
thereto. If any Dispute cannot be settled through direct discussions, the
parties hereto agree to endeavor first to resolve the Dispute through mediation
in accordance with Section 11.12(a). If the Dispute cannot be resolved through
such mediation, the parties hereto agree to resolve such Dispute by binding
arbitration in accordance with Section 11.12(b).
(a) Mediation.
(i) Initiation of Procedure. The initiating party
shall give written notice to the other party, describing
the nature of the Dispute and its claim for relief and
identifying one or more individuals with authority to
resolve the Dispute on such party's behalf. The other
party shall have five (5) business days from receipt of
such notice within which to designate in writing one or
more individuals with authority to resolve the Dispute on
such party's behalf.
(ii) Selection of Mediator. Within ten (10)
business days from the date of designation by the
noninitiating party, the parties shall make a good faith
effort to select a person to mediate the Dispute. If no
mediator has been selected under this procedure, the
parties shall jointly request the National Health Lawyers
Association Alternative Dispute Resolution service to
provide a list of qualified attorney-mediators. Within
five (5) business days of receipt of the list, the parties
shall rank the proposed mediators in numerical order of
preference, simultaneously exchange such list, and select
as the mediator the one who has the highest combined
ranking. If such mediator is not available
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to serve, they shall proceed to contact the mediator who
was next highest in ranking until they select a mediator.
(iii) Time and Place for Meditation; Parties
Represented. In consultation with the mediator selected,
the parties shall promptly designate a mutually convenient
time in Houma, Louisiana for the mediation, such time to
be no later than sixty (60) days after selection of the
mediator. In the mediation, each party shall be
represented by persons with authority and discretion to
negotiate a resolution of the Dispute, and may be
represented by counsel.
(iv) Conduct of Mediation. The mediator shall
determine the format for the meetings and the mediation
sessions shall be private. The mediator will keep
confidential all information learned in private causes
with any party unless specifically authorized by such
party to make disclosure of the information to the other
party. The parties agree that the mediation shall be
governed by the applicable statutes, rules and/or
regulations governing mediation in Houma, Louisiana.
(v) Fees of Mediator; Disqualification. The fees
and expenses of the mediator shall be shared equally by
the parties. The mediator shall be disqualified as a
witness, consultant, expert or counsel for any party with
respect to the Dispute and any related matters.
(vi) Confidentiality. Mediation is a compromise
negotiation for purposes of federal and state Rules of
Evidence that constitutes privileged communication under
Louisiana law. The entire mediation process is
confidential, and such conduct, statements, promises,
offers, views and opinions shall not be discoverable or
admissible in any proceeding for any purpose.
(b) Binding Arbitration.
(i) Following the close of any unsuccessful
mediation proceeding with respect to a Dispute, such
Dispute shall, at the written request of either party, be
finally determined and settled pursuant to arbitration in
Houma, Louisiana by three arbitrators, one to be appointed
by Administrator, and one by the Clinic, and a neutral
arbitrator to be appointed by such two party-appointed
arbitrators, The neutral arbitrator shall be an attorney
and act as chairman. Should (x) either party fail to
appoint an arbitrator as hereinabove contemplated within
ten (10) days after the party not requesting arbitration
has received such written request, or (y) the two
arbitrators appointed by or on behalf of the parties as
contemplated in this Section 11.12(b) fail to appoint a
neutral arbitrator as hereinabove contemplated within ten
(10) days after the date of the appointment of the last
arbitrator appointed by or on behalf of the parties, then
the National Health Lawyers Alternative Dispute Resolution
Service, upon application of Administrator or of the
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Clinic, shall appoint an arbitrator to fill such position
with the same force and effect as though such arbitrator
had been appointed as hereinabove contemplated.
(ii) The arbitration proceeding shall be conducted
in accordance with The Alternative Dispute Resolution
Rules of the National Health Lawyers Association. A
determination, award or other action shall be considered
the valid action of the arbitrators if supported by the
affirmative vote of two or three of the three arbitrators.
The costs of arbitration (exclusive of attending the
arbitration, and of the fees and expenses of legal counsel
to such party, all of which shall be borne by such party)
shall be shared equally by Administrator and the Clinic.
The arbitration award shall be final and conclusive and
shall receive full faith and credit and judgment upon such
award may be entered and enforced in any court of
competent jurisdiction.
SECTION 11.13 COMMUNICATIONS. The Clinic and the Administrator
agree that good communication between the parties is essential to the
successful performance of this Agreement, and each pledges to communicate fully
and clearly with the other on matters relating to the successful operation of
the Clinic.
SECTION 11.14 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 11.15 GENDER AND NUMBER. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
SECTION 11.16 REFERENCE TO AGREEMENT. Use of the words
"herein", "hereof", "hereto" and the like in this Agreement shall be construed
as references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 11.17 NOTICE. Whenever this Agreement requires or
permits any notice, request, or demand from one party to another, the notice,
request, or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram, facsimile or courier service, when actually received by the party to
whom notice is sent or (ii) if delivered by mail (whether actually received or
not), at the close of business on the third business day next following the day
when placed in the mail, postage prepaid, certified or registered, addressed to
the appropriate party of parties, at the address of such party set forth below
(or at such other address as such party may designate by written notice to all
other parties in accordance herewith):
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If to Administrator: Physicians Trust, Inc.
1900 West Loop South, Suite 890
Houston, Texas 77027
Attention: Robert F. Strange, Jr.
Telecopy: (713) 622-2227
With a copy to: Chamberlain, Hrdlicka, White,
Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
Attention: Robert J. Viguet, Jr.
Telecopy: (713) 658-2553
If to the Clinic: Bayou Orthopedic Center, A Professional Medical
Corporation
869 Verret Street
Houma, Louisiana 70361
Attention: A.D. Walker, Jr., M.D.
Telecopy:
With a copy to: Duval, Funderburk, Sundbery, Lovell, Reeves &
Watkins
101 Wilson Avenue
Houma, Louisiana 70361
Attention: Sidney C. Sundbery
Telecopy: (504) 851-1490
SECTION 11.18 INFLATION ADJUSTMENT. The dollar amounts
indicated in Sections 3.2(c) and 3.5(a) shall be adjusted annually for
inflation during the term of this Agreement based on the National Consumer
Price Index.
SECTION 11.19 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
SECTION 11.20 DEFINED TERMS. Terms used in the Exhibits
attached hereto with their initial letter capitalized and not otherwise defined
therein shall have the meanings assigned to such terms in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
Clinic:
Bayou Orthopedic Center,
A Professional Medical Corporation
By:__________________________________________
Name: _______________________________________
Title:_______________________________________
PTI/Administrator:
PHYSICIANS TRUST, INC.
By: _________________________________________
Name: Robert F. Strange, Jr.
Title: President
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EXHIBIT 7.4
SECURITY AGREEMENT
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SCHEDULE 3.3
FACILITIES
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SCHEDULE 4.1
PHYSICIAN EMPLOYMENT AGREEMENT
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SCHEDULE 4.3
MEDICAL PRACTICE
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SCHEDULE 4.9(C)
CLINIC PLANS
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THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
PHYSICIANS TRUST, INC.
$525,000
SUBORDINATED NON-NEGOTIABLE PROMISSORY NOTE, SERIES A.
This Promissory Note, issued to A.D. Walker, Jr., M.D. ("Holder"), is
a duly authorized Promissory Note of PHYSICIANS TRUST, INC., a Delaware
corporation (the "Company"), designated as its Subordinated Non-Negotiable
Promissory Note, Series A, (such note is herein referred to as the "Series A
Note" and all Subordinated Non-Negotiable Promissory Notes, Series A, shall be
referred to herein as "Series A Notes"), issued in connection with the
transactions contemplated by that certain Master Transaction Agreement, by and
among the Company, A.D. Walker, Jr., A.P.M.C. and A.D. Walker, Jr., M.D.,
dated as of ______________, 1997 (the "Master Transaction Agreement"). The
Company, for value received, hereby promises to pay to Holder, the principal
sum of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($525,000), together with
interest on the outstanding principal balance from day to day remaining at an
annual rate equal to seven percent (7%). Interest shall be calculated on the
basis of a 365-day year, or 366-day year, as appropriate, for the actual number
of days elapsed. Except as specifically noted hereafter, the term "Holder"
shall include any subsequent holders of this Series A Note whose names shall
appear in the register to be kept by the Company of the holders of its notes
(the "Note Register").
The unpaid principal amount of this Series A Note shall be due and
payable in three annual installments. The first two installments shall each be
in the amount of ONE HUNDRED SEVENTY-FIVE THOUSAND AND 00/100 DOLLARS
($175,000), payable on ___________, 2000 and on __________, 2001. The third
installment shall be in the amount of ONE HUNDRED SEVENTY-FIVE THOUSAND AND
00/100 DOLLARS ($175,000), payable on _____________, 2002. Interest on the
principal of this Series A Note shall be due and payable annually, commencing on
___________, and, continuing regularly and annually on the 1st day of each
_________ until maturity. Except as otherwise provided herein, all sums of
past-due principal shall bear interest
___________
Initialed for
1 of 8 Identification
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at the lesser of twelve percent (12%) per annum or the maximum rate of interest
permitted by applicable law. Payment of the principal of and interest on this
Series A Note will be made at the principal office of the Company in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
Article 1. Equal Rank. All of the Series A Notes rank equally and
ratably without priority over one another. All payments of interest on or
principal of the Series A Notes shall be made to the holders thereof, pro rata
according to the unpaid principal amount of the notes held by them.
Article 2. Subordination.
(a) This Series A Note, to the extent and in the manner
hereinafter set forth, shall be subordinated and subject in right of
payment to the prior payment in full of all principal of, premium, if
any, and interest on Senior Debt (as defined herein at Article 2,
subsection (f)).
(b) No payment on account of principal or interest on
this Series A Note shall be made if, at the time of such payment or
immediately after giving effect thereto, (i) there shall exist a
default in the payment of principal, premium, if any, or interest with
respect to any Senior Debt or (ii) there shall have occurred an event
of default (other than a default in the payment of principal, premium,
if any, or interest) with respect to any Senior Debt or in the
instruments or documents pursuant to which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and
such event of default shall not been cured or waived in writing by all
holders of Senior Debt; provided, that such payments may be made if
the holder or holders of Senior Debt have not accelerated the maturity
thereof within a period of 90 days following the date of such default
or event of default, as the case may be.
(c) Upon (i) any acceleration of the principal amount due
on this Series A Note pursuant to the terms hereof or (ii) any payment
or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to the creditors of the
Company upon any dissolution, winding up, total or partial liquidation
or reorganization of the Company (whether voluntary or involuntary) or
in bankruptcy, insolvency, receivership or other proceedings, all
principal, premium, if any, and interest due or to become due upon all
Senior Debt shall first be paid in full, or payment thereof provided
for in money or money's worth, before Holder shall be entitled to
retain any assets so paid or distributed in respect thereof (for
principal or interest); and upon any such dissolution, winding up,
liquidation or reorganization, any payment of distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to which Holder would be entitled, except for these
provisions, shall be paid by the Company to any
___________
Initialed for
2 of 8 Identification
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receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or distribution, or to the holders of
Senior Debt or their representatives, to the extent necessary to pay
all Senior Debt in full, in money or money's worth, after giving
effect to any concurrent payment or distribution to or for the holder
of such Senior Debt, before any payment or distribution is made to
Holder.
(d) In the event that, notwithstanding the provisions of
the preceding paragraph, any such payment, or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, shall be received by Holder before all Senior Debt is paid
in full, or provision made for such payment, in accordance with its
terms, any such payment or distribution shall be held in trust for,
and shall be paid over or delivered, to the holders of such Senior
Debt or their representative(s), or to the trustee(s) under any
indenture pursuant to which any instruments evidencing any of such
Senior Debt may have been issued, for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of
such Senior Debt. Holder shall have no liability whatsoever for
determining the order of priority among holders of Senior Debt, and
shall fully discharge its obligations pursuant to this Note if it pays
or delivers all amounts required to be paid or delivered pursuant
hereto to any holders of Senior Debt.
(e) Nothing contained in these provisions is intended to
or shall impair as between the Company, it creditors (other than the
holders of Senior Debt) and Holder, the obligation of the Company,
which shall, except as provided in Article 7, be absolute and
unconditional, to pay to Holder the principal, and interest on this
Series A Note, as and when the same shall become due and payable in
accordance with its terms, or to affect the relative rights of Holder
and creditors of the Company (other than the holders of Senior Debt)
nor shall anything herein prevent Holder from exercising all remedies
otherwise permitted by applicable law, upon default, subject to the
rights, if any, under these provisions of the holders of Senior Debt
in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
(f) Senior Debt, as defined in this Series A Note, shall
include: (i) all indebtedness of the Company for borrowed money or for
the deferred purchase price of property or services, excluding any
trade payables arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or
otherwise, of the Company in connection with any letters of credit or
acceptances issued under letter of credit facilities, acceptance
facilities or other similar facilities and in connection with any
agreement to purchase, redeem exchange, convert or otherwise acquire
for value any capital stock of the Company, or any warrants, rights or
options to acquire such capital stock, now or hereafter outstanding,
(ii) all obligations of the Company evidenced by
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bonds, notes, debentures, loan agreements, credit agreements, lines of
credit or other similar instruments, (iii) every obligation of the
Company issued or contracted for as payment in consideration of the
purchase by the Company or an affiliate of the Company of the capital
stock or substantially all of the assets of another person or in
consideration for the merger or consolidation with respect to which
the Company or an affiliate of the Company was a party, (iv) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by the
Company (even if the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or
sale of such property), but excluding trade payables arising in the
ordinary course of business, and (v) all obligations of the Company
under any capital lease of real or personal property that, in
accordance with generally accepted accounting principles, has been
recorded on the balance sheet of the Company as a capitalized lease
obligation; provided, however, that Senior Debt shall not include any
such indebtedness that by its terms is subordinated to the Series A
Notes or that is subordinated to all indebtedness to which the Series
A Notes are subordinated in substantially like terms as the Series A
Notes.
Article 3. Prepayment. The Company may, at its sole option and
discretion, after giving Holder 30 days' prior written notice of its intent to
make such prepayment, prepay any amount of principal on this Series A Note
(together with any interest accrued on such prepaid principal as of the date of
such prepayment) at any time or from time to time. Holder agrees that upon any
such prepayment, Holder shall make a notation of this Series A Note of all
principal and interest so prepaid and the date of such prepayment.
Article 4. Transfer of the Notes.
(a) This Series A Note shall not be transferrable except
in compliance with the provisions of the Acts in respect of the
transfer of this Series A Note.
(b) This Series A Note and each note issued in exchange
for or upon transfer of this Series A Note be stamped or otherwise
imprinted with a legend in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE "ACTS"), AND NO
SUCH REGISTRATION IS CONTEMPLATED. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS NOTE MAY NOT BE
OFFERED, SOLD, TRANSFERRED,
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OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
Article 5. Default.
(a) "Event of Default," wherever used herein, means any
one of the following events:
(1) default in the payment of principal or
interest when due on this Series A Note, even if caused by
subordination, that is not cured by the Company within ten
days; or
(2) the entry of a decree or order for relief by
a court having jurisdiction in respect of the Company in an
involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or
state bankruptcy, insolvency or other similar law, or the
appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or
for any substantial part of its property, or ordering the
winding up or liquidation of its affairs and the continuance
of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(3) the commencement by the Company of a
voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable
federal or state bankruptcy, insolvency or other similar law,
or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the
Company or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its
debts generally as they become due.
(b) If an Event of Default occurs, then and in every such
case Holder may declare the principal of this Series A Note to be due
and payable immediately, by a notice in writing to the Company, and
upon any such declaration such principal shall become immediately due
and payable.
(c) The Company expressly waives all notices of
nonpayment, demands for payment, presentations for payment, notices of
intention to accelerate maturity, protest and notice of protest, and
notices acceleration of the indebtedness due hereunder.
Article 6. Collection Fees. If an Event of Default occurs, and this
Series A Note is placed in the hands of an attorney for collection (whether or
not suit is filed), or if this Series A Note is
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collected by suit or legal proceedings or through bankruptcy proceedings, the
Company agrees to pay in addition to all sums then due hereon, including
principal and interest, all reasonable expenses of collection including
reasonable attorneys' fees.
Article 7. Setoff. In the event the Company shall be entitled,
pursuant to the Master Transaction Agreement or otherwise, to any damages or
other amounts to be paid by Holder to the Company, or to exercise any other
setoff rights, the Company may, in its sole discretion and without prior notice
to Holder, set off all or any such amounts against the principal or interest
then outstanding under this Series A Note. The Company shall give notice to
Holder that such amounts have been set off against the principal or interest of
the Series A Note, and interest shall cease to accrue on any amount so set off
against principal effective as of the date such notice is sent.
Article 8. Amendments and Waivers. This Series A Note may be amended
by written agreement of the Company and Holder. No waiver of the provisions
hereof shall be effective unless agreed to in writing by the party against whom
such waiver is asserted.
Article 9. Usury Savings Clause. Notwithstanding any other provision
of this Series A Note, it is the intention of the Company and Holder to conform
strictly to applicable usury laws regarding the use, forbearance or detention
of any indebtedness arising under this Series A Note whether such laws are now
or hereafter in effect, including the laws of the United States of America or
any other jurisdiction whose laws are applicable, and including any subsequent
revisions to or judicial interpretations of those laws, in each case to the
extent they are applicable to this Series A Note (the "Applicable Usury Laws").
