<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTEGRATED PHYSICIAN SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 23-2820597
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
</TABLE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
2644 BRISTOL ROAD
WARRINGTON, PENNSYLVANIA 18976
(Address of principal place of business)
SCOTT G. POLLOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTEGRATED PHYSICIAN SYSTEMS, INC.
2644 BRISTOL ROAD
WARRINGTON, PENNSYLVANIA 18976
(215) 343-1942/(215) 343-8761 (TELECOPY)
(Name, address, and telephone number of principal executive offices and agent
for service)
COPIES TO:
<TABLE>
<S> <C>
ROBERT STEVEN BROWN, ESQ. LAWRENCE B. FISHER, ESQ.
STEPHEN H. GRAY, ESQ. ORRICK, HERRINGTON & SUTCLIFFE LLP
BROCK FENSTERSTOCK SILVERSTEIN 666 FIFTH AVENUE
MCAULIFFE & WADE LLC NEW YORK, NEW YORK 10103
153 EAST 53RD STREET (212) 506-5000/(212) 506-5151 (TELECOPY)
NEW YORK, NEW YORK 10022
(212) 371-2000/(212) 371-5500 (TELECOPY)
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. /X/
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER 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 DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
------------------------
CALCULATION OF REGISTRATION FEE
See attached page.
------------------------
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 SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT (1) PRICE (1) REGISTRATION FEE
<C> <S> <C> <C> <C>
Common Stock, par value $.01 per 1,725,000
share Shares (2) $10.00 $ 17,250,000.00 $ 5,227.20
[6 1/2% to 8%] Convertible
Subordinated Debentures due
, 2004, including
Common Stock issuable upon
conversion of such Debentures $28,750,000(3)(4) 100% 28,750,000.00 8,712.13
Representative's Warrants --(4) .0001 15.00 --
Common Stock, par value
$.01 per share, underlying the 150,000
Representative's Warrants Shares (4) 12.00 1,800,000.00 545.46
Convertible Subordinated
Debentures underlying
Representative's Warrants,
including Common Stock to be
issued upon the conversion thereof $2,500,000 (4) 100% 2,500,000.00 757.57
TOTAL -- -- $ 50,300,015.00 $ 15,242.36
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 225,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company which the Underwriters have the option to
purchase solely to cover over-allotments, if any.
(3) Includes $3,750,000 principal amount of 6 1/2% to 8% Convertible
Subordinated Debentures due , 2004 (the "Debentures") which the
Underwriters have the option to purchase solely to cover over-allotments, if
any.
(4) Pursuant to Rule 416, there are also being registered such indeterminate
number of shares of Common Stock as may become issuable pursuant to the
anti-dilution provisions of the Debentures and Representative's Warrants.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
DEBENTURES, INCLUDING PURCHASES OF THE COMMON STOCK AND/OR DEBENTURES TO
STABILIZE THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE COMMON STOCK AND/OR
DEBENTURES TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE
UNDERWRITERS IN THE COMMON STOCK AND/OR DEBENTURES, RESPECTIVELY, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The Company intends to furnish to its stockholders annual reports containing
financial statements audited and reported on by its independent certified public
accountants after the end of each fiscal year and make available such other
periodic reports as the Company may deem appropriate or as may be required by
law.
2
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 8, 1997
PROSPECTUS
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.
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC. [LOGO]
$25,000,000 [6 1/2% TO 8%] CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
AND
1,500,000 SHARES OF COMMON STOCK
---------------------
This Prospectus relates to the offering (the "Offering") of $25,000,000
aggregate principal amount of % Convertible Subordinated Debentures due 2004
(the "Debentures") and 1,500,000 shares of Common Stock, par value $.01 per
share (the "Common Stock") of Integrated Physician Systems, Inc., a Delaware
corporation (the "Company"). The Debentures and the Common Stock are sometimes
hereinafter referred to as the "Securities."
Interest on the Debentures will be payable semi-annually on and
of each year, commencing , 1998, at the rate of % per
annum [6 1/2% to 8%][. The Debentures are convertible into shares of Common
Stock at any time prior to maturity, unless previously redeemed, at a conversion
price per share of $ [120% to 130% of the initial public offering price of
the Common Stock], subject to adjustment as hereinafter provided. The Debentures
are redeemable, in whole or in part, at the option of the Company, at a
redemption price equal to 100% of the principal amount, plus accrued and unpaid
interest, at any time on or after , 2000 [36 months after issuance],
provided that the Closing Price (as defined) of the Common Stock, during the 20
consecutive trading days prior to the date of the notice of redemption, has
equaled or exceeded $ [150% of the initial public offering price of the
Common Stock], subject to adjustment in certain events. The Debentures are
subordinated to all existing and future Senior Indebtedness (as hereinafter
defined) and are effectively subordinated to all indebtedness of the Company. At
March 31, 1997, the Company had pro forma consolidated indebtedness to which the
Debentures would be effectively subordinated aggregating approximately $672,000.
See "Description of Debentures."
Prior to this Offering, there has been no public market for the Debentures
or the Common Stock, and there can be no assurance that such a market will
develop upon completion of this Offering, or, if developed, that it will be
sustained. It is anticipated that the initial public offering price of the
Common Stock will be $ per share. For information regarding the factors
considered in determining the terms of the Debentures and the initial offering
price of the Common Stock, see "Underwriting." The Company has applied for the
listing of the Debentures and the Common Stock on the American Stock Exchange
(the "AMEX") under the symbols "IPS.C" and "IPS," respectively.
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 AND "DILUTION" FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(2) COMPANY (2)(3)
<S> <C> <C> <C>
Per Debenture............................................ 100%(1) % %
Per Share................................................ $ $ $
Total Debentures......................................... $ (1) $ $
Total Shares............................................. $ $ $
Total(4)................................................. $ $ $
</TABLE>
(1) Plus accrued and unpaid interest, if any, from , 1997
(2) Does not include additional consideration to be received by National
Securities Corporation, the representative (the "Representative") of the
several underwriters (the "Underwriters"), in the form of a non-accountable
expense allowance. In addition, see "Underwriting" for information
concerning indemnification and contribution arrangements with the
Underwriters and other compensation payable to the Representative.
(3) Before deducting estimated expenses of $ payable by the Company,
including the Representative's non-accountable expense allowance.
(4) The Company has granted the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
$3,750,000 principal amount of Debentures and/or up to an additional 225,000
shares of Common Stock upon the same terms and conditions, solely to cover
over-allotments, if any. If the over-allotment option granted to the
Underwriters is exercised in full, the total Price to Public, Underwriting
Discount, and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting."
The Securities offered hereby are being offered, subject to prior sale,
when, as, and if delivered to, and accepted by, the Underwriters, subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, modify, or cancel the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities offered hereby will be made against
payment therefor at the offices of National Securities Corporation, 1001 Fourth
Avenue, Seattle, Washington 98154, on or about , 1997.
--------------------------
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
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. UPON CONSUMMATION OF THIS OFFERING, INTEGRATED
PHYSICIAN SYSTEMS, INC. WILL ACQUIRE (THE "ACQUISITIONS") CERTAIN ASSETS AND
ASSUME CERTAIN LIABILITIES ASSOCIATED WITH 12 MEDICAL PRACTICES (THE "INITIAL
AFFILIATED PRACTICES") AND 100% OF THE CAPITAL STOCK OF A MEDICAL BILLING
COMPANY, AND WILL ENTER INTO MANAGEMENT SERVICES AGREEMENTS WITH EACH SUCH
MEDICAL PRACTICE (THE INITIAL AFFILIATED PRACTICES, SUCH MEDICAL BILLING
COMPANY, AND AN INDEPENDENT PRACTICE ASSOCIATION MANAGEMENT COMPANY ACQUIRED BY
THE COMPANY IN APRIL 1997 (THE "PMI ACQUISITION"), ARE REFERRED TO COLLECTIVELY
AS THE "INITIAL ACQUIRED ENTITIES"). AS USED HEREIN, "COMPANY" REFERS TO
INTEGRATED PHYSICIAN SYSTEMS, INC. AND ITS SUBSIDIARIES AND "AFFILIATED
PRACTICES" REFERS TO THE INITIAL AFFILIATED PRACTICES AND ANY PHYSICIAN
PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR RELATIONSHIPS IN THE
FUTURE. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES
NOT GIVE EFFECT TO (I) THE EXERCISE OF THE REPRESENTATIVE'S WARRANTS; (II) THE
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (III) THE ISSUANCE OF
UP TO 300,000 SHARES OF COMMON STOCK UPON THE EXERCISE OF OPTIONS WHICH MAY BE
GRANTED UNDER THE COMPANY'S 1996 STOCK OPTION PLAN (THE "PLAN"). THE INFORMATION
IN THIS PROSPECTUS RELATING TO SHARES OF COMMON STOCK AND PER SHARE AMOUNTS
GIVES EFFECT TO THE ISSUANCE OF AN AGGREGATE OF 365,800 SHARES OF COMMON STOCK
TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Integrated Physician Systems, Inc. (the "Company") is a newly established
physician practice management organization ("PPMO") which is developing an
integrated health care delivery network in selected geographic areas through
affiliation with physician practices. Upon the closing of this Offering, the
operations of the Company will consist of (i) the Initial Affiliated Practices,
consisting of 12 medical practices located in New Jersey and Pennsylvania, (ii)
Professional Medical Images Ltd. ("PMI"), which is engaged in the development
and management of independent practice associations ("IPAs") and is currently
affiliated with approximately 225 physicians in the State of New Jersey, and
(iii) Network Billings Systems, Inc. ("NBS"), which is engaged in the
development and management of physician fee billing, electronic medical records,
and utilization information systems for medical practices. NBS currently manages
patient and third party billing services for 25 medical practices unaffiliated
with the Company in Pennsylvania.
The Company's objective is to develop and manage an integrated health care
delivery network that provides high quality, cost-effective care. The Company
has focused, and intends, at least initially, to continue to focus, its primary
affiliation efforts on physician practices located in New Jersey, New York, and
Pennsylvania. The Company targets physicians who are committed to the delivery
of high quality, cost-effective care and have a reputation with their patients,
peers, and payors for providing quality medical services and that have the
capacity to increase profitability through improved performance on existing
patient bases. When affiliating with a physician practice, the Company will
typically purchase the practice's non-real estate operating assets and enter
into a long-term practice management services agreement ("PMSA") with the
practice in exchange for a combination of Common Stock, cash, notes, other
securities of the Company, and/or the assumption of liabilities.
The health care delivery system in the United States has been undergoing
substantial change, largely in response to concerns over the quality and
escalating cost of health care. National expenditures for health care grew from
$250 billion in 1980 to an estimated $1 trillion in 1995. Of the total estimated
1995 expenditures, physicians received approximately $200 billion for their own
services and controlled an additional $600 billion through the referral of
patients for additional care and services provided by others.
3
<PAGE>
Concerns over the accelerating cost of health care have resulted in the
increasing prominence of managed care. The Company believes that traditional
physician practices are at a competitive disadvantage in a managed care
environment because they typically have high operating costs, have little
purchasing power with suppliers, and must spread overhead over a relatively
small revenue base. In addition, these physician practices often have
insufficient capital to acquire equipment to incorporate new technologies and
often lack the sophisticated systems necessary to contract effectively with
managed care entities. Physician practices are increasingly turning to
organizations such as the Company to provide the professional management
expertise and capital required to compete in the managed care environment and
otherwise to assist them with the increasingly complex management of physician
practices. The Company believes that this has resulted in a need for management
organizations committed to preserving the professional autonomy of physician
practices and whose economic incentives are aligned with those of physicians.
The Company's operating strategy includes the following: (i) targeting for
affiliation high quality and productive physician practices which are committed
to expanding and providing cost-effective care; (ii) integrating physician
practices into Company-coordinated strategic business units ("SBUs") to provide
physician and medical support services within specific geographic regions; (iii)
contracting with state and local governments to provide medical services for
elderly and indigent populations; (iv) enhancing the ability of the Affiliated
Practices to focus on clinical practice issues by relieving them of most
administrative functions; (v) implementing and utilizing sophisticated
information systems to manage patient care and to control costs; (vi)
coordinating purchases of supplies, equipment, and services in order to realize
economies of scale; (vii) developing and enhancing IPA services and contracts;
(viii) positioning the Company to maximize managed care contract opportunities;
and (ix) developing ancillary services and broadening the specialties of the
Company's health care delivery network.
The Company was incorporated under the laws of the State of Delaware on
April 25, 1995. The Company's principal offices are located at 2644 Bristol
Road, Warrington, Pennsylvania 18976, and its telephone number is (215)
343-1942.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED
Debentures................................... $25,000,000 aggregate principal amount of
[6 1/2% to 8%] Convertible Subordinated
Debentures due , 2004 (the
"Debentures")
Common Stock................................. 1,500,000 shares
DEBENTURE TERMS
Interest Payment Dates....................... Each and , commencing ,
1998
Maturity Date................................ , 2004
Conversion................................... The Debentures are convertible into shares of
Common Stock at any time prior to maturity,
unless previously redeemed, at a conversion
price of $ per share [120% to 130% of
the initial public offering price of the
Common Stock], subject to adjustment in
certain events.
Redemption at Option of Company.............. The Debentures are not redeemable prior to
, 2000. Thereafter, the Debentures
are redeemable, in whole or in part, from
time to time, at the option of the Company at
a redemption price equal to 100% of the
principal amount thereof plus accrued and
unpaid interest, provided that the Debentures
may not be redeemed prior to maturity unless
the closing price of the Common Stock for 20
consecutive trading days prior to the date of
notice of such redemption has equaled or
exceeded $ , [150% of the initial
public offering price of the Common Stock],
subject to adjustment in certain events. See
"Description of Debentures-- Optional
Redemption."
Redemption at Option of Holders.............. In the event that a Repurchase Event (as
defined) occurs, subject to certain
conditions, each holder of a Debenture shall
have the right, at the holder's option, to
require the Company to purchase all or any
part of such holder's Debentures at 100% of
the principal amount thereof plus accrued and
unpaid interest through the date of
redemption.
Sinking Fund................................. If a sinking fund is established for any
indebtedness ranking junior to, or pari passu
with, the Debentures and which has a maturity
or weighted average time to maturity which is
on or prior to , 2004, the Debentures
will be entitled to an annual sinking fund
beginning in the Company's next fiscal year
calculated to retire that amount of
Debentures equal to the lesser of (i) the
same percentage of outstanding Debentures
prior to
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
maturity as the percentage of the principal
amount of such other indebtedness to be
retired prior to maturity on the same payment
schedule as such other indebtedness or (ii)
such amount of Debentures necessary to result
in the Debentures having the same weighted
average time to maturity as the other
indebtedness.
Subordination................................ The Debentures are subordinated in right of
payment to all present and future Senior
Indebtedness (as defined) of the Company. The
Indenture will not restrict the incurrence of
additional Senior Indebtedness by the Company
or any indebtedness by any Subsidiary. See
"Description of Debentures."
SECURITIES OUTSTANDING
PRIOR TO THE OFFERING
Debentures................................... None
Common Stock................................. 3,409,300 shares
SECURITIES OUTSTANDING IMMEDIATELY
FOLLOWING THE OFFERING
Debentures................................... $25,000,000 aggregate principal amount
Common Stock................................. 4,909,300 shares
USE OF PROCEEDS.............................. Payments due upon consummation of the
Acquisitions; funds available for future
acquisitions of additional physician
practices and/or other medical entities;
hardware, software, and installation cost of
an information system; repayment of certain
indebtedness; and general corporate and
working capital purposes.
RISK FACTORS................................. The purchase of the Securities offered hereby
is speculative and involves substantial risk.
Prospective investors should carefully review
and consider the information set forth under
"Risk Factors" and "Dilution."
PROPOSED AMEX TRADING SYMBOLS:
Debentures................................... "IPS.C"
Common Stock................................. "IPS"
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
INCEPTION ------------------------------------------
(APRIL 25, YEAR ENDED
1995) DECEMBER 31, 1996 1996 1997
THROUGH --------------------- -------------------- --------------------
DECEMBER PRO PRO PRO
31, 1995 ACTUAL FORMA(1) ACTUAL FORMA(1) ACTUAL FORMA(1)
----------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue: $ $4,795,000
Medical service revenue, net of
contractual adjustments and bad
debts.............................. $ -- $18,470,000 $ $ $4,716,000
Other revenue...................... -- -- 38,000 -- 9,000 -- 10,000
----------- --------- ---------- --------- --------- --------- ---------
Total revenue.................... -- -- 18,508,000 -- 4,804,000 -- 4,726,000
Costs and expenses:.................. --
Salaries and wages................. -- -- 13,519,000 -- 3,263,000 -- 2,580,000
Medical supplies and expenses...... -- -- 426,000 -- 110,000 -- 98,000
General and administrative -- 1,283,000
expenses........................... 4,000 4,174,000 2,000 12,000 1,842,000
Depreciation and 1,000 298,000
amortization....................... 2,000 1,185,000 1,000 1,000 300,000
Interest expense................... -- -- 1,752,000 -- 438,000 -- 438,000
----------- --------- ---------- --------- --------- --------- ---------
Total costs and expenses......... 1,000 6,000 21,056,000 3,000 5,392,000 13,000 5,258,000
Loss before income taxes............. (1,000) ( 6,000) (2,548,000 ( 3,000) (588,000) ( 13,000) (532,000)
Provision for income taxes........... -- -- -- -- -- -- --
----------- --------- ---------- --------- --------- --------- ---------
Net loss............................. $ (1,000) $( 6,000) $(2,548,000 $( 3,000) $(588,000) $( 13,000) $(532,000)
----------- --------- ---------- --------- --------- --------- ---------
----------- --------- ---------- --------- --------- --------- ---------
Pro forma net loss per $(0.12)
share(2)............................. $ (0.52) $ (0.11)
<CAPTION>
---------- --------- ---------
---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma weighted average 4,909,300
number of shares outstanding(2)...... 4,909,300 4,909,300
<CAPTION>
---------- --------- ---------
---------- --------- ---------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
-------------------- ------------------------
<S> <C> <C> <C> <C>
PRO FORMA, AS
1995 1996 ACTUAL ADJUSTED(1)(3)
--------- --------- --------- -------------
Working capital (deficiency)...................................... $ (74,000) $(243,000) $(329,000) $27,225,000
Total assets...................................................... 73,000 296,000 473,000 41,957,000
Total liabilities................................................. 74,000 273,000 463,000 25,672,000
Stockholders' equity (deficit).................................... $ (1,000) $ 23,000 $ 10,000 $16,285,000
</TABLE>
- ------------------------
(1) The pro forma statement of operations data for the fiscal year ended
December 31, 1996 and for the three months ended March 31, 1996 and 1997 is
presented as if the Acquisitions and the PMI Acquisition had occurred on
January 1, 1996. The pro forma balance sheet data for March 31, 1997 is
presented as if the Acquisitions and the PMI Acquisition had occurred on
March 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and Notes to Unaudited Pro Forma
Consolidated Financial Statements.
(2) See Note II to the Unaudited Pro Forma Consolidated Statement of Operations
Adjustments.
(3) Gives effect on a pro forma basis to the issuance after March 31, 1997 of an
aggregate principal amount of $125,000 Series A 10% Senior Notes (the
"Senior Notes") and 12,500 shares of Common Stock as part of a bridge
financing of the Company (the "Bridge Financing"), and as adjusted to
reflect the sale of the Debentures and the Common Stock offered hereby,
assuming an initial public offering price of 100% and $10.00 per share,
respectively, and the initial application of the net proceeds therefrom. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. PROSPECTIVE
INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY. The
Company was incorporated in April 1995 and, to date, has conducted limited
operations and generated limited revenue. At March 31, 1997, the Company had a
working capital deficiency of approximately $329,000 and an accumulated deficit
of approximately $20,000. The likelihood of the future success of the Company is
highly speculative and must be considered in light of its limited operating
history, as well as the problems, expenses, difficulties, risks, and
complications frequently encountered in connection with similarly situated
companies in early stages of development. The Company is subject to all of the
business risks associated with a new enterprise, including constraints on its
financial and human resources, lack of established business relationships, and
uncertainties regarding affiliations and future revenues. The Company has
entered into agreements to acquire certain assets and assume certain liabilities
of the Initial Affiliated Practices and NBS upon consummation of this Offering.
In connection with the consummation of the Acquisitions, the Company is entering
into PMSAs to provide management services to the Initial Affiliated Practices
for initial terms of 40 years. The Initial Affiliated Practices have operated as
separate independent entities. There can be no assurance that the process of
integrating the management and administrative functions of the Initial
Affiliated Practices will be successful or that the Company will be able to
manage these operations effectively or profitably and successfully implement the
Company's operating or expansion strategies. Failure by the Company to
successfully implement its operating and expansion strategies would have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
RISKS RELATED TO EXPANSION STRATEGY. The Company's expansion strategy
involves growth through affiliation with physician practices and the expansion
of such practices. The Company is subject to various risks associated with this
strategy, including the risks that the Company will be unable to identify and
recruit suitable affiliation candidates, successfully expand and manage the
Affiliated Practices, or successfully integrate the Affiliated Practices into
its existing operations. The Company's expansion is dependent on its ability to
affiliate with quality physician practices, to manage and control costs, and to
realize economies of scale. There can be no assurance that the Company will be
able to achieve and manage its planned expansion or that suitable physician
practices will be available for affiliation upon terms satisfactory to the
Company, or at all. There can be no assurance that the Company's expansion
strategy will be successful or that material modifications to the Company's
expansion strategy will not be required. The failure of the Affiliated Practices
to achieve anticipated performance levels could materially adversely affect the
Company. In pursuing its expansion strategy, the Company intends to expand its
presence into new geographic markets. In entering a new geographic market, the
Company will be required to comply with laws and regulations of jurisdictions
that differ materially from those applicable to the Company's current
operations, deal with different payors, as well as face competitors with greater
knowledge of such markets than the Company. There can be no assurance that the
Company will be able to effectively establish a presence in any new market. See
"Business-Strategy" and "Business-Government Regulation."
ADDITIONAL FINANCING REQUIREMENTS. The Company's expansion strategy will
require substantial capital resources. Capital is required not only for the
acquisition of substantially all of the assets of the Affiliated Practices and
other medical entities, but also for the integration, operation, and expansion
of the Affiliated Practices and such medical entities. In addition, the
Company's Affiliated Practices and other
8
<PAGE>
acquired entities may, from time to time, require capital for renovation,
expansion, and the purchase of additional medical equipment and technology. The
Company believes that the net proceeds of this Offering, together with
anticipated revenues from operations, will be sufficient to satisfy its capital
requirements for at least 12 months following the date of this Prospectus. There
can be no assurance that such resources will be sufficient to satisfy the
Company's capital requirements for said period. After the 12-month period, the
Company may require additional financing in order to meet its current plans for
expansion. Such financing may take the form of the issuance of common or
preferred equity securities or debt securities, or may involve bank financing.
There can be no assurance that the Company will be able to obtain needed
additional capital on a timely basis, on favorable terms, or at all. Any
additional financing could result in dilution of the then-existing equity
positions, and increased interest and amortization expense. If the Company is
unable to secure additional sources of financing on terms and conditions
favorable to the Company, or at all, the Company's expansion strategy could be
materially adversely affected. In any of such events, the Company may be unable
to implement its current plans for expansion or to repay its debt obligations.
See "Use of Proceeds" and "Business--Strategy."
LIMITED MANAGEMENT RESOURCES. The Company's anticipated growth is expected
to place a significant strain on its managerial, operational, and financial
resources. To manage this growth, the Company will be required to significantly
expand its operational and financial systems and expand, train, and manage its
work force. The ability of the Company to attract and retain highly skilled
personnel is critical to the operations and expansion of the Company. The
Company faces competition for such personnel from other PPMOs and more
established organizations, many of which have significantly larger operations
and greater financial, marketing, human, and other resources than the Company.
There can be no assurance that the Company will be successful in attracting and
retaining qualified personnel on a timely basis, on competitive terms, or at
all. In the event that the Company is not successful in attracting and retaining
such personnel, the Company may be materially adversely affected. Further, the
Company anticipates that it will take time to integrate additional skilled
individuals into the Company's operations and to build a cohesive and efficient
workforce.
RELIANCE ON AFFILIATED PRACTICES. The Company will receive fees for
management services provided to its Affiliated Practices under the PMSAs.
Revenue received by the Company from the Affiliated Practices under the PMSAs
generally will depend on revenue generated by the Affiliated Practices. The
revenue from the Affiliated Practices will be dependent on fees generated by the
physicians employed by the Affiliated Practices. In connection with the PMSAs,
each physician will enter into an employment agreement, each of which will have
a three to five year term, with the professional corporation in which that
physician practices. Any loss of revenue by the Affiliated Practices, including
losses resulting from a substantial reduction in the number of physicians
employed by, or associated with, the Affiliated Practices, could have a material
adverse effect on the Company. See "Business --Affiliation Structure."
DEPENDENCE ON THIRD PARTY REIMBURSEMENT. The Company's ability to collect
fees in a timely manner, or at all, is affected by whether its Affiliated
Practices are reimbursed for their medical services and the amount of
reimbursement. Substantially all of the revenue of the Affiliated Practices, on
which the Company's revenue will be dependent, will derive from commercial
health insurance, state workers' compensation programs, and other third-party
payors. All of these providers and programs are regulated at the state or
federal level. There are increasing and significant public and private sector
pressures to contain health care costs and to restrict reimbursement rates for
medical services. For example, it has been reported that the Medicare program is
expected to experience a deficiency of funds early in the next century.
Accordingly, Congress, in its fiscal year 1997 budget legislation, called for,
and considered, severe reductions in both the Medicare and Medicaid programs.
Several states have taken measures to reduce the reimbursement rates paid to
health care providers in their states. The Company believes that additional
states will implement reductions from time to time. Reductions in Medicare and
Medicaid rates often lead to reductions in the reimbursement rates of other
third party payors as well. Thus, changes in the level of support by federal and
state governments of health care services, the methods by which health care
services
9
<PAGE>
may be delivered, and the prices of such services may all have a material impact
on the revenue of the Company, which in turn could have a material adverse
effect on the Company.
Third party payors may disagree with the description or coding of a bill for
medical services, or may contest a description or code under a lesser fee
schedule depending on the medical services rendered. Such disagreements on
description of professional services or bill coding, particularly where the
third party payor is a federal or state funded health care program, could result
in lesser reimbursement, which could have a material adverse effect on the
Company. Persistent disagreements or alleged "upcoding" could result in
allegations of fraud or false billing, both of which constitute felonies. Such
an allegation, if proven, could result in forfeitures of payment, civil money
penalties, civil fines, suspensions, or exclusion from participation in federal
or state funded health care programs, and could have a material adverse effect
on the Company. Investigation and prosecution for fraudulent or false billing
could have a material adverse effect on the Company, even if such allegations
were disproven.
The Company's income may be materially adversely affected by the
uncollectibility of medical fees from third party payors or by delay in the
submission of claims, and the long collection cycles for such receivables. Many
third party payors, particularly insurance carriers covering automobile no-fault
and workers' compensation claims refuse, as a matter of business practice, to
pay claims unless submitted to arbitration. Further, third party payors may
reject medical claims if, in their judgment, the procedures performed were not
medically necessary or if the charges exceed such payor's allowable fee
standards. In addition, some receivables may not be collected because of
omissions or errors in timely completion of the required claim forms. The
inability of the Affiliated Practices to collect their receivables could
materially adversely affect the Company. See "Risk Factors--Government
Regulation," "Business-Third Party Reimbursement" and "Business-Government
Regulation."
GOVERNMENT REGULATION. Federal and state laws regulate the relationships
among providers of health care services, physicians, and other clinicians. These
laws include federal fraud and abuse provisions. Such provisions prohibit the
solicitation, receipt, payment, or offering of any direct or indirect
remuneration for the referral of patients for which reimbursement is made under
any federal or state funded health care program or for the recommending,
leasing, arranging, ordering, or providing of services covered by such programs.
States have similar laws that apply to patients covered by private and
government programs. Federal fraud and abuse laws also impose restrictions on
physicians' referrals for designated health services covered under Medicare or
Medicaid to entities with which they have financial relationships. Various
states have adopted similar laws that cover patients in private programs as well
as government programs. There can be no assurance that the federal and state
governments will not consider additional prohibitions on physician ownership,
directly or indirectly, of facilities to which they refer patients, which could
adversely affect the Company. Violations of these laws may result in substantial
civil or criminal penalties for individuals or entities, including large civil
money penalties and exclusion from participation in federal or state health care
programs. Such exclusion, if applied to the Affiliated Practices could result in
significant loss of reimbursement and could have a material adverse effect on
the Company.
Federal law also prohibits conduct that may be, or result in, price-fixing
or other anticompetitive conduct. Moreover, the Company may in the future
contract with licensed insurance companies and/or HMOs. Certain of such
contracts may require the Affiliated Practices on behalf of which the Company
contracts to assume risk in connection with providing health care service under
capitation arrangements. To the extent that the Company or the Affiliated
Practices may be in the business of insurance as a result of entering into such
arrangements, they may be subject to a variety of regulatory and licensing
requirements applicable to insurance companies or HMOs. There can be no
assurance that review of the Company's or the Affiliated Practices' businesses
by courts or regulatory authorities will not result in a determination that
could materially adversely affect the operations of the Company or such
Affiliated Practices or that the health care regulatory environment will not
change so as to restrict the Company's or such Affiliated Practices' existing
operations or their expansion.
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<PAGE>
Moreover, the laws of many states prohibit physicians from sharing
professional fees, or "splitting fees," with anyone other than a member of the
same profession. These laws and their interpretations vary from state to state
and are enforced by the courts and by regulatory authorities with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with the Affiliated Practices, which could have an adverse effect
on the Company. Although the Company believes that the operations of the Initial
Affiliated Practices as currently conducted are in compliance in all material
respects with existing applicable laws, there can be no assurance that review of
the Company's business by courts or regulatory authorities will not result in a
determination that could adversely affect the operations of the Company or that
the health care regulatory environment will not change so as to restrict the
Company's existing operations or its expansion.
Every state imposes licensing requirements on individual physicians and on
certain other health care providers and facilities. Many states require
regulatory approval, including licensing to render care or certificates of need
before establishing certain types of health care services which entail the
acquisition of expensive medical equipment or facilities. While the performance
of management services on behalf of a medical practice does not currently
require any regulatory approval, there can be no assurance that such activities
will not be subject to licensure in the future. Such requirements could have a
material adverse effect on the Company and its operations. See "Business -
Government Regulation."
STATE LAWS PROHIBITING THE CORPORATE PRACTICE OF MEDICINE. The Affiliated
Practices are anticipated to be business corporations wholly-owned by the
Company in states in which the Company believes general business corporations
are permitted to own a medical practice. In other states, the Affiliated
Practices will be formed as professional corporations owned by one or more
medical doctors licensed to practice medicine under applicable state law.
Corporations such as the Company are not permitted under certain state laws to
practice medicine or exercise control over the medical judgments or decisions of
practitioners. Laws regulating the corporate practice of medicine and the
interpretation thereof vary from state to state and are enforced by the courts
and by regulatory authorities with broad discretion. The Company believes that
it performs only non-medical administrative services, does not represent to the
public or its clients that it offers medical services, and does not exercise
influence or control over the practice of medicine by the practitioners with
whom it contracts. Expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's form of relationship with practitioners in order to comply with laws
regulating the corporate practice of medicine, which could have an adverse
effect on the Company. Although the Company believes its operations, as
currently conducted, are in compliance in all material respects with existing
applicable laws, there can be no assurance that the Company's structure will not
be challenged as constituting the unlicensed practice of medicine or that the
enforceability of the agreements underlying this structure will not be limited.
If such a challenge were made successfully in any state, the Company could be
subject to civil and criminal penalties under such state's law and could be
required to restructure its contractual arrangements in that state. Such
results, or the inability to successfully restructure its contractual
arrangements, could have a material adverse effect on the Company.
HEALTH CARE REFORM. Although Congress failed to pass comprehensive health
care reform legislation in 1996, the Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
and payment systems and may in the future propose and adopt legislation
effecting fundamental changes in the health care delivery system. Also, Congress
is expected to consider major reductions in the rate of increase of Medicare and
Medicaid spending as a part of efforts to balance the budget of the United
States. The Company cannot predict the ultimate timing, scope, or effect of any
legislation concerning health care reform, including legislation affecting the
Medicare and Medicaid programs. Any proposed federal legislation, if adopted,
could result in significant changes in the availability, delivery, pricing, and
payment for health care services and products. Various states also have
undertaken, or are considering, significant health care reform initiatives.
Although it is not possible to
11
<PAGE>
predict whether any health care reform legislation will be adopted or, if
adopted, the exact manner and the extent to which the Company will be affected,
it is likely that the Company will be affected in some fashion, and there can be
no assurance that any health care reform legislation, if and when adopted, will
not have a material adverse effect on the Company.
EXPOSURE TO PROFESSIONAL LIABILITY. In recent years, physicians, hospitals,
and other participants in the health care industry have become subject to an
increasing number of lawsuits alleging medical malpractice and related legal
theories. Many of these lawsuits involve large claims and substantial defense
costs. The Company does not engage in the practice of medicine or provide
medical services, nor does it control the practice of medicine by the Affiliated
Practices or the compliance with regulatory and other requirements directly
applicable to the Affiliated Physicians and Affiliated Practices; however, there
can be no assurance that the Company will not become involved in such litigation
in the future. See "Business -- Professional Liability Insurance."
The PMSAs will require the Affiliated Practices to maintain, at their
expense, professional liability insurance for themselves and each physician
employed by, or otherwise providing medical services for, the Affiliated
Practices in the minimum amount of $1,000,000 per occurrence and $3,000,000 in
the aggregate. In addition, each of the Affiliated Practices will undertake to
comply with all applicable regulations and requirements, and the Company will be
indemnified under the PMSA for claims against the Company arising in connection
with actions by the Affiliated Practices. The Company has applied for general
liability insurance for itself and requires that it be named as an additional
insured party on the professional liability insurance policies of the Affiliated
Practices pursuant to the PMSA. In addition, the Company will maintain liability
insurance on its non-physician professional employees, such as nurses and
midwives.
There can be no assurance that the Company, its employees, the Affiliated
Practices, or the physicians employed by, or associated with, the Affiliated
Practices will not be subject to claims in amounts that exceed the coverage
limits or that such coverage will be available when needed. Further, there can
be no assurance that professional liability or other insurance will continue to
be available to the Affiliated Practices in the future at adequate levels, at an
acceptable cost, or at all. A successful claim against the Company or an
Affiliated Practice in excess of the relevant insurance coverage could have a
material adverse effect upon the Company. Claims against the Company or an
Affiliated Practice, regardless of the merits or eventual outcomes, may also
have a material adverse effect on the Company.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. An increasing percentage of
patients are coming under the control of managed care entities. The Company
believes that its success will, in part, depend upon its ability to negotiate on
behalf of the Affiliated Practices favorable managed care contracts with HMOs
and other private third party payors. Such contracts often shift much of the
financial risk of providing care from the payor to the provider by requiring the
provider to furnish all or a portion of its services in exchange for a fixed, or
"capitated," fee per member patient per month, regardless of the level of such
patients' utilization rates and, sometimes in the case of primary care
physicians, to accept financial risk for health care services not normally
furnished by such physicians (e.g., specialty physician or hospital services).
The Company intends to negotiate capitation agreements with managed care
organizations. Some managed care agreements also offer "shared risk" provisions
under which physicians and physician practice management concerns can earn
additional compensation based on the utilization of services by members, but may
be required to bear a portion of any loss in connection with such "shared-risk"
provisions. Any such losses could have a material adverse effect on the Company.
In order for capitation contracts, especially any with "shared-risk" provisions,
to be profitable for the Company, the Company must effectively monitor the
utilization of its services delivered to members of the managed care
organization who are patients of the Affiliated Practices and, to the extent
such Affiliated Practices are responsible for overall patient care, monitor the
utilization of specialist physicians or hospitals, negotiate favorable rates
with such other providers, and obtain, on favorable terms, stop loss protection
limiting its per enrollee exposure above specified thresholds. There can be no
assurance that the Company will be able to negotiate satisfactory managed care
contracts for the Affiliated Practices. Nor can there be any
12
<PAGE>
assurance that any managed care contracts it enters into on behalf of the
Affiliated Practices will not adversely affect the Company or the Affiliated
Practices.
COMPETITION. The physician practice management industry is highly
competitive. The Company is subject to significant competition both in
affiliating with physician practices and in seeking managed care contracts on
behalf of the Affiliated Practices. Its competitors include hospitals, managed
care organizations, and other PPMOs. In comparison with the Company, many of its
competitors are larger and have substantially greater resources, provide a wider
variety of services, and have longer established relationships with purchasers
of such services. There can be no assurance that the Company will be able to
compete effectively, that additional competitors will not enter the market, or
that such competition will not make it more difficult to enter into affiliations
with physician practices on terms beneficial to the Company. The Company also
experiences competition in the recruitment and retention of qualified physicians
and other health care professionals on behalf of the Affiliated Practices. There
can be no assurance that the Company will be able to recruit or retain a
sufficient number of qualified physicians and other health care professionals to
expand its operations. See "Business-Competition."
DEPENDENCE ON KEY EMPLOYEES. The Company is dependent substantially upon
the efforts of Scott G. Pollock, Chief Executive Officer and a Director of the
Company, Peter R. Heisen, M.D., President, Chief Medical Officer, and a Director
of the Company, and Dennis B. Liotta, M.D., Executive Vice President, Chief
Operating Officer, and a Director of the Company. The loss of, or unavailability
of, any of these individuals or the inability of the Company to attract other
qualified employees could have a material adverse effect upon the Company. The
Company has entered into employment agreements with these key executives, with
minimum terms of at least three years. In addition, the Company has obtained,
and is the sole owner and beneficiary of, an insurance policy in the amount of
$1,000,000 on the life of each of Messrs. Pollock, Heisen, and Liotta. See
"Management."
NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICES;
POSSIBLE VOLATILITY OF DEBENTURE AND COMMON STOCK MARKET PRICES. Prior to this
Offering, there has been no public market for the Debentures or Common Stock,
and there can be no assurance that an active public market for the Debentures or
the Common Stock will develop or, if developed, be sustained after this
Offering. The terms of the Debentures and the initial public offering price of
the Common Stock were arbitrarily determined by negotiation between the Company
and the Representative, and do not necessarily bear any relationship to the
Company's assets, book value, results of operations, or any other generally
accepted criteria of value. From time to time after this Offering, there may be
significant volatility in the market price of the Debentures and the Common
Stock. Quarterly operating results of the Company or other developments
affecting the Company, such as announcements by the Company or its competitors
regarding acquisitions or dispositions, new procedures, changes in general
conditions in the economy or the health care industry, and general market
conditions could cause the market price of the Debentures and the Common Stock
to fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have often been unrelated to the operating
performance of these companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices in
companies in health care and related industries and may similarly affect the
price of the Debentures and the Common Stock following this Offering. See
"Underwriting."
NO DIVIDENDS. The Company has not paid cash dividends on the Common Stock
since inception and does not intend to pay any dividends to its stockholders in
the foreseeable future. The Company currently intends to reinvest earnings, if
any, in the development and expansion of its business. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION. The
purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of the shares
of Common Stock of $9.22 per share, or approximately 92.2% per share. The
current
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<PAGE>
stockholders of the Company, including the Directors and entities and persons
affiliated with them acquired their shares of Common Stock for nominal
consideration. As a result, new investors will bear substantially all of the
risks inherent in an investment in the Company. See "Dilution."
SUBSTANTIAL CONTROL BY MANAGEMENT. Upon the closing of this Offering, the
Company's officers and directors will own approximately 24.8% of the outstanding
shares of Common Stock (approximately 23.7% of the outstanding shares of Common
Stock if the Underwriters' over-allotment option is exercised in full). As a
result, such persons may have the ability to control the election all of the
directors of the Company and to control the outcome of all issues submitted to a
vote of the stockholders of the Company. Furthermore, such concentration of
ownership could limit the price that certain investors might be willing to pay
in the future for shares of Common Stock and could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire control of, the Company. See "Principal
Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE The sale, or availability for sale, of a
substantial number of shares of Common Stock in the public market subsequent to
this Offering pursuant to Rule 144 under the Securities Act ("Rule 144") or
otherwise could materially adversely affect the market price of the Common Stock
and could impair the Company's ability to raise additional capital through the
sale of its equity securities or debt financing. Of the 4,909,300 shares of
Common Stock to be outstanding upon completion of this Offering, the 1,500,000
shares of Common Stock offered hereby (1,725,000 shares of Common Stock if the
Underwriters' over allotment option is exercised in full) will be immediately
freely tradeable without restriction under the Securities Act, except for shares
purchased by affiliates of the Company, which shares will be subject to the
resale limitations of Rule 144 under the Securities Act. The availability of
Rule 144 to the holders of restricted securities of the Company would be
conditioned on, among other factors, the availability of certain public
information concerning the Company. The remaining 3,409,300 shares of Common
Stock are "restricted securities" as that term is defined in Rule 144 and may,
under certain circumstances, be sold without registration under the Securities
Act. All existing stockholders of the Company, including all of the executive
officers and directors of the Company, have agreed, however, not to sell or
otherwise dispose of any securities of the Company for a period of 18 months
from the date of this Prospectus without the Representative's prior written
consent. After such 18-month period, all 3,409,300 shares may be sold in
accordance with Rule 144. See "Shares Eligible for Future Sale."
PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation, as amended, authorizes the Board of Directors to issue up to
1,000,000 shares of preferred stock, $.01 par value per share. The preferred
stock may be issued in one or more series, the terms of which may be determined
at the time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions. No preferred
stock is currently outstanding, and the Company has no present plans for the
issuance of any preferred stock. However, the issuance of any such preferred
stock could materially adversely affect the rights of holders of Common Stock
and, therefore, could reduce the value of the Common Stock. In addition,
specific rights granted to future holders of preferred stock could be used to
restrict the Company's ability to merge with, or sell its assets to, a third
party. The ability of the Board of Directors to issue preferred stock could
discourage, delay, or prevent a takeover of the Company, thereby preserving
control of the Company by the current stockholders.
In addition, the Company is subject to Section 203 of the Delaware General
Corporation Law, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. See "Description of Capital
Stock."
POSSIBLE ACQUISITIONS AND BUSINESS OPPORTUNITIES; DISCRETIONARY USE OF NET
PROCEEDS. Approximately 49.2% ($17,500,000) of the estimated net proceeds from
the sale of the Debentures at an assumed
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<PAGE>
public offering price of 100% and from the sale of the Common Stock at an
assumed initial public offering price of $10.00 per share has been allocated to
acquisitions of additional physician practices and other medical entities. The
Company's management will have broad discretion as to the application of such
net proceeds. Depending on the structure of any possible acquisition or other
business opportunity, the Company's Board of Directors may have the power and
authority under the laws of the State of Delaware to approve and consummate such
transaction on behalf of the Company without a stockholder vote. See "Use of
Proceeds."
SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL CORPORATE AND
WORKING CAPITAL PURPOSES. Approximately 22.3% ($7,905,000) of the estimated net
proceeds from the sale of the Debentures at an assumed public offering price of
100% and from the sale of the Common Stock at an assumed public offering price
of $10.00 per share, has been allocated for general corporate and working
capital purposes. Such proceeds may be utilized in the discretion of the Board
of Directors. As a result, investors will not know in advance how such net
proceeds will be utilized by the Company. See "Use of Proceeds."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations,
including plans and objectives relating to the Affiliated Practices. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based on a successful execution of the Company's expansion
strategy and assumptions that the Affiliated Practices will be profitable, that
the health care industry will not change materially or adversely, and that there
will be no unanticipated material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, particularly in view
of the Company's early stage operations, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures and Common Stock offered hereby are estimated to be approximately
$35,575,000 (approximately $41,005,000 if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of 100%
and $10.00 per share, respectively. The Company intends to use the net proceeds
of this Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
APPLICATION OF NET PROCEEDS AMOUNT PERCENTAGE
- -------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Payments due upon consummation of the Acquisitions (1)................................ $ 7,937,000 22.3%
Funds available for acquisitions of additional physician practices and other medical
entities (2)........................................................................ 17,500,000 49.2%
Hardware, software, and installation cost of information system (3)................... 1,650,000 4.6%
Repayment of indebtedness (4)......................................................... 583,000 1.6%
General corporate and working capital purposes (5).................................... 7,905,000 22.3%
------------ -----
$ 35,575,000 100.0%
------------ -----
------------ -----
</TABLE>
- ------------------------
(1) The Company plans to consummate the Acquisitions concurrently with the
closing of this Offering. In connection with the Acquisitions, the Company
will acquire certain assets and assume certain liabilities of the Initial
Affiliated Practices and NBS. The costs of the Acquisitions will be paid
pursuant to the respective purchase agreements through a combination of
cash, notes in the aggregate principal amount of $114,000, and an aggregate
of 365,800 shares of Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) The Company plans to acquire certain assets and assume certain liabilities
of other physician practices and other medical entities on terms the Company
expects to be similar to the Acquisitions. The Company intends to finance
these transactions through a combination of cash payments and issuances of
notes, shares of Common Stock, and/or other securities of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Represents the costs of the hardware, software, and the installation cost
associated with the information system that the Company intends to install
at each Affiliated Practice.