Accordingly, if any payments made pursuant to this Series A Note result in any
person having paid any interest in excess of the Maximum Amount, as hereinafter
defined, or if any transaction contemplated hereby would otherwise be usurious
under any Applicable Usury Laws, then, in that event, it is agreed as follows:
(i) the provisions of this Article shall govern and control; (ii) the aggregate
of all interest under Applicable Usury Laws that is contracted for, charged or
received under this Series A Note shall under no circumstances exceed the
Maximum Amount, and any excess shall be promptly refunded to the payor by the
recipient hereof; (iii) no person shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Amount; and (iv) the
effective rate of any interest payable under this Series A Note shall be ipso
facto reduced to the Highest Lawful Rate, as hereinafter defined, and the
provisions of this Series A Note immediately shall be deemed reformed, without
the necessity of the execution of any new document or instrument, so as to
comply with all Applicable Usury Laws. All sums paid, or agreed to be paid, to
any person pursuant to this Series A Note for the use, forbearance or detention
of any indebtedness arising hereunder shall, to the fullest extent permitted by
the Applicable Usury Laws, be amortized, pro rated, allocated and spread
throughout the full term of any such indebtedness so that the actual rate of
interest does not exceed the Highest Lawful Rate in effect at any particular
time during the full term thereof. As used herein, the term "Maximum Amount"
means the maximum nonusurious amount of interest that may be lawfully
contracted for, charged or received
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by any person in connection with any indebtedness arising under this Series A
Note under all Applicable Usury Laws, and the term "Highest Lawful Rate" means
the maximum rate of interest, if any, that may be charged to any person under
all Applicable Usury Laws on any principal balance from time to time
outstanding pursuant to this Series A Note.
Article 10. Severability Clause. In case any provision in this
Series A Note shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Article 11. Notice. All notices to the Company required or permitted
by this Series A Note shall be sufficient if given in writing and executed by
Holder and if notice is required or permitted from more than one Holder, such
notice may be executed in multiple counterparts. All such notices to the
Company shall be delivered by registered or certified mail, return receipt
requested, or personally delivered, to the Company at Physicians Trust, Inc.
Inc., 1900 West Loop South, Suite 890, Houston, Texas 77027, Attention:
Chairman of the Board, or such other address as the Company may designate by
written notice to Holder. Any notices by the Company to Holder shall be
delivered by registered or certified mail, return receipt requested, to Holder
at the address appearing in the Note Register. The address for Holder which
shall appear in the Note Register shall initially be 869 Verret Street, Houma,
Louisiana 70361, and may subsequently be changed by Holder by written notice to
the Company given in accordance with this Article 11.
Article 12. No Recourse against Others. This Series A note shall be
the obligation of the Company only, and no recourse shall be had for the
payment hereof or the interest hereon against any incorporator, stockholder,
director or officer as such (whether past, present or future) of the Company or
any successor entity whether by virtue of any constitution, statute or rule of
law or equity, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of the incorporators, stockholders, directors and
officers as such being expressly waived and released by Holder by the
acceptance of this Series A Note.
ARTICLE 13. GOVERNING LAW. THIS SERIES A NOTE SHALL BE DEEMED TO BE
A CONTRACT MADE UNDER THE LAWS OF THE STATE OF TEXAS, AND FOR ALL PURPOSES
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, EXCLUSIVE OF ANY SUCH LAW UNDER WHICH THE LAW OR ANY OTHER JURISDICTION
WOULD APPLY.
Article 14. Construction. The headings and captions used in this
Series A Note are inserted solely for convenience in locating the provisions of
this Series A Note and not as an aid in construction. The plural usage of a
word shall be deemed to include the singular thereof and vice versa. Each
gender shall be deemed to include the other genders.
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IN WITNESS WHEREOF, the Company has caused this Series A Note to be
signed by its duly authorized officer and its corporate seal to be affixed
hereto and attested by its Secretary, on the _____ day of ________________,
1997.
PHYSICIANS TRUST, INC.
By:
------------------------------------
Robert F. Strange, Jr.
Chairman of the Board and
Chief Executive Officer
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PHYSICIAN EMPLOYMENT AGREEMENT
THIS PHYSICIAN EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and
entered into this _____ day of ________________, 1997, by and between A.D.
Walker, Jr., M.D., whose mailing address is 869 Verret Street, Houma, Louisiana
70361 (hereinafter "PHYSICIAN"), and Bayou Orthopedic Center, A Professional
Medical Corporation, a Louisiana professional medical corporation, having its
principal office at 869 Verret Street, Houma, Louisiana 70361 (hereinafter
"CLINIC").
W I T N E S S E T H:
This Agreement is made and entered into under the following
circumstances:
(1) Whereas the Clinic is engaged in the business of owning and
operating a medical practice; and
(2) Whereas the Clinic desires, on the terms and conditions stated
herein, to employ the Physician as a clinic physician specializing in the
practice of orthopedics; and
(3) Whereas the Physician desires, on the terms and conditions
stated herein, to be employed by the Clinic; and
(4) Whereas, the Physician was formerly employed by A.D. Walker,
Jr. (A.P.M.C.), a Louisiana professional medical corporation ("Old Clinic").
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. Employment and Term. Subject to earlier termination as
provided for in Section 13 hereof, the Clinic employs Physician, and Physician
hereby accepts employment with the Clinic commencing [__________] (hereinafter
the "EFFECTIVE DATE") and continuing for a period of five (5) years
(hereinafter the "TERM OF EMPLOYMENT"). Upon the expiration of the initial
term, the Term of Employment shall automatically be renewed for successive one
(1) year periods, not to exceed fifteen (15), commencing upon the fifth
anniversary of the Effective Date, unless Physician gives written notice of
intent not to renew not less than nine (9) months, nor more than one (1) year,
prior to the then current Term of Employment.
2. Duties and Qualifications. Physician shall provide orthopedic
medical services to patients, on behalf of Clinic, at the Clinic's office
located at 869 Verret Street, Houma, Louisiana 70361 or such other locations in
the Houma, Louisiana area as requested by Clinic (hereinafter collectively
referred to as the "FACILITY"), in accordance with the laws of the State of
Louisiana (the "STATE") and the principles of medical ethics of the American
Medical Association.
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During the Term of Employment, Physician will practice medicine as an
employee of Clinic on a full-time basis and will perform such other duties as
are reasonably assigned to Physician from time to time by the Board of
Directors of Clinic ("BOARD OF DIRECTORS"). Such duties shall include, without
limitation:
a. Physician shall devote Physician's full professional
time, attention, and energies to rendering professional services at the
Facility and at such other places in Houma, Louisiana and its surrounding areas
as may be designated from time to time by Clinic and to administrative duties
related to such practice;
b. Physician shall provide "on duty" and "on call"
services on an equal rotating basis with other physician employees of Clinic,
and shall provide "on call" services at those hospitals and other facilities
that are designated from time to time in Clinic's business plan or as otherwise
agreed to by Physician;
c. Physician agrees to keep and maintain (or cause to be
kept and maintained) on a timely basis appropriate records relating to all
professional services rendered by Physician hereunder and to attend to all
billing reports, claims, and correspondence required in connection with
Physician's services rendered under this Agreement;
d. Physician agrees to promote, by entertainment or
otherwise, to the extent permitted by law and the applicable canons of
professional ethics and applicable parts of this Agreement, the professional
practice of Clinic;
e. Physician will, to a reasonable extent, attend
professional conventions and post-graduate seminars and participate in
professional societies in conjunction with the covenants and agreements
contained herein, and will do all things reasonably desirable to maintain and
improve Physician's professional skills;
f. Physician shall be and remain duly licensed by the
State to practice medicine without restriction and shall comply with and be
controlled and governed by, and otherwise perform services hereunder in
accordance with, applicable law and the ethics and standards of care of the
medical community or communities in which Physician shall from time to time
provide services;
g. For the purpose of permitting the Clinic and/or its
management services provider to purchase key man life insurance covering
Physician and naming Clinic and/or its management services provider as
exclusive beneficiaries, Physician agrees to any action reasonably required to
obtain such insurance, including submitting to a physical examination if
required by any carrier proposing to provide such insurance;
h. Physician shall at all times comply with the policies
and procedures adopted by Clinic's Board of Directors from time to time, and
shall perform such other duties as Clinic and Physician may from time to time
mutually agree; and
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i. Nothing herein shall authorize Clinic to impose
employment duties or constraints of any kind which would require Physician to
infringe the ethics of the medical profession or violate any local ordinance or
other law. Further, Physician shall be permitted to invest Physician's personal
assets and manage Physician's personal investment portfolio in such a form and
manner as will not require any professional or business services on Physician's
part to any third party, or conflict with the provisions of Section 16 or 17 of
this Agreement.
3. Professional Judgment. Physician will be free to exercise
Physician's own judgment regarding the treatment of any particular patient.
Physician, however, agrees to observe and comply with the rules, regulations,
policies and procedures of Clinic as adopted from time to time by the Board of
Directors.
4. Status of Physician. The parties expressly acknowledge that
Physician, in the performance of services hereunder, is an employee of Clinic.
Accordingly, Clinic shall deduct from all compensation paid to Physician
pursuant to this Agreement any sums required to be deducted by law or any other
requirement of any governmental body.
5. Professional Fees. Physician acknowledges that Clinic shall be
entitled to all fees generated by Physician pursuant to professional services
rendered on behalf of Clinic hereunder, and all such fees shall be and remain
the property of Clinic. Physician expressly and irrevocably transfers, assigns,
and otherwise conveys to Clinic all right, title, and interest of Physician in
and to any fees, whether in cash, goods, or other items of value, resulting
from or incident to Physician's practice of medicine pursuant to this Agreement
during the term hereof and hereby appoints Clinic as attorney-in-fact for
collection of same or otherwise enforcing Physician's interests therein.
6. Outside Professional Activities. Any fees or other honoraria
received by Physician for speaking engagements or other outside activities
shall be the property of Clinic, unless specifically excluded on Schedule A
attached hereto.
7. Salary. During the Term of Employment, the amount of salary
to which Physician shall be entitled ("Physician's Salary") will equal
sixty-five percent (65%) of the difference between Revenues attributable to
Physician for the prior month and Physician's allocated portion of the prior
month's Clinic Expenses, such product to then be reduced by the allocated
portion of Excluded Clinic Expenses attributable to Physician (other than
compensation payable to such Physician). This amount shall be payable in
accordance with Clinic's regular payroll policy. In the month following each
anniversary of Physician's employment, the Clinic shall calculate the extent to
which payments made to Physician with respect to the preceding twelve-month
period have been greater than or less than the Physician's Salary calculated as
provided above with respect to such period. To the extent such payments have
been less than the amount of Physician's Salary, the Clinic will pay the
Physician the amount of such shortfall within thirty days following such
anniversary. To the extent such payments have been greater than the amount of
Physician's Salary, the Clinic shall be entitled to set off the amount of such
excess payments against subsequent payroll checks to be issued to Physician;
provided, however, that the amount of such payroll reduction will not be
considered in determining whether payments to Physician have been greater than
or less than Physician's Salary
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with respect to the year in which such payroll reductions are made. Upon
termination of Physician's Term of Employment pursuant to this Agreement,
Physician or Clinic, as applicable, will make a cash payment to the other party
to this Agreement within 60 days after such termination in the amount required,
if any, so that Physician shall have received a salary hereunder equivalent to
the applicable Physician's Salary over the Term of Employment; provided
further, however, that cash amounts due and payable to any party hereunder may
be set off against payments due from the payee thereof under any other
provision of this agreement. For purposes of this Employment Agreement,
"REVENUES," "PHYSICIAN EMPLOYEES," "CLINIC PHYSICIAN STOCKHOLDER," "CLINIC
EXPENSES" and "EXCLUDED CLINIC EXPENSES" shall have the meaning assigned in the
Management Services Agreement, a copy of which is attached as Schedule B.
"REVENUES ATTRIBUTABLE TO PHYSICIAN" shall include all Revenue derived from
services provided by all Physician Employees in association with Physician,
including each physician employed by the Clinic who is not also a stockholder
of the Clinic; provided, however, that all Revenue derived from each Physician
Employee shall be allocated to Physician or to another Clinic Physician
Stockholder, and no Revenue shall be allocated to more than one Clinic
Physician Stockholder. All Clinic Expenses and all Excluded Clinic Expenses
incurred in connection with Revenue attributable to Physician shall be
allocated to Physician, including all such expense related to Physician
Employees associated with Physician.
8. Ancillary Profits. During each year of the Term of
Employment, Physician may receive a distribution of the profit from Ancillary
Services offered by the Clinic, the frequency and amount of which shall be
determined in the sole discretion of the Clinic.
9. Vacation/Personal Time. Physician shall be entitled to leave
for vacation, illness, disability and educational purposes as provided on the
attached Schedule C. Unused holidays and days of vacation may not be carried
over from one fiscal year to another. Clinic and Physician shall mutually
agree on the scheduling of Physician's vacation, holiday and leave time, and
all vacation, holiday and leave time shall be subject to Physician's obligation
to make arrangements with Clinic's other professional employees for on-call
coverage.
10. Fringe Benefits. In addition to any other rights Physician may
have hereunder, Clinic shall provide to Physician, as a Clinic Expense, the
cost of maintaining Physician's professional license and the fringe benefits as
set forth on the attached Schedule D except that the retirement benefits shall
be an Excluded Clinic Expense. Clinic may provide such additional fringe
benefits for the benefit of Physician as Clinic may determine in its reasonable
discretion; provided, however, that all such additional fringe benefits shall
be deemed Excluded Clinic Expenses, as such term is defined in the Management
Services Agreement, attributable to such Physician for the purposes of this
Agreement and the Management Services Agreement.
11. Professional Meetings and Continuing Medical Education.
Physician shall be entitled to attend professional meetings and continuing
medical education conferences as provided on Schedule C.
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12. Professional Liability Insurance.
a. Minimum Policy. During the Term of Employment, the
Clinic shall maintain in force and effect for the remainder of their
outstanding terms, all professional liability insurance policies, if any, which
are transferred from Old Clinic to the Clinic. All documents evidencing the
transfer of such policies shall be in a form acceptable to Administrator (as
hereinafter defined). At all times during the Term of Employment other than
when such transferred policies are in effect, the Clinic shall maintain and
keep in force professional liability insurance "claims made" policies of
acceptable form in the State providing coverage for Physician and Clinic with
limits of not less than One Million and No/100 Dollars ($1,000,000.00) per
occurrence, and not less than Three Million and No/100 Dollars ($3,000,000.00)
in the aggregate for each policy year. For purposes of this Agreement,
"acceptable form" shall mean any form reasonably acceptable to Physician,
Clinic and the Administrator (as hereinafter defined). The policy shall be
placed with insurance companies reasonably acceptable to Clinic which are
authorized by the State Insurance Department to issue such policies in the
State and which have an A.M. Best rating of A:IX or better (except for any such
policies transferred from Old Clinic, if any, and except as otherwise agreed)
and such policies shall name both the Clinic and Physician as named insureds.
Physician shall cooperate fully with Clinic and such insurance companies in
order to obtain such professional liability insurance policy.
b. Tail Coverage. Upon termination of Physician's
employment with Clinic for any reason whatsoever, whether voluntary or
involuntary, Clinic shall obtain or maintain a professional liability insurance
"tail" coverage policy in an amount not less than the limits of the
professional liability insurance policy in effect with respect to Physician
immediately prior to Physician's termination. Such tail coverage policy shall
provide coverage of Physician and Clinic for all occurrences and events during
Physician's employment with Clinic. The cost of such policy shall be a Clinic
Expense and as such shall be accrued and charged ratably over the final twelve
months of Physician's Term of Employment or such shorter period of Physician's
Term of Employment which remains at the time such termination is made known to
Clinic. Upon termination of Physician's Term of Employment, any portion of the
cost of such policy which has not been accrued as a Clinic Expense shall be
included as a Clinic Expense in determining the amount of the final cash
payment, if any, which may be required to be made by Physician or Clinic, as
applicable, to the other party pursuant to Section 7 of this Agreement to cause
net cash distributions to Physician to be equivalent to Physician's Salary over
the Term of Employment.
c. Indemnification. Physician hereby agrees to defend,
indemnify and hold Clinic harmless from and against any uninsured loss, claim,
suit, expense or obligation arising out of or resulting from Physician's actual
or alleged malpractice in the performance of medical services pursuant to this
Agreement, to the extent such loss, claim, suit, expense or obligation is not
reimbursed by insurance coverage.
d. Loss of Professional Liability Insurance. Clinic may
immediately suspend Physician from practice under this Agreement if, due to any
act or omission of Physician, medical professional liability insurance as
specified in (a) above cannot reasonably be obtained for Physician or if
Physician's medical professional liability insurance is canceled, suspended,
revoked or
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terminated, and Physician shall not be reinstated or permitted to practice at
Clinic's business until such time as the medical professional liability
insurance for Physician is reinstated to the satisfaction of Clinic. Physician
will notify Clinic within twenty-four (24) hours of receipt by Physician of any
notice or information that Physician's professional liability insurance has
been canceled, terminated, revoked or suspended.