(4) Represents (i) repayment of advances to the Company from a third party in
the amount of $118,000 due upon the consummation of this Offering and
bearing interest at a rate of 10% per annum, (ii) repayment of an aggregate
principal amount of $435,000 of the Senior Notes sold by the Company in the
Bridge Financing, and (iii) certain accrued liabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
(5) The remaining portion of the net proceeds will be allocated to working
capital and will be used by the Company for general corporate purposes,
including amounts required to pay officers' salaries, consultant and
professional fees, office and administrative expenses, and other corporate
expenses.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds from the sale of the Debentures and Common Stock offered
hereby, based upon the Company's currently contemplated operations, the
Company's business plan, and current economic and industry conditions, and is
subject to reapportionment of proceeds among the categories listed above or to
new categories in response to, among other things, changes in its plans,
regulations, industry conditions, and future revenues and expenditures.
Based on the Company's operating plan, the Company believes that the net
proceeds of this Offering, together with anticipated revenues from operations,
will be sufficient to satisfy its capital requirements for at least 12 months
following the date of this Prospectus. There can be no assurance that such
resources will be sufficient to satisfy the Company's capital requirements for
said period. After the 12-month period, the Company may require additional
financing in order to meet its current plans for expansion. Such financing may
take the form of the issuance of common or preferred equity securities or debt
securities, or may involve bank financing. There can be no assurance that the
Company will be able to obtain needed additional capital on a timely basis, on
favorable terms, or at all. Any additional financing could result in dilution of
the then-existing equity positions, and increased interest and amortization
expense. If the Company is unable to secure additional sources of financing on
terms and conditions favorable to the Company, or at all, the Company's
expansion strategy could be materially adversely affected. In any of such
events, the Company may be unable to implement its current plans for expansion
or to repay its debt obligations. See "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and
"Business--Development and Operations."
Net proceeds, if any, received by the Company from the sale of the
Securities issuable upon exercise of the Underwriters' over-allotment option,
and proceeds, if any, received by the Company upon exercise of the
Representative's Warrants, will be utilized for general corporate and working
capital purposes.
Pending their utilization by the Company, the Company intends to invest the
net proceeds of this Offering in interest-bearing deposit accounts, certificates
of deposit, or similar short-term investment grade financial instruments.
16
<PAGE>
DILUTION
At March 31, 1997, the pro forma negative net tangible book value of the
Company, after giving effect to (i) the issuance after March 31, 1997 of an
aggregate principal amount of $125,000 Senior Notes and 12,500 shares of Common
Stock as part of the Bridge Financing, (ii) the PMI Acquisition, and (iii) the
Acquisitions, was $(6,757,000), or approximately $(1.98) per share of Common
Stock based on 3,409,300 shares of Common Stock outstanding. The net tangible
book value per share represents the amount of the Company's total assets less
the amount of its intangible assets and liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt of net
proceeds from the sale of the Debentures and Common Stock offered hereby at an
assumed initial public offering price of 100% and $10.00, respectively, and the
initial application of the net proceeds therefrom, the adjusted pro forma
combined net tangible book value of the Company at March 31, 1997, would have
been $3,818,000, or approximately $.78 per share of Common Stock. This would
result in dilution to the public investors of approximately $9.22 per share (or
approximately 92.2%). The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock....................................................... $ 10.00
Pro forma negative net tangible book value per share of
Common Stock prior to this Offering....................... $ (1.98)
Increase attributable to new investors.................... 2.76
---------
Pro forma net tangible book value per share of Common Stock
after this Offering......................................... .78
---------
Dilution in pro forma net tangible book value per share of
Common Stock to new investors............................... $ 9.22
---------
---------
</TABLE>
In the event the Underwriters' over-allotment option is exercised in full,
the pro forma net tangible book value as of March 31, 1997 would be $5,854,250,
or $1.19 per share of Common Stock, which would result in immediate dilution in
net tangible book value to new investors of approximately $8.81 per share.
The following table sets forth, on a pro forma basis, as of the date of this
Prospectus, the number of shares of Common Stock purchased, the percentage of
total shares of Common Stock purchased, the total consideration paid, the
percentage of total consideration paid, and the average price per share of
Common Stock paid by the investors in this Offering and the existing
stockholders of the Company:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 3,043,500 62.0% $ 30,000 0.2% $ 0.01
Initial Acquired Entities......................... 365,800 7.5% 3,658,000 19.5% $ 10.00
New Investors(1).................................. 1,500,000 30.5% 15,000,000 80.3% $ 10.00
---------- ----- ------------- -----
Total........................................... 4,909,300 100.0% $ 18,688,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth, at March 31, 1997, the capitalization of the
Company (i) on an actual basis and (ii) on a pro forma, as adjusted basis,
giving effect to (a) the issuance after March 31, 1997 of the aggregate
principal amount of $125,000 Senior Notes and 12,500 shares of Common Stock as
part of the Bridge Financing, (b) the PMI Acquisition, and (c) the sale of the
Debentures and Common Stock at the assumed initial public offering price of 100%
and $10.00, respectively, and the initial application of the net proceeds
therefrom, including the consummation of the Acquisitions. This table should be
read in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. See "Use of Proceeds" and the Consolidated
Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
<S> <C> <C>
PRO FORMA,
ACTUAL AS ADJUSTED
---------- -------------
Short-term debt........................................................................ $ 310,000 $ --
---------- -------------
---------- -------------
Long-term debt:
Debentures........................................................................... -- 25,000,000
Notes payable........................................................................ -- 387,000
---------- -------------
Total long-term debt............................................................. -- 25,387,000
---------- -------------
Stockholders' equity:
Preferred Stock--$.01 par value, authorized--
1,000,000 shares; none issued and outstanding........................................ -- --
Common Stock--$.01 par value, authorized--
50,000,000 shares; issued and outstanding
3,043,500 shares, actual and 4,909,300 shares
pro forma as adjusted................................................................ 30,000 49,000
Additional paid-in capital........................................................... -- 16,256,000
Accumulated earnings (deficit)....................................................... (20,000) (20,000)
---------- -------------
Total stockholders' equity............................................................. 10,000 16,285,000
---------- -------------
Total capitalization................................................................... $ 10,000 $ 41,672,000
---------- -------------
---------- -------------
</TABLE>
18
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock since inception
and does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to reinvest earnings, if any, in the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors and will depend upon
the earnings, capital requirements, and financial position of the Company,
general economic conditions, and other pertinent factors.
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the periods indicated. The selected financial data of the Company for
the period from April 25, 1995 (inception) to December 31, 1995 and the year
ended December 31, 1996 are derived from the Financial Statements of the Company
which have been audited by Feldman Radin & Co., P.C., independent certified
public accountants. The selected financial data for the three month periods
ended March 31, 1996 and 1997 and as of March 31, 1997 were derived from the
unaudited financial statements of the Company. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and the results of operations for these periods. All of the information
set forth below should be read in conjunction with the Financial Statements of
the Company and related notes thereto appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
INCEPTION -------------------------------------------------
(APRIL 25, YEAR ENDED
1995) DECEMBER 31, 1996 1996 1997
THROUGH ------------------------ ----------------------- ------------------------
DECEMBER PRO PRO PRO
31, 1995 ACTUAL FORMA(1) ACTUAL FORMA(1) ACTUAL FORMA(1)
----------- --------- ------------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Medical service revenue, net of
contractual adjustments and bad
debts................................. $ -- $ -- $ 18,470,000 $ -- $ 4,795,000 $ -- $ 4,716,000
Other revenue........................... -- -- 38,000 -- 9,000 -- 10,000
----------- --------- ------------- --------- ------------ ---------- ------------
Total revenue......................... -- -- 18,508,000 -- 4,804,000 -- 4,726,000
Costs and expenses:....................... --
Salaries and wages...................... -- -- 13,519,000 -- 3,263,000 -- 2,580,000
Medical supplies and expenses........... -- -- 426,000 -- 110,000 -- 98,000
General and administrative expenses..... -- 4,000 4,174,000 2,000 1,283,000 12,000 1,842,000
Depreciation and amortization........... 1,000 2,000 1,185,000 1,000 298,000 1,000 300,000
Interest expense........................ -- -- 1,752,000 -- 438,000 -- 438,000
----------- --------- ------------- --------- ------------ ---------- ------------
Total costs and expenses.............. 1,000 6,000 21,056,000 3,000 5,392,000 13,000 5,258,000
Loss before income taxes.................. (1,000) (6,000) (2,548,000) (3,000) (588,000) (13,000) (532,000)
Provision for income taxes................ -- -- -- -- -- -- --
----------- --------- ------------- --------- ------------ ---------- ------------
Net loss.................................. $ (1,000) $ (6,000) $ (2,548,000) $ (3,000) $ (588,000) $ (13,000) $ (532,000)
----------- --------- ------------- --------- ------------ ---------- ------------
----------- --------- ------------- --------- ------------ ---------- ------------
Pro forma net loss per share(2)........... $ (0.52) $ (0.12) $ (0.11)
------------- ------------ ------------
------------- ------------ ------------
Pro forma weighted average number of
shares outstanding(2)................... 4,909,300 4,909,300 4,909,300
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
- ------------------------
(1) The pro forma statement of operations data for the fiscal year ended
December 31, 1996 and for the three months ended March 31, 1996 and 1997 is
presented as if the Acquisitions and the PMI Acquisition had occurred on
January 1, 1996. The pro forma balance sheet data for March 31, 1997 is
presented as if the Acquisitions and the PMI Acquisition had occurred on
March 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and Notes to Unaudited Pro Forma
Consolidated Financial Statements."
(2) See Note II to the Unaudited Pro Forma Consolidated Statement of Operations
Adjustments.
20
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
----------------------- -----------------------------
<S> <C> <C> <C> <C>
PRO FORMA, AS
1995 1996 ACTUAL ADJUSTED(1)(3)
---------- ----------- ----------- ----------------
Working capital (deficiency).......................................... $ (74,000) $ (243,000) $ (329,000) $ 27,225,000
Total assets.......................................................... 73,000 296,000 473,000 41,957,000
Total liabilities..................................................... 74,000 273,000 463,000 25,672,000
Stockholders' equity (deficit)........................................ $ (1,000) $ 23,000 $ 10,000 $ 16,285,000
</TABLE>
- ------------------------
(3) Gives effect on a pro forma basis to the issuance after March 31, 1997 of
Senior Notes in the aggregate principal amount of $125,000 and 12,500 shares
of Common Stock as part of the Bridge Financing, and as adjusted to reflect
the sale of the Debentures and the Common Stock offered hereby, assuming an
initial public offering price of 100% and $10.00 per share, respectively,
and the initial application of the net proceeds therefrom. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. SEE "RISK FACTORS--RISKS ASSOCIATED WITH FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS PROSPECTUS." ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS." THE FOLLOWING DISCUSSION OF THE OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S AUDITED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The Company was incorporated under the laws of the State of Delaware on
April 25, 1995. The Company's activities to date have consisted primarily of
developing corporate infrastructure, seeking capital to fund operations, seeking
affiliations with physician practices, negotiating acquisitions of certain
assets of such physician practices, and providing consulting services to one of
the Initial Affiliated Practices pursuant to a consulting agreement.
In April 1997, pursuant to a stock purchase agreement, the Company purchased
all of the outstanding capital stock of PMI from Dr. Dennis B. Liotta, the
president of PMI, for $2,000 and agreed to assume PMI's liabilities in the
amount of $37,000. In addition, the Company entered into an employment agreement
pursuant to which Dr. Liotta agreed to serve as the Executive Vice President and
Chief Operating Officer of the Company. As a result of such transaction, PMI
became a wholly-owned subsidiary of the Company.
Simultaneously with the closing of this Offering, the Company intends to
exchange cash, notes, and an aggregate of 365,800 shares of Common Stock for
certain assets, and assume certain liabilities of the Initial Affiliated
Practices and NBS and NBS's subsidiary, Radiology Billing and Management
Services, Inc. The Initial Affiliated Practices are located in the States of New
Jersey and Pennsylvania and are comprised of the following entities: Joel
Fuhrman, M.D., P.C.; Bound Brook Pediatric Associates, P.A.; Branchberg Eye
Physicians, P.A.; Alexander Kudryk, M.D.; Audrey Hinds-McDonald, M.D., P.A.;
Hunterdon Ophthalmologists, P.A.; Richard M. Weeder, M.D.; Felix Salerno, M.D.;
Kenneth Stern, M.D., P.A.; Flemington Medical Group, P.A.; John E. Durst, M.D.;
Reliance Medical Group, P.C. and its affiliate Reliance Health Care Group, Inc.
Pursuant to asset purchase agreements and/or goodwill purchase agreements
with the Initial Affiliated Practices, the Company will issue promissory notes
in the aggregate principal amount of $114,000. Such notes will bear interest at
the rate of 8% per annum and mature in September 1999. The Company will also
assume certain liabilities of the Initial Affiliated Practices and NBS in the
aggregate amount of $523,000 consisting of $57,000 of capitalized lease
obligations, $65,000 of general accounts payable, $273,000 of long-term
obligations, and $128,000 of short-term notes payable. The agreements between
the Company and the Initial Affiliated Practices expire on September 30, 1997.
The Acquisitions will be accounted for as a "purchase." The recording of
such Acquisitions will be based upon ultimate appraisals, evaluations, and
estimates of fair values. If these appraisals and evaluations identify assets
with lives shorter than estimated by the Company, such assets will be amortized
over their expected useful lives. Goodwill will be amortized on a straight-line
basis over a 20 year period. Periodically, but no less than quarterly, the
Company will evaluate the relative fair market value of the intangible assets
identified, in its acquisitions by eliminating the future earning streams of the
related business lines and comparing the present value of the result of that
estimation to the stated value of the related assets. Impairments, if any, will
be charged to operations when identified. Substantially all of the goodwill on
the Company's pro forma adjusted balance sheet as of March 31, 1997 is related
to the Acquisitions. The Company is continually seeking additional physician
practices with which to affiliate and
22
<PAGE>
is currently engaged in negotiations with various groups, although as of the
date of this Prospectus, the Company does not have any agreements with such
additional physician practices.
Prior to affiliation with the Company, the medical practices to be acquired
practice medicine through sole proprietorships or through professional
corporations ("PCs") owned by one or more medical doctors licensed to practice
medicine under applicable state law (the "Affiliated Physicians"). Two of the
sole proprietorships being acquired by the Company were, prior to affiliation
with the Company, affiliated with a PC. The assets attributable to such sole
proprietorships will be acquired by the Company as part of the Acquisitions. In
connection with the acquisition of the physician practices by the Company, the
Company will acquire, pursuant to asset purchase agreements with the PCs and/or
goodwill purchase agreements with the sole proprietorships, the furniture,
fixtures, medical equipment and supplies, goodwill, and certain other assets of
the practices. The Company will cause to be formed a new PC (the "Affiliated
PC"), to be owned by a director or officer of the Company, designated by the
Board of Directors, who is also a physician. The Affiliated PC will employ the
Affiliated Physicians and will carry on the practice previously conducted by
such physicians. The Affiliated PCs will, simultaneously therewith, enter into
long-term contractual relationships with the Company, generally for 40 years,
pursuant to PMSAs.
Under the terms of the PMSAs, the Affiliated PCs will assign all of their
revenue to the Company in return for the services and expertise provided to the
Affiliated PCs by the Company, including furnishing the Affiliated PCs with
facilities, equipment, and supplies required for the operation of the practice
and for the assumption by the Company of the overhead costs of the practice. The
Company, in turn, will return to the Affiliated PCs such sums, estimated to be
approximately 40% of revenues, as shall be required to pay physician
compensation, taxes, benefits, and personal expenses. Each Affiliated Physician
will provide medical services to an Affiliated PC pursuant to the terms of an
employment agreement, generally three to five years in duration, by which the
Affiliated Physician earns a base salary and can earn additional incentive
compensation based upon the profitability of the practice to which the physician
is employed.
Operating expenses will consist of the expenses incurred by the Company in
fulfilling its obligations under the PMSAs. These expenses are the same as the
operating costs and expenses that would have been incurred by the Affiliated
Practices, including, without limitation, non-physician salaries and employee
benefits, medical supplies, building rent, equipment leases, malpractice
insurance premiums, management information systems, and other expenses related
to practice operations.
In addition to the practice expenses discussed above, the Company will also
incur personnel and administrative expenses in connection with maintaining a
corporate office that provides management, administrative, and marketing
services to the Affiliated Practices. The Company's profitability will depend
on, among other things, increasing market share, expanding healthcare services,
enhancing operating efficiencies, and developing favorable contractual
relationships with payors.
Management believes that industry trends toward cost containment and lower
reimbursement rates will continue to result in a reduction in per patient
revenue. Further reductions in reimbursement rates could have an adverse effect
on the Company's operations unless the Company is otherwise able to offset such
payment reductions.
RESULTS OF OPERATIONS
The Company has conducted no significant operations to date and will not
conduct significant operations until the Acquisitions and the Offering are
completed. General and administrative expenses were incurred during the year
ended December 31, 1996 and during the three months ended March 31, 1997 in
connection with this Offering. The Company has incurred and will continue to
incur various legal, accounting, travel, personnel, and marketing costs in
connection with the Acquisitions and the Offering. See "Use of Proceeds."
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced operations on April 25, 1995 and, as of March 31,
1997, the Company had a working capital deficiency of approximately $329,000 and
an accumulated deficit of approximately $20,000. The Company has generated
limited revenue since its inception.
Between December 1996 and May 1997, the Company consummated the Bridge
Financing, the gross proceeds of which were $435,000. Such proceeds were used by
the Company to fund the expenses relating to this Offering and other expenses in
connection with the operation of the Company's initial activities. The Bridge
Financing resulted in the issuance of 43,500 shares of Common Stock and Senior
Notes pursuant to which the Company is obligated to pay the aggregate principal
amount of $435,000, plus interest thereon. The Senior Notes bear interest at the
rate of 10% per annum and mature on the earlier of (i) one year from the date of
issuance and (ii) the closing of the Offering. The Company intends to repay the
Senior Notes, plus interest thereon, with a portion of the net proceeds from
this Offering. See "Use of Proceeds."
Wellness Concepts Inc. ("Wellness"), the founding stockholder of the
Company, has advanced $148,000 to the Company since inception. Such amount was
used to fund a portion of the costs of this Offering. As of July 31, 1997, the
balance owed by the Company to Wellness was $118,000, which the Company intends
to repay with a portion of the net proceeds of this Offering. See "Use of
Proceeds" and "Certain Transactions."
Effective April 1, 1997, the Company entered into a one year consulting
agreement with Reliance Medical Group, P.C. ("Reliance"), one of the Initial
Affiliated Practices. Under the terms of the consulting agreement, the Company
provides physician practice management services to Reliance in return for a
fixed monthly compensation of $25,000. Upon consummation of the Offering, the
consulting agreement will be terminated and Reliance will become an Affiliated
Practice.
The Company anticipates that capital expenditures during 1997 will relate
primarily to affiliations with additional physician practices. Future
acquisitions of physician practices are expected to be structured similarly to
the acquisitions of the Initial Affiliated Practices. It is anticipated that
funding for these purposes will be derived from the proceeds of this Offering
and cash flow from operations. Based on the Company's operating plan, the
Company believes that the net proceeds of this Offering, and anticipated
revenues from operations will be sufficient to satisfy its capital requirements
for at least 12 months following the date of this Prospectus. There can be no
assurance that such resources will be sufficient to satisfy the Company's
capital requirements for said period. After the 12-month period, the Company may
require additional financing in order to meet its current plans for expansion.
Such financing may take the form of the issuance of common or preferred equity
securities or debt securities, or may involve bank financing. There can be no
assurance that the Company will be able to obtain needed additional capital on a
timely basis, on favorable terms, or at all. Any additional financing could
result in dilution of the then-existing equity positions, increased interest and
amortization expense, or decreased income to fund future expansion. In any of
such events, the Company may be unable to implement its current plans for
expansion or to repay its debt obligations
24
<PAGE>
BUSINESS
GENERAL
The Company is a newly established PPMO which is developing an integrated
health care delivery network in selected geographic areas through affiliation
with physician practices. Upon the closing of this Offering, the operations of
the Company will consist of (i) the Initial Affiliated Practices, consisting of
12 medical practices located in New Jersey and Pennsylvania, (ii) PMI, which is
engaged in the development and management of IPAs and is currently affiliated
with approximately 225 physicians in the State of New Jersey, and (iii) NBS,
which is engaged in the development and management of physician fee billing,
electronic medical records, and utilization information systems for medical
practices. NBS currently manages patient and third party billing services for 25
medical practices unaffiliated with the Company in Pennsylvania.
The Company's objective is to develop and manage an integrated health care
delivery network that provides high quality, cost-effective care. The Company
has focused and intends, at least initially, to continue to focus, its primary
affiliation efforts on physician practices located in New Jersey, New York, and
Pennsylvania. The Company targets physicians who are committed to the delivery
of high quality, cost-effective care and have a reputation with their patients,
peers, and payors for providing quality medical services and that have the
capacity to increase profitability through improved performance on existing
patient bases. When affiliating with a physician practice, the Company will
typically purchase the practice's non-real estate operating assets and enter
into a long-term PMSA with the practice in exchange for a combination of Common
Stock, cash, notes, other securities of the Company, and/or the assumption of
liabilities.
INDUSTRY BACKGROUND
The health care delivery system in the United States has been undergoing
substantial change, largely in response to concerns over the quality and
escalating cost of health care. National expenditures for health care grew from
$250 billion in 1980 to an estimated $1 trillion in 1995. Of the total estimated
1995 expenditures, physicians received approximately $200 billion for their own
services and controlled an additional $600 billion through the referral of
patients for additional care and services provided by others. Concerns over the
accelerating cost of health care have resulted in the increasing prominence of
managed care. The Company believes that traditional physician practices are at a
competitive disadvantage in a managed care environment because they typically
have high operating costs, have little purchasing power with suppliers, and must
spread overhead over a relatively small revenue base. In addition, these
physician practices often have insufficient capital to acquire equipment to
incorporate new technologies and often lack the sophisticated systems necessary
to contract effectively with managed care entities. Physician practices are
increasingly turning to organizations such as the Company to provide the
professional management expertise and capital required to compete in the managed
care environment and otherwise to assist them with the increasingly complex
management of physician practices. The Company believes that this has resulted
in a need for management organizations committed to preserving the professional
autonomy of physician practices and whose economic incentives are aligned with
those of physicians.
As a result of these changes in the marketplace, physicians are increasingly
abandoning traditional private practice in favor of affiliations with larger
organizations, such as PPMOs, which offer skilled and innovative management of
physician practices, sophisticated information systems, and capital resources.
Many payors and their intermediaries, including governmental entities and HMOs,
are increasingly looking to outside providers of physician services to develop
and maintain quality outcomes, management programs, and patient care data. In
addition, such payors and intermediaries look to share the risk of providing
services through capitation arrangements which provide for fixed payments for
patient care over a specified period of time.
25
<PAGE>
The Company believes that PPMOs preserve the professional autonomy of
physician groups whose economic incentives are aligned with those of physicians.
Because of the position of primary care physicians in managing the delivery of
healthcare by both providing primary care and controlling patient referrals, the
Company further believes that multi-speciality groups with a substantial primary
care orientation are likely to be best positioned to succeed in the emerging
managed care environment because the specialty groups will be able to refer
patients within the Company's integrated health care delivery network.
STRATEGY
The Company's strategy is to develop and manage an integrated health care
delivery network that provides high quality, cost-effective care. The key
elements of this strategy are as follows:
TARGETING FOR AFFILIATION HIGH QUALITY AND PRODUCTIVE PHYSICIAN
PRACTICES WHICH ARE COMMITTED TO EXPANDING AND PROVIDING COST-EFFECTIVE
CARE. The Company targets physician practices which are committed to the
delivery of high quality, cost-effective care and have a reputation with
patients, peers, and payors for providing quality medical services. The
targeted physician practices must also be intent on expanding and enhancing
their practices. The Company has focused and intends, at least initially, to
continue to focus its primary affiliation efforts on physician practices
located in New Jersey, New York, and Pennsylvania.
INTEGRATING PHYSICIAN PRACTICES INTO COMPANY-COORDINATED SBUS TO PROVIDE
PHYSICIAN AND MEDICAL SUPPORT SERVICES WITHIN SPECIFIC GEOGRAPHIC
REGIONS. The Company intends to organize the Affiliated Practices and any
related medical support services into SBUs. The SBUs will be designed to
provide a comprehensive range of physician and medical support services
within specific geographic regions. The Company believes that its SBU
structure will achieve operating efficiencies and enhance its ability to
secure contracts with managed care organizations. Under the SBU model,
physicians affiliated with the Company will continue to exercise the same
level of clinical autonomy they possessed prior to affiliation with the
Company, while at the same time capitalizing on the advantages of belonging
to a larger organization. Furthermore, the Company believes that such a
model will provide it with greater management control of its health care
delivery network.
CONTRACTING WITH STATE AND LOCAL GOVERNMENTS TO PROVIDE MEDICAL SERVICES
TO ELDERLY AND INDIGENT POPULATIONS. The Company believes that the
increasing cost of health care has begun to, and will in the future, cause
urban governments to subsidize health care services to the elderly and
indigent population. One of the Initial Affiliated Practices has a contract
with the city of Atlantic City, New Jersey, to deliver health care services
to the elderly and indigent. The Company believes that it will be able to
approach and contract directly with other local governments to provide low
cost, comprehensive medical care services, through the Affiliated Practices,
to the elderly and indigent.
ENHANCING THE ABILITY OF THE PHYSICIANS TO FOCUS ON CLINICAL PRACTICE
ISSUES BY RELIEVING THEM OF MOST ADMINISTRATIVE FUNCTIONS. Physicians in
independent practice are required to devote considerable time to process
paperwork for payors, as well as supervising the administration of their
offices. The Company intends to assume most of the administrative functions
of each Affiliated Practice, thereby enabling each physician to devote
increased time to the provision of medical care. Furthermore, Affiliated
Physicians will participate in utilization and quality management
committees, which will be responsible for focusing on the assessment and
improvement of patient outcomes.
IMPLEMENTING AND UTILIZING AN INFORMATION SYSTEM TO MANAGE PATIENT CARE
AND TO CONTROL COSTS. The Company believes that information technology is
critical to the advancement of a quality health care delivery system. The
Company intends to develop and implement an information system that provides
for the ongoing collection and review of clinical and administrative data in
order to control overhead expenses, maximize reimbursement, and provide
effective utilization management. Furthermore, the
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Company believes that an information system will enable the Affiliated
Practices to collect and retrieve clinical data more efficiently.
COORDINATING PURCHASES OF SUPPLIES, EQUIPMENT, AND SERVICES IN ORDER TO
REALIZE ECONOMIES OF SCALE. The Company believes that economies of scale
inherent in a health care delivery network with centralized billing,
collections, payroll, and accounting services will allow the Company to
reduce operating costs and enable the Company to negotiate quantity
purchasing contracts for supplies, equipment, and services on behalf of the
Affiliated Practices. In addition, the Company believes that a health care
delivery network configuration provides the Company the leverage to
negotiate rates and contract terms with HMOs and other payors more favorable
than the rates and terms that physician groups have historically been able
to obtain independently. Similarly, the Company believes that as a larger
entity it will have more bargaining power and will be able to negotiate more
favorable rates for purchased out-of-network physician services.
DEVELOPING AND ENHANCING IPA SERVICES AND CONTRACTS. The Company
believes that the health care industry will continue to be driven by local
market factors and that organized providers of health care, including IPAs,
will continue to play a significant role in delivering cost-effective,
quality medical care. Physicians affiliated with IPAs often seek additional
practice management services, including billing, staffing, and financial
management services, which the Company believes it can provide on
competitive terms. The Company anticipates that IPA management will be an
additional service that will allow it to enter new markets without initially
having to affiliate with physician practices.
POSITIONING THE COMPANY TO MAXIMIZE MANAGED CARE CONTRACT
OPPORTUNITIES. The complexities of the managed care environment create a
significant administrative burden for physicians. The growth of capitated
reimbursement presents the challenge of projecting costs of care based upon
patient populations, physician treatment patterns, and the specific
requirements of managed care contracts. The Company intends to develop and
utilize a management information system, which will be designed to improve
productivity, manage complex reimbursement methodologies, measure patient
satisfaction and outcomes of care, and integrate information from multiple
sources.
DEVELOPING ANCILLARY SERVICES AND BROADENING THE SPECIALTIES OF THE
COMPANY'S HEALTH CARE DELIVERY NETWORK IN ORDER TO ENHANCE REVENUES AND
PROFITABILITY. The Company may add ancillary services, such as pharmacy,
laboratory testing, radiologic imaging, and medical/surgical specialists
either by acquisition and affiliation or by direct contracting. Including
these services and specialists will enable the Company to deliver more
comprehensive services and intensify its market presence. As of the date of
this Prospectus, the Company has no understanding, commitment, or agreement
with respect to any acquisitions, affiliations, or direct contracting other
than the Acquisitions.
DEVELOPMENT AND OPERATIONS
The Company has developed a physician practice model based on the formation
of SBUs consisting of physicians situated in the same geographic area. By
forming SBUs, the Company believes that physicians employed by the Affiliated
Practices will continue to exercise the same level of clinical autonomy they
possessed prior to affiliation with the Company, while at the same time
capitalizing on the advantages of belonging to a larger organization, including
the ability to exercise leverage in negotiating with managed care companies.
Furthermore, such a model is designed to provide the Company with greater
management control of its physician network. The Company believes that its SBU
model is replicable and will ultimately permit it to expand its operations
nationwide.
IDENTIFYING POTENTIAL AFFILIATIONS. The Company has focused, and intends,
at least initially, to continue to focus, its primary affiliation efforts on
primary care physician practices located in New Jersey, New York, and
Pennsylvania. The Company intends to expand its efforts to other states and to
specialty medical practices following the affiliation and integration of the
Initial Affiliated Practices. The Company's
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development goals emphasize the affiliation of high-profile practices, both
primary and specialty care, to meet the needs of patients and payors, adjusted
according to the dynamics of individual markets.
The Company's success will largely depend upon the quantity and quality of
physician practices that it can attract to affiliate with the Company.
Management believes that the Company will have the financial resources,
experienced personnel, and information systems that will enable it to identify a
significant number of potential affiliates that meet the Company's criteria for
affiliation.
The Company targets markets by considering, among other things, the
following factors: (i) population size and distribution; (ii) physician practice
density, specialty composition, saturation, and average group size; (iii) local
competitors in the physician management business; (iv) level of managed care
penetration; and (v) local industry and economy. The Company focuses on
physicians within such markets who are committed to the delivery of high
quality, cost-effective care and have a reputation with their patients, peers,
and payors for providing quality medical services and that have the capacity to
increase profitability through improved performance on existing patient bases.
Once the Company identifies a potential affiliate, the Company conducts a
comprehensive analysis of the practice, including a thorough financial and
operational review and evaluation of staff, facilities, equipment, and systems.
Initially, an estimate of the current value of the practice is calculated based
on the practice's gross income, net profit, and new treatment contracts written
during the prior twelve months. In addition, current staff are interviewed to
determine their suitability for, and commitment to, the practice, and the
facilities and equipment are reviewed to ensure that they will support a larger
and growing practice without significant additional cost. Finally, the
practice's current systems for starting new patients, reviewing treatment
programs, scheduling, communicating with patients and referral sources,
marketing and controlling expenses, and the cost of upgrading or replacing the
systems, are analyzed.
If the practice satisfies the Company's criteria for affiliation, an offer
is made for the practice to affiliate with the Company. The Company outlines
proposed financial terms of the affiliation, including the Company's valuation
of the practice and the amount of cash, notes, and shares of Common Stock that
the Company proposes to pay to acquire certain assets of the PC associated with
the practice. Once the basic business terms of the affiliation are agreed to,
the parties proceed to execute an asset purchase agreement and/or goodwill
purchase agreement and the related PMSA.
Prior to affiliation with the Company, the medical practices to be acquired
practice medicine through sole proprietorships or through PCs owned by one or
more medical doctors licensed to practice medicine under applicable state law.
In connection with the acquisition of the physician practices by the Company,
the Company will acquire, pursuant to asset purchase agreements and/or goodwill
purchase agreements with the sole proprietorships or PCs, the furniture,
fixtures, medical equipment and supplies, goodwill, and certain other assets of
the practices. The Company will cause to be formed an Affiliated PC, to be owned
by a director or officer of the Company, designated by the Board of Directors,
who is also a physician. The Affiliated PC will employ the Affiliated Physicians
and will carry on the practice previously conducted by such physicians. The
Affiliated PCs will, simultaneously therewith, enter into long-term contractual
relationships with the Company, generally for 40 years, pursuant to PMSAs.
Under the terms of the PMSAs, the Affiliated PCs will assign all of their
revenue to the Company in return for the services and expertise provided to the
Affiliated PCs by the Company, including furnishing the Affiliated PCs with
facilities, equipment, and supplies required for the operation of the practice
and for the assumption by the Company of the overhead costs of the practice. The
Company, in turn, will return to the Affiliated PCs such sums, estimated to be
approximately 40% of revenues, as shall be required to pay physician
compensation, taxes, benefits, and personal expenses. Each Affiliated Physician
will provide medical services to an Affiliated PC pursuant to the terms of an
employment agreement, generally three to five years in duration, by which the
physician earns a base salary and can earn additional incentive compensation
based upon the profitability of the practice with which the physician is
employed.
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OPERATIONS. Effective upon the consummation of this Offering, the Company
will acquire the Initial Affiliated Practices. To meet payor demand for price
competitive quality services, the Company intends to organize the Affiliated
Practices into SBUs by utilizing a market-based approach that incorporates a
comprehensive range of physician and medical support services within specific
geographic regions. The Company will engage in research activities and market
analysis to determine the optimal configuration of each SBU for its particular
market.
The Company intends to enhance growth in the Affiliated Practices by adding
to, and expanding, managed care arrangements, assisting in the recruitment of
new physicians and adding services which historically have been performed
outside of the practices. The Company will work closely with the Affiliated
Physicians in targeting and recruiting physicians and in merging sole practices
or single specialty groups into the Affiliated Practices. The Company intends to
assist in the development of new and expanded ancillary services by providing
the needed capital resources and management services. In addition, the Company
intends to recognize and develop opportunities to provide services throughout a
market by positioning the Affiliated Practices in such a way that an entire
market is covered geographically. The Company believes this approach will
improve patient convenience and respond to coverage criteria essential to
payors.
The Company's organizational structure is designed to include physician
representation on the Company's Board of Directors. In addition, the Company and
each SBU will establish a Planning Board consisting of an SBU clinical director,
two physician representatives, and three representatives of the Company. The
Planning Board's responsibilities include developing long-term strategic
objectives, recommending significant capital expenditures, and facilitating
communication and information exchange between the Company and each of the SBUs.
The representation of the Affiliated Physicians on each Planning Board ensures
that the physicians within each group will retain a significant voice in the
expansion and operation of their group, while benefitting from the Company's
management experience and expertise. As the Company expands, it intends to
establish Planning Boards on a regional level.
The Company's SBUs will consist predominantly of primary care and specialty
physicians organized in a similar configuration as the Initial Affiliated
Practices. The following table sets forth the configuration, consisting of five
initial SBUs, of the Company's Initial Affiliated Practices:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION AFFILIATED PHYSICIANS SPECIALTIES
- ----------------------------------------- ----------------------- -----------------------------------------
<S> <C> <C>
Atlantic City, New Jersey................ 15 Primary Care / OB/GYN
Atlantic City, New Jersey................ 7 Primary Care / Pediatric Medicine
Atlantic City, New Jersey................ 5 Internal Medicine
Atlantic City, New Jersey................ 3 Primary Care
Hunterdon County, New Jersey............. 3 Primary Care
Hunterdon County, New Jersey............. 3 Opthamology
Hunterdon County, New Jersey............. 2 General Surgery
Somerset County, New Jersey.............. 1 Primary Care
Somerset County, New Jersey.............. 1 Primary Care / Pediatric Medicine
Hudson County, New Jersey................ 1 Primary Care
Monmouth County, New Jersey.............. 1 Primary Care
--
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</TABLE>
Primary care includes family practice, internal medicine, pediatrics, and
obstetrics/gynecology. Physicians in such practice categories are regarded as
"gatekeepers" for the remainder of the health care industry and, as such, these
physicians generally coordinate patient care from various providers in various
settings to ensure appropriate care and resource utilization. By initially
developing primary care markets,
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the Company believes it will be able to subsequently build an integrated
comprehensive physician network that includes specialty care practices,
outpatient services, and ancillary services.
In April 1997, the Company acquired 100% of the capital stock of PMI. PMI
has, for the past seven years, been engaged in the business of the management of
IPAs. An IPA is generally composed of a group of geographically diverse
independent physicians who form an association for the purpose of contracting as
a single entity. PMI provides a number of administrative management services to
physician organizations, including, but not limited to, credentialing services,
licensing, group purchasing, managed care contracting, benefits administration,
and practice management. As a subsidiary of the Company, PMI will continue to
offer such services and products to those physician groups which are not yet
willing to be acquired by the Company, but are interested in receiving the
benefits to be derived from an association with a physician practice management
company. By contracting with these physician organizations, the Company believes
it will be able to expand its influence in the physician marketplace and will
have the opportunity to showcase its products and services. The Company believes
that the IPA structure not only increases the purchasing power of the
constituent practices, but also provides a foundation for the development of an
integrated physician network.
Effective upon the consummation of this Offering, the Company will acquire
100% of the capital stock of NBS. NBS has, for the past eleven years, been
engaged in the business of providing comprehensive medical billing and
collection services to physicians and medical practices throughout Pennsylvania.
In so doing, NBS has developed computer systems which streamline the collection
and processing of the data required for the efficient and cost-effective billing
of fees and medical services. Additionally, officials of NBS are familiar with
the rules, regulations, customs, and practices related to the often complex and
complicated reimbursement procedures utilized by Medicare, Medicaid, and managed
care organizations with respect to payment for physician services. Subsequent to
the consummation of this Offering, the Company believes it will benefit from
this specialized knowledge and experience as it intends to install the NBS
billing and collection practices in each of the Affiliated Practices. In
addition, the Company believes that NBS's current customers, which are currently
unaffiliated with the Company, will provide it with a pool of prospective
acquisitions as well as an outlet for additional third party management services
offered by the Company.
MANAGEMENT AND ADMINISTRATION SERVICES. Upon affiliation with a physician
practice, the Company intends to assume most administrative functions of each
practice, including billing, collections, accounts payable, payroll, human
resources, purchasing, lease administration, property management, and
telecommunications, thereby enabling each physician to devote increased time to
the provision of medical care. Furthermore, Affiliated Physicians will
participate in utilization and quality management committees, which will be
responsible for focusing on the assessment and improvement of patient outcomes.
The Company anticipates that the Affiliated Physicians will be an integral part
of the ongoing evaluation and monitoring of medical care. As a result, the
Company anticipates that each Affiliated Practice will benefit from increased
efficiency and economies of scale.
The Company intends to provide medical management services to the Affiliated
Practices. These services will include:
UTILIZATION MANAGEMENT. Utilization management services have been designed
to be peer-to-peer. This means that the Affiliated Physicians within each SBU
will be responsible for reviewing and advising one another on how to better
manage operations and mitigate costs. Utilization management services will
encourage the Affiliated Physicians to provide cost-effective care to their
patients that emphasizes (i) disease prevention and (ii) the elimination of
unnecessary tests, procedures, hospitalizations, surgeries, and referrals to
specialty care physicians. In addition, the Company intends to design and
implement a management information system to enable the Company and the
Affiliated Practices to correct coding errors, which are typically made by
individual and small group practices, which the Company believes may
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result in improved revenues. Additionally, regular chart reviews and billing
audits will allow the Company to do its own pre-loss risk management to prevent
malpractice claims.
CASE MANAGEMENT. The Company intends to utilize its management services to
advise the Affiliated Practices with respect to workers' compensation and
personal injury evaluation and treatment on an as needed basis. The Company's
management services will be comprised of both a clinical and an administrative
process by which health care services are identified, coordinated, implemented,
and evaluated on an ongoing basis for patients experiencing certain health
problems, particularly those that require longer-term treatment. In both the
workers' compensation and personal injury areas, the Company believes that the
case management approach will provide the Affiliated Practices with guidance,
prevent costly litigation, and allow for a continuum of care over an extended
treatment period. The Company believes that the success of these services with
the Affiliated Practices could lead to the future development of a similar
service to practices unaffiliated with the Company.
QUALITY ASSURANCE. The Company intends to implement programs that provide
both physicians and payors with quality assurance information on a regular
reporting basis. These programs include physician peer review, patient
satisfaction surveys, medical records auditing, and continuing
education/development for medical staff as required by accrediting
organizations, state law, and licensing requirements.
PHYSICIAN CREDENTIALING. The Company intends to maintain, and comply with,
the credentialing standards established by national accreditation bodies for
each of the Affiliated Physicians, without exception. The credentialing process
is an important part of any managed care contracting arrangement. The Company
intends to comply with the standards of the National Committee on Quality
Assurance ("NCQA") and the Joint Commission on Accreditation of Health Care
Organizations.
ANCILLARY SERVICES. The Company intends to add ancillary services, such as
laboratory testing, pharmacy, imaging, and medical/surgical specialists to its
SBUs, on a SBU-by-SBU basis determined based on need, either by acquisition and
affiliation or by direct contracting. The Company believes that including these
services and specialists will enable the Company to deliver more comprehensive
services, which will increase its bargaining power with managed care companies
and payors and intensify its market presence. Management will rely on each SBU
to identify the need for services and medical/surgical specialities which will
augment its ability to deliver comprehensive health care.
MANAGED CARE
The Company intends to undertake the identification, evaluation, and
negotiation of managed care contracts on behalf of the Affiliated Practices.
Upon a physician practice's affiliation, the Company will begin managed care
contracting activities designed to increase the practice's revenues and market
share, including determining the value of existing third party relationships,
identifying desirable managed care contracts and network affiliations, and
identifying practice strengths and weaknesses with respect to managed care
contracting strategies, including: (i) practice-specific contracting designed to
increase access to managed care patients; (ii) development of global-priced
products which establish a single price for all the medical costs of a
designated procedure; (iii) specialty carve-outs and single specialty networks,
such as orthopedics, ophthalmology, and obstetrics/gynecology, that serve as
exclusive providers for managed care plans; and (iv) full-risk capitation by
contracting with a third party payor to provide all physician services and, in
some cases, hospital and other facility services for a fixed price. By forming
SBUs, the Company believes that it will be well positioned to assist the
Affiliated Physicians in gaining additional market share, growing practice
revenues, and efficiently managing practice costs.
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INFORMATION SYSTEM
The Company believes that information technology is essential to the
advancement of a quality health care delivery network. When a physician practice
becomes affiliated with the Company, the Company will evaluate the
administrative and clinical operation of the practice and reengineer the
practice to operate within the Company's information system. The Company intends
to implement a system that provides for the ongoing collection and review of
clinical and administrative data in order to control overhead expenses, maximize
reimbursement, and provide effective utilization management. In addition, the
Company intends to install a standardized system and set of procedures within
each Affiliated Practice. Furthermore, the Company believes that an information
system will enable the Affiliated Practices to collect and retrieve clinical
data more efficiently.