13. Termination. Notwithstanding any other provisions of this
Agreement, the Term of Employment shall terminate upon:
a. the death of Physician; or,
b. upon Physician's "disability" (For purposes of this
Agreement, the term "DISABILITY" shall mean the inability of Physician, arising
out of any medically determinable physical or mental impairment, to perform the
services required of him hereunder for a period of sixty (60) consecutive days
during which sixty (60) day period Physician's compensation hereunder shall
continue); or,
c. at Clinic's option, immediately upon the existence of
"cause." For purposes of this Agreement, the term "CAUSE" shall be defined as:
(1) failure of Physician to perform the duties required
of him in this Agreement in a manner satisfactory to Clinic, in
Clinic's sole discretion; provided, however, that the Term of
Employment shall not be terminated pursuant to this subparagraph (1)
unless Clinic first gives Physician a written notice ("NOTICE OF
DEFICIENCY"). The Notice of Deficiency shall specify the deficiencies
in Physician's performance of his duties. Physician shall have a
period of thirty (30) days, commencing on receipt of the Notice of
Deficiency, in which to cure the deficiencies contained in the Notice
of Deficiency. In the event Physician does not cure the deficiencies
to the satisfaction of Clinic, in its sole discretion, within such
thirty (30) day period, the Clinic shall have the right to immediately
terminate the Term of Employment and this Agreement. The provisions of
this subparagraph (1) may be invoked by Clinic any number of times and
cure of deficiencies contained in any Notice of Deficiency shall not
be construed as a waiver of this subparagraph (1) nor prevent the
Clinic from issuing any subsequent Notices of Deficiency;
(2) any dishonesty by Physician in his dealings with the
Clinic, the commission of fraud by Physician, or negligence in the
performance of the duties of Physician;
(3) the arrest or conviction (or plea of guilty or nolo
contendere) of Physician of any felony or other crime involving
dishonesty or moral turpitude;
(4) any violation of any covenant or restriction
contained in Section 16 or Section 17 hereof;
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(5) unlawful use of narcotics or other controlled
substances, or use of alcohol or other drugs in a manner the Clinic
reasonably determines to be adverse to the best interests of the
Clinic;
(6) failure of Physician to maintain Physician's license
and authorization to practice as a physician in the State;
(7) failure of Physician to maintain his status as Board
certified in Physician's specialty area of practice;
(8) if, due to any act or omission of Physician, the
medical professional liability insurance required by Section 12(a) of
this Agreement cannot be reasonably obtained or maintained, or if, due
to any act or omission of Physician, such medical professional
liability insurance is canceled, terminated or revoked.
(9) for all purposes of this Agreement, termination for
"cause" shall be deemed to have occurred in the event of Physician's
resignation when, because of existing facts and circumstances,
subsequent termination for "cause" can reasonably be foreseen.
d. the termination of Physician's Term of Employment by
Physician (other than by death, disability or nonrenewal), or if Physician,
acting alone or in collusion with other members of the Clinic, the Clinic's
board of directors or other governing body of the Clinic, effects a termination
of Physician's Term of Employment without "cause" as defined above
(collectively, a "Physician Termination").
Except as otherwise provided in Section 13(b), in the event of
termination of Physician's Term of Employment pursuant to this Section 13,
Physician or Physician's estate, as appropriate, shall be entitled to receive
(in addition to any fringe benefits payable upon death in the case of
Physician's death) the salary provided for in Section 7 hereof (prorated on a
daily basis) and any Ancillary Profits provided for in Section 8 hereof
(determined as provided in Section 8), up to and including the effective date
of termination.
14. Effects of Termination. In the event of termination of the
Term of Employment pursuant to this Agreement for any reason, including
non-renewal, neither party shall have any further obligations hereunder except
for (i) obligations accruing prior to the date of termination and (ii)
obligations, promises, or covenants contained herein which are expressly made
to extend beyond the term of this Agreement, including, without limitation,
confidentiality of information, indemnities and Physician's covenants not to
compete and to pay damages (which covenants and agreements shall survive the
termination or expiration of the Term of Employment). If the Physician's
employment terminates prior to the end of the initial term or any renewal of
the Term of Employment, any compensation owed to Physician shall continue to be
calculated based on the formula for compensation under this Agreement, and such
sum shall be payable in full satisfaction of any and all rights to compensation
arising under this Agreement and shall be in lieu of any claims for accounts
receivable. The termination of the Term of Employment, for whatever reason,
shall not
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<PAGE> 145
extinguish those obligations of Physician specified in the Restrictive
Covenants (hereinafter defined), nor shall the same extinguish the right of
either party to bring an action, either in law or in equity, for breach of this
Agreement by the other party.
Except in the event of a Physician Termination, notwithstanding any
other provision of this Agreement, if Physician's Term of Employment is
terminated without cause, all obligations hereunder shall terminate except for
(i) obligations accruing prior to termination; (ii) provisions of Sections 12,
14, 15, and 17 of this Agreement, and (iii) other provisions of this Agreement
to the extent that they relate to the interpretation of rights and obligations
of the parties arising under the provisions described in clauses (i) and (ii)
or the enforcement of such rights and obligations.
15. Transition Following Notice of Termination. Following any
notice of termination or nonrenewal of employment hereunder, whether given by
Clinic or Physician, Physician will fully cooperate with Clinic in all matters
relating to the winding up of Physician's pending work on behalf of Clinic and
the orderly transfer of such work to the other professional employees of
Clinic. On or after the giving of notice of termination hereunder and during
any notice period, Clinic will be entitled to such full-time or part-time
services of Physician as Clinic may reasonably require, and Clinic will
specifically have the right to terminate the active services of Physician at
the time such notice is given and to pay to Physician the compensation due to
him under this Agreement for the duration of the notice period.
16. Non-Competition. During the Term of Employment and for a
continuous period of two (2) years thereafter commencing upon expiration or
termination of the Term of Employment, regardless of any termination pursuant
to Section 13 or any voluntary termination or resignation by Physician,
Physician shall not, without the written consent of Clinic, individually or
jointly with others, directly or indirectly, whether for his own account or for
that of any other person or entity, own or hold any ownership or voting
interest in any person or entity engaged in a business the same as or similar
to any business of the Clinic, or in a business which competes in any manner
whatsoever with the business of Clinic or Clinic's Facility (other than any
ownership interest in the Administrator under the Management Services Agreement
attached as Schedule B hereto) and which is located or intended to be located
anywhere within a radius of twenty-five (25) miles of any office of Clinic and
Physician shall not act as an officer, director, employee, partner, independent
contractor, principal, agent, proprietor, or in any other capacity for, nor
lend any assistance (financial, managerial, professional or otherwise) or
cooperation to, nor perform any services for, any such person or entity (other
than any ownership interest in the Administrator under the Management Services
Agreement attached as Schedule B hereto). Notwithstanding the above, in the
event Physician completes seven years of service with the Clinic and PTI (or
any of its affiliates) is not then the Administrator, then there shall be no
non-competition restrictions on Physician upon expiration or termination of
Term of Employment.
17. Non-Disclosure; Non-Solicitation. Except in the performance of
his duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Physician, individually or jointly with others, for the
benefit of Physician or any third party, publish, disclose, use or authorize
anyone else to publish, disclose or use, any secret or confidential material or
information relating to
8
<PAGE> 146
any aspect of the business or operations of the Clinic or any information
regarding the business methods, business policies, procedures, techniques, or
trade secrets, or other knowledge or processes of or developed by Clinic
(and/or any other Physician or agent of Clinic), any affiliate of the Clinic,
any entity in which the Clinic has an interest, including, without limitation,
any secret or confidential information relating to the business, customers,
financial position, trade or industrial practices, trade secrets, technology or
know-how of the Clinic. Moreover, during the Term of Employment, Physician
shall not act as an officer, director, employee, partner, independent
contractor, consultant, principal, agent, proprietor, owner or part owner of,
or in any other capacity for, nor lend any assistance (financial, managerial or
otherwise) or cooperation, to, any person or entity (other than Clinic or the
Administrator) which employs any person or hires or contracts with, as a
consultant or other independent agent or independent contractor, any person or
entity (other than Physician) who was employed by or acted as an agent for,
consultant to, or independent contractor of the Clinic, any affiliate of the
Clinic, or any entity in which the Clinic has an interest, at any time during
the Term of Employment, nor shall Physician employ any such person or induce or
attempt to influence any such person to terminate employment with Clinic.
18. Reasonableness of Restrictions; Reformation; Enforcement. The
parties hereto recognize and acknowledge that the geographical and time
limitations contained in Sections 16 and 17 hereof (hereinafter the
"RESTRICTIVE COVENANTS") are reasonable and properly required for the adequate
protection of the Clinic's interest. Physician acknowledges that the Clinic
will provide to Physician confidential information concerning the Clinic's
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions
shall be considered divisible, both as to the time and to the geographical
area, with each month of the specified period being deemed a separate period of
time and each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against Physician. If Physician shall violate any of the covenants
contained herein and if any court action is instituted by the Clinic to prevent
or enjoin such violation, then the period of time during which the Physician's
business activities shall be restricted, as provided in this Agreement, shall
be lengthened by a period of time equal to the period between the date of the
Physician's breach of the terms or covenants contained in this Agreement and
the date on which the decree of the court disposing of the issues upon the
merits shall become final and not subject to further appeal.
19. No Remedy at Law. With respect to the covenants and agreements
of Physician set forth in the Restrictive Covenants, the parties agree that a
violation of such covenants and agreements will cause irreparable injury to
Clinic for which Clinic will not have an adequate remedy at law, and that
Clinic shall be entitled, in addition to any other rights and remedies it may
have, at law or in equity, to obtain an injunction to restrain Physician from
violating, or continuing to violate,
9
<PAGE> 147
such covenants and agreements. In the event Clinic does apply for such an
injunction, Physician shall not raise as a defense thereto that the Clinic has
an adequate remedy at law.
20. Liquidated Damages. The parties agree that in the event of a
Physician Termination or as a result of the termination of the Term of
Employment by New Clinic for cause (as defined in Section 13), the costs and
damages to Clinic, though substantial, would be difficult to precisely
determine. Therefore, the parties agree that in the event of such termination,
Physician shall pay to Clinic, not as a penalty, but as the parties' reasonable
estimate of the costs and other damages resulting to Clinic in connection with
such termination, liquidated damages in an amount equal to the nine (9) months
of Clinic Expenses attributable to Physician next preceding the termination of
this Agreement, which amount is the best estimate of the expenses to continue
to be incurred while Physician is fully replaced. Such damages shall be payable
on demand by Clinic.
21. Billing Services. Clinic shall have sole responsibility and
authority for preparation of billings for, and collection of income generated
from, Physician's practice of medicine and the operation of the Facility and,
pursuant to this Agreement, the delegated authority to request, demand,
collect, receive and provide receipts for all income on behalf of Physician
including any payment or reimbursement from governmental agencies and insurance
carriers on account of medical services provided to patients of the Facility.
Physician will utilize the Clinic's provider numbers to bill on behalf of
Physician for payment and reimbursement from governmental agencies and
insurance carriers. All funds collected from operation of the Facility and
from Physician's practice of medicine hereunder shall be the sole property of
Clinic and shall be deposited into Clinic's account and Clinic shall have sole
authority to make disbursements therefrom, including refunds and repayment of
payments received in error.
22. Representations of Physician. Physician hereby makes the
following representations to Clinic, each of which is material and is being
relied on by Clinic and shall be true as of the date hereof and throughout the
Term of Employment.
a. Qualifications. Physician is, and will continue to
be, duly licensed to practice medicine in the State of Louisiana, is Board
certified by the __________________________________________________, agrees to
participate and does participate in a continuing medical education program, and
agrees to obtain and maintain an American Medical Association C.M.E.
certificate or its equivalent.
b. Factual Information. Any and all factual information
furnished by Physician to Clinic is true and accurate in every material respect
as of the date on which such information was furnished.
c. Professional Conduct. Physician has and will continue
to conduct his professional activities in accordance and compliance with any
and all laws, regulations and ethical and professional standards applicable
thereto.
d. Authority. Physician has full power and authority to
enter into this Agreement and perform all obligations hereunder. The execution
and performance of this Agreement by
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<PAGE> 148
Physician will not constitute a breach or violation of any covenant, agreement
or contract to which Physician is a party or by which Physician is bound.
23. Prior Acts and Omissions of Physician. Physician represents
and warrants to Clinic that, as of the Effective Date, there is no pending or
threatened litigation or proceeding against Physician relating to Physician's
practice of medicine except as listed on the attached Schedule E. Clinic shall
not, and this Agreement is not intended to and shall not be construed in any
way as to cause Clinic to, assume any liabilities of Physician for the acts or
omissions of Physician relating to periods prior to the Effective Date, and
Physician shall indemnify and hold Clinic harmless from and against any
liability in respect thereof.
24. Patient Records, Books, Office Equipment, Etc.
a. Patient Records. All patient records shall at all
times be and remain Clinic's property; provided, however, that upon termination
of Physician's Term of Employment, Clinic shall provide Physician, at
Physician's expense, access to and copies of such records relating to medical
services performed at Clinic's business by Physician during the term hereof, if
so requested by the patient or if required by Physician in defense of any
professional liability claim.
b. Equipment and Supplies. Clinic shall provide for
Physician's use of all professional instruments, books, office equipment and
other property reasonably necessary, in Clinic's discretion, for Physician's
practice of medicine under this Agreement. All instruments, equipment,
furniture, furnishings, supplies, samples, forms, charts, logs, brochures,
patient records, policies and procedures, contracts and any other property,
materials or information furnished by Clinic are and shall remain the sole
property of Clinic. Upon termination of Physician's Term of Employment,
Physician shall return all such property to Clinic.
25. Assignability. This Agreement and the rights and duties
created hereunder shall not be assignable or delegable by Physician. Clinic
may, at Clinic's option and without consent of Physician, assign its rights and
duties hereunder to any successor entity or transferee of Clinic's assets.
26. Notices. All notices or other communications provided for
herein to be given or sent to a party by the other party shall be deemed
validly given or sent if in writing and mailed, postage prepaid, by registered
or certified United States mail or hand delivered or sent by facsimile,
addressed to the parties at their addresses hereinabove set forth. Any party
may give notice to the other parties at any time, by the method specified
above, of a change in the address at which, or the person to whom, notice is to
be addressed.
27. Severability. Each section, subsection and lesser section of
this Agreement constitutes a separate and distinct undertaking, covenant or
provision hereof. In the event that any provision of this Agreement shall be
determined to be invalid or unenforceable, such provision shall be deemed
limited by construction in scope and effect to the minimum extent necessary to
render the same valid and enforceable, and, in the event such a limiting
construction is impossible, such
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<PAGE> 149
invalid or unenforceable provision shall be deemed severed from this Agreement,
but every other provision of this Agreement shall remain in full force and
effect.
28. Waiver. The failure of a party to enforce any term, provision
or condition of this Agreement at any time or times shall not be deemed a
waiver of that term, provision or condition for the future, nor shall any
specific waiver of a term, provision or condition at one time be deemed a
waiver of such term, provision or condition for any future time or times.
29. Parties. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their heirs, personal
representatives, legal representatives, and proper successors and assigns, as
the case may be.
30. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed by the laws of the State of Louisiana,
without giving effect to the principles of comity or conflicts of laws thereof.
Each party hereto agrees to submit to the personal jurisdiction and venue of
the state and federal courts having jurisdiction over Terrebonne Parish,
Louisiana, for a resolution of all disputes arising in connection with the
interpretation, construction, and enforcement of this Agreement, and hereby
waives the claim or defense therein that such courts constitute an inconvenient
forum.
31. Captions. The captions of this Agreement have been assigned
thereto for convenience only, and shall not be construed to limit, define or
modify the substantive terms hereof.
32. Entire Agreement; Counterparts. This Agreement constitutes the
entire agreement between the parties hereto concerning the subject matter
hereof, and supersedes all prior agreements, memoranda, correspondence,
conversations and negotiations. This Agreement may be executed in several
counterparts that together shall constitute but one and the same Agreement.
33. Costs of Enforcement. In the event it is necessary for any
party to retain the services of an attorney or to initiate legal proceedings to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover from the non-prevailing party, in addition to all other remedies, all
costs of such enforcement, including reasonable attorneys' fees and costs and
including trial and appellate proceedings.
34. Gender. Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender masculine, feminine or neuter,
as the context indicates is appropriate.
35. Third-Party Beneficiary. The parties acknowledge and agree
that PHYSICIANS TRUST, INC, a Delaware corporation ("ADMINISTRATOR"), has
entered into a Management Services Agreement with the Clinic in the form
attached as Schedule B, and that Physician and Administrator, together with
certain other parties, have entered into a Master Transaction Agreement with
Clinic in reliance on the covenants of Physician contained in Sections 16 and
17 hereof. Physician acknowledges and agrees that Administrator has entered
into the Master Transaction Agreement,
12
<PAGE> 150
purchased assets and incurred expenses in order to fulfill its obligations
pursuant to the Management Services Agreement, and otherwise detrimentally
relied upon Physician's agreement to perform his obligations pursuant to terms
of this Agreement, and that the Administrator's agreement to pay Physician the
consideration described in the Master Transaction Agreement was made in
reliance on Physician's commitment to provide services as an employee of the
Clinic pursuant to the terms of this Agreement for the Term of Employment.
Accordingly, Clinic and Physician agree that Administrator is a specific
intended third-party beneficiary of such covenants, who shall be independently
entitled to the benefit thereof and shall have an independent right to enforce
same. In addition, Clinic and Physician covenant and agree for the benefit of
Administrator that this Agreement shall not be terminated, modified or amended
without the prior written consent of Administrator.
Physician acknowledges and agrees that in the event of termination of
this Agreement, and in connection with any violation of this Agreement on the
part of Physician, Clinic may, upon request of Administrator, assign any cause
of action and/or rights that it may have hereunder to the Administrator,
including Clinic's rights, if any, to recover liquidated damages from
Physician. Physician acknowledges and agrees, that in the event of any such
assignment, Administrator shall be entitled to set off liquidated damages and
other amounts payable by Physicians hereunder which have been assigned to
Administrator against amounts payable by Administrator to Physician under the
terms of the Master Transaction Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 151
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the date first written above.
PHYSICIAN:
---------------------------------------
A.D. Walker, Jr., M.D.
CLINIC:
BAYOU ORTHOPEDIC CENTER, A
PROFESSIONAL MEDICAL CORPORATION,
a Louisiana professional medical
corporation
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
ACKNOWLEDGED:
PHYSICIANS TRUST, INC.,
a Delaware corporation
By:
----------------------------------
Printed Name: Robert F. Strange, Jr.