The Company is developing an integrated information system to support its
growth and acquisition plans. The Company's overall information system design
will be open, modular, and flexible. Although the Company intends to implement a
system which will support core practice management and billing functions, the
nucleus of the Company's information system will be an individual patient
electronic medical record ("EMR"). The Company intends to configure its system
to give Affiliated Physicians and their staff efficient and rapid access to
complex clinical data. The Company believes that the use of the EMR will enhance
operational efficiencies through automation of many routine clinical functions
and will link "physician-specific" treatment protocols by diagnosis, thereby
allowing physicians to check treatments against pre-defined protocols at the
time of service.
Effective and efficient access to key clinical patient data is essential for
improving costs and quality outcomes. The Company intends to utilize its
information system to improve productivity, manage complex reimbursement
procedures, measure patient care satisfaction and outcomes of care, and
integrate information from multiple facilities. The Company believes such an
information system will enable it to analyze clinical and cost data in order to
accurately determine thresholds of profitability under various capitation
arrangements into which it may enter in the future.
AFFILIATION STRUCTURE
The Company utilizes an affiliation structure that aligns the interests of
the Company with those of its physicians. Moreover, the affiliation structure is
designed to allow each Affiliated Practice to retain professional autonomy and
control over its medical practices through continued governance of its
professional corporation or similar organization.
Prior to affiliation with the Company, the medical practices to be acquired
practice medicine through sole proprietorships or through PCs owned by one or
more medical doctors licensed to practice medicine under applicable state law.
When a medical practice has agreed to affiliate with the Company, the Company
purchases the practice's non-real estate operating assets and assumes certain of
its liabilities, and the practice enters into a long-term PMSA with the Company
in exchange for a combination of Common Stock, cash, notes, other securities of
the Company, and/or the assumption of certain liabilities. The Company has
utilized as partial consideration for the Acquisitions, and intends to continue
to utilize, Common Stock in payment of a significant portion of its
consideration for Affiliated Practices.
The PMSAs provide that the physicians are responsible for the provision of
all medical services and the Company is responsible solely for the management of
the operations of all other aspects of the Affiliated Practice. The Company will
provide the physician practice with the facilities, equipment, and supplies used
in the medical practice, employ substantially all of the non-physician personnel
utilized by the practice, except those whose services are directly related to
the provision of medical care, and assume certain of the liabilities of the
physician practice.
The Company's PMSAs are generally for a term of 40 years and generally
cannot be terminated by either party without cause, which consists primarily of
bankruptcy or material default.
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Under the terms of the PMSAs, the Affiliated Practices will assign all of
their revenue to the Company in return for the services and expertise provided
to the Affiliated Practices by the Company and for the assumption by the Company
of all of the overhead costs of the practice. The Company, in turn, will return
to the Affiliated Practices such sums, estimated to be approximately 40% of
revenues, as shall be required to pay physician compensation, taxes, benefits
and personal expenses. Each Affiliated Physician will provide medical services
to the Affiliated Practices pursuant to the terms of an employment agreement,
generally three to five years in duration, by which the physician earns a base
salary and can earn additional incentive compensation based upon the
profitability of the practice with which the physician is assigned. The
employment contract provides for the repayment to the Company of all or a
portion of the physician's share of the consideration paid by the Company for
the practice's non-real estate operating assets in the event of the physician's
breach of the contract. This relationship offers the physician an opportunity to
maintain a level of compensation equal to that which the physician earned prior
to the affiliation, while giving the practice access to capital, managment
expertise, information systems, and managed care contracts. Each Affiliated
Practice also enters into an agreement not to compete with the Company, and each
physician within the group enters into an agreement not to compete with the
Affiliated Practice during the period of his or her employment and for a period
of time thereafter, typically two years.
COMPETITION
The physician practice management industry is highly competitive. The
Company is subject to significant competition both in affiliating with physician
practices and in seeking managed care contracts on behalf of the Affiliated
Practices. Its competitors include hospitals, managed care organizations, and
other PPMOs. In comparison with the Company, many of its competitors are larger
and have substantially greater resources, provide a wider variety of services,
and have longer established relationships with purchasers of such services. The
Company intends to compete in such market by focusing on the quality of service
of its Affiliated Practices and believes its affiliation selection process, the
skills and experience of its management and personnel, and its medical
information system will all be important competitive factors. There can be no
assurance, however, that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that such competition will
not make it more difficult to enter into affiliations with physician practices
on terms beneficial to the Company.
The Company also experiences competition in the recruitment and retention of
qualified physicians and other health care professionals on behalf of the
Affiliated Practices. There can be no assurance that the Company will be able to
recruit or retain a sufficient number of qualified physicians and other health
care professionals to expand its operations.
THIRD PARTY REIMBURSEMENT
The Company's ability to collect fees in a timely manner, or at all, is
affected by whether the Affiliated Practices are reimbursed for their medical
services and the amount of reimbursement. Substantially all of the revenue of
the Affiliated Practices, on which the Company's revenue will be dependent, will
derive from commercial health insurance, state workers' compensation programs,
and other third party payors. All of these providers and programs are regulated
at the state or federal level. There are increasing and significant public and
private sector pressures to contain health care costs and to restrict
reimbursement rates for medical services. For example, it has been reported that
the Medicare program is expected to experience a deficiency of funds early in
the next century. Accordingly, Congress, in its fiscal year 1997 budget
legislation, called for, and considered, severe reductions in both the Medicare
and Medicaid programs. Several states have taken measures to reduce the
reimbursement rates paid to health care providers in their states. The Company
believes that additional states will implement reductions from time to time.
Reductions in Medicare and Medicaid rates often lead to reductions in the
reimbursement rates of other third party payors as well. Thus, changes in the
level of support by federal and state governments of health care services, the
methods by which health care services may be delivered, and the prices of such
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services may all have a material impact on the revenue of the Company, which in
turn could have a material adverse effect on the Company.
Third party payors may disagree with the description or coding of a bill for
medical services, or may contest a description or code under a lesser fee
schedule depending on the medical services rendered. Such disagreements on the
description of professional services or bill coding, particularly where the
third-party payor is a federal or state funded health care program, could result
in lesser reimbursement, which could have a material adverse effect on the
Company. Persistent disagreements or alleged "upcoding" could result in
allegations of fraud or false billing, both of which constitute felonies. Such
an allegation, if proven, could result in forfeitures of payment, civil money
penalties, civil fines, suspensions, or exclusion from participation in federal
or state funded health care programs, and could have a material adverse effect
on the Company. Investigation and prosecution for fraudulent or false billing
could have a material adverse effect on the Company, even if such allegations
were disproven.
The Company's income may be materially adversely affected by the
uncollectibility of medical fees from third party payors or by delay in the
submission of claims, and the long collection cycles for such receivables. Many
third party payors, particularly insurance carriers covering automobile no-fault
and workers' compensation claims refuse, as a matter of business practice, to
pay claims unless submitted to arbitration. Further, third party payors may
reject medical claims if, in their judgment, the procedures performed were not
medically necessary or if the charges exceed such payor's allowable fee
standards. In addition, some receivables may not be collected because of
omissions or errors in timely completion of the required claim forms. This does
not mean that such claims will not ultimately be paid. The Affiliated Practices
normally would resubmit the claim with such revisions as requested and/or forms
and documentation. Outstanding claims that continue to be disputed after one
year or more could then be submitted to an arbitration process. Often, when
final arbitration decisions are about to be rendered, the third party payor will
settle. Although the Company will take all legally available steps to collect
receivables on behalf of the Affiliated Practices, there is a significant risk
that the Affiliated Practice receivables may not be collected, which could
materially adversely affect the Company.
GOVERNMENT REGULATION
As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state, and local levels. The Company is
also subject to laws and regulations relating to business corporations in
general. The Company believes its operations and the operations of the Initial
Affiliated Practices and NBS are currently, and will continue to be, in material
compliance with all applicable laws. Nevertheless, because of the structure of
the intended relationship with the Affiliated Practices, many aspects of the
Company's business operations have not been the subject of state or federal
regulatory interpretation and there can be no assurance that a review of the
Company's or the Affiliated Practices by courts or regulatory authorities will
not result in a determination that could adversely affect the operations of the
Company or the Affiliated Practices.
A significant portion of the revenues of the Affiliated Practices will be
derived from payments made by government sponsored health care programs
principally Medicare and Medicaid. As a result, any change in reimbursement
regulations, policies, practices, interpretations, or statutes could adversely
affect the future operations of the Company. The federal Medicare program has
adopted a system of reimbursement for physician services, known as the resource
based relative value scale schedule ("RBRVS"). The Company expects that the
RBRVS fee schedule and other future changes in Medicare reimbursement will
result in a reduction in the Medicare revenue received by certain Affiliated
Practices. However, the Company does not believe such reductions will adversely
affect the Company's projected operating results.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute," prohibit the offer, payment, solicitation, or receipt
of any form of remuneration in return for the
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recommendation, arrangement, purchase, lease, or order of items or services that
are covered by Medicare or state health programs. The Anti-kickback Statute is
broad in scope and has been broadly interpreted by courts in many jurisdictions.
Read literally, the statute places at risk many legitimate business
arrangements, potentially subjecting such arrangements to lengthy, expensive
investigations and prosecutions initiated by federal and state governmental
officials. Many states have adopted similar prohibitions against payments
intended to induce referrals of Medicaid and other third party payor patients.
The Company believes that although it will receive remuneration under the PMSAs
for management services, it is not in a position to make or influence the
referral of patients or services reimbursed under government programs to the
physician groups and, therefore, believes that it will not violate the
Anti-kickback Statute. The Company will also not be a separate provider of
Medicare or state health program reimbursed services. To the extent the Company
is deemed to be either a referral source or a separate provider under the PMSAs
the financial provisions of these agreements could be subject to scrutiny and
prosecution under the Anti-kickback Statute. Violation of the Anti-kickback
Statute is a felony punishable by fines up to $25,000 per violation and
imprisonment for up to five years. In addition, the Department of Health and
Human Services may impose civil penalties and may exclude violators from
participation in Medicare or state health programs.
In July 1991, in part to address concerns regarding the Anti-kickback
Statute, the federal government published regulations that provide exceptions,
or "safe harbors," for transactions that will be deemed not to violate the Anti-
kickback Statute. Among the safe harbors included in the regulations were
provisions relating to the sale of practitioner practices, management and
personal service agreements, and employee relationships. Additional safe harbors
were published in September 1993 offering new protections under the
Anti-kickback Statute to eight activities, including referrals within group
practices. Proposed amendments to clarify these safe harbors were published in
July 1994 which, if adopted, would cause substantive retroactive changes to the
1991 regulations. Although the Company believes that it will not be in violation
of the Anti-kickback Statute, its operations may not fit within any of the
existing or proposed safe harbors.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly known as "Stark II," amended prior physician self-referral legislation
known as "Stark I" by dramatically enlarging the field of physician-owned or
physician interested entities to which the referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits, subject to certain exemptions, a
physician or a member of his immediate family from referring Medicare or
Medicaid patients to an entity providing "designated health services" in which
the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement, including the physician's
own group practice. The designated health services include radiology and other
diagnostic services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment, and supplies, orthotic and prosthetic devices and supplies,
outpatient prescription drugs, home health services, and inpatient and
outpatient hospital services. The penalties for violating Stark II include a
prohibition on payment by these government programs and civil penalties of as
much as $15,000 for each violative referral and $100,000 for participation in a
"circumvention scheme." The Company believes that its activities, as structured,
will not be in violation of Stark I or Stark II. While the Company believes it
will be in compliance with the Stark legislation, future regulations could
require the Company to modify the form of its relationships with physician
groups. Moreover, the violation of Stark I or II by the Affiliated Practices
could result in significant fines and loss of reimbursement which would
adversely affect the Company.
Because the Affiliated Practices will remain separate legal entities, they
may be deemed competitors subject to a range of antitrust laws which prohibit
anti-competitive conduct, including price fixing, concerted refusals to deal and
division of market. The Company intends to comply with such state and federal
laws as may affect its development of an integrated health care delivery
network, but there is no assurance that a review of the Company's business by
courts or regulatory authorities will not result in a determination that could
adversely affect the operation of the Company and the Affiliated Practices.
35
<PAGE>
There are also state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
health care providers which fraudulently or wrongfully bill governmental or
other third party payors for health care services. The federal law prohibiting
false billings allows a private person to bring a civil action in the name of
the United States government for violations of the law's provisions. The Company
believes that it will be in material compliance with such laws, but there is no
assurance that the Company's activities will not be challenged or scrutinized by
governmental authorities. Moreover, technical Medicare and other reimbursement
rules affect the structure of physician billing arrangements. The Company
believes that it will be in material compliance with such regulations, but
regulatory authorities may differ. In such event the Company may have to modify
its relationship with the Affiliated Practices. Noncompliance with such
regulations may adversely affect the operations of the Company and subject it
and certain Affiliated Practices to penalties and additional costs.
Every state imposes licensing requirements on individual physicians and on
certain other health care providers and facilities. Many states require
regulatory approval, including licensing to render care or certificates of need
before establishing certain types of health care services which entail the
acquisition of expensive medical equipment or facilities. While the performance
of management services on behalf of a medical practice does not currently
require any regulatory approval, there can be no assurance that such activities
will not be subject to licensure in the future.
The laws of many states, including New York, New Jersey, and Pennsylvania,
prohibit business corporations such as the Company from practicing medicine and
employing physicians to practice medicine. The Company will perform only
non-medical administrative service, will not represent to the public or its
clients that it offers medical services, and will not exercise influence or
control over the practice of medicine by the physicians with whom it affiliates.
Accordingly, the Company believes that it will not be in violation of any state
laws relating to the practice of medicine. The laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial and
regulatory interpretation and, therefore, no assurances can be given that the
Company's activities will be found to be in compliance, if challenged. In
addition to prohibiting the practice of medicine, numerous states prohibit
entities like the Company from engaging in certain health care related
activities such as fee-splitting with physicians. The Company believes it is
likely that more states will adapt similar legislation. Accordingly, expansion
of the operations of the Company to certain jurisdictions may lead to structural
and organizational modifications in the Company's form of contractural
relationships with physician practices. Such changes, if any, could have an
adverse effect on the Company. Further, there can be no assurance that the
Company's arrangements with the Affiliated Practices will not be successfully
challenged as constituting the unauthorized practice of medicine.
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. Many state insurance commissioners have interpreted their
states' insurance statutes to prohibit entities from entering into risk-based
managed care contracts unless there is an entity licensed to engage in the
business of insurance, such as an HMO, in the chain of contracts. An entity not
licensed to engage in the business of insurance that contracts directly with a
self-insured employer in such a state may be deemed to be engaged in the
unlicensed business of insurance. While these laws do not generally apply to the
hiring and contracting of physicians by other health care providers, there can
be no assurance that regulatory authorities of the states in which the Company
operates would not apply 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 it will be in compliance with these laws in the states in which it
does business, but there can be no assurance that future interpretations of
insurance laws and health care network laws by the 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.
In addition to current regulation, the Clinton Administration and several
members of Congress have proposed legislation for comprehensive reforms
affecting the payment for, and availability of, health care
36
<PAGE>
services. Aspects of certain of these health care proposals, such as reductions
in Medicare and Medicaid payments, if adopted, could adversely affect the
Company. Other aspects of such proposals, such as universal health insurance
coverage and coverage of certain previously uncovered services, could have a
positive impact on the Company's business. It is not possible at this time to
predict what, if any, reforms will be adopted by Congress or state legislatures,
or when such reforms will be adopted and implemented.
As health care reform progresses, and the regulatory environment
accommodates reform, it is likely that changes in state and federal regulations
will necessitate modifications to the Company's agreements and/or operations.
While the Company believes that it will be able to restructure in accordance
with applicable laws and regulations, the Company cannot be certain that such
restructuring will be possible or profitable in all circumstances.
EMPLOYEES
At June 30, 1997, the Company had seven employees consisting of four
executive officers, the general counsel to the Company, and two employees of
PMI.
PROFESSIONAL LIABILITY INSURANCE
In recent years, physicians, hospitals, and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice and related legal theories. Many of these lawsuits involve
large claims and substantial defense costs. The Company does not engage in the
practice of medicine or provide medical services, nor does it control the
practice of medicine by the Affiliated Practices or the compliance with
regulatory and other requirements directly applicable to the Affiliated
Physicians and Affiliated Practices. Although the Company has not been a party
to any litigation relating to the practice of medicine, there can be no
assurance that the Company will not become involved in such litigation in the
future.
The PMSAs will require the Affiliated Practices to maintain, at their
expense, professional liability insurance for themselves and each physician
employed by or otherwise providing medical services for the Affiliated Practices
in the minimum amount of $1,000,000 per occurrence and $3,000,000 in the
aggregate. In addition, each Affiliated Practice will undertake to comply with
all applicable regulations and requirements, and the Company will be indemnified
under the PMSA for claims against the Company arising in connection with actions
by the Affiliated Practices. The Company has applied for general liability
insurance for itself and intends to require that it be named as an additional
insured party on the professional liability insurance policies of the Affiliated
Practices pursuant to the PMSA. In addition, the Company will maintain liability
insurance on its non-physician professional employees, such as nurses and
midwives.
There can be no assurance that the Company, its employees, the Affiliated
Practices, or the Affiliated Physicians will not be subject to claims in amounts
that exceed the coverage limits or that such coverage will be available when
needed. Further, there can be no assurance that professional liability or other
insurance will continue to be available to the Affiliated Practices in the
future at adequate levels, at an acceptable cost, or at all. A successful claim
against the Company or an Affiliated Practice in excess of the relevant
insurance coverage could have a material adverse effect upon the Company. Claims
against the Company or an Affiliated Practice, regardless of the merits or
eventual outcomes, may also have a material adverse effect on the Company.
PROPERTIES
The Company has assumed the lease of PMI, which covers approximately 2,400
square feet, at $29,792 per annum, at 615 Hope Road, Eatontown, New Jersey.
Prior to the consummation of this Offering, the Company has been conducting its
administration and marketing operations at the offices of Wellness Concepts,
Inc., at 2644 Bristol Road, Warrington, Pennsylvania 18976. After this Offering,
the Company
37
<PAGE>
intends to use both the Hope Road and Bristol Road facilities as its principal
places of business. Upon consummation of the Acquisitions, the Company will
lease approximately 17 medical practice facilities of the Affiliated Practices
in the form of either a sublease of facilities being leased by the PCs or
entering into a lease agreement with the sole practitioners who own their
facilities. The annual rent payments of such medical facilities are estimated to
aggregate approximately $725,000 . In addition, upon the consummation of the
Acquisitions, the Company will acquire a medical practice facility currently
owned by Reliance, at 3407 Atlantic Avenue, Atlantic City, New Jersey.
LEGAL PROCEEDINGS
There are no material lawsuits pending, or to the Company's knowledge,
threatened against the Company.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the members of
the Board of Directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Scott G. Pollock(1)................ 36 President, Chief Executive Officer, Chief Financial Officer and a
Director
Dennis B. Liotta, M.D.............. 43 Executive Vice President, Chief Operating Officer and a Director
Peter Heisen, M.D.(1).............. 54 Vice President, Chief Medical Officer and a Director
David I. Rosen, M.D................ 59 Vice President for Business Development and a Director
Joseph F. Murray................... 41 Secretary and a Director
Walter B. Dunsmore................. 50 Corporate General Counsel and a Director
Robert M. Rubin.................... 55 Director
Randall K. Sprau(2)................ 50 Consultant
</TABLE>
- ------------------------
(1) Effective upon the consummation of this Offering, Mr. Pollock will resign
his position as President of the Company. At such time the office of
President will be assumed by Dr. Heisen.
(2) Effective upon the consummation of this Offering, Mr. Sprau will become a
Vice President and the Chief Information Officer of the Company.
Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until the next annual meeting and until his
successor is duly elected and qualified. Officers of the Company are elected by,
and serve at the discretion of, the Board of Directors.
Set forth below is a brief summary of the background of each director,
executive officer, and key employee of the Company.
SCOTT G. POLLOCK is a co-founder of the Company, has served as the President
and Chief Executive Officer of the Company since August 1, 1996 and has served
as a Director and Chief Financial Officer of the Company since April 1995. Since
January 1, 1994, Mr. Pollock has served as Chief Financial Officer of Wellness
Concepts, Inc. ("Wellness"), an owner and manager of long-term care facilities
and other health care related ventures. Effective upon the consummation of this
Offering, Mr. Pollock will resign from his position with Wellness. From 1986
through December, 1993, Mr. Pollock was a Director and Senior Manager at
Zelenofske, Axelrod & Co., Ltd., a regional health care consulting and certified
public accounting firm. Mr. Pollock received a Bachelor of Science degree in
accounting from Indiana University of Pennsylvania and is a member of the
American Institute of Certified Public Accountants.
DENNIS B. LIOTTA, M.D., is a co-founder of the Company and has served as the
Executive Vice President, Chief Operating Officer and a Director of the Company
since April 1995. Since 1990, Dr. Liotta has served as President of PMI, a
health care marketing and management firm. In 1986, Dr. Liotta founded, and from
1986 through 1990, served as President of ProHEALTH, a care organization in New
Jersey that specifically addressed work-related injuries and illnesses. From
1985 through 1990, Dr. Liotta maintained a private internal medicine practice.
Dr. Liotta received his medical training at Northeastern University, completed
his residency in internal medicine at Monmouth Medical Center in New Jersey, and
received an MBA from Rutgers University.
39
<PAGE>
PETER R. HEISEN, M.D. will, upon the consummation of this Offering, become
President and Chief Medical Officer of the Company. Since 1993, Dr. Heisen has
been a principal with William M. Mercer, Inc., a national health care consulting
firm, and has worked on a number of projects helping clients design, operate,
and build health care delivery systems. From May 1991 through September 1992,
Dr. Heisen was Medical Director of PruCare of New Jersey ("PruCare"), a
state-wide managed care insurance plan serving more than 250,000 subscribers
through affiliations with 3,000 physicians and 42 hospitals. From 1986 through
1991, Dr. Heisen served as the Associate Medical Director at PruCare. From 1971
through 1991, Dr. Heisen engaged in the private practice of medicine,
specializing in internal medicine and infectious disease. Dr. Heisen received
his medical degree from the University of Pennsylvania and has an undergraduate
degree in mathematics from Swarthmore College. Dr. Heisen is a Diplomate of the
American Board of Internal Medicine and the National Board of Medical Examiners.