Title: President
14
<PAGE> 152
SCHEDULE A
OUTSIDE PROFESSIONAL ACTIVITIES
Any fees or honoraria received by Physician for or related to
professional activities performed by Physician at Physician Surgery
Center, an outpatient surgery center.
<PAGE> 153
SCHEDULE B
MANAGEMENT SERVICES AGREEMENT
<PAGE> 154
SCHEDULE C
LEAVE POLICIES
1. Physician's vacation on a per annum basis shall consist of thirty (30)
days per year, not including holidays during the year observed by the
Clinic, or other days during the particular year on which the Clinic
is closed. Physician shall be entitled to ten (10) days per year for
sick leave/personal time and ten (10) days per year to attend
professional meetings and continuing medical education conferences.
<PAGE> 155
SCHEDULE D
BENEFITS
Insurance - Health $8,500
Journals/Magazines $3,500
Dues/Memberships/Licenses $3,000
CME Allowance (including travel) $3,500
Automobile Mileage Reimbursement At the applicable IRS
rate
Participation in the Clinic's retirement plan
<PAGE> 156
SCHEDULE E
PENDING LITIGATION
[NONE]
<PAGE> 1
EXHIBIT 10.17
PHYSICIAN'S TRUST, INC.
1996 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 PURPOSE.
The purposes of the PHYSICIAN'S TRUST, INC. 1996 STOCK OPTION PLAN
(the "Plan") are to advance the best interest of Physician's Trust, Inc.
("Company") and to attract, retain, and motivate directors, key employees, and
persons affiliated with the Company (the "Participants"), and provide such
persons with additional incentive to further the business, promote the
long-term financial success and increase shareholder value of the Company by
increasing their proprietary interest in the success of the Company. Pursuant
to the Plan, the Company may grant (i) non-qualified stock options ("Stock
Options"), and (ii) incentive stock options ("ISO Options") (collectively
herein "Options"). The ISO Options to be granted under the Plan are intended
to be qualified pursuant to Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"); and the Stock Options to be granted are intended to be
non-qualified stock options as described in Sections 83 and 421 of the Code.
1.2 GENERAL.
The terms and provisions of this Article I shall be applicable to
Stock Options and ISO Options, unless the context herein clearly indicates to
the contrary.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board may designate and appoint a committee (the
"Compensation Committee") which shall be (i) constituted so as to permit the
Plan to comply with SEC Rule 16b-3 and (ii) constituted solely by "outside
directors," within the meaning of Section 162(m) of the Code. All references
to the Board shall also include the Committee, if one is appointed. The
members of the Committee shall serve at the pleasure of the Board. The Board
shall have the power where consistent with the general purpose and intent of
the Plan to (i) modify the requirements of the Plan to conform with the law or
to meet special circumstances not anticipated or covered in the Plan, (ii)
establish policies and (iii) adopt rules and regulations and prescribe forms
for carrying out the purposes and provisions of the Plan, including the form of
any stock option agreements ("Stock Option Agreements"). Unless otherwise
provided in the Plan, the Board shall have the authority to interpret and
construe the Plan and determine all questions arising under the Plan and any
agreement made pursuant to the Plan. Any interpretation, decision or
determination made by the Board shall be final, binding and conclusive. A
majority of the Board shall constitute a quorum and an act of the majority of
the members present at any meeting at which a quorum is present shall be the
act of the Board.
________________________________________________
1996 Stock Option Plan - Physician's Trust, Inc.
<PAGE> 2
1.4 STOCK SUBJECT TO THE PLAN.
Shares of stock ("Stock") covered by Stock Options and ISO Options
shall consist of 1,500,000 shares of the Common Stock at $.001 par value per
share of the Company. Either authorized and unissued shares or treasury shares
may be delivered pursuant to the Plan. If any option for shares of Stock
granted to a Participant lapses, or is otherwise terminated, the Board may
grant Stock Options or ISO Options for such shares of Stock to other
Participants.
1.5 PARTICIPATION IN THE PLAN.
The Board shall determine from time to time those Participants who are
to be granted Stock Options and ISO Options, and the number of shares of Stock
covered thereby. Employees, Directors and consultants shall be eligible to
participate in the Plan.
1.6 DETERMINATION OF FAIR MARKET VALUE.
As used in the Plan, "fair market value" shall mean on any particular
day (i) if the Stock is listed or admitted for trading on any national
securities exchange or the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotation System, the last sale price, or
if no sale occurred, the mean between the closing high bid and low asked
quotations for such date of the Stock on the principal securities exchange on
which shares of Stock are listed, (ii) if Stock is not traded on any national
securities exchange but is quoted on the National Association of Securities
Dealers, Inc. Automated Operations System, or any similar system of automated
dissemination of quotations or securities prices in common use, the mean
between the closing high bid and low asked quotations for such day of the Stock
on such system, (iii) if neither clause (i) nor (ii) is applicable, the mean
between the high bid and low asked quotations for the Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for shares of the Stock on at least five
(5) of the ten (10) preceding days, or (iv) if none of the conditions set forth
above is met, the fair market value of shares of Stock as determined by the
Board. Provided, for purposes of determining "fair market value" of the Common
Stock of the Company, such value shall be determined without regard to any
restriction other than a restriction which will never lapse. In no event shall
the fair market value of the Stock be less than its par value.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
The aggregate number of shares of Stock under Stock Options and ISO
Options granted under the Plan, the Option Price and the ISO Price, and the
total number of shares of Stock which may be purchased by a Participant upon
exercise of a Stock Option or an ISO Option shall be adjusted by the Board to
reflect approximately any recapitalization, stock split, merger, consolidation,
reorganization, combination, liquidation, stock dividend or similar transaction
involving the Company.
1.8 AMENDMENT AND TERMINATION OF THE PLAN.
The Plan shall terminate at midnight, September 30, 2006 but prior
thereto, may be altered, changed, modified, amended or terminated by written
amendment approved by the Board. Provided, that no action of the Board may,
without the approval of the stockholders; (i) increase the aggregate
________________________________________________
1996 Stock Option Plan - Physician's Trust, Inc.
-2-
<PAGE> 3
number of shares of Stock which may be purchased under Stock Options or ISO
Options granted under the Plan, or (ii) withdraw the administration of the Plan
from the Board. Except as provided in this Article I, no amendment,
modification or termination of the Plan shall in any manner adversely affect
any Stock Option or ISO Option previously granted under the Plan without the
consent of the affected Participant.
1.9 EFFECTIVE DATE.
The Plan shall be effective October 1, 1996 subject to approval by the
holders of a majority of the Common Stock of the Company present or represented
and entitled to vote at a meeting called for such purpose, within twelve (12)
months before or after the Plan's adoption by the Board.
1.10 SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Stock shall be issued upon the exercise of any Option
unless and until the Board has determined that:
(i) The Company and the Participant have taken all actions
required to register the Stock under the Securities Act of 1933, as
amended (the "Act"), or to perfect an exemption from registration
requirements of the Act, or to determine that the registration
requirements of the Act do not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange
on which the Stock is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or
foreign law has been satisfied.
(b) Restrictions on Transfer; Representations of Participant;
Legends.
Regardless of whether the offering and sale of Stock under the
Plan have been registered under the Act or have been registered or
qualified under the securities laws of any state, the Company may
impose restrictions and/or prohibitions upon the sale, pledge, or
other transfer of such Stock (including the placement of appropriate
legends on stock certificates) if, in the judgment of the Company and
its counsel, such restrictions and/or prohibitions are necessary or
desirable to achieve compliance with the provisions of the Act, the
securities laws of any state, or any other law or rule, including
rules of accounting. If the offering and/or sale of Stock under the
Plan is not registered under the Act and the Company determines that
the registration requirements of the Act apply but an exemption is
available which requires an investment representation or other
representation, the Participant shall be required, as a condition to
acquiring such Stock, to represent that such Stock is being acquired
for investment, and not with a view to the sale or distribution
thereof, except in compliance with the Act, and to make such other
representations as are deemed necessary or appropriate by the Company
and its counsel. Stock certificates evidencing Stock acquired
________________________________________________
1996 Stock Option Plan - Physician's Trust, Inc.
-3-
<PAGE> 4
pursuant to an unregistered transaction to which the Act applies shall
bear a restrictive legend as may be required or deemed advisable under
the Plan or the provisions of any applicable law.
Any determination by the Company and its counsel in connection with
any of the matters set forth in this Section 1.10 shall be conclusive and
binding on all persons.
(c) Registration or Qualification of Securities.
The Company may, but shall not be obligated to, register or
qualify the offering or sale of Stock under the Act or any other
applicable law.
(d) Exchange of Certificates.
If, in the opinion of the Company and its counsel, any legend
placed on a stock certificate representing shares of Stock issued
pursuant to the Plan is no longer required, the Participant or the
holder of such certificate shall be entitled to exchange such
certificate for a certificate representing the same number of shares
of Stock but lacking such legend.
1.11 SEPARATE CERTIFICATE.
Separate certificates representing the Common Stock of the Company to
be delivered to a Participant upon the exercise of any Stock Option or ISO
Option will be issued to such Participant.
1.12 PAYMENT FOR STOCK.
Payment for shares of Stock purchased under this Plan shall be made in
full and in cash or check made payable to the Company. However, the Board in
its discretion may allow payment for shares of Stock purchased under this Plan
to be made in Common Stock of the Company or a combination of cash and Common
Stock of the Company. Further, the Stock Option Agreement may provide for a
"cashless exercise" of stock options pursuant to procedures established by the
Board. In the event that Common Stock of the Company is utilized in
consideration for the purchase of Stock upon the exercise of a Stock Option or
an ISO Option, then, such Common Stock shall be valued at the "fair market
value" as defined in Section 1.6 of the Plan.
1.13 INCURRENCE OF DISABILITY.
A Participant shall be deemed to have terminated employment or
consulting and incurred a disability ("Disability") if such Participant suffers
a physical or mental condition which (i) satisfies the definition of "total
disability" in the disability policy or plan provided by the Company covering
the Participant; or (ii) if no such policy or plan is then covering the
Participant, in the judgment of the Board, totally and permanently prevents a
Participant from engaging in any substantial gainful employment or consulting
with the Company.
________________________________________________
1996 Stock Option Plan - Physician's Trust, Inc.
-4-
<PAGE> 5
1.14 STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY.
Since the Board is authorized to grant Stock Options and ISO Options
to Participants, the grant thereof and Stock Option Agreement relating thereto
will be made separately and totally independent of each other. Except as it
relates to the total number of shares of Stock which may be issued under the
Plan, the grant or exercise of a Stock Option shall in no manner affect the
grant and exercise of any ISO Options. Similarly, the grant and exercise of
any ISO Option shall in no manner affect the grant and exercise of any Stock
Option.
1.15 GRANTS OF OPTIONS AND STOCK OPTION AGREEMENT.
Each Stock Option and/or ISO Option granted under this Plan shall be
evidenced by a written Stock Option Agreement effective on the date of grant
and executed by the Company and the Participant. Each Option granted hereunder
shall contain such terms, restrictions and conditions as the Board may
determine, which terms restrictions and conditions may or may not be the same
in each case.
1.16 USE OF PROCEEDS.
The proceeds received by the Company from the sale of Stock pursuant
to the exercise of Options granted under the Plan shall be added to the
Company's general funds and used for general corporate purposes.
1.17 NON-TRANSFERABILITY OF OPTIONS.
Except as otherwise herein provided, any Option granted shall not be
transferable otherwise than by will or the laws of descent and distribution and
only the Participant may exercise the Option during his lifetime. Specifically
(but without limiting the generality of the foregoing), the Option may not be
assigned, transferred (except as provided above), pledged or hypothecated in
any way, shall not be assignable by operation of law, and shall not be subject
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary to
the provisions hereof shall be null and void and without effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH OF PARTICIPANT.
No transfer of an Option by the Participant by will or the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice and such other evidence
as the Board may deem necessary to establish the validity of the transfer and
the acceptance by the successor to the Option of the terms and conditions of
such Option.
1.19 CHANGES IN EMPLOYMENT.
So long as the Participant shall continue to be an employee or
consultant of the Company, any Option granted to him shall not be affected by
any change of duty or position.
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1.20 STOCKHOLDER RIGHTS.
No Participant shall have a right as a stockholder with respect to any
shares of Stock subject to an Option prior to the purchase of such shares of
Stock by exercise of the Option.
1.21 CHANGE OF CONTROL.
(a) In the event of a Change of Control as hereinafter
defined, all outstanding Options shall immediately vest and become
exercisable. In the event of a Change of Control, the Board, in its
discretion may act to effect one or more of the following alternatives
with respect to outstanding Options, which may vary among individual
Participants and which may vary among Options held by any individual
Participant: (1) determine a limited period of time on or before a
specified date (before or after such Change of Control) after which
specified date all unexercised Options and all rights of Participants
thereunder shall terminate, (2) require the mandatory surrender to the
Company by selected Participants of some or all of the outstanding
Options held by such Participants (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a
date, before or after such Change of Control, specified by the Board,
in which event the Board shall thereupon cancel such Options and the
Company shall pay to each Participant an amount of cash per share
equal to the excess, if any, of the Change of Control value of the
shares subject to such Option over the exercise price(s) under such
Options for such shares, (3) make such adjustments to Options then
outstanding as the Board deems appropriate to reflect such Change of
Control (provided, however, that the Board may determine in its sole
discretion that no adjustment is necessary to Options then
outstanding) or (4) provide that thereafter upon any exercise of an
Option theretofore granted the Participant shall be entitled to
purchase under such Option, in lieu of the number of shares of Stock
then covered by such Option the number and class of shares of stock or
other securities or property (including, without limitation, cash) to
which the Participant would have been entitled pursuant to the terms
of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Participant has been the
Participant of record of the number of shares of Stock then covered by
such Option. The provisions contained in this paragraph shall not
terminate any rights of the Participant to further payments pursuant
to any other agreement with the Company following a Change of Control.
(b) For purposes of this Agreement, "Change of Control"
means the occurrence of any of the following events: (i) the Company
shall not be the surviving entity in any merger, consolidation or
other reorganization (or survives only as a subsidiary of an entity
other than a previously wholly-owned subsidiary of the Company), (ii)
the Company sells, leases or exchanges all or substantially all of its
assets to any other person or entity (other than a wholly-owned
subsidiary of the Company), (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), acquires or gains ownership or
control (including, without limitation, power to vote) of more than
50% of the outstanding shares of the Company's voting stock (based
upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the
Company before such election, together with their nominees, shall
cease to constitute a majority of the Board.
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1.22 NON-QUALIFYING OPTIONS.
Notwithstanding anything to the contrary contained in this Plan, with
respect to all or any portion of any option granted under the Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
option shall be considered as a Stock Option granted under this Plan for all
purposes.
1.23 TAX STATUS.
The Board shall take all appropriate steps at the time of the grant of
Options or the exercise of Options, or both, consistent with such Options'
status for federal income tax purposes (including but not limited to,
designating whether such Option is considered a Stock Option or an ISO Option).
ARTICLE II
TERMS OF STOCK OPTIONS AND EXERCISE
2.1 GENERAL TERMS.
(a) Grants and Terms of Stock Options.
Stock Options shall be granted by the Board on the following
terms and conditions: No Stock Option shall be exercisable within six
months from the date of grant (except as specifically provided in
Subsection 2.1(c) hereof, with regard to the death or Disability of a
Participant), nor more than ten (10) years after the date of grant.
Subject to such limitation, the Board shall have the discretion to fix
the period during which any Stock Option may be exercised (the "Option
Period"). No Stock Option shall be exercisable after the expiration
of its Option Period. Each Stock Option shall be evidenced by a Stock
Option Agreement in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Board shall
approve. Each Stock Option Agreement shall specify the effect of
termination of employment or consulting on the exercisability of Stock
Options.
(b) Option Price.
The option price ("Option Price") for shares of Stock subject
to Stock Options shall be determined by the Board, but in no event
shall such Option Price be less than 85% of the fair market value of
the Stock on the date of grant.
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(c) Acceleration of Otherwise Unexercisable Stock Options on
Retirement, Death, Disability or Other Special Circumstances.
All Stock Options which are not exercisable as of the date of
termination of a Participant's employment or consulting shall expire
as of such date; provided, however, the Board, in its sole discretion,
may permit any Participant whose employment or consulting with the
Company terminates, for any cause whatsoever, to exercise, at any
time, any or all Stock Options previously granted to such Participant
notwithstanding that such Stock Options have not yet vested, in whole
or in part, as of the date of termination of such Participant's
employment or consulting. However, such discretionary authority of
the Board shall not be exercised with respect to any Stock Option (or
portion thereof) if the applicable six-month waiting period for
exercise has not expired, except in the event of the death or
Disability of the Participant when the personal representative of the
Participant or the disabled Participant may, with the consent of the
Board, exercise such Stock Option notwithstanding that the applicable
six-month waiting period has not yet expired.
(d) Number of Stock Options Granted.
The Board shall determine the number of Stock Options which
are to be granted to each Participant. In making such determinations,
the Board shall obtain the advice and recommendation of the officers
of the Company which have supervisory authority over each such
Participant. The granting of a Stock Option under the Plan shall not
affect any outstanding Stock Option previously granted to a
Participant under the Plan.
(e) Notice to Exercise Stock Option.
Upon exercise of a Stock Option, a Participant shall give
written notice to the Secretary of the Company, or other officer
designated by the Board at the Company's main office in Houston,
Texas. No Stock shall be issued to any Participant until the Company
receives full payment for the Stock purchased, if applicable, and any
required state and federal withholding taxes.
ARTICLE III
GRANTING OF ISO OPTIONS
3.1 GENERAL.
With respect to ISO Options granted on or after the effective date of
the Plan, the following provisions in this Article III shall apply to the
exclusion of any inconsistent provisions in any other Article in this Plan
since the ISO Options to be granted under the Plan are intended to qualify as
"incentive stock options" as defined in Section 422 of the Code.
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3.2 GRANT OF ISO OPTIONS.
ISO Options may be granted only to key employees of the Company and
any of its subsidiaries. No ISO Options shall be granted to any person who is
not eligible to receive incentive stock options as provided in Section 422 of
the Code. No ISO Options shall be granted to any key management employee if,
immediately before the grant of an ISO Option, such employee owns more than 10%
of the total combined voting power of all classes of stock of the Company or
its subsidiaries (as determined in accordance with the stock attribution rules
contained in Section 425(d) of the Code). Provided, the preceding sentence
shall not apply if at the time the ISO Option is granted, the ISO Price is at
least 110 percent of the "fair market value" of the stock subject to the ISO
Option, and such ISO Option by its terms is not exercisable after the
expiration of five years from the date such ISO Option is granted.
(a) ISO Option Price.
The option price for shares of Stock subject to an ISO Option
("ISO Price") shall be determined by the Board, but in no event shall
such ISO Price be less than the fair market value of the Stock on the
date of grant.
(b) Annual ISO Option Limitation.
The aggregate "fair market value" (determined as of the time
the ISO Option is granted) of the Stock with respect to which ISO
Options are exercisable for the first time by any Participant during
any calendar year (under all "incentive stock option" plans qualified
under Section 422 of the Code sponsored by the Company) shall not
exceed $100,000.00.
(c) Terms of ISO Options.
ISO Options shall be granted on the following terms and
conditions: No ISO Option shall be exercisable within six months from
the date of grant (except as specifically provided in Subsection
3.2(d) hereof with regard to the Disability or death of a
Participant), nor more than ten years after the date of grant. The
Board shall have the discretion to fix the period during which any ISO
Option may be exercised (the "ISO Period"). No ISO Option shall be
exercisable after the expiration of its ISO Period. Each ISO Option
shall be evidenced by a Stock Option Agreement in such form and
containing such provisions not inconsistent with the provisions of the
Plan as the Board shall approve, including provisions to qualify as an
ISO Option under Section 422 of the Code. Each Stock Option Agreement
shall specify the effect of termination of a Participant's employment
on the exercisability of ISO Options.
(d) Acceleration of Otherwise Unexercisable ISO Option on
Retirement, Death, Disability or Other Special Circumstances.
All ISO Options which are not exercisable as of the date of
termination of a Participant's employment shall expire as of such
date; provided, however, the Board, in its sole discretion, may permit
any Participant whose employment with the Company terminates, for any
cause whatsoever, to exercise, at any time within the ISO Period, any
or all ISO
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Options previously granted to such Participant notwithstanding that
such ISO Options have not yet vested, in whole or in part, as of the
date of the termination of such Participant's employment. However,
such discretionary authority of the Board shall not be exercised with
respect to any ISO Options (or portion thereof) if the applicable
six-month waiting period has not expired, except in the event of the
death or Disability of the Participant, when the personal
representative of the Participant or the disabled Participant may,
with the consent of the Board, exercise such ISO Options
notwithstanding that the six-month waiting period has not yet expired.
(e) Number of ISO Options Granted.
Subject to the applicable limitations contained in the Plan,
the Board shall determine the number of ISO Options which are to be
granted to each Participant. In making such determinations, the Board
shall obtain the advice and recommendation of the officers of the
Company. The granting of an ISO Option under the Plan shall not
affect any outstanding ISO Option previously granted to a Participant
under the Plan.
(f) Notice to Exercise ISO Option.
Upon exercise of an ISO Option, a Participant shall give
written notice to the Secretary of the Company, or other officer
designated by the Board at the Company's main office in Houston,
Texas. No Stock shall be issued to any Participant until the Company
receives full payment for the Stock purchased and any required state
and federal withholding taxes.
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ARTICLE IV
MISCELLANEOUS
4.1 NO RIGHT TO A GRANT.
Neither the adoption of the Plan by the Company nor any action of the
Board or the Committee shall be deemed to give a Participant any right to be
granted an Option or any of the rights hereunder.
4.2 NO EMPLOYMENT RIGHTS CONFERRED.
Nothing in the Plan or in any Stock Option Agreement which relates to
the Plan shall confer upon any Participant any right to continue in the employ
as an employee or consultant of the Company, or interfere in any way with the
right of the Company to terminate his employment or consulting arrangement at
any time.
4.3 RULE 16B-3.
It is intended that the Plan and any grant of options made to a person
subject to Section 16 of the 1934 Act meet all of the requirements of Rule
16b-3. If any provision of the Plan or any such grant would disqualify the
Plan or such grant under, or would otherwise not comply with, Rule 16b-3, such
provision or grant shall be construed or deemed amended to conform to Rule
16b-3.
4.4 GOVERNING LAW.
This Plan shall be construed in accordance with the laws of the state
of Delaware.
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EXHIBIT 10.18
PHYSICIANS TRUST, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following Physicians Trust, Inc. Non-Employee Director Stock
Option Plan (the "Plan") is effective as of the date of adoption of the Plan by
the Board.
1. Purpose. The purpose of the Plan is to strengthen the
ability of Physicians Trust, Inc. (the "Company") to attract and to retain the
services of experienced and knowledgeable independent individuals as members of
the Board of Directors of the Company, to extend to them the opportunity to
acquire a proprietary interest in the Company so that they will apply their
best efforts for the benefit of the Company, and to provide those individuals
with an additional incentive to continue in their position, all being for the
best interest of the Company and its stockholders. In furtherance of such
purpose, Non-Employee Directors (as defined below) shall receive non-qualified
stock options ("Options") for their services as members of the Board, in
addition to any other compensation which such Non-Employee Directors may be
entitled to receive.
2. Definitions.
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the Company's $.001 par value
Common Stock.
(e) "Date of Grant" means the date on which an Option is
granted under the Plan.
(f) "Employee" means any employee of the Company or any
Related Corporation.
(g) "Exercise Price" means the price per share of Common
Stock on the Date of Grant as provided herein or as determined by the
Board.
(h) "Fair Market Value" means any particular day (i) if
the Stock is listed or admitted for trading on any national
securities exchange or the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System,
the last sale price, or if no sale occurred, the mean between the
closing high
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Physicians Trust, Inc.
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bid and low asked quotations for such date of the Stock on the
principal securities exchange on which shares of Stock are listed,
(ii) if Stock is not traded on any national securities exchange but is
quoted on the National Association of Securities Dealers, Inc.
Automated Operations System, or any similar system of automated
dissemination of quotations or securities prices in common use, the
mean between the closing high bid and low asked quotations for such
day of the Stock on such system, (iii) if neither clause (i) nor (ii)
is applicable, the mean between the high bid and low asked quotations
for the Stock as reported by the National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid
and asked quotations for shares of the Stock on at least five of the
10 preceding days, or (iv) if none of the conditions set forth above
is met, the fair market value of shares of Stock as determined by the
Board. Provided, for purposes of determining "fair market value" of
the Common Stock of the Company, such value shall be determined
without regard to any restriction other than a restriction which will
never lapse. In no event shall the fair market value of the Stock be
less than its par value.
(i) "Ineligible Directors" means all members of the Board
who are employees or officers of the Company or any Related
Corporation.
(j) "IPO Date" means the date of closing of the initial
public offering of the Company's Common Stock.
(k) "Non-Employee Director" means any person who is a
member of the Board, but who is not currently an Employee, nor has
been an Employee during the preceding 12 month period of the Company
or any Related Corporation.
(l) "Option" means an option granted under the Plan. No
Option shall be an "incentive stock option" (as defined in Section
422A of the Code).
(m) "Optionee" means a person to whom an Option, which is
not expired, has been granted under the Plan.
(n) "Related Corporation" means either (i) a corporate
subsidiary of the Company as defined in Section 424(f) of the Code, or
(ii) the corporate parent of the Company, as defined in Section 424(e)
of the Code.
(o) "Successor" means the legal representative of the
estate of a deceased Optionee or the person or persons who acquire the
right to exercise an Option by bequest or inheritance or by reason of
the death of any Optionee.
(p) "Termination of Directorship" of an Optionee means
the cessation of such Optionee's relationship as a director on the
Board.
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3. Administration of Plan.
(a) The Plan shall be administered by the Board. The
Board shall have the authority and discretion to interpret the Plan
and to make all other determinations necessary for Plan administration
and to prescribe, amend and rescind any rules and regulations relating
to the Plan. All interpretations, determinations and actions of the
Board shall be final and binding on all parties. No Member of the
Board shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
4. Eligibility. Options may be granted under the Plan to any
member of the Board who is not an Employee of the Company or any Related
Corporation and has not been an Employee during the preceding 12 months.
5. Common Stock Subject to Options. The aggregate number of
shares of the Company's Common Stock which may be issued upon exercise of
Options granted under the Plan shall not exceed 250,000, subject to adjustment
under the provisions of Paragraph 8. The shares of Common Stock to be issued
upon the exercise of Options may be authorized but unissued shares, shares
issued and reacquired by the Company or shares bought on the market for the
purposes of the Plan. In the event any Option shall, for any reason, terminate
or expire or be surrendered without having been exercised in full, the shares
subject to such Option but not purchased thereunder shall again be available
for Options to be granted under the Plan.
6. Grants. The Company shall not grant Options to Non-Employee
Directors subject to the following terms and conditions:
(a) Initial Directors. An option to purchase 10,000
shares of Common Stock shall be granted to each of the initial
Non-Employee Directors as of the adoption of the Plan, including those
elected to begin service on or prior to the IPO Date, at an Exercise
Price equal to $1.00.
(b) Initial Appointment. An option to purchase 5,000
shares of Common Stock shall be granted to each Non-Employee Director
who is appointed or elected to the Board on the date of such
appointment or election to the Board, if such Non-Employee has not
previously received a grant under this Section 6 at an Exercise Price
equal to the Fair Market Value of Common Stock on the date the Option
is granted.
(c) Annual Grant. An option to purchase 5,000 shares of
Common Stock shall be granted to each Non-Employee Director at each
annual meeting of the Stockholders of the Company (unless such annual
meeting is held within three months
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following that person's election as a Director) at which such Director
is re-elected or remains a Director at an Exercise Price equal to the
Fair Market Value of Common Stock on the date the Option is granted;
provided, the Company may revoke at any time the next automatic grant
of Option to Non-Employee Directors.
(d) Termination of Option. In the event any Option
shall, for any reason, terminate or expire or be surrendered without
having been exercised in full, the shares subject to such Option, but
not purchased thereunder shall again be available for Options to be
granted under the Plan. In the event that the number of shares
issuable pursuant to the Plan at the time of any grant hereunder is
less than the number of shares to be issued pursuant to such grant,
the Non-Employee Directors to whom the grant is to be made shall
receive grants of Options for the aggregate number of shares of Common
Stock remaining authorized under the Plan, prorated as among such
Non-Employee Directors for the number of shares to which they are
entitled in such grant hereunder. On any date or dates thereafter
that Options become available for issuance under the Plan, whether by
cancellation or expiration of previously issued Options or by an
amendment to increase the number of shares authorized for issuance
hereunder, any Non-Employee Directors who previously were not issued
Options to which they were entitled pursuant hereto shall
automatically be granted the number of Options to which they were
previously entitled. In the event that the number of Options
available for grant pursuant to the preceding sentence shall not be
sufficient to satisfy all required grants, Non-Employee Directors
shall be granted Options in order of the dates on which such grants
should have been made, with the earliest dates receiving grants first,
and prorated as among Non-Employee Directors, if necessary, as stated
above.
(e) Vesting. All of the Options granted hereunder shall
vest immediately upon the Date of Grant.
7. Option Agreements. Any Option granted under this Plan shall
be evidenced by an agreement ("Option Agreement"), which shall be approved as
to form and substance by the Directors. Each such Option Agreement shall be
executed by an officer of the Company and the applicable Optionee. All Options
and Option Agreements granted under the provisions of this Plan shall be
subject to the following limitations and conditions:
(a) Option Price. The Option price per share with
respect to each Option shall be the Fair Market Value.
(b) Exercise Period of Option. Options may be exercised
at any time during the period beginning on the date of vesting of the
particular options to be exercised and ending 10 years after the Date
of Grant, subject to earlier termination under paragraphs 7(g) and (h)
below.
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(c) Vesting of Shareholder Rights. Neither an Optionee
nor his Successor shall have any of the rights of a shareholder of the
Company by reason of holding an Option, and such shareholder rights
will not vest until the certificates evidencing the shares purchased
are properly delivered to such Optionee or his Successor.
(d) Exercise of Option. Each Option or portion thereof
shall be exercisable from time to time over a period commencing on the
date of vesting in accordance with this Plan and ending upon the
expiration or termination of the exercise period of the Option. The
Exercise Price of an Option shall be payable upon the exercise of the
Option in cash, by certified or cashier's check, or, with the consent
of the Directors, by assigning and delivering to the Company shares of
Common Stock owned by the Non-Employee Director with the consent of
the Directors, a combination of cash and such shares. Any shares so
assigned and delivered to the Company in payment or partial payment of
the Exercise Price shall be valued at the Fair Market Value on the
date of exercise. Exercise of an Option shall not be effective until
the Company has received written notice of exercise. Such notice must
specify the number of whole shares to be purchased and be accompanied
by payment in full of the aggregate Exercise Price for the number of
shares purchased. The Company shall not in any case be required to
sell, issue, or deliver a fractional share with respect to any Option.
(e) Nontransferability of Option. No Option shall be
transferable or assignable by an Optionee otherwise than by will or
the laws of descent and distribution. Each Option shall be
exercisable, during the Optionee's lifetime, only by such Optionee.
No Option shall be pledged or hypothecated in any way and no Option
shall be subject to execution, attachment, or similar process except
with the express consent of the Directors.
(f) Termination of Directorship. Upon an Optionee's
Termination of Directorship, such Optionee's Option privileges shall
be limited to the shares which were immediately purchasable by such
Optionee at the date of such Termination of Directorship, and such
Option privileges shall expire unless exercised by such Optionee on or
before the second annual anniversary date of the date of such
Termination of Directorship. The granting of an Option to an eligible
person does not alter in any way the rights of the Company, the Board
or shareholders to remove such person as a director or officer at any
time or for any reason allowable under the law or the Company's
Articles of Incorporation or Bylaws, nor does it confer upon such
person any rights or privileges except as specifically provided for in
the Plan.
(g) Death of Optionee. If an Optionee dies while such
Optionee is a member of the Board, such Optionee's Option to purchase
the total number of shares covered by the applicable Option Agreement
shall thereupon become fully exercisable
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and shall remain exercisable by the Optionee's Successor until the
close of business on the first annual anniversary date of the
Optionee's death, at which time they shall expire.
8. Adjustments.
(a) In the event that the outstanding shares of Common
Stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, by reason of a
recapitalization, reclassification, stock split-up, combination of
shares, or dividend or other distribution payable in capital stock,
appropriate adjustment shall be made by the Directors in the number
and kind of shares for the purchase of which Options may be granted
under the Plan. In addition, the Directors shall make appropriate
adjustment in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable,
to the end that the proportionate interest of the holder of the Option
shall, to the extent practicable, be maintained as before the
occurrence of such event. Such adjustment in outstanding Options
shall be made without change in the total price applicable to the
unexercised portion of the Option but with a corresponding adjustment
in the Option price per share.
(b) In the event that the Board shall adopt resolutions
recommending the dissolution or liquidation of the Company, any Option
granted under the Plan shall terminate as of a date to be fixed by the
Directors, provided that not less than 30 days' written notice of the
date so fixed shall be given to each Optionee and each such Optionee
shall have the right during such period to exercise his Option as to
all or any part of the shares covered thereby, including shares as to
which such Option would not otherwise be exercisable by reason of an
insufficient lapse of time.
(c) In the event of a Reorganization (as hereinafter
defined) in which the Company is not the surviving or acquiring
company, or in which the Company is or becomes a wholly owned
Subsidiary of another company after the effective date of the
Reorganization, then
(i) If there is no plan or agreement
respecting the Reorganization ("Reorganization
Agreement") or if the Reorganization Agreement does
not specifically provide for the change, conversion
or exchange of the shares under outstanding and
unexercised stock options for securities of another
corporation, then the Directors shall take such
action, and the Options shall terminate, as provided
in subparagraph (b) of this Paragraph 8; or
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(ii) If there is a Reorganization Agreement and if
the Reorganization Agreement specifically provides for the
change, conversion, or exchange of the shares under
outstanding and unexercised stock options for securities of
another corporation, then the Directors shall adjust the
shares under such outstanding and unexercised stock options
(and shall adjust the shares remaining under the Plan which
are then available to be optioned under the Plan, if the
Reorganization Agreement makes specific provision therefor) in
a manner not inconsistent with the provisions of the
Reorganization Agreement for the adjustment, change,
conversion, or exchange of such stock and such Options.
(d) The term "Reorganization" as used in subparagraph (c)
of this Paragraph 8 shall mean any statutory merger, statutory
consolidation, sale of all or substantially all of the assets of the
Company, or sale, pursuant to an agreement with the Company, of
securities of the Company pursuant to which the Company is or becomes
a wholly owned subsidiary of another company after the effective date
of the Reorganization.
(e) Adjustments and determinations under this Paragraph 8
shall be made by the Directors, whose decisions shall be final,
binding, and conclusive.