DAVID I. ROSEN, M.D. has served as Vice President for Business Development
and a Director of the Company since April 1995. Dr. Rosen is also a co-founder
of the Company. From 1978 to June 1996, Dr. Rosen was the managing partner of
Hunterdon Urological Associates, a New Jersey urological practice. Since 1989,
Dr. Rosen has also been a general partner of a licensed 68- bed long-term and
subacute care facility in Hunterdon County. Dr. Rosen is a board certified
urologist who graduated cum laude with a Bachelor of Arts degree from Brooklyn
College. He received his medical degree, with honors, from State University of
New York at Syracuse School of Medicine. Following three years in the U.S. Navy
(Lt. M.C.), he completed his post graduate medical education in urology at
Stanford University.
JOSEPH F. MURRAY has served as Corporate Counsel, Secretary, and a Director
of the Company since April 1995. Since 1986, Mr. Murray has served, and
currently serves, as Vice President and General Counsel of Wellness. Following
the consummation of this Offering, Mr. Murray will maintain a part-time position
with Wellness. From 1991 to 1994 he was also Vice President, General Counsel and
a Board Member of GraceCare Health Systems, Inc., a long-term care management
company. From 1980 until 1986, Mr. Murray was engaged in the private practice of
law primarily representing health care clients. Mr. Murray received a Bachelor
of Arts degree in Political Science and an L.L.M. in Taxation from Villanova
University, and a Juris Doctor from Widener University School of Law. He is a
member of the National Health Lawyers Association.
ROBERT M. RUBIN has served as a Director of the Company since August 1996.
Mr. Rubin was the founder, President, Chief Executive Officer, and a Director of
Superior Care, Inc. ("SCI") from its inception in 1976 until May 1986. Mr. Rubin
continued as a Director of SCI (now known as Olsten Corporation ("Olsten"))
until the latter part of 1987. Olsten, a New York Stock Exchange listed company,
is engaged in providing home care and institutional staffing services and health
care management services. Mr. Rubin is also a Director, Chairman of the Board,
and minority stockholder of American United Global, Inc. ("AUG"), a public
communications and software company. From May 1991 to January 1994, Mr. Rubin
served as Chairman of the Board and Chief Executive Officer of AUG and its
subsidiaries. Since 1993, Mr. Rubin has served as the Chairman of the Board and
Chief Executive Officer of ERD Waste Corp., a diversified public waste
management company. Mr. Rubin is the Chairman of the Board of Western Power &
Equipment Corp. ("WPEC"), a public company engaged in the distribution of
construction equipment. Between November 1992 and March 1993, he served as Chief
Executive Officer of WPEC. Mr. Rubin is also a Director of Response USA, Inc., a
public company engaged in the sale and distribution of electronic security and
personal emergency response systems; Diplomat Juvenile Products, Inc., a public
company engaged in the catalogue sales business; Help at Home, Inc., a public
company which provides home health care personnel; and Arzan International
(1991) Ltd., an Israeli manufacturer, processor, and distributor of food
products.
WALTER B. DUNSMORE, ESQ. is an attorney who has been associated with the
Company since April 1996. From April 1991 to September 1995, Mr. Dunsmore was
General Counsel and Chief Financial Officer of Nutrition Management Services
Company, a national health care food service provider. From 1976 through 1991,
Mr. Dunsmore was engaged in the private practice of law with an emphasis on
business and
40
<PAGE>
health care clients. Mr. Dunsmore received his Bachelor of Business
Administration from Temple University and his Juris Doctor degree from Seton
Hall University.
RANDALL K. SPRAU currently serves as a consultant to the Company and will,
effective upon the consummation of this Offering, become a Senior Vice President
and the Chief Information Officer of the Company. Prior to becoming associated
with the Company, Mr. Sprau had been employed, since 1969, by Shared Medical
Systems, Inc. ("SMS"). SMS is a provider of information systems and computer
products to the health care industry. Mr. Sprau has held a variety of positions
with SMS, most recently as Vice President of Information Systems. In addition,
from 1981 through 1994, Mr. Sprau managed the development, marketing, and
installation of SMS' premier clinical information system for physicians. Mr.
Sprau received a degree in mathematics from Mankato State University.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by, or paid
to Scott G. Pollock, the Company's President and Chief Executive Officer, for
the year ended December 31, 1996. No other executive officer of the Company
received compensation in excess of $100,000 during the Company's last fiscal
year.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY
- ------------------------------------------------------------------------- ------------- ---------
<S> <C> <C>
Scott G. Pollock; President, Chief Executive Officer,
Chief Financial Officer and a Director................................. 1996 $ 0(1)
</TABLE>
- ------------------------------
(1) During 1996, and until August 1, 1997, Mr. Pollock received no salary, but
was reimbursed for all out-of-pocket expenses. At August 1, 1997, Mr.
Pollock's employment agreement commences, pursuant to which he is entitled
to an annual base salary of $200,000. See "Management--Employment
Agreements."
DIRECTOR COMPENSATION
Members of the Board of Directors will receive compensation at the rate of
$200 per meeting attended. All Directors will be reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof and for other expenses incurred in their capacity as Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
On May 1, 1997, the Board of Directors formalized the creation of a
Compensation Committee, which is comprised of Messrs. Pollock, Murray, and
Dunsmore. The Compensation Committee has (i) full power and authority to
interpret the provisions of, and supervise the administration of, the Plan and
(ii) the authority to review all compensation matters relating to the Company.
On May 1, 1997, the Board formalized the creation of an Audit Committee,
which is comprised of Messrs. Heisen, Murray, and Dunsmore. The Audit Committee
is responsible for reviewing the plans and results of the audit engagement with
the independent auditors; reviewing the adequacy, scope, and results of the
internal accounting controls and procedures; reviewing the degree of
independence of the auditors; reviewing the auditors' fees; and recommending the
engagement of auditors to the full Board of Directors.
DIRECTORS' LIMITATION OF LIABILITY
The Company's Certificate of Incorporation and By-Laws include provisions to
(a) eliminate the personal liability of directors for monetary damages resulting
from breaches of their fiduciary duty (except for liability for breaches of the
duty of loyalty, acts, or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under Section
174 of the Delaware
41
<PAGE>
General Corporation Law, or for any transaction from which the director derived
an improper personal benefit) and (b) indemnify the directors and officers to
the fullest extent permitted by the Delaware General Corporation Law, including
circumstances under which indemnification is otherwise discretionary. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messr. Pollock, and
Drs. Heisen and Liotta to serve in their respective positions with the Company.
Each of the agreements has a term of three years, commencing on August 1, 1997
and terminating on July 31, 2000. Each of the agreements contains a covenant not
to compete with the Company for a period of two years following termination of
employment with the Company. Each of these employees is entitled to an annual
salary of $200,000 and Company-paid health, life, and disability benefits, as
well as a monthly automobile allowance of $600. Each of the employment
agreements additionally provides that the employee may receive bonus
compensation of between 10% and 30% of their annual salary, based upon the
achievement of certain financial and operational goals. Each of the agreements
provides that in the event that the agreement is terminated for any reason other
than a change in control of the Company the employee shall be entitled to
receive all accrued compensation and a severance payment equal to two months
salary. In the event that such employment is terminated as a result of a change
in control of the Company, each of the above-named employees shall be entitled
to receive all accrued compensation and a payment equal to two times such
employee's (i) base salary and (ii) the maximum potential bonus under the
agreement.
The Company has entered into a memorandum of understanding to enter an
employment agreement with Randall K. Sprau upon consummation of this Offering to
serve as the Senior Vice President and Chief Information Officer of the Company.
The agreement will have a term of three years. Pursuant to the terms of such
employment agreement, Mr. Sprau will initially receive an annual salary of
$175,000 and Company-paid health, life, and disability benefits. Mr. Sprau
additionally may receive bonus compensation of between 10% and 30% of his annual
salary, based upon the achievement of certain financial and operational goals.
Concurrently with the execution of the emplyment agreement, Mr. Sprau agreed to
enter into an agreement not to compete with the Company. Until such employment
agreement is executed, Mr. Sprau has agreed to provide consulting services to
the Company in consideration of the reimbursement of all of his expenses in
connection with his engagement as a consultant.
STOCK OPTION PLAN
On April 24, 1996, the Board of Directors and the stockholders of the
Company adopted the Plan. The Plan provides for the grant of options to purchase
up to 300,000 shares of Common Stock to employees, officers, directors, and
consultants of the Company. Options may be either "incentive stock options"
within the meaning of Section 422 of the United States Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified options. Incentive stock options
may be granted only to employees of the Company, while non-qualified options may
be issued to non-employee directors, consultants, and others, as well as to
employees of the Company.
The Plan will be administered by "disinterested members" of the Board of
Directors (as defined by Rule 16b-3 of the Exchange Act) or the Compensation
Committee thereof, who will determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock issuable upon the
exercise of each option, and the option exercise price.
The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Board of Directors.
42
<PAGE>
The aggregate fair market value (determined as of the date the option is
granted) of Common Stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee. In the event of termination of
employment other than by death or disability, the optionee will have no more
than three months after such termination during which the optionee shall be
entitled to exercise the option, unless otherwise determined by the Board of
Directors. Upon termination of employment of an optionee by reason of death or
permanent and total disability, such optionee's options will remain exercisable
for one year thereafter to the extent such options were exercisable on the date
of such termination. No similar limitation applies to non-qualified options.
Options under the Plan must be issued within ten years from the effective
date of the Plan. The effective date of the Plan is April 24, 1996. Incentive
stock options granted under the Plan cannot be exercised more than ten years
from the date of grant. Incentive stock options issued to a 10% Stockholder are
limited to five year terms. Options granted under the Plan generally provide for
the payment of the exercise price in cash and may provide for the payment of the
exercise price by delivery to the Company of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods. Therefore, if
so provided in an optionee's options, such optionee may be able to tender shares
of Common Stock to purchase additional shares of Common Stock and may
theoretically exercise all of his stock options with no additional investment
other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an employee's
cessation of employment with the Company become available again for issuance
under the Plan.
To date, no options have been granted under the Plan.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date hereof, the ownership of the
Common Stock by (i) each person who is known by the Company to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and executive officers, and (iii) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF CLASS
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- --------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Scott G. Pollock(2).............................................................. 225,000 7.4% 4.6%
Dennis B. Liotta, M.D.(2)........................................................ 180,000 5.9% 3.7%
Peter R. Heisen, M.D.(2)......................................................... 60,000 2.0% 1.2%
David I. Rosen, M.D.(2).......................................................... 213,750 7.0% 4.4%
Joseph F. Murray(2).............................................................. 20,000 0.7% 0.4%
Walter B. Dunsmore, Esq.(2)...................................................... 20,000 0.7% 0.4%
Robert M. Rubin
6060 Kings Gate Circle
Delray Beach, Florida 33486.................................................... 500,000 16.4% 10.2%
John D. Sullivan
1040 First Avenue, Suite 161
New York, New York 10021....................................................... 500,000 16.4% 10.2%
Family Investment Associates, L.P.
c/o Walter B. Dunsmore, Esq.
2114 Barnwood Circle
Trooper, Pennsylvania 19403.................................................... 220,000 7.2% 4.5%
Master Holdings, Inc.
235 E. 87th Street
Suite 5H
New York, New York 10128....................................................... 200,000 6.6% 4.1%
James M. and Ellen Foulke
1275 Fritz Circle
Huntington Valley, Pennsylvania 19006.......................................... 420,250 13.8% 8.6%
All directors and executive officers of the
Company as a group (7 persons)................................................. 1,218,750 40.0% 24.8%
</TABLE>
- ------------------------
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
as consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition) with respect to the security through
any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership, voting,
and investment power with respect to all shares shown as beneficially owned
by them.
(2) The address of each of the referenced individuals is c/o Integrated
Physician Systems, Inc., 2644 Bristol Road, Warrington, Pennsylvania 18976.
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CERTAIN TRANSACTIONS
Since the Company's inception, Wellness, the founding stockholder of the
Company, has advanced to the Company an aggregate of $148,000 to assist in
funding the fees and expenses accrued in connection with this Offering. Such
advance bears no interest and is required to be repaid upon the closing of this
Offering. As of the date of this Prospectus, the balance owed by the Company on
such advance is $118,000, all of which will be paid with a portion of the net
proceeds from this Offering. Scott G. Pollock and Joseph F. Murray are currently
the Chief Financial Officer and the Vice President and General Counsel,
respectively, of Wellness. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Affiliated PCs, which, upon the consummation of this Offering, will
employ the Affiliated Physicians and enter into the PMSAs with the Company, will
be 100% owned by David I. Rosen, M.D., the Vice President for Business
Development of the Company. The Company has entered an agreement with Dr. Rosen
whereby, upon his death, incapacity, or removal from office or directorship of
the Company, he has agreed to transfer 100% of his ownership in such Affiliated
PCs to an officer or director of the Company designated by the Board of
Directors of the Company who is also a physician. Furthermore, Dr. Rosen is
restricted from selling or otherwise transferring his stock in the Affiliated
PCs to a person or entity other than such officer or director of the Company.
Dr. Rosen will receive no payment, whether in the form of dividends or
otherwise, by virtue of his being stockholder thereof. See
"Business--Development and Operations."
All future transactions between the Company and its officers, directors, and
5% stockholders will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested directors of the Company.
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DESCRIPTION OF DEBENTURES
GENERALLY
The Debentures will be issued under an Indenture, to be dated as of
, 1997, (the "Indenture"), between the Company, as issuer, and
, as trustee (the "Trustee"), a copy of which has been filed as an
exhibit to the Registration Statement. The descriptions of the Debentures and
the Indenture in this Prospectus are summaries, do not purport to be complete,
and are subject to, and are qualified in their entirety by reference to, all
provisions of the Indenture. Wherever terms defined in the Indenture are used in
this Prospectus, such defined terms are incorporated herein by reference.
Article and Section references appearing below refer to the corresponding
Articles and Sections of the Indenture.
The Debentures will be unsecured subordinated obligations of the Company,
will be limited to an aggregate principal amount of $28,750,000 (including
$3,750,000 subject to the Underwriters' over-allotment option and excluding
$2,500,000, subject to the Representative's Warrants) and will mature on
, 2004. The Debentures will bear interest at the rate per annum
stated in their title from the date of the issuance thereof or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on 15 and 15 of each year, commencing
15, 1998, to each holder in whose name a Debenture (or any predecessor
Debenture) is registered at the close of business on the Regular Record Date for
such interest payment, which shall be 1 or 1 (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date (unless, with certain exceptions, such Debentures are converted or redeemed
prior to such Interest Payment Date). Interest on the Debentures will be paid on
the basis of a 360-day year consisting of twelve 30-day months (Section 311).
Principal of, and interest on, the Debentures will be payable at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
City of New York, and such other office or agency of the Company as may be
maintained for such purpose (initially the corporate trust office of the Trustee
in New York, New York). Debentures may be surrendered for transfer, exchange,
repurchase, redemption, or conversion at that agency or office. Payment of
interest may, at the option of the Company, be made by check mailed to the
address of the holder entitled thereto as it appears in the Debenture Register
(See Sections 301, 305, 1002 and 1202). The Debentures will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple thereof (Section 302). No service charge will be made for any
transfer or exchange of Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith (Section 305). The Company is not required to transfer or exchange any
Debenture (i) during a period beginning at the opening of business 15 days
before the date of the mailing of a notice of redemption and ending at the close
of business on the date of such mailing or (ii) selected for redemption, in
whole or in part, except the unredeemed portion of Debentures being redeemed in
part. All moneys paid by the Company to the Trustee or any Paying Agent for the
payment of, principal of, and premium, if any, and interest on any Debenture
which remain unclaimed for two years after such principal, premium, or interest
became due and payable may be repaid to the Company. Thereafter, the holder of
such Debenture may, as an unsecured general creditor, look only to the Company
for payment thereof.
The Indenture does not contain any provisions that would provide protection
to holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization, or similar
restructuring, except as described under "Description of Debentures--Certain
Rights to Require Repurchase of Debentures."
The Indenture contains no financial covenants or covenants restricting the
incurrence of indebtedness by the Company or any Subsidiary (as defined
therein). Although certain agreements under which Senior Indebtedness (as
defined therein) in the future may be outstanding may contain limitations on the
incurrence of indebtedness by the Company or its Subsidiaries, such agreements
may be amended or modified as provided therein, may provide only incidental
protection to holders of Debentures in the event
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of a Repurchase Event (as described below), and are not intended for the benefit
of the holders of the Debentures. In addition, future agreements under which
future Senior Indebtedness may be outstanding may contain provisions which may
require repayment of such Senior Indebtedness prior to repayment of the
Debentures upon, among other things, a Repurchase Event.
CONVERSION RIGHTS
The Debentures (or any portion thereof that is an integral multiple of
$1,000) will be convertible into Common Stock at the option of the holders
thereof at any time and from time to time prior to, and including, the maturity
date unless a Debenture or a portion thereof shall have been called for
redemption, through optional redemption, a sinking fund or otherwise, in which
case it will be convertible if duly surrendered on or before the close of
business on the fifth day preceding the Redemption Date at the conversion price
stated on the cover hereof (subject to adjustment as described below). The
conversion price shall be subject to adjustment upon certain events, including
in the event that:
(a) The Company shall declare a dividend or make a distribution on its
outstanding Common Stock payable in Common Stock or shall declare or make a
dividend or other distribution on any other class of capital stock of the
Company or any subsidiary not wholly owned by the Company which dividend or
distribution includes Common Stock.
(b) The Company shall subdivide the outstanding Common Stock into a
greater number of shares, or combine the outstanding Common Stock into a
smaller number of shares.
(c) The Company shall fix a record date for the issuance of rights or
warrants to all holders of its Common Stock entitling them (for a period
expiring within 45 days after the record date therefor) to subscribe for or
purchase Common Stock (or securities convertible into Common Stock) at a
price per share (or having an initial conversion price per share) less than
the Current Market Price (as defined in Section 1204(h) of the Indenture) of
Common Stock on such record date.
(d) The Company shall fix a record date for making a distribution to
holders of its Common Stock or holders (other than the Company or its
wholly-owned subsidiaries) of capital stock of any Subsidiary (as defined in
the Indenture) (i) of evidences of indebtedness of the Company or any
Subsidiary, (ii) of assets (including shares of any class of capital stock,
cash or other securities, but excluding any rights or warrants referred to
in subsection (c), above, or securities referred to in subsection (e),
below, excluding any dividend or distribution referred to in subsection (a),
above, and excluding any dividend or distribution paid exclusively in cash
out of retained or current earnings) or (iii) of rights or warrants
entitling the holders thereof to receive upon payment of the consideration
set forth therein shares of capital stock of the Company (excluding those
referred to in subsection (c) above).
(e) The Company shall issue or distribute Common Stock, (excluding
shares issued (i) in any of the transactions described in subsection (a)
above, (ii) upon conversion or exchange of securities convertible into or
exchangeable for Common Stock described in subsection (f) below, (iii) to
employees or consultants under the Plan, as now in effect or hereafter
amended, if such shares would otherwise be included in this section (e),
(iv) to the Company's employees or consultants under bona fide benefit
plans, employment agreements, or consulting agreements adopted by the
Company's Board of Directors and approved by its stockholders or granted at
an exercise price of at least 100% of the fair market value of the shares on
the date of grant whether or not approved by stockholders, if such shares
would otherwise be included in this Section (e) (but only to the extent that
the aggregate number of shares excluded by this subdivision (iv) and issued
after the date of the Indenture shall not exceed 10% of the Common Stock
outstanding at the time of any such issuance), (v) upon exercise of rights
or warrants issued to the holders of Common Stock, (vi) to acquire, or in
connection with the acquisition of, all or any portion of a business as a
going concern, whether such acquisition shall be effected by purchase of
assets, exchange of securities, merger, consolidation or otherwise, (vii) in
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connection with the entry into a medical practice or other professional
practice management agreement by the Company for a term of at least five
years, (viii) upon exercise of rights or warrants issued in a bona fide
public offering pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to these conversion price adjustments
(without regard to Section 1204(j) of the Indenture) with respect to the
transaction giving rise to such rights or (ix) pursuant to an offering
effected at a discount of less than 5% from the Current Market Price per
share determined as provided in Section 1204(h) of the Indenture) for a
consideration per share less than the Current Market Price per share on the
date the Company fixes the offering price of such additional shares.
(f) The Company shall issue any securities convertible into, or
exchangeable for, its Common Stock (excluding securities issued in
transactions described in sections (c) and (d) above, or the Securities (as
defined in the Indenture)) for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities less
than the Current Market Price per share in effect immediately prior to the
issuance of such securities.
Upon the termination of the right to convert or exchange such securities,
the conversion price shall forthwith be readjusted to such conversion price as
would have obtained had the adjustments made upon the issuance of such
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon conversion
or exchange of such securities and upon the basis of the consideration actually
received by the Company for such securities. No adjustment in the conversion
price need be made unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any such adjustment which
is not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be. Fractional shares
will not be issued upon conversion, but in lieu thereof, the Company will pay
cash equal to the market value of such fractional share computed with reference
to the Closing Price of the Common Stock on the last business day prior to
conversion (Section 1203). Debentures surrendered for conversion during the
period from the close of business on any Regular Record Date to the opening of
business on the next succeeding Interest Payment Date (except Debentures whose
maturity is prior to such Interest Payment Date and Debentures called for
redemption on a Redemption Date within such period) must be accompanied by
payment of an amount equal to the interest thereon to be paid on such Interest
Payment Date (provided, however, that if the Company shall default in payment of
such interest, such payment shall be returned to the payor thereof.) Except for
Debentures surrendered for conversion which must be accompanied by payment as
described above, no interest on converted Debentures will be payable by the
Company on any Interest Payment Date subsequent to the date of conversion
(Sections 307 and 1202).
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into, or exchangeable
for, Common Stock or for payment of dividends on the Common Stock or any
preferred shares of the Company.