9. Restrictions on Issuing Shares. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration, or qualification of
any shares otherwise deliverable upon such exercise upon any securities
exchange or under any state or federal law, or that the consent or approval of
any regulatory body, is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in any such event, such exercise shall not be effective unless
such withholding, listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company. Without limiting the foregoing, the Company will not be obligated
to sell any Shares hereunder unless the Shares are at the time effectively
registered or exempt from registration under the Securities Act of 1933, as
amended, and applicable state securities laws. The Optionee shall make such
investment representations to the Company and shall consent to the imposition
of such legends on the stock certificates as are necessary, in the opinion of
the Company's counsel, to secure to the Company an appropriate exemption from
applicable securities laws.
10. Use of Proceeds. The proceeds received by the Company from
the sale of Common Stock pursuant to the exercise of Options granted under the
Plan shall be added to the Company's general funds and used for general
corporate purposes.
__________________________________
Non-Employee Director Stock Option Plan
Physicians Trust, Inc. -7-
<PAGE> 8
11. Amendment, Suspension, and Termination of Plan.
(a) The Board shall have the power to amend, suspend or
terminate the Plan at any time subject to the other paragraphs of this
paragraph 11.
(b) The Board may not, without the relevant Optionee's
written consent, modify the terms and conditions of an Option
previously granted under the Plan.
(c) No amendment, suspension or termination of the Plan
shall, without the Optionee's written consent, alter, terminate or
impair any right or obligation under any Option previously granted
under the Plan.
(d) Unless previously terminated, the Plan shall
terminate and no more Options may be granted after December 31, 2010.
The Plan shall continue in effect with respect to Options granted
before termination of the Plan and until such Options have been
settled, terminated, or forfeited.
__________________________________
Non-Employee Director Stock Option Plan
Physicians Trust, Inc. -8-
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of October 1, 1996, between PHYSICIANS TRUST, INC., a Delaware corporation
(the "Corporation"), and ROBERT F. STRANGE, JR. ("Executive").
RECITALS
A. Executive desires to become employed by the Corporation as
Chief Executive Officer for the term hereof pursuant to the terms and
conditions set forth in this Agreement.
B. The Corporation desires to employ Executive in such capacity
pursuant to the terms and conditions set forth in this Agreement.
C. Executive recognizes that an important aspect of the
Corporation's business includes its trade secrets and proprietary information
and that it is appropriate and necessary for the Corporation to protect such
matters and Executive recognizes and acknowledges that it is reasonable and
necessary for certain restrictions to be placed on Executive's ability to
compete with the Corporation in order to protect the legitimate business
interest of the Corporation.
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions set forth below, the parties covenant and agree as follows:
1. DUTIES. During the term of this Agreement, Executive agrees
to be employed by and to serve the Corporation as Chairman of the Board of
Directors and Chief Executive Officer, and the Corporation agrees to employ and
retain Executive in such capacity. Executive shall devote his best efforts and
his business time, energy, and skill in order to perform his duties assigned to
him. Provided, however, the Employee shall be entitled to serve on the Board
of Directors of other corporations and receive remunerations for serving in
such capacity. In the performance of his duties hereunder, Executive shall at
all times be subject to the directions of the Board of Directors of the
Corporation.
2. TERM AND TERMINATION.
2.1 BASIC TERM. Subject to the provisions for
termination as hereinafter set forth, the initial term of employment of
Executive by the Corporation shall be for a period of five years commencing on
the effective date hereof. The initial term shall be automatically extended
for two years unless either party shall give written notice of termination of
this Agreement at least 60 days before the expiration of the initial five year
term. In the event that Executive shall continue in the full-time employment
of the Corporation after the initial five-year period without a written
extension of this Agreement, such continued employment shall be for successive
annual periods and shall be subject to the terms and conditions of this
Agreement.
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr.
<PAGE> 2
2.2 TERMINATION OF AGREEMENT. Executive's employment
under this Agreement may be terminated under any of the following
circumstances:
(a) Immediately by the Corporation, upon the death of Executive.
(b) At the option of the Corporation in the event
that Executive should, in the reasonable judgment of the Board
of Directors of the Corporation, fail to perform his duties
under this Agreement on account of illness or physical or
mental incapacity, and such illness or incapacity shall
continue for a period of more than six months. The
Corporation's option shall be exercised in writing and
delivered to Executive and shall be effective upon delivery.
(c) Immediately, upon written notice by the
Corporation for cause which for purposes of this Agreement
shall be defined as (i) Executive's willful and persistent
inattention to his reasonable duties which amounts to gross
negligence or willful dishonesty towards, fraud upon, or
deliberate injury or attempted injury to, the Corporation,
(ii) Executive's willful breach of any term or provision of
this Agreement which breach shall have remained substantially
uncorrected for 30 days with an opportunity to cure following
written notice to the Executive; or (iii) the commission by
Executive of any act or any failure by Executive to act
involving serious criminal conduct or moral turpitude, whether
or not directly relating to the business and affairs of the
Corporation.
(d) Upon 60 days written notice by the
Corporation or the Executive, at any time, with or without
cause.
2.3 EFFECTS OF TERMINATION. In the event that this
Agreement is terminated pursuant to Section 2.2 or upon expiration of the term
of the Agreement, neither the Executive nor the Corporation shall have any
further obligations hereunder except for (a) obligations occurring prior to the
date of termination, and (b) obligations, promises or covenants contained
herein which are expressly made to extend beyond the term of this Agreement.
The obligations, promises or covenants contained herein that shall extend
beyond the term of this Agreement shall include, without limitation, those
obligations, promises or covenants contained herein regarding confidentiality
of information, indemnities and the Executive's covenants not to compete and to
pay damages.
2.4 PAYMENTS UPON TERMINATION. Upon termination for any
of the foregoing causes, the Executive or his estate shall be entitled to
receive all accrued and unpaid compensation, including salary and bonuses and
unpaid vacation and reimbursements for certain expenses through the effective
date of termination. In the event of the Executive's termination for any
reason other than for cause (in accordance with Section 2.2(c)) or the
Executive's voluntary termination (in accordance with Section 2.2(d)), which is
not the result of a constructive termination (which shall mean a significant
change in Executive's job description or duties such that Executive would no
longer be
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -2-
<PAGE> 3
performing the duties of an executive officer), Executive shall continue to be
paid, as severance pay, an amount equal to his salary at the time of
termination along with insurance benefits for the remainder of the term if
termination occurs during the initial term and for a period of one year if
termination occurs during the renewal term.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be
rendered by Executive, the Corporation agrees to pay to Executive a monthly
base salary in an amount not less than the amounts set forth on Schedule A
attached to this Agreement. All compensation of any kind paid to Executive
under this Agreement will be payable in accordance with the Corporation's
regular payroll policies and subject to customary withholding and employment
taxes.
3.2 BONUS. During each calendar quarter commencing one
full calendar quarter after the IPO (as defined on Schedule "A"), Executive
shall receive a bonus equal to 6% of the increase in the pre tax net income per
share (over the net income per share for the most recent calendar quarter)
times the number of shares outstanding at the end of the quarterly period for
which the bonus is granted, except that such bonus shall not exceed 150% of the
base salary for the same calendar quarter. Shares outstanding shall be
determined on a fully diluted basis including for such purpose all vested stock
options and all delayed delivery shares of common stock required to be issued
by the Corporation. Increases shall only be measured on increases in net
income (i.e., from break even) and no bonus shall be payable for any quarter
unless there is net income.
3.3 STOCK OPTIONS. In addition to the base salary
payable pursuant to Section 3.1 and the bonus payable pursuant to Section 3.2,
the Corporation agrees to grant Executive stock options as follows: on the
effective date of this Agreement, Executive shall be granted options to
purchase (i) 150,000 shares of common stock for a price of one penny per share,
exercisable in equal quarterly increments over 36 months, at the end of each
successive quarter from the effective date, (ii) 150,000 shares of common stock
at an option price of $.50 per share, exercisable in quarterly increments over
24 months at the end of each successive quarter commencing with the month
following the expiration of the 36 month period pursuant to (i) above. Such
options shall be issued pursuant to the Corporation's 1996 Stock Option Plan
and shall immediately become exercisable in the event of Executive's
termination by the Corporation without cause or a constructive termination (a
significant change in Executive's job description or duties such that Executive
would no longer be performing the duties of an executive officer) or in the
event of a sale or merger of the Corporation.
3.4 EMPLOYEE HEALTH BENEFIT PLANS. Executive shall be
eligible to participate in such of the Corporation's medical, dental, and
health insurance benefit plans as may be established by the Board of Directors
of the Corporation and made generally available to officers of the Corporation
until termination of this Agreement. Said Health Insurance Plan shall cover
Executive, spouse and dependents with Corporation paid premiums and per person
deductibles of not more than $250.00 per year and maximum co-insurance of not
more than twenty (20%) percent.
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -3-
<PAGE> 4
3.5 VACATION. Executive shall be entitled to all federal
"bank" holidays plus 20 additional days of vacation time without loss of
compensation during each year of employment. Such vacation time may be accrued
and carried over if not used in full in each year.
3.6 BUSINESS EXPENSES. Executive will also be entitled
to reimbursement for his reasonable business expenses incurred in connection
with the performance of his duties hereunder, including expenditures for mobile
telephone service, entertainment, gifts and travel, provided (a) that each such
expenditure is of a nature qualifying it as a prior deduction on the federal
and state income tax returns of the Corporation and (b) Executive furnishes to
the Corporation adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate tax
authorities for the substantiation of each such expenditure as an income tax
deduction.
3.7 INDEMNIFICATION. The Corporation will indemnify and
hold harmless Executive in connection with the defense of any action, suit or
proceeding to which he is a party or threat thereof, by reason of his being or
having been an Executive or director of the Corporation to the fullest extent
that may be permitted by applicable law. Furthermore, the Corporation hereby
expressly releases, acquits and forever discharges the Executive, his heirs,
assigns, executors, administrators, agents, successors in interest, and legal
representatives, of and from any and all claims, demands, complaints,
liabilities, causes of action, controversies, damages, charges, agreements,
promises, obligations, rights, actions, remedies, suits, injuries, debts,
expenses and claims for attorney's fees whether at law or in equity, based
upon, resulting from or arising out of actions or conduct undertaken by the
Executive in good faith on behalf of the Corporation, within the scope of
duties as an officer, director or employee of the Corporation.
4. COVENANTS OF EXECUTIVE.
4.1 NON-COMPETITION. During the term of his employment
under this Agreement, Executive shall not directly or indirectly, as an owner,
partner, shareholder, employee, consultant, or in any similar manner, engage in
any physician practice management company, magnetic resonance imaging or
diagnostic imaging business. Notwithstanding the foregoing, Executive shall be
free, without the Corporation's consent, to purchase or hold as an investment
or otherwise, up to five percent of the outstanding stock or other securities
of any corporation which has its securities publicly traded on any recognized
securities exchange or in the over-the-counter market or, five percent of the
stock or other securities of any privately held corporation that might be in
competition with the Corporation.
4.2 NON-SOLICITATION. Upon expiration of the term or
termination of this Agreement, Executive covenants that he shall not for six
months following such termination directly or indirectly as an owner, partner,
shareholder, employee in an executive capacity, consultant, or in any similar
manner (i) solicit, divert or attempt to solicit or divert any entity or person
which has an existing client or customer relationship with the Corporation to
avail themselves of the services, provides or programs of any other person or
entity which are competitive, in the Corporation's existing markets with any of
the services, products or programs provided by the Corporation, or
- -------------------------------------------
Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -4-
<PAGE> 5
(ii) solicit, encourage or induce any employee of the Corporation to terminate
his or her employment with the Corporation. For purposes of this Agreement,
the business of the Corporation shall mean physician practice management and
ancillary services including magnetic resonance imaging and diagnostic imaging
in the areas of orthopedics and neurology.
5. UNENFORCEABILITY. The Corporation and Executive recognize and
agree that the covenants described in Sections 4.1 and 4.2 are ancillary to an
otherwise enforceable agreement, that the duration, scope and geographic area
applicable to the covenant described in Sections 4.1 and 4.2 are fair,
reasonable, and necessary, that adequate compensation has been received by
Executive under this Agreement for such obligations, that these obligations do
not prevent Executive from earning a livelihood, and that enforcement of the
covenants described in Sections 4.1 and 4.2 is necessary to prevent irreparable
harm and damage to the business of the Corporation. If, however, for any
reason, any court of competent jurisdiction determines that the restrictions in
either Section 4.1 or Section 4.2 are not reasonable, that the consideration is
inadequate, or that Executive has been prevented from earning a livelihood,
such restrictions shall be interpreted, modified, or rewritten to include as
much of the duration, scope, and geographic area identified in either Section
4.1 or Section 4.2 as will render such restrictions valid and enforceable.
6. CONFIDENTIALITY. Executive agrees that all confidential and
proprietary information (including without limitation any and all information,
books, records, and documents relating to the Corporation's operations,
customer lists, financial data, any and all reports to the Corporation by
Executive during the course of his employment by the Corporation, and any and
all information regarding personnel, customers, pricing, terms of sale,
research and development, or otherwise relating to the business of the
Corporation) relating to the business or operations of the Corporation or of
its affiliates, shall be kept and treated as confidential both during and after
the term of this Agreement, provided that Executive shall not incur any
liability for disclosure of information which (a) was permitted in writing by
the Corporation's Board of Directors, or (b) is within the public domain or
comes within the public domain without any breach of this Agreement. All notes,
memoranda, reports, drawings, blueprints, manuals, computer programs, records,
materials, data and other papers of every kind which were in or shall come into
Executive's possession at any time during Executive's employment by the
Corporation relating to any such confidential and proprietary information shall
be the sole and exclusive property of the Corporation.
7. MISCELLANEOUS.
7.1 BINDING ARBITRATION. Upon the request of any party (whether
made before or after the institution of any legal proceeding), any action,
dispute, claim, or controversy of any kind (including, but not limited to,
actions in contract or in tort, statutory or common law, legal or equitable)
now existing or hereafter arising between any of the parties hereto in any way
arising out of, pertaining to or in connection with this Agreement shall be
resolved by binding arbitration. All arbitration proceedings between the
parties shall be conducted in Houston, Texas and shall be administered by the
American Arbitration Association (the "AAA"), in accordance with the Commercial
Arbitration Rules of the AAA and, to the maximum extent applicable, the Federal
Arbitration Act (Title 9 of the United States Code). The decision rendered in
the arbitration
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -5-
<PAGE> 6
proceeding shall be final and conclusive upon the parties and may be enforced
by any court of competent jurisdiction.
7.2 WAIVER. The waiver of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same or other provision hereof.
7.3 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
provided herein, this Agreement represents the entire understanding among the
parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and
negotiations, written or oral, with respect to the subject matter hereof,
including without limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses, reimbursements, or other
payments to Executive from the Corporation. All modifications to the Agreement
must be in writing and signed by the party against whom enforcement of such
modification is sought.
7.4 NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be delivered personally or given
by telegraph or facsimile transmission or first class mail and shall be deemed
to have been duly given when personally delivered or seven days after mailing
or one day after facsimile or telegraph transmission to the respective persons
named below:
If to the Corporation: Physicians Trust, Inc.
2425 West Loop South, Suite 200
Houston, Texas 77027
Attn: Robert F. Strange, Jr.
If to Executive: Robert F. Strange, Jr.
5531 Cedar Creek
Houston, Texas 77056
Any party may change its address for notices by notice duly given
pursuant to this Section 7.4.
7.5 HEADINGS. The Section headings herein are intended
for reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.6 GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas. Executive and the Corporation each agree that service upon them
in any such action may be made by first class mail, certified or registered, in
the manner provided for delivery of notices in Section 7.4.
7.7 INJUNCTIVE RELIEF. The parties acknowledge and agree
that the extent of damages to the Corporation in the event of a breach of
Sections 4 or 6 of this Agreement and damages to Executive in the event of a
breach of Section 3, would be difficult or impossible to
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -6-
<PAGE> 7
ascertain and that there is and will be available to either the Corporation or
Executive no adequate remedy at law in the event of any such breach.
Accordingly, Executive and the Corporation agree that, in the event of such
breach, the Corporation or Executive shall be entitled to enforce such sections
by injunctive or other equitable relief in addition to any other relief to
which the Corporation or Executive may be entitled.
7.8 SURVIVAL; NON-ASSIGNABILITY. The Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
the Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation, or organization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and shall inure to the benefit of the surviving or
resulting corporation or person. This Agreement shall be binding upon and inure
to the benefit of the executors, administrators, heirs, successors and assigns
of Executive; provided, however, that, except as herein expressly provided,
this Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation) or by Executive.
7.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which taken together shall constitute one and the
same Agreement.
7.10 SEVERABILITY. If any portion of this Agreement is
determined to be invalid or unenforceable, the remainder shall be valid and
enforceable to the maximum extent possible.
7.11 ATTORNEY'S FEES. In the event legal action is
brought to interpret or enforce this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys fees and related costs.
7.12 EFFECTIVE DATE. This Agreement shall be effective October 1, 1996.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ATTEST: CORPORATION:
PHYSICIANS TRUST, INC.
_________________________ By: /s/ ROBERT F. STRANGE, JR.
------------------------------------
Robert F. Strange, Jr., President
EXECUTIVE:
/s/ ROBERT F. STRANGE, JR.
---------------------------------------
Robert F. Strange, Jr.
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Employment Agreement-Physician's Trust, Inc.
and Robert F. Strange, Jr. -7-
<PAGE> 8
EXHIBIT "A"
Amount
------
First Year $195,000 per year ($16,250 per month)
Second Year $195,000 per year ($16,250 per month)
Third Year $225,000 per year ($18,750 per month)
Fourth Year $235,000 per year ($19,583 per month)
Fifth Year $250,000 per year ($20,833 per month)
Compensation shall be paid as $5,000 in cash each month during the
first year and $10,000 in cash each month during the second year, with the
balance accrued each month prior to the IPO. The accrued portion of
Executive's base salary, plus a bonus of $15,000 shall be paid to Executive at
the IPO. For purposes of this Agreement, IPO shall mean any public or private
stock offering which raises cash of at least $5 million.
_________________________________________________________________
Exhibit A - Employment Agreement
Page 1 of 1
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of October 16, 1996, between PHYSICIANS TRUST, INC., a Delaware corporation
(the "Corporation"), and WILLIAM D. McCLELLAN, JR. ("Executive").
RECITALS
A. Executive desires to become employed by the Corporation as
Vice President of Finance for the term hereof pursuant to the terms and
conditions set forth in this Agreement.
B. The Corporation desires to employ Executive in such capacity
pursuant to the terms and conditions set forth in this Agreement.
C. Executive recognizes that an important aspect of the
Corporation's business includes its trade secrets and proprietary information
and that it is appropriate and necessary for the Corporation to protect such
matters and Executive recognizes and acknowledges that it is reasonable and
necessary for certain restrictions to be placed on Executive's ability to
compete with the Corporation in order to protect the legitimate business
interest of the Corporation.
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions set forth below, the parties covenant and agree as follows:
1. DUTIES. During the term of this Agreement, Executive agrees
to be employed by and to serve the Corporation as Vice President of Finance,
and the Corporation agrees to employ and retain Executive in such capacity.
Executive shall devote his best efforts and his business time, energy, and
skill in order to perform his duties assigned to him. In the performance of
his duties hereunder, Executive shall at all times be subject to the directions
of the Board of Directors of the Corporation.
2. TERM AND TERMINATION.
2.1 BASIC TERM. Subject to the provisions for
termination as hereinafter set forth, the initial term of employment of
Executive by the Corporation shall be for a period of three years commencing on
the effective date hereof. The initial term shall be automatically extended
unless either party shall give written notice of termination of this Agreement
at least 60 days before the expiration of the initial three year term. In the
event that Executive shall continue in the full-time employment of the
Corporation after the additional two-year period without a written extension of
this Agreement, such continued employment shall be for successive annual
periods and shall be subject to the terms and conditions of this Agreement.
2.2 TERMINATION OF AGREEMENT. Executive's employment
under this Agreement may be terminated under any of the following
circumstances:
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
<PAGE> 2
(a) Immediately by the Corporation, upon the
death of Executive.
(b) At the option of the Corporation in the event
that Executive should, in the reasonable judgment of the Board
of Directors of the Corporation, fail to perform his duties
under this Agreement on account of illness or physical or
mental incapacity, and such illness or incapacity shall
continue for a period of more than three months. The
Corporation's option shall be exercised in writing and
delivered to Executive and shall be effective upon delivery.
(c) Immediately, upon written notice by the
Corporation for cause which for purposes of this Agreement
shall be defined as (i) Executive's willful and persistent
inattention to his duties which amounts to gross negligence or
willful dishonesty towards, fraud upon, or deliberate injury
or attempted injury to, the Corporation, (ii) Executive's
willful breach of any term or provision of this Agreement
which breach shall have remained substantially uncorrected for
30 days with an opportunity to cure following written notice
to the Executive; or (iii) the commission by Executive of any
act or any failure by Executive to act involving serious
criminal conduct or moral turpitude, whether or not directly
relating to the business and affairs of the Corporation.
(d) Upon 30 days written notice by the
Corporation or the Executive, at any time, with or without
cause.
2.3 EFFECTS OF TERMINATION. In the event that this
Agreement is terminated pursuant to Section 2.2 or upon expiration of the term
of the Agreement, neither the Executive nor the Corporation shall have any
further obligations hereunder except for (a) obligations occurring prior to the
date of termination, and (b) obligations, promises or covenants contained
herein which are expressly made to extend beyond the term of this Agreement.
The obligations, promises or covenants contained herein that shall extend
beyond the term of this Agreement shall include, without limitation, those
obligations, promises or covenants contained herein regarding confidentiality
of information, indemnities and the Executive's covenants not to compete and to
pay damages.
2.4 PAYMENTS UPON TERMINATION. Upon termination for any
of the foregoing causes, the Executive or his estate shall be entitled to
receive all accrued and unpaid compensation, including salary and bonuses and
unpaid vacation and reimbursements for certain expenses through the effective
date of termination. In the event of the Executive's termination for any
reason other than for cause (in accordance with Section 2.2(c)) or the
Executive's voluntary termination (in accordance with Section 2.2(d)),
Executive shall continue to be paid, as severance pay, an amount equal to his
salary at the time of termination along with insurance benefits for a period of
six months if termination occurs during the initial term and for a period of
one year if termination occurs during the renewal term.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
-2-
<PAGE> 3
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be
rendered by Executive, the Corporation agrees to pay to Executive a monthly
base salary in an amount not less than the amounts set forth on Schedule A
attached to this Agreement. All compensation of any kind paid to Executive
under this Agreement will be payable in accordance with the Corporation's
regular payroll policies and subject to customary withholding and employment
taxes.
3.2 BONUS. During each calendar quarter commencing one
full calendar quarter after the IPO (as defined on Schedule "A"), Executive
shall receive a bonus equal to 2% of the increase in the pre tax net income per
share (over the net income per share for the most recent calendar quarter)
times the number of shares outstanding at the end of the quarterly period for
which the bonus is granted, except that such bonus shall not exceed 100% of the
base salary for the same calendar quarter. Shares outstanding shall be
determined on a fully diluted basis including for such purpose all vested stock
options and all delayed delivery shares of common stock required to be issued
by the Corporation. Increases shall only be measured on increases in net
income (i.e., from break even) and no bonus shall be payable for any quarter
unless there is net income.
3.3 FOUNDER'S STOCK AND STOCK OPTIONS. Upon execution of
this Agreement, Executive shall have the right to acquire 100,000 shares of the
Corporation's common stock for a purchase price of $100. Such stock shall be
delivered to Executive following receipt by the Corporation of the purchase
price and a copy of Executive's written notice of termination of his current
employment. In addition to the base salary payable pursuant to Section 3.1 and
the bonus payable pursuant to Section 3.2, the Corporation agrees to grant
Executive stock options as follows: on the effective date of this Agreement,
Executive shall be granted options to purchase (i) 100,000 shares of common
stock for a price of one penny per share, exercisable in increments over 36
months, at the end of each successive quarter from the effective date, (ii)
100,000 shares of common stock at an option price of $.50 per share,
exercisable in quarterly increments over 24 months at the end of each
successive quarter from the start date of the additional term. Such options
shall be issued pursuant to the Corporation's 1996 Stock Option Plan and shall
immediately become exercisable in the event of Executive's termination by the
Corporation without cause or a constructive termination (a significant change
in Executive's job description or duties such that Executive would no longer be
performing the duties of an executive officer) or in the event of a sale or
merger of the Corporation. In the event of termination for cause (as provided
in Section 2.2(c)), all nonvested options shall immediately be forfeited.
3.4 EMPLOYEE HEALTH BENEFIT PLANS. Executive shall be
eligible to participate in such of the Corporation's medical, dental, and
health insurance benefit plans as may be established by the Board of Directors
of the Corporation and made generally available to officers of the Corporation
until termination of this Agreement. Said Health Insurance Plan shall cover
Executive, spouse and dependents with per person deductibles of not more than
$250.00 per year and maximum co-insurance of not more than twenty (20%)
percent.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
-3-
<PAGE> 4
3.5 VACATION. Executive shall be entitled to all federal
"bank" holidays plus 20 additional days of vacation time without loss of
compensation during each year of employment. Such vacation time may be accrued
and carried over if not used in full in each year.
3.6 BUSINESS EXPENSES. Executive will also be entitled
to reimbursement for his reasonable business expenses incurred in connection
with the performance of his duties hereunder, including expenditures for mobile
telephone service, entertainment, gifts and travel, provided (a) that each such
expenditure is of a nature qualifying it as a prior deduction on the federal
and state income tax returns of the Corporation and (b) Executive furnishes to
the Corporation adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate tax
authorities for the substantiation of each such expenditure as an income tax
deduction.
3.7 TEMPORARY LIVING AND MOVING EXPENSES. Executive
shall be entitled to a temporary living expense stipend of $2,000 per month to
reimburse Executive for temporary living expenses and travel expenses between
South Lake and Houston for a period of six months or such earlier time as the
relocation to Houston is completed. In addition, the Corporation will provide
a relocation allowance of $15,000 to be paid to the Executive for moving costs,
real estate fees and/or closing costs.
3.8 INDEMNIFICATION. The Corporation will indemnify and
hold harmless Executive in connection with the defense of any action, suit or
proceeding to which he is a party or threat thereof, by reason of his being or
having been an Executive or director of the Corporation to the fullest extent
that may be permitted by applicable law.
4. NON-COMPETITION.
4.1 DURING THE TERM OF EMPLOYMENT. During the term of
his employment under this Agreement, Executive shall not directly or
indirectly, as an owner, partner, shareholder, employee, consultant, or in any
similar manner, engage in any physician practice management company, magnetic
resonance imaging or diagnostic imaging business. Notwithstanding the
foregoing, Executive shall be free, without the Corporation's consent, to
purchase or hold as an investment or otherwise, up to five percent of the
outstanding stock or other securities of any corporation which has its
securities publicly traded on any recognized securities exchange or in the
over-the-counter market or, five percent of the stock or other securities of
any privately held corporation that might be in competition with the
Corporation.
4.2 AFTER TERMINATION. Upon expiration of the term or
termination of this Agreement, Executive covenants that he shall not for one
year following such termination directly or indirectly as an owner, partner,
shareholder, employee in an executive capacity, consultant, or in any similar
manner engage, in any practice management company, magnetic resonance imaging
or diagnostic imaging business competitive with the business of the Corporation
as hereinafter defined, within the continental United States. Notwithstanding
the foregoing, the purchase or holding by Executive as an investment or
otherwise of up to five percent of the outstanding stock or other
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Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
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<PAGE> 5
securities of any such competitive corporation or business which has its
securities publicly traded on any recognized securities exchange or in the
over-the-counter market or five percent of the stock of any privately held
corporation shall not constitute a breach of the covenant contained in this
Section 4.2. For purposes of this Agreement, the business of the Corporation
shall mean physician practice management and ancillary services including
magnetic resonance imaging and diagnostic imaging in the areas of orthopedics
and neurology.
5. UNENFORCEABILITY. Employer and Employee recognize and agree
that the covenants described in Sections 4.1 and 4.2 are ancillary to an
otherwise enforceable agreement, that the duration, scope and geographic area
applicable to the covenant described in Sections 4.1 and 4.2 are fair,
reasonable, and necessary, that adequate compensation has been received by
Employee under this Agreement for such obligations, that these obligations do
not prevent Employee from earning a livelihood, and that enforcement of the
covenants described in Sections 4.1 and 4.2 is necessary to prevent irreparable
harm and damage to the business of Employer. If, however, for any reason, any
court of competent jurisdiction determines that the restrictions in either
Section 4.1 or Section 4.2 are not reasonable, that the consideration is
inadequate, or that Employee has been prevented from earning a livelihood, such
restrictions shall be interpreted, modified, or rewritten to include as much of
the duration, scope, and geographic area identified in either Section 4.1 or
Section 4.2 as will render such restrictions valid and enforceable.
6. CONFIDENTIALITY. Executive agrees that all confidential and
proprietary information (including without limitation any and all information,
books, records, and documents relating to the Corporation's operations,
customer lists, financial data, any and all reports to the Corporation by
Executive during the course of his employment by the Corporation, and any and
all information regarding personnel, customers, pricing, terms of sale,
research and development, or otherwise relating to the business of the
Corporation) relating to the business or operations of the Corporation or of
its affiliates, shall be kept and treated as confidential both during and after
the term of this Agreement, provided that Executive shall not incur any
liability for disclosure of information which (a) was permitted in writing by
the Corporation's Board of Directors, or (b) is within the public domain or
comes within the public domain without any breach of this Agreement. All notes,
memoranda, reports, drawings, blueprints, manuals, computer programs, records,
materials, data and other papers of every kind which were in or shall come into
Executive's possession at any time during Executive's employment by the
Corporation relating to any such confidential and proprietary information shall
be the sole and exclusive property of the Corporation.
7. COPYRIGHT. Executive agrees that, except as provided in the
preceding sentence, any and all writings produced at any time during the term
hereof by Executive as a part of the performance of his duties hereunder are
and will be the sole property of the Corporation, and that the Corporation will
have the exclusive right to copyright such writings in any country.
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Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
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8. MISCELLANEOUS.
8.1 WAIVER. The waiver of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same or other provision hereof.
8.2 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
provided herein, this Agreement represents the entire understanding among the
parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and
negotiations, written or oral, with respect to the subject matter hereof,
including without limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses, reimbursements, or other
payments to Executive from the Corporation. All modifications to the Agreement
must be in writing and signed by the party against whom enforcement of such
modification is sought.
8.3 NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be delivered personally or given
by telegraph or facsimile transmission or first class mail and shall be deemed
to have been duly given when personally delivered or seven days after mailing
or one day after facsimile or telegraph transmission to the respective persons
named below:
If to the Corporation: Physicians Trust, Inc.
2425 West Loop South, Suite 200
Houston, Texas 77027
Attn: Robert F. Strange, Jr.
If to Executive:
-----------------------------------
-----------------------------------
-----------------------------------
Any party may change its address for notices by notice duly given
pursuant to this Section 8.3.
8.4 HEADINGS. The Section headings herein are intended
for reference and shall not by themselves determine the construction or
interpretation of this Agreement.
8.5 GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas. Executive and the Corporation each agree that service upon them
in any such action may be made by first class mail, certified or registered, in
the manner provided for delivery of notices in Section 8.3.
8.6 INJUNCTIVE RELIEF. The parties acknowledge and agree
that the extent of damages to the Corporation in the event of a breach of
Sections 4, 6 or 7 of this Agreement and damages to Executive in the event of a
breach of Section 3, would be difficult or impossible to ascertain and that
there is and will be available to either the Corporation or Executive no
adequate
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Employment Agreement - Physician's Trust, Inc.
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<PAGE> 7
remedy at law in the event of any such breach. Accordingly, Executive and the
Corporation agree that, in the event of such breach, the Corporation or
Executive shall be entitled to enforce such sections by injunctive or other
equitable relief in addition to any other relief to which the Corporation or
Executive may be entitled.
8.7 SURVIVAL; NON-ASSIGNABILITY. The Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
the Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation, or organization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and shall inure to the benefit of the surviving or
resulting corporation or person. This Agreement shall be binding upon and inure
to the benefit of the executors, administrators, heirs, successors and assigns
of Executive; provided, however, that, except as herein expressly provided,
this Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation) or by Executive.
8.8 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which taken together shall constitute one and the
same Agreement.
8.9 SEVERABILITY. If any portion of this Agreement is
determined to be invalid or unenforceable, the remainder shall be valid and
enforceable to the maximum extent possible.
8.10 ATTORNEY'S FEES. In the event legal action is
brought to interpret or enforce this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys fees and related costs.
8.11 EFFECTIVE DATE. This Agreement shall be effective
beginning with the Executive's first day of employment, which date shall be
determined by mutual agreement of the Corporation and Executive, but no later
than 120 days following the execution of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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Employment Agreement - Physician's Trust, Inc.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ATTEST: CORPORATION:
PHYSICIANS TRUST, INC.
_________________________ By: /s/ ROBERT F. STRANGE, JR.
-------------------------------------
Robert F. Strange, Jr., President
EXECUTIVE:
/s/ WILLIAM D. MCCLELLAN, JR.
------------------------------------------
William D. McClellan, Jr.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and William D. McClellan, Jr.
-8-
<PAGE> 9
EXHIBIT "A"
Year Amount
---- ------
First Year $110,000 per year ($9,167 per month)
(Paid according to the table below with the accrued portion paid at the IPO or
on December 1, 1997, whichever occurs first)
Current Cash Deferred &
Payment Accrued Payment Total
------------ --------------- -----
November 1996 $7,000.00 $2,167.00 $9,167.00
December 1996 $7,000.00 $2,167.00 $9,167.00
January 1997 $7,000.00 $2,167.00 $9,167.00
February 1997 $7,000.00 $2,167.00 $9,167.00
March 1997 $7,000.00 $2,167.00 $9,167.00
April 1997 $7,000.00 $2,167.00 $9,167.00
May 1997 $7,722.33 $1,444.67 $9,167.00
June 1997 $8,444.66 $ 722.34 $9,167.00
July 1997 and
thereafter
until December
1997 $9,167.00 $ 0.00 $9,167.00
Second Year $130,000 per year ($10,833 per month)
Third Year $130,000 per year ($10,833 per month)
Fourth Year $150,000 per year ($12,500 per month)
Fifth Year $150,000 per year ($12,500 per month)
For purposes of this Agreement, IPO shall mean any public or private
stock offering which raises cash of at least $5 million.
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of November 1, 1996, between PHYSICIANS TRUST, INC., a Delaware corporation
(the "Corporation"), and TERENCE D. JUNG ("Executive").
RECITALS
A. Executive desires to become employed by the Corporation as
Executive Vice President of Operations and Chief Operating Officer for the term
hereof pursuant to the terms and conditions set forth in this Agreement.
B. The Corporation desires to employ Executive in such capacity
pursuant to the terms and conditions set forth in this Agreement.
C. Executive recognizes that an important aspect of the
Corporation's business includes its trade secrets and proprietary information
and that it is appropriate and necessary for the Corporation to protect such
matters and Executive recognizes and acknowledges that it is reasonable and
necessary for certain restrictions to be placed on Executive's ability to
compete with the Corporation in order to protect the legitimate business
interest of the Corporation.