The Company has covenanted under the Indenture to reserve and keep available
at all times out of its authorized but unissued shares of Common Stock, for the
purpose of effecting conversions of Debentures, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding Debentures.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF THE DEBENTURES
In the event of any Fundamental Change (as described below) affecting the
Company which constitutes a Repurchase Event occurring after the date of
issuance of the Debentures and on or prior to maturity, each holder of
Debentures will have the right, at the holder's option, to require the Company
to repurchase all or any part of the holder's Debentures on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase Event as described below at a price (the "Repurchase Price")
equal to 100% of the principal amount thereof, together with accrued and unpaid
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interest to the Repurchase Date. On or prior to the Repurchase Date, the Company
shall deposit with the Trustee or a Paying Agent an amount of money sufficient
to pay the Repurchase Price of the Debentures which are to be repurchased on or
promptly following the Repurchase Date (Section 1403). In the event the Company
becomes obligated to repurchase some or all of the Debentures, the Company
expects that it would seek to finance the Repurchase Price with its available
cash and short-term investments, through available bank credit facilities (if
any), or through a public or private issuance of debt or equity securities.
Failure by the Company to repurchase the Debentures when required as
described in the second preceding paragraph will result in an Event of Default
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture (Section 501). On or before the 15th
day after the occurrence of a Repurchase Event, the Company shall mail (or at
its option cause the Trustee to mail) to all holders of record of Debentures
notice of the occurrence of such Repurchase Event, setting forth, among other
things, the date by which the repurchase right must be exercised, the Repurchase
Price and the procedures which the holder must follow to exercise this right. No
failure of the Company to give such notice shall limit any holder's right to
exercise a repurchase right (Section 1402). Failure to give notice of the
Repurchase Event in accordance with the terms of the Indenture will result in an
Event of Default. To exercise the repurchase right, the holder of a Debenture
must deliver, on or before the fifth day prior to the Repurchase Date, written
notice to the Company (or an agent designated by the Company for such purpose)
of the holder's exercise of such right, together with the certificates
evidencing the Debentures with respect to which the right is being exercised,
duly endorsed for transfer (Section 1402). Such notice of exercise may be
withdrawn by the holder by a written notice of withdrawal delivered to the
Trustee at any time prior to the close of business on the fifth day prior to the
Repurchase Date and thereafter only with the consent of the Company (Section
1402).
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of, or immediately following, such
transaction or event, will be) listed on a national securities exchange or
approved for quotation in any Nasdaq system or any similar system of automated
dissemination of quotations of securities prices. For purposes of the definition
of a "Fundamental Change," (i) "substantially all of the Common Stock" shall
mean at least 85% of the Common Stock outstanding immediately prior to the
transaction or event giving rise to a Fundamental Change and (ii) consideration
shall be "substantially all common stock" if at least 80% of the fair value (as
determined in good faith by the Board of Directors) of the total consideration
is attributable to common stock. A Fundamental Change would not include an
acquisition of a majority of the outstanding Common Stock by any person or group
so long as it does not result in termination of such listing or approval for
quotation.
A Repurchase Event is a right to require the Company to repurchase the
Debentures and a Repurchase Event shall have occurred if a Fundamental Change
shall have occurred unless (i) the Current Market Price of the Common Stock is
at least equal to the conversion price of the Debentures in effect immediately
preceding the time of such Fundamental Change or (ii) the consideration in the
transaction or event giving rise to such Fundamental Change to the holders of
Common Stock consists of cash, securities that are, or immediately upon issuance
will be, listed on a national securities exchange or quoted in the Nasdaq
National Market (or in the case of securities which are common stock in any
Nasdaq system or any similar system of automated dissemination of quotations of
securities prices), or a combination of cash and such securities, and the
aggregate fair market value of such consideration (which, in the case of such
securities, shall be equal to the average of the daily Closing Prices of such
securities during the 10 consecutive trading days commencing with the sixth
trading day following consummation of such transaction or event) is at least
105% of the conversion price of the Debentures in effect on the date immediately
preceding the closing date of such transaction or event. The right to require
the Company to repurchase
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the Debentures as a result of the occurrence of a Repurchase Event could create
an event of default under Senior Indebtedness, as a result of which any
repurchase could, absent a waiver, be prevented by the subordination provisions
of the Debentures. Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions. The
Company's ability to pay cash to the holders of the Debentures upon a repurchase
may be limited by certain financial covenants contained in any future Senior
Indebtedness. In the event a Repurchase Event occurs and the holders exercise
their rights to require the Company to repurchase Debentures, the Company
intends to comply with applicable tender offer rules under the Exchange Act,
including Rules 13e-4 and 14e-1, as then in effect, with respect to any such
purchase. This right to require repurchase would not necessarily afford holders
of the Debentures protection in the event of highly leveraged or other
transactions involving the Company that may impair the rights of holders of
Debentures.
The effect of these provisions granting the holders the right to require the
Company to repurchase the Debentures upon the occurrence of a Repurchase Event
may make it more difficult for any person or group to acquire control of the
Company or to effect a business combination with the Company and may discourage
open market purchases of the Common Stock or a non-negotiated tender or exchange
offer for the Common Stock. Accordingly, such provisions may limit a
stockholder's ability to realize a premium over the market price of the Common
Stock in connection with any such transaction.
SUBORDINATION
The payment of the principal of, and interest on, the Debentures will, to
the extent set forth in the Indenture, be subordinated in right of payment to
the prior payment in full of all Senior Indebtedness. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, or marshaling of
assets, whether voluntary, involuntary or in receivership, bankruptcy,
insolvency or similar proceedings, the holders of all Senior Indebtedness will
be first entitled to receive payment in full of cash amounts due or to become
due thereon before any payment is made on account of the principal of, and
premium, if any, or interest on, the indebtedness evidenced by the Debentures or
on account of any other monetary claims, including such monetary claims as may
result from rights of repurchase or rescission, under or in respect of the
Debentures, before any payment is made to acquire any of the Debentures for
cash, property, or securities or before any distribution is made with respect to
the Debentures of any cash, property, or securities. No payments on account of
principal of, sinking fund requirements, if any, or premium, if any, or interest
on the Debentures shall be made, and no Debentures shall be redeemed or
repurchased, if at the time thereof: (i) there is a default in the payment of
all or any portion of the obligations under any Senior Indebtedness; or (ii)
there shall exist a default in any covenant with respect to the Senior
Indebtedness (other than as specified in clause (i) of this sentence), and, in
such event, such default shall not have been cured or waived or shall not have
ceased to exist, the Trustee and the Company shall have received written notice
from any holder of such Senior Indebtedness stating that no payment shall be
made with respect to the Debentures, and such default would permit the maturity
of such Senior Indebtedness to be accelerated provided that no such default will
prevent any payment on, or in respect of, the Debentures for more than 120 days
unless the maturity of such Senior Indebtedness has been accelerated (Section
1303).
The holders of the Debentures will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made on Senior
Indebtedness upon any distribution of assets in any such proceedings out of the
distributive share of the Debentures (Section 1302).
By reason of such subordination, in the event of insolvency, creditors of
the Company, who are not holders of Senior Indebtedness or of the Debentures,
may recover less, ratably, than holders of Senior Indebtedness but may recover
more, ratably, than the holders of the Debentures.
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Senior Indebtedness is defined in the Indenture as: (a) the principal of,
and unpaid interest (whether accruing before or after filing of any petition in
bankruptcy or any similar proceedings by or against the Company and whether or
not allowed as a claim in bankruptcy or any similar proceeding) on, the
following, whether heretofore or hereafter created, incurred, assumed, or
guaranteed: (i) all indebtedness for borrowed money, created, incurred, assumed,
or guaranteed by the Company (other than indebtedness evidenced by the
Debentures and indebtedness which by the terms of the instrument creating or
evidencing the same is specifically stated to be not superior in right of
payment to the Debentures); (ii) bankers' acceptances and reimbursement
obligations under letters of credit; (iii) obligations of the Company under
interest rate and currency swaps, caps, floors, collars, or similar agreements
or arrangements intended to protect the Company against fluctuations in interest
or currency rates; (iv) any other indebtedness evidenced by a note or written
instrument; and (v) obligations of the Company under any agreement to lease, or
lease of, any real or personal property, which obligations are required to be
capitalized on the books of the Company in accordance with generally accepted
accounting principles then in effect (other than leases which by their terms are
specifically stated to be not superior in right of payment to the Debentures),
or guarantees by the Company of similar obligations of others; and (b) all
deferrals, modifications, renewals, or extensions of such indebtedness, and any
debentures, notes, or other evidence of indebtedness issued in exchange for such
indebtedness or to refund the same (Section 101).
The Debentures are obligations exclusively of the Company. Certain
operations of the Company will be conducted through its subsidiaries,
principally PMI and, upon completion of this Offering, NBS (the "Subsidiaries").
The Subsidiaries are separate distinct entities that have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Debentures. In
addition, the payment of dividends, interest, and the repayment of certain loans
and advances to the Company by the Subsidiaries may be subject to certain
statutory or contractual restrictions and are contingent upon the earnings of
such Subsidiaries. The Debentures will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Subsidiaries. In addition, the right of the Company
and, therefore, the right of creditors of the Company (including holders of
Debentures) to receive assets of any such Subsidiary upon the liquidation or
reorganization of any such Subsidiary or otherwise will be effectively
subordinated to the claims of the Subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such Subsidiary, in which
case the claims of the Company would still be subordinate to any secured claim
on the assets of such Subsidiary and any indebtedness of such Subsidiary senior
to that held by the Company.
At March 31, 1997, Senior Indebtedness and indebtedness of the Subsidiaries
and the Initial Affiliated Practices aggregated approximately $672,000 on a pro
forma basis, giving effect to the Acquisitions. The Company expects that it and
its Subsidiaries will from time to time incur additional indebtedness, including
Senior Indebtedness. The Indenture does not prohibit or limit the incurrence,
assumption, or guarantee by the Company or its Subsidiaries of additional
indebtedness, including Senior Indebtedness.
EVENTS OF DEFAULT
Events of Default under the Indenture are: (i) failure to pay principal of
any Debenture when due, whether at maturity, upon redemption or acceleration, or
otherwise, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (ii) failure to pay any interest on any Debenture
when due or within 30 days thereafter, whether or not such payment is prohibited
by the subordination provisions of the Indenture; (iii) failure to deposit when
due or within 30 days thereafter any sinking fund payment for the Debentures,
whether or not such deposits are prohibited by the subordination provisions of
the Indenture; (iv) failure to pay any Repurchase Price when due or within 10
days thereafter on any Debenture, whether or not such payments are prohibited by
the subordination provisions of the Indenture; (v) failure to perform any other
covenant of the Company in the Indenture, which default continues for 60 days
after written notice to the Company by the Trustee or to the Company and the
Trustee by the holders of not less than 25% in aggregate principal amount of the
outstanding Debentures;
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(vi) default on any indebtedness of the Company or the Subsidiaries in excess of
$1,000,000 for borrowed money or on any Senior Indebtedness resulting in such
indebtedness being declared due and payable after the expiration of any
applicable grace period or becoming due and payable and the holders thereof
taking any action to collect such indebtedness; and (vii) certain events in
bankruptcy, insolvency, or reorganization of the Company or significant
Subsidiaries (Section 501). Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders, unless such holders shall have offered to the Trustee reasonable
indemnity (Section 514). Subject to such provisions for the indemnification of
the Trustee, the holders of a majority in principal amount of the outstanding
Debentures will have the right to determine the time, method, and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee (Section 512). If an Event of
Default (other than those relating to certain events of bankruptcy, insolvency,
and reorganization) shall occur and be continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the outstanding
Debentures may by written notice to the Company and, if applicable, to the
Trustee, accelerate the maturity of all Debentures; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of outstanding
Debentures may, under certain circumstances, rescind and annul such acceleration
if all Events of Default, other than the non-payment of accelerated principal,
have been cured or waived as provided in the Indenture (Section 502). If an
Event of Default occurs by reason of certain events in bankruptcy, insolvency,
and reorganization, all principal and accrued and unpaid interest due under the
Debentures then outstanding shall automatically become immediately due and
payable. No holder of any Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default, the holders of at least 25% in aggregate principal
amount of the outstanding Debentures shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as trustee, the
Trustee shall not have received from the holders of a majority in principal
amount of the outstanding Debentures a direction inconsistent with such request
and the Trustee shall have failed to institute such proceeding within 60 days
after such notice (Section 507). However, such limitations do not apply to a
suit instituted by a holder of a Debenture for the enforcement of payment of the
principal or Repurchase Price of, sinking fund payment for, if any, or interest
on such Debenture on or after the respective due dates expressed in such
Debenture or of the right to convert such Debenture in accordance with the
Indenture (Section 508).
The Indenture provides that the Trustee shall, within 90 days after a
Responsible Officer of the Trustee has actual knowledge of the occurrence of a
default (not including any grace period allowed), mail to the holders of the
Debentures, as their names and addresses appear on the Debenture Register,
notice of all uncured defaults known to it; provided, however, that except in
the case of default in the payment of principal or Repurchase Price of, sinking
fund payment for, if any, or interest on any of the Debentures, the Trustee
shall be protected in withholding such notice if it in good faith determines
that the withholding of such notice is in the interests of the holders of the
Debentures (Section 602).
The Company will be required to furnish to the Trustee annually a
certificate with respect to its compliance with the terms, provisions, and
conditions of the Indenture and as to any default with respect thereto (Section
1004).
OPTIONAL REDEMPTION
The Debentures are not redeemable prior to , 2000. Thereafter,
the Debentures will be redeemable until maturity, at the Company's option, in
whole or from time to time in part, upon not less than 45 nor more than 60 days'
notice mailed to each holder of the Debentures at such holder's address
appearing in the Debenture Register at a redemption price equal to 100% of the
principal amount thereof plus accrued but unpaid interest thereon to the date
fixed for redemption (subject to the right of holders of
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record on a relevant record date to receive interest due on an Interest Payment
Date that is on or prior to the date fixed for redemption), except that the
Debentures may not be redeemed prior to maturity unless, for the 20 consecutive
trading days immediately preceding the date of the notice of redemption, the
Closing Price has equaled or exceeded $ [150% of the Closing Price of
the Common Stock on the effective date of this offering], subject to adjustment
in the case of the same events which result in an adjustment of the conversion
price. For purposes of optional redemption, the "Closing Price" on any trading
day shall mean the last reported sales price of the Common Stock, or, in case no
such reported sale takes place on such day, the closing bid price of the Common
Stock, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the Nasdaq National Market or Nasdaq, as the
case may be, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq National Market or Nasdaq,
the closing bid price in the over-the-counter market as furnished by any New
York Stock Exchange member firm that is selected from time to time by the
Company for that purpose and is reasonably acceptable to the Trustee. If less
than all of the Debentures are to be redeemed, the Trustee, in its discretion,
will select those to be redeemed as a whole or in part by such method as the
Trustee shall deem fair and appropriate. Notice of redemption will be given to
holders of the Debentures to be redeemed by first class mail at their last
address appearing on the Debenture Register.
SINKING FUND
If the Company provides for one or more sinking funds for securities
representing indebtedness for money borrowed ranking equal or junior to the
Debentures, and such indebtedness has a maturity or weighted average time to
maturity which is on or prior to , 2004, the Company will provide a
sinking fund for the Debentures calculated to retire that amount of Debentures
equal to the lesser of (i) the same percentage of outstanding Debentures prior
to maturity as the percentage of the principal amount of such other indebtedness
to be retired prior to maturity on the same payment schedule as such other
indebtedness or (ii) such amount of Debentures necessary to result in the
Debentures having the same weighted average time to maturity as other
indebtedness. Except as set forth herein with respect to the credit against
mandatory sinking fund payments, the redemption price and other terms of the
sinking fund applicable to the Debentures shall be the same as those applicable
to the relevant indebtedness, except that the redemption price of the Debentures
in connection with the sinking fund shall be 100% of the principal amount
thereof plus accrued and unpaid interest to the date fixed for redemption. The
Company may, at its option, receive credit against mandatory sinking fund
payments for the principal amount of (i) Debentures acquired by the Company and
surrendered for cancellation, (ii) Debentures previously converted into Common
Stock, and (iii) Debentures redeemed or called for redemption otherwise than
through the operation of the sinking fund.
LIMITATIONS ON DIVIDENDS AND REDEMPTIONS
The Indenture provides that the Company will not (i) declare or pay any
dividend or make any other distribution on any Junior Securities (as described
below), except dividends or distributions payable in Junior Securities, or (ii)
purchase, redeem or otherwise acquire or retire for value any Junior Securities,
except Junior Securities acquired upon conversion thereof into other Junior
Securities, or (iii) permit a Subsidiary to purchase, redeem or otherwise
acquire or retire for value any Junior Securities, if, upon giving effect to
such dividend, distribution, purchase, redemption, retirement or other
acquisition, a default in the payment of any principal or Repurchase Price of,
sinking fund payment for, if any, premium, if any, or interest on any Debenture
shall have occurred and be continuing.
The term "Junior Securities" means (i) the Common Stock, (ii) shares of any
other class or classes of capital stock of the Company, (iii) any other non-debt
securities of the Company (whether or not such other securities are convertible
into Junior Securities), and (iv) debt securities of the Company (other than
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Senior Indebtedness and the Debentures) as to which, in the instrument creating
or evidencing Senior Indebtedness and the same or pursuant to which the same is
outstanding, it is expressly provided that such debt securities are not Senior
Indebtedness with respect to, or do not rank PARI PASSU with, the Debentures.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company, without the consent of the holders of any of the Debentures,
may consolidate with or merge into any other Person or convey, transfer, sell,
or lease its assets substantially as an entirety to any Person, provided that:
(i) either (a) the Company is the continuing corporation or (b) the corporation
or other entity formed by such consolidation or into which the Company is merged
or the Person to which such assets are conveyed, transferred, sold or leased is
organized under the laws of the United States or any state thereof or the
District of Columbia and expressly assumes all obligations of the Company under
the Debentures and the Indenture; (ii) immediately after and giving effect to
such merger, consolidation, conveyance, transfer, sale, or lease no Event of
Default, and no event which, after notice or lapse of time, would become an
Event of Default, under the Indenture shall have occurred and be continuing;
(iii) upon consummation of such consolidation, merger, conveyance, transfer,
sale, or lease, the Debentures and the Indenture will be a valid and enforceable
obligations of the Company or such successor Person, corporation, or other
entity and (iv) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer, sale, or lease complies with the provisions of the
Indenture (Sections 801 and 802).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Debentures; provided, however,
that no such modification or amendment may, without the consent of the holder of
each outstanding Debenture affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest on, any Debenture, (ii) reduce
the principal amount of any Debenture or reduce the rate or extend the time of
payment of interest thereon, (iii) change the place or currency of payment of
principal of, or Repurchase Price or interest on, any Debenture, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Debenture, (v) adversely affect the right to convert Debentures, (vi) reduce
the percentage of the aggregate principal amount of outstanding Debentures, the
consent of the holders of which is necessary to modify or amend the Indenture,
(vii) reduce the percentage of the aggregate principal amount of outstanding
Debentures, the consent of the holders of which is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (viii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the holders of the
Debentures, or (ix) modify the provisions of the Indenture with respect to the
right to require the Company to repurchase Debentures in a manner adverse to the
holders of the Debentures (Section 902). The holders of a majority in aggregate
principal amount of the Outstanding Debentures may, on behalf of all holders of
Debentures, waive any past default under the Indenture or Event of Default,
except a default in the payment of, principal or interest on, any of the
Debentures or in respect of a provision which under the Indenture cannot be
modified without the consent of the holder of each outstanding Debenture
(Section 902).
SATISFACTION AND DISCHARGE
The Indenture provides that the Company may discharge its obligations under
the Indenture while Debentures remaining outstanding if (i) all outstanding
Debentures will become due and payable at their scheduled maturity within one
year or (ii) all outstanding Debentures are scheduled for redemption within one
year, and in either case the Company has deposited with the Trustee an amount
sufficient to pay and discharge all outstanding Debentures on the date of their
scheduled maturity or scheduled redemption (Section 401).
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GOVERNING LAW
The Indenture and the Debentures will be governed and construed in
accordance with the laws of the State of New York without giving effect to such
state's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its Subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee or its affiliates in the ordinary
course of business, and the Trustee and its affiliates may from time to time in
the future provide the Company and its Subsidiaries with banking and financial
services in the ordinary course of their businesses.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 50,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share. As of March 31,
1997, 3,043,500 shares of Common Stock were outstanding and held of record by 42
stockholders, and no shares of preferred stock were outstanding. Following the
completion of this Offering, an aggregate of 4,909,300 shares of Common Stock
outstanding (5,134,300 shares if the Underwriters' over-allotment option is
exercised in full) and no shares of preferred stock will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for the election of directors. Subject to the prior rights of
any series of preferred stock which may from time to time be outstanding, if
any, holders of Common Stock are entitled to receive ratably, dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution, or winding up of the Company,
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on the
preferred stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is validly authorized and issued, fully-paid, and
nonassessable. In the event the Company were to elect to sell additional shares
of Common Stock following this Offering, investors in this Offering would have
no prior right to purchase such additional shares. As a result, their percentage
equity interest in the Company would be diluted. The shares of Common Stock
offered hereby will be, when issued and paid for, fully paid and not liable for
further call or assessment. Holders of the Common Stock do not have cumulative
voting rights, which means that the holders of more than one half of the
outstanding shares of Common Stock (subject to the rights of the holders of the
preferred stock) can elect all of the Company's directors, if they choose to do
so. In such event, the holders of the remaining shares of Common Stock would not
be able to elect any directors. The Board of Directors is empowered to fill any
vacancies thereon. Except as otherwise required by Delaware law, and subject to
the rights of the holders of preferred stock, all stockholder action is taken by
the vote of a majority of the outstanding shares of Common Stock voting as a
single class present at a meeting of stockholders at which a quorum (consisting
of a majority of the outstanding shares of Common Stock) is present in person or
proxy, or by written consent in lieu of such meeting.