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions set forth below, the parties covenant and agree as follows:
1. DUTIES. During the term of this Agreement, Executive agrees
to be employed by and to serve the Corporation as Executive Vice President of
Operations and Chief Operating Officer, and the Corporation agrees to employ
and retain Executive in such capacity. Executive shall devote his best efforts
and his business time, energy, and skill in order to perform, consistent with
generally recognized responsibilities and authority of a Chief Operating
Officer his duties assigned to him. In the performance of his duties
hereunder, Executive shall at all times be subject to the directions of the
Board of Directors of the Corporation.
2. TERM AND TERMINATION.
2.1 BASIC TERM. Subject to the provisions for
termination as hereinafter set forth, the initial term of employment of
Executive by the Corporation shall be for a period of three years commencing on
the effective date hereof. The initial term shall be automatically extended
unless either party shall give written notice of termination of this Agreement
at least 60 days before the expiration of the initial three year term. In the
event that Executive shall continue in the full-time employment of the
Corporation after the additional two-year period without a written extension of
this Agreement, such continued employment shall be for successive annual
periods and shall be subject to the terms and conditions of this Agreement.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
<PAGE> 2
2.2 TERMINATION OF AGREEMENT. Executive's employment
under this Agreement may be terminated under any of the following
circumstances:
(a) Immediately by the Corporation, upon the
death of Executive.
(b) At the option of the Corporation in the event
that Executive should, in the reasonable judgment of the Board
of Directors of the Corporation, fail to perform his duties
under this Agreement on account of illness or physical or
mental incapacity, and such illness or incapacity shall
continue for a period of more than six months. The
Corporation's option shall be exercised in writing and
delivered to Executive and shall be effective upon delivery.
(c) Immediately, upon written notice by the
Corporation for cause which for purposes of this Agreement
shall be defined as (i) Executive's willful and persistent
inattention to his reasonable duties which amounts to gross
negligence or willful dishonesty towards, fraud upon, or
deliberate injury or attempted injury to, the Corporation,
(ii) Executive's willful breach of any term or provision of
this Agreement which breach shall have remained substantially
uncorrected for 30 days with an opportunity to cure following
written notice to the Executive; or (iii) the commission by
Executive of any act or any failure by Executive to act
involving serious criminal conduct or moral turpitude, whether
or not directly relating to the business and affairs of the
Corporation.
(d) Upon 60 days written notice by the
Corporation or the Executive, at any time, with or without
cause.
2.3 EFFECTS OF TERMINATION. In the event that this
Agreement is terminated pursuant to Section 2.2 or upon expiration of the term
of the Agreement, neither the Executive nor the Corporation shall have any
further obligations hereunder except for (a) obligations occurring prior to the
date of termination, and (b) obligations, promises or covenants contained
herein which are expressly made to extend beyond the term of this Agreement.
The obligations, promises or covenants contained herein that shall extend
beyond the term of this Agreement shall include, without limitation, those
obligations, promises or covenants contained herein regarding confidentiality
of information, indemnities and the Executive's covenants not to compete or
solicit customers or employees.
2.4 PAYMENTS UPON TERMINATION. Upon termination for any
of the foregoing causes, the Executive or his estate shall be entitled to
receive all accrued and unpaid compensation, including salary, deferred cash
compensation and bonuses and unpaid vacation and reimbursements for certain
expenses through the effective date of termination. In the event of the
Executive's termination by the Company for any reason other than for cause (in
accordance with Section 2.2(c)), Executive shall continue to be paid, as
severance pay, an amount equal to his monthly salary (including any deferred
salary portions) at the time of termination along with insurance benefits for
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Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
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<PAGE> 3
a period of six months if termination occurs during the initial term and for a
period of one year if termination occurs during the renewal term.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be
rendered by Executive, the Corporation agrees to pay to Executive a monthly
base salary in an amount not less than the amounts set forth on Schedule A
attached to this Agreement. All compensation of any kind paid to Executive
under this Agreement will be payable in accordance with the Corporation's
regular payroll policies and subject to customary withholding and employment
taxes.
3.2 BONUS. During each calendar quarter commencing one
full calendar quarter after the IPO (as defined on Schedule "A"), Executive
shall receive a bonus equal to 4% of the increase in the pre tax net income per
share (over the net income per share for the most recent calendar quarter)
times the number of shares outstanding at the end of the quarterly period for
which the bonus is granted, except that such bonus shall not exceed 100% of the
base salary for the same calendar quarter. Shares outstanding shall be
determined on a fully diluted basis including for such purpose all vested stock
options and all delayed delivery shares of common stock required to be issued
by the Corporation. Increases shall only be measured on increases in net
income (i.e., from break even) and no bonus shall be payable for any quarter
unless there is net income.
3.3 FOUNDER'S STOCK AND STOCK OPTIONS. Upon execution of
this Agreement, Executive shall have the right to acquire 135,000 shares of the
Corporation's common stock for a purchase price of $135. Such stock shall be
delivered to Executive following receipt by the Corporation of the purchase
price. In addition to the base salary payable pursuant to Section 3.1 and the
bonus payable pursuant to Section 3.2, the Corporation agrees to grant
Executive stock options as follows: on the effective date of this Agreement,
Executive shall be granted options to purchase (i) 135,000 shares of common
stock for a price of one penny per share, exercisable in equal quarterly
increments over 36 months, at the end of each successive quarter from the
effective date, and (ii) 135,000 shares of common stock at an option price of
$.50 per share, exercisable in equal quarterly increments over 24 months at the
end of each successive quarter from the start date of the additional term.
Such options shall be issued pursuant to the Corporation's 1996 Stock Option
Plan and shall immediately become exercisable in the event of Executive's
termination by the Corporation without cause or a constructive termination (a
significant change in Executive's job description or duties such that Executive
would no longer be performing the duties of an executive officer) or in the
event of a sale or merger of the Corporation. In the event of termination for
cause (as provided in Section 2.2(c)), all nonvested options shall immediately
be forfeited.
3.4 EMPLOYEE HEALTH BENEFIT PLANS. Executive shall be
eligible to participate in the Corporation's medical, dental, and health
insurance benefit plans which will be established by the Board of Directors of
the Corporation and made generally available to officers of the Corporation
until termination of this Agreement. Said Health Insurance Plan shall cover
Executive, spouse and dependents with per person deductibles of not more than
$250.00 per year and maximum co-insurance of not more than twenty (20%)
percent.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
-3-
<PAGE> 4
3.5 VACATION. Executive shall be entitled to all federal
"bank" holidays plus 20 additional days of vacation time without loss of
compensation during each year of employment. Such vacation time may be accrued
and carried over if not used in full in each year.
3.6 BUSINESS EXPENSES. Executive will also be entitled
to reimbursement for his reasonable business expenses incurred in connection
with the performance of his duties hereunder, including expenditures for mobile
telephone service, entertainment, gifts and travel, provided (a) that each such
expenditure is of a nature qualifying it as a prior deduction on the federal
and state income tax returns of the Corporation and (b) Executive furnishes to
the Corporation adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate tax
authorities for the substantiation of each such expenditure as an income tax
deduction.
3.7 CONTINUING EDUCATION ALLOWANCE. The Executive shall
be entitled to an allowance of $1,500 annually to be used for continuing
education costs including professional dues.
3.8 INDEMNIFICATION. The Corporation will indemnify and
hold harmless Executive in connection with the defense of any action, suit or
proceeding to which he is a party or threat thereof, by reason of his being or
having been an Executive or director of the Corporation to the fullest extent
that may be permitted by applicable law. Furthermore, the Corporation hereby
expressly releases, acquits and forever discharges the Executive, his heirs,
assigns, executors, administrators, agents, successors in interest, and legal
representatives, of and from any and all claims, demands, complaints,
liabilities, causes of action, controversies, damages, charges, agreements,
promises, obligations, rights, actions, remedies, suits, injuries, debts,
expenses and claims for attorney's fees whether at law or in equity, based
upon, resulting from or arising out of actions or conduct undertaken by the
Executive in good faith on behalf of the Corporation, within the scope of
duties as an officer, director or employee of the Corporation.
4. COVENANTS OF EXECUTIVE.
4.1 NON-COMPETITION. During the term of his employment
under this Agreement, Executive shall not directly or indirectly, as an owner,
partner, shareholder, employee, consultant, or in any similar manner, engage in
any physician practice management company, magnetic resonance imaging or
diagnostic imaging business. Notwithstanding the foregoing, Executive shall be
free, without the Corporation's consent, to purchase or hold as an investment
or otherwise, up to five percent of the outstanding stock or other securities
of any corporation which has its securities publicly traded on any recognized
securities exchange or in the over-the-counter market or, five percent of the
stock or other securities of any privately held corporation that might be in
competition with the Corporation.
4.2 NON-SOLICITATION. Upon expiration of the term or
termination of this Agreement, Executive covenants that he shall not for one
year following such termination directly or indirectly as an owner, partner,
shareholder, employee in an executive capacity, consultant, or in any similar
manner (i) solicit, divert or attempt to solicit or divert any entity or person
which has an
_____________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
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<PAGE> 5
existing client or customer relationship with the Corporation to avail
themselves of the services, provides or programs of any other person or entity
which are competitive, in the Corporation's existing markets with any of the
services, products or programs provided by the Corporation, and (ii) solicit,
encourage or induce any employee of the Corporation to terminate his or her
employment with the Corporation. For purposes of this Agreement, the business
of the Corporation shall mean physician practice management and ancillary
services including magnetic resonance imaging and diagnostic imaging in the
areas of orthopedics and neurology.
4.3 NON-DISPARAGEMENT. During the term of Executive's
employment under this Agreement and upon expiration of the term or termination
of this Agreement, the Executive promises and agrees not to say, write,
express, communicate or relate anything derogatory, disparaging or defamatory
about the Corporation, its business practices and activities. Furthermore, the
Executive promises and agrees not to make any oral or written statements or
take any action detrimental to the goodwill of the Corporation, its officers,
directors, agents or to the relationships of the Corporation with it suppliers,
customers, employees and other persons having dealings with the Corporation.
The Corporation promises and agrees not to communicate anything orally or in
writing, disparaging or defamatory about the Executive to any person or entity
not employed by the Corporation.
4.4 COOPERATION. The Executive promises and agrees that
at all times after the termination of his employment with the Corporation, to
cooperate fully, without cost to the Executive, with the Corporation, its
officers, directors, employees, agents, and legal counsel, at the Corporation's
sole discretion, in connection with any claim, complaint, charge, suit or
action previously or thereafter asserted or filed against the Corporation which
relates to directly or indirectly with the Executive's employment with the
Corporation.
4.5 INVALID PROVISIONS. If any provision of this Section
4 is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Agreement, such
provision shall be fully severable; this Section 4 shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Section 4; and the remaining provisions of this
Section 4 shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from this
Section 4. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as part of this
Section 4 a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible to make it legal, valid, and
enforceable.
5. CONFIDENTIALITY. Executive agrees that all confidential and
proprietary information (including without limitation any and all information,
books, records, and documents relating to the Corporation's operations,
customer lists, financial data, any and all reports to the Corporation by
Executive during the course of his employment by the Corporation, and any and
all information regarding personnel, customers, pricing, terms of sale,
research and development, or otherwise relating to the business of the
Corporation) relating to the business or operations of the Corporation or of
its affiliates, shall be kept and treated as confidential both during and after
the term of this Agreement, provided that Executive shall not incur any
liability for disclosure of information which (a) was permitted in writing by
the Corporation's Board of Directors, or (b) is within the public
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
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<PAGE> 6
domain or comes within the public domain without any breach of this Agreement.
All notes, memoranda, reports, drawings, blueprints, manuals, computer
programs, records, materials, data and other papers of every kind which were in
or shall come into Executive's possession at any time during Executive's
employment by the Corporation relating to any such confidential and proprietary
information shall be the sole and exclusive property of the Corporation. Upon
termination of Executive's employment with the Corporation, for any reason,
Executive promptly shall deliver the same, and all copies thereof, to the
Corporation.
6. COPYRIGHT. Executive agrees that, except as provided in the
preceding sentence, any and all writings produced at any time during the term
hereof by Executive as a part of the performance of his duties hereunder are
and will be the sole property of the Corporation, and that the Corporation will
have the exclusive right to copyright such writings in any country.
7. MISCELLANEOUS.
7.1 WAIVER. The waiver of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same or other provision hereof.
7.2 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
provided herein, this Agreement represents the entire understanding among the
parties with respect to the subject matter hereof, and this Agreement
supersedes any and all prior understandings, agreements, plans and
negotiations, written or oral, with respect to the subject matter hereof,
including without limitation any understandings, agreements or obligations
respecting any past or future compensation, bonuses, reimbursements, or other
payments to Executive from the Corporation. All modifications to the Agreement
must be in writing and signed by the party against whom enforcement of such
modification is sought.
7.3 NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be delivered personally or given
by telegraph or facsimile transmission or first class mail and shall be deemed
to have been duly given when personally delivered or seven days after mailing
or one day after facsimile or telegraph transmission to the respective persons
named below:
If to the Corporation: Physicians Trust, Inc.
2425 West Loop South, Suite 200
Houston, Texas 77027
Attn: Robert F. Strange, Jr.
If to Executive: Terence D. Jung
2807 Carmel Woods Drive
Seabrook, Texas 77586-1559
Any party may change its address for notices by notice duly given
pursuant to this Section 7.3.
_____________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
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<PAGE> 7
7.4 HEADINGS. The Section headings herein are intended
for reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.5 GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas. Executive and the Corporation each agree that service upon them
in any such action may be made by first class mail, certified or registered, in
the manner provided for delivery of notices in Section 7.3.
7.6 INJUNCTIVE RELIEF. The parties acknowledge and agree
that the extent of damages to the Corporation in the event of a breach of
Sections 4, 5 or 6 of this Agreement and damages to Executive in the event of a
breach of Section 3, would be difficult or impossible to ascertain and that
there is and will be available to either the Corporation or Executive no
adequate remedy at law in the event of any such breach. Accordingly, Executive
and the Corporation agree that, in the event of such breach, the Corporation or
Executive shall be entitled to enforce such sections by injunctive or other
equitable relief in addition to any other relief to which the Corporation or
Executive may be entitled.
7.7 SURVIVAL; NON-ASSIGNABILITY. The Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to
the Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation, or organization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and shall inure to the benefit of the surviving or
resulting corporation or person. This Agreement shall be binding upon and inure
to the benefit of the executors, administrators, heirs, successors and assigns
of Executive; provided, however, that, except as herein expressly provided,
this Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation) or by Executive.
7.8 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which taken together shall constitute one and the
same Agreement.
7.9 SEVERABILITY. If any portion of this Agreement is
determined to be invalid or unenforceable, the remainder shall be valid and
enforceable to the maximum extent possible.
7.10 ATTORNEY'S FEES. In the event legal action is
brought to interpret or enforce this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys fees and related costs.
7.11 EFFECTIVE DATE. This Agreement shall be effective
beginning with the Executive's first day of employment, which date is agreed to
be November 4, 1996.
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ATTEST: CORPORATION:
PHYSICIANS TRUST, INC.
_________________________ By: /s/ ROBERT F. STRANGE, JR.
--------------------------------------
Robert F. Strange, Jr., President
EXECUTIVE:
/s/ TERENCE D. JUNG
-------------------------------------------
Terence D. Jung
______________________________________________
Employment Agreement - Physician's Trust, Inc.
and Terence D. Jung
-8-
<PAGE> 9
EXHIBIT "A"
Year Amount
---- ------
First Year $162,000 per year ($13,500 per month)
(Paid according to the table below with the accrued portion paid at
the earlier of (i) the IPO, (ii) on termination of employment, or (iii) the
closing of transactions with total consideration of at least $20 million.)
Second Year $185,000 per year ($15,417 per month)
Third Year $200,000 per year ($16,666 per month)
Fourth Year $200,000 per year ($16,666 per month)
Fifth Year $210,000 per year ($17,500 per month)
Current Cash Deferred &
Payment Accrued Payment Total
------- --------------- -----
November 1996 $ 9,000 $ 4,500 $13,500
December 1996 $ 9,500 $ 4,000 $13,500
January 1997 $10,000 $ 3,500 $13,500
February 1997 $10,500 $ 3,000 $13,500
March 1997 $11,000 $ 2,500 $13,500
April 1997 $11,500 $ 2,000 $13,500
May 1997 and
thereafter $13,500 - 0 -
Until IPO or 10/31/97
For purposes of this Agreement, IPO shall mean (i) any public or
private stock offering which raises cash of at least $5 million, or (ii) any
public or private financing of at least $15 million.
__________________________________
Exhibit A - Employment Agreement
Page 1 of 1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 20, 1998, except
as to Note 9 which is as of March 3, 1998, relating to the financial statements
of Physicians Trust, Inc. and of our report dated February 20, 1998, relating to
the financial statements of Physicians Surgery Center, which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
March 4, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF PERSON TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any reference to me as a
person nominated to become a director of Physicians Trust, Inc. ("PTI") in the
Prospectus constituting a part of PTI's Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission pursuant to the Act, and any
amendments thereto.
Dated: February 25, 1998
/s/ RICHARD A. SILVER, M.D.
-----------------------------
Richard A. Silver, M.D.
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PERSON TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any reference to me as a
person nominated to become a director of Physicians Trust, Inc. ("PTI") in the
Prospectus constituting a part of PTI's Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission pursuant to the Act, and any
amendments thereto.
Dated: February 25, 1998
/s/ CHARLES C. WELLS, JR., M.D.
-------------------------------
Charles C. Wells, Jr., M.D.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
balance sheet and statement of operations and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,842
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,879
<PP&E> 555
<DEPRECIATION> 23
<TOTAL-ASSETS> 3,254
<CURRENT-LIABILITIES> 3,472
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (221)
<TOTAL-LIABILITY-AND-EQUITY> 3,254
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 741
<INCOME-PRETAX> (2,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,755)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