PREFERRED STOCK
Preferred stock may be issued in one or more series and having such rights,
privileges, and limitations, including voting rights, conversion privileges,
and/or redemption rights, as may, from time to time, be determined by the Board
of Directors of the Company. Preferred stock may be issued in the future in
connection with acquisitions, financings, or such other matters as the Board of
Directors deems appropriate. In the event that any such shares of preferred
stock are to be issued, a Certificate of Designation, setting forth the series
of such preferred stock and the rights, privileges, and limitations with respect
thereto, shall be filed with the Secretary of State of the State of Delaware.
The effect of such preferred stock is that the Company's Board of Directors
alone, subject to, federal securities laws and Delaware law, may be able to
authorize the issuance of preferred stock which could have the effect of
delaying, deferring, or preventing a change in control of the Company without
further action by the stockholders, and may adversely affect the voting and
other rights of the holders of the Common Stock. The issuance of preferred stock
with voting and conversion rights may also adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others.
TRANSFER AGENT
The Company has appointed Continental Stock Transfer & Trust Company, 2
Broadway, New York, New York 10004, as transfer agent for the Common Stock.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary sets forth the principal federal income tax
consequences of holding and disposing of Debentures. This summary is based upon
laws, regulations, rulings and judicial decisions now in effect, all of which
are subject to change, possibly on a retroactive basis. This summary is
presented for informational purposes only and relates only to Debentures or
Common Stock received in exchange therefor that are held as "capital assets"
(generally, property held for investment within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). The summary
discusses certain federal income tax consequences to holders of Debentures
("holders") that are citizens or residents of the United States. It does not
discuss state, local or foreign tax consequences, nor does it discuss tax
consequences to categories of holders that may be subject to special rules, such
as tax exempt organizations, insurance companies, financial institutions and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to an investor's decision to purchase the
Debentures. Each investor should consult his or her own tax advisor as to the
particular tax consequences to such person of purchasing, holding and disposing
of the Debentures, including the applicability and effect of any state, local or
foreign tax laws and any recent proposed changes in applicable income tax laws.
STATED INTEREST
A holder using the accrual method of accounting for tax purposes generally
will be required to include interest in income as such interest accrues, while a
cash basis holder generally will be required to include interest in income when
cash payments are received (or made available for receipt) by such holder.
CONVERSION OF DEBENTURES
Except as otherwise indicated below, no gain or loss will be recognized for
federal income tax purposes upon the conversion of the Debentures into Common
Stock. Cash paid in lieu of fractional Common Stock will be taxed as if the
fractional Common Stock was issued and then redeemed for cash, resulting in
either sale or exchange treatment or dividend treatment. The tax basis of the
Common Stock received upon conversion will be equal to the tax basis of the
Debentures converted reduced by the portion of such basis, if any, allocable to
any fractional share interest exchanged for cash. The holding period of the
Common Stock received upon conversion will include the holding period of the
Debentures converted.
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (e.g. distributions of cash, evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the conversion price of the Debentures is reduced,
such reduction will be deemed to be the payment of a stock distribution to
holders which may be taxable as a dividend. If the Company voluntarily reduces
the conversion price for a period of time, holders may, in certain
circumstances, have to include in gross income an amount equal to the value of
the reduction in the conversion price. Holders could, therefore, have taxable
income as a result of an event pursuant to which they received no cash or
property that could be used to pay the related income tax.
POSSIBLE ORIGINAL ISSUE DISCOUNT
Because the Debentures have an initial interest accrual period that is
longer than each subsequent interest accrual period, it is possible that upon
retirement of the Debentures, the holders thereof would be required to recognize
income equal to the "de minimis OID" amount, within the meaning of Section
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1.1273-1 (d)(6) of the regulations under the Code. Assuming a holder holds the
Debenture as a capital asset, any such income required to be recognized
thereunder will be characterized as capital gain.
DISPOSITION OF DEBENTURES OR SHARES OF COMMON STOCK
In general, the holder of a Debenture or the Common Stock into which it is
converted will recognize gain or loss upon the sale, redemption, retirement or
other disposition of the Debenture or Common Stock in an amount equal to the
difference between the amount of cash and the fair market value of property
received (except to the extent attributable to the payment of accrued interest)
and the holder's adjusted tax basis in the Debenture or Common Stock. The
holder's tax basis in a Debenture generally will be such holder's cost,
increased by the amount of accrued market discount a holder elects to include in
income with respect to the Debenture (discussed below), and reduced by (i) any
principal payments received by such holder and (ii) the amount of any
amortizable bond premium the holder elects to amortize with respect to the
Debenture. If a holder holds a Debenture as a capital asset, such gain or loss
will be a capital gain or loss except to the extent of any accrued market
discount (see "Market Discount on Resale") if the Debenture has been held for
the then requisite holding period at the time of the sale, exchange, redemption
or retirement.
MARKET DISCOUNT ON RESALE
The tax consequences of the sale of a Debenture by a holder may be affected
by the market discount provisions of the Code. Market discount is defined as the
excess of a debt instrument's stated redemption price (or its revised issue
price in the case of a debt instrument issued with original issue discount) at
maturity over the holder's tax basis in such debt instrument immediately after
its acquisition. If the market discount is less than 25% of the stated
redemption price (or the revised issue price, as the case may be) at maturity
multiplied by the number of complete years to maturity (after the holder
acquired the debt instrument), then the market discount will be considered to be
zero.
If a holder purchases a Debenture at a market discount and thereafter
recognizes gain on its disposition (or the disposition of the Common Stock into
which such Debenture is converted) such gain is treated as ordinary interest
income to the extent it does not exceed the accrued market discount on such
Debenture. In addition, recognition of gain to the extent of accrued market
discount may be required in the case of some dispositions which would otherwise
be nonrecognition transactions. Unless a holder elects to use a constant rate
method, accrued market discount equals a Debenture market discount multiplied by
a fraction, the numerator of which equals the number of days the holder holds
such Debenture and the denominator of which equals the total number of days
following the date the holder acquires such Debenture up to and including the
date of its maturity. If a holder of a Debenture acquired at a market discount
receives a partial principal payment prior to maturity, that payment is treated
as ordinary income to the extent of the accrued market discount on the Debenture
at the time payment is received. However, when the holder disposes of the
Debenture, the accrued market discount is reduced by the amount of the partial
principal payment previously included in income.
A holder that acquires a Debenture at a market discount may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred to purchase such Debenture until the holder disposes of
such Debenture in a taxable transaction. A holder of Debentures acquired at a
market discount may elect to include the market discount in income as the
discount accrues, either on a ratable basis, or, if elected, on a constant
interest rate basis. Once made, the current inclusion election applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). If a holder of a Debenture
elects to include the market discount in income as it accrues, the foregoing
rules with respect to the recognition of ordinary income on sales and certain
other dispositions and with respect to the deferral of interest deductions on
related indebtedness, would not apply.
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BOND PREMIUM
If, as a result of a purchase at a premium, a holder's adjusted tax basis in
a Debenture exceeds the Debenture's stated redemption price at maturity, such
excess may constitute amortizable bond premium. If the Debenture is a capital
asset in the hands of the holder, Section 171 of the Code allows the holder to
elect to amortize any such bond premium under the constant interest rate method
as an offset against interest income earned on the Debenture. The amount of
amortizable bond premium equals the excess of the holder's basis (for
determining loss on sale or exchange) in the Debenture over the amount payable
at maturity or, if it results in a smaller amortizable bond premium, an earlier
call date. If a holder is required to amortize bond premium by reference to such
a call date and the Debenture is not in fact called on such date, the remaining
unamortized premium must be amortized to a succeeding call date or to maturity.
A holder's tax basis in a Debenture must be reduced by the amount of
amortized bond premium. An election to amortize bond premium applies to all
bonds (other than tax-exempt bonds) held by the holder at the beginning of the
first taxable year to which the election applies or thereafter acquired by the
holder and is irrevocable without the consent of the IRS.
BACKUP WITHHOLDING
Under the "backup withholding" provisions of federal income tax law, the
Company, its agent, a broker or any paying agent, as the case may be, will be
required to withhold a tax equal to 31% of any payment of (i) principal,
premium, if any, and interest on the Debentures, (ii) proceeds from the sale or
redemption of the Debentures, (iii) dividends on the Common Stock and (iv)
proceeds from the sale or redemption of the Common Stock, unless the holder (a)
is exempt from backup withholding and, when required, demonstrates this fact to
the payor or (b) provides a taxpayer identification number to the payor,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. Certain
holders (including corporations, tax-exempt organizations, individual retirement
accounts and, to a limited extent, nonresident aliens) are not subject to the
backup withholding importing requirements. A nonresident alien must submit a
statement, signed under penalties of perjury, attesting to that individual's
exemption from backup withholding. A holder of Debentures or Common Stock that
is otherwise required to but does not provide the Company with a correct
taxpayer identification number may be subject to penalties imposed by the Code.
Any amounts paid as backup withholding with respect to the Debentures or Common
Stock will be credited to the income tax liability of the person receiving the
payment from which such amount was withheld. Holders of Debentures and Common
Stock should consult their tax advisors as to their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, and giving effect to the Acquisitions,
the Company will have 4,909,300 shares of Common Stock outstanding (5,134,300
shares of Common Stock outstanding if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 1,500,000 shares of Common Stock
offered hereby (1,725,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act unless purchased by affiliates as that term is defined in Rule
144 under the Securities Act.
The remaining 3,409,300 shares of Common Stock are "restricted securities"
within the meaning of Rule 144 of the Securities Act and, if held for at least
one year, would be eligible for sale in the public market in reliance upon, and
in accordance with, the provisions of Rule 144 following the expiration of such
one-year period. In general, under Rule 144 as currently in effect, a person or
persons whose shares are aggregated, including a person who may be deemed to be
an "affiliate" of the Company as that term is defined under the Securities Act,
would be entitled to sell within any three month period a number of shares
beneficially owned for at least one year that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice, and the availability of current public information about
the Company. However, a person who is not deemed to have been an affiliate of
the Company during the 90 days preceding a sale by such person and who has
beneficially owned such shares of Common Stock for at least two years may sell
such shares without regard to the volume, manner of sale, or notice requirements
of Rule 144. All officers and directors of the Company, current stockholders,
and option holders under the Plan have agreed not, directly or indirectly, to
offer, agree to offer to sell, transfer, pledge, assign, encumber, grant an
option for the purchase or sale of, hypothecate, or otherwise dispose of any
securities of the Company for a period of 18 months from the date of this
Prospectus without the Representative's prior written consent. After such
18-month period, all 3,409,300 shares may be sold in accordance with Rule 144.
Prior to this offering, there has been no public market for the Company's
securities. Following this offering, the Company cannot predict the effect, if
any, that sales of shares of Common Stock pursuant to Rule 144 or otherwise, or
the availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current stockholders of
a substantial number of shares of Common Stock in the public market could
materially adversely affect prevailing market prices for the Common Stock. In
addition, the availability for sale of a substantial number of shares of Common
Stock acquired through the exercise of the Representative's Warrants or the
outstanding options under the Plan could materially adversely affect prevailing
market prices for the Common Stock.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company, and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective amount of Debentures and number of shares of
Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
AMOUNT OF NUMBER OF
UNDERWRITERS DEBENTURES SHARES
- ------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
National Securities Corporation...................................
------------- ----------
Total....................................................... $ 25,000,000 1,500,000
------------- ----------
------------- ----------
</TABLE>
The Underwriters are committed to purchase all the Debentures and shares of
Common Stock offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to such
dealers at such prices less concessions not in excess of % of the principal
amount of Debentures and $ per share of Common Stock. Such dealers may
reallow a concession not in excess of % of the Debentures and $ per
share of Common Stock to certain other dealers. After the commencement of the
Offering, the public offering prices, concession, and reallowance may be changed
by the Representative.
The Representative has informed the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
2% of the gross proceeds derived from the sale of the Securities underwritten,
of which [$50,000] has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45 day period from the date of this Prospectus, to
purchase up to an aggregate of $3,750,000 principal amount of Debentures and/or
an additional 225,000 shares of Common Stock at the initial offering price per
Debenture and share of Common Stock, respectively, offered hereby, less
underwriting discounts and the non-accountable expense allowance. Such option
may be exercised only for the purpose of covering over-allotments, if any,
incurred in the sale of the Securities offered hereby. To the extent such option
is exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the amount of additional Securities
proportionate to its initial commitment.
The Company has agreed, at the request of the Representative, that for five
years after the date of this Prospectus, it will use its best efforts to cause
one individual designated by the Representative to be elected to the Company's
Board of Directors.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to an aggregate of $2,500,000 principal amount of Debentures and/or up to
150,000 shares of Common Stock (the "Representative's Warrants"). The
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Representative's Warrants are initially exercisable at a price of 100% of the
principal amount of Debentures and $ per share of Common Stock [120% of
the initial public offering price per share of Common Stock] for a period of
four years, commencing at the beginning of the second year after their issuance
and sale and are restricted from sale, transfer, assignment, or hypothecation
for a period of 12 months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof and in the
exercise price of the Representative's Warrants as a result of certain events,
including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
All officers and Directors of the Company, all holders of the issued and
outstanding Common Stock, and all holders of options, warrants, or other
securities convertible exercisable, or exchangeable for the issued or
outstanding Common Stock have agreed not to, directly or indirectly, issue,
offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option
for the purchase or sale of, pledge, hypothecate, or otherwise dispose of any
beneficial interest in such securities for a period of 18 months following the
effective date of the Registration Statement without the prior written consent
of the Company and the Representative (the "Lock-up Agreements"). An appropriate
legend shall be marked on the face of the certificates representing all such
certificates.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain, or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for
purchase of the Debentures and/or Common Stock for the purpose of stabilizing
their respective market prices. The Underwriters also may create a short
position for the account of the Underwriters by selling more Securities in
connection with the Offering than they are committed to purchase from the
Company, and in such case, may purchase Securities in the open market following
completion of the Offering, to cover all or a portion of such short position.
The Underwriters may also cover all or a portion of such short position, up to
an aggregate of $3,750,000 principal amount of Debentures and/or 225,000 shares
of Common Stock, by exercising the Underwriters' over-allotment option referred
to above. In addition, the Representative may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offering) for the account of other
Underwriters, the selling concession with respect to the Securities which are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. None of the transactions described in this
paragraph is required , and, if they are undertaken, they may be discontinued at
any time.
Prior to this Offering, there has been no public market for the Debentures
and the Common Stock. Consequently, the initial public offering prices of the
Securities has been determined by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. The factors
considered in these negotiations, in addition to prevailing market conditions,
included the history of, and prospects for, the industry in which the Company
competes, an assessment of the Company's management, the prospects for the
Company, its capital structure, the market for initial public offerings, and
certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement, which are filed as exhibits to the Registration
Statement. See "Additional Information."
62
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Brock
Fensterstock Silverstein McAuliffe & Wade LLC, New York, New York. Orrick,
Herrington & Sutcliffe, LLP, New York, New York, has acted as counsel to the
Underwriters in connection with this Offering.
EXPERTS
The financial statements of the Company as at December 31, 1996, and for the
period then ended have been audited by Feldman Radin & Co., P.C., independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon such reports upon the
authority of said firm as experts in accounting and auditing. Certain health
care-related legal matters will be passed upon for the Company by Kalogredis,
Tsoules and Sweeney Ltd., Wayne, Pennsylvania.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration
statement on Form S-1 (the "Registration Statement"), including amendments
thereto, under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith, as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Offering, reference is hereby
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document which has been filed as an exhibit to the
Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the offices of the Commission and copies of all or any part
thereof may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington D.C. 20549 or at certain of the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the Commission. Electronic registration
statements filed through the Electronic Data Gathering, Analysis, and Retrieval
system are publicly available through the Commission's Web site
(http://www.sec.gov). Following the consummation of this Offering and the
listing of the Debentures and the Common Stock on the AMEX, reports and other
information concerning the Company may be inspected at the offices of the AMEX,
86 Trinity Place, New York, New York 10006.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTEGRATED PHYSICIAN SYSTEMS, INC.:
Report of Independent Public Accountants................................................................. F-1
Balance Sheets........................................................................................... F-2
Statements of Operations................................................................................. F-3
Statements of Changes in Stockholders' Equity............................................................ F-4
Statements of Cash Flows................................................................................. F-5
Notes to Financial Statements............................................................................ F-6
HISTORICAL FINANCIAL STATEMENTS OF THE
INITIAL AFFILIATED PRACTICES AND PMI:
Report of Independent Public Accountants................................................................. F-9
Combined Balance Sheets.................................................................................. F-10
Combined Statements of Operations........................................................................ F-11
Combined Statements of Stockholders' and Owners' Deficit................................................. F-12
Combined Statements of Cash Flows........................................................................ F-13
Notes to Combined Financial Statements................................................................... F-14
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF
INTEGRATED PHYSICIAN SYSTEMS, INC.:
Basis of Presentation.................................................................................... F-20
Unaudited Pro Forma Consolidated Balance Sheet........................................................... F-22
Unaudited Pro Forma Consolidated Statements of Operations................................................ F-23
Notes to Unaudited Pro Forma Consolidated Financial Statements........................................... F-26
</TABLE>
<PAGE>
To the Board of Directors and Stockholders of
Integrated Physician Systems, Inc.
We have audited the accompanying balance sheets of Integrated Physician
Systems, Inc., a Delaware corporation, as of December 31, 1995 and 1996, and the
related statements of operations, changes in stockholders'equity, and cash flows
for the period from inception, April 25, 1995, through December 31, 1995, and
for the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Integrated Physician
Systems, Inc., as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the period from inception, April 25, 1995
through December 31, 1995, and for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
May 9, 1997
F-1
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash....................................................................... $ -- $ 30,000 $ 134,000
--------- ---------- -----------
Total current assets................................................... -- 30,000 134,000
--------- ---------- -----------
OTHER ASSETS:
Deferred registration costs................................................ 64,000 259,000 333,000
Organization costs, net of accumulated amortization of $1,000, $3,000, and
$4,000, respectively..................................................... 9,000 7,000 6,000
--------- ---------- -----------
Total other assets..................................................... 73,000 266,000 339,000
--------- ---------- -----------
$ 73,000 $ 296,000 $ 473,000
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................................... $ -- $ 30,000 $ 35,000
Due to related party....................................................... 74,000 118,000 118,000
Senior notes............................................................... -- 125,000 310,000
--------- ---------- -----------
Total liabilities...................................................... 74,000 273,000 463,000
--------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value, authorized--1,000,000 shares; none issued
and outstanding.......................................................... -- -- --
Common stock $.01 par value, authorized--50,000,000 shares; issued and
outstanding 1,000, 3,012,500, and 3,031,000 shares, respectively......... -- 30,000 30,000
Additional paid-in capital................................................. -- -- --
Accumulated deficit........................................................ (1,000) (7,000) (20,000)
--------- ---------- -----------
Total stockholders' (deficit) equity................................... (1,000) 23,000 10,000
--------- ---------- -----------
$ 73,000 $ 296,000 $ 473,000
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
See notes to financial statements
F-2
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(APRIL 25,
1995) THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
--------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
REVENUES................................................... $ -- $ -- $ -- $ --
COSTS AND EXPENSES:
General and administrative expenses.................... -- 4,000 2,000 12,000
Amortization of organization costs..................... 1,000 2,000 1,000 1,000
------- ------------ --------- ----------
Total costs and expenses........................... 1,000 6,000 3,000 13,000
------- ------------ --------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES..................... (1,000) (6,000) (3,000) (13,000)
PROVISION FOR INCOME TAXES................................. -- -- -- --
------- ------------ --------- ----------
NET LOSS................................................... $ (1,000) $ (6,000) $ (3,000) $ (13,000)
------- ------------ --------- ----------
------- ------------ --------- ----------
NET LOSS PER SHARE......................................... $ (0.00) $ (0.00) $ (0.00) $ (0.00)
------- ------------ --------- ----------
------- ------------ --------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING.............. 1,000 2,251,292 1,000 3,022,000
------- ------------ --------- ----------
------- ------------ --------- ----------
</TABLE>
See notes to financial statements
F-3
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, April 25, 1995.......................... -- $ -- $ -- $ -- $ --
Issuance of common stock....................... 1,000 -- -- -- --
Net loss....................................... -- -- -- (1,000) (1,000)
---------- --------- ----------- ------------ ------------
BALANCE, December 31, 1995....................... 1,000 -- -- (1,000) (1,000)
Issuance of common stock....................... 3,011,500 30,000 -- -- 30,000
Net loss....................................... -- -- -- (6,000) (6,000)
---------- --------- ----------- ------------ ------------
BALANCE, December 31, 1996....................... 3,012,500 30,000 -- (7,000) 23,000
Issuance of common stock (Unaudited)........... 18,500 -- -- -- --
Net loss (Unaudited)........................... -- -- -- (13,000) (13,000)
---------- --------- ----------- ------------ ------------
BALANCE, March 31, 1997 (Unaudited).............. 3,031,000 $ 30,000 $ -- $ (20,000) $ 10,000
---------- --------- ----------- ------------ ------------
---------- --------- ----------- ------------ ------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(APRIL 25, 1995) THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
----------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS USED IN OPERATING ACTIVITIES:
Cash paid for general and administrative expenses...... $ -- $ (4,000) $ (2,000) $ (12,000)
------- ------------ --------- ----------
Net cash used in operating activities................ -- (4,000) (2,000) (12,000)
------- ------------ --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deferred registration costs................ (74,000) (195,000) -- (74,000)
------- ------------ --------- ----------
Net cash used in investing activities................ (74,000) (195,000) -- (74,000)
------- ------------ --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in accounts payable and accrued expenses...... -- 30,000 -- 5,000
Proceeds from senior notes............................. -- 125,000 -- 185,000
Net advances from related party........................ 74,000 44,000 2,000 --
Issuance of common stock............................... -- 30,000 -- --
------- ------------ --------- ----------
Net cash provided by financing activities............ 74,000 229,000 2,000 190,000
------- ------------ --------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ -- 30,000 -- 104,000
CASH AND CASH EQUIVALENTS, beginning of period........... -- -- -- 30,000
------- ------------ --------- ----------
CASH AND CASH EQUIVALENTS, end of period................. $ -- $ 30,000 $ -- $ 134,000
------- ------------ --------- ----------
------- ------------ --------- ----------
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES:
Net loss............................................... $ (1,000) $ (6,000) $ (3,000) $ (13,000)
Adjustments to reconcile net loss to net cash used in
operating activities--Amortization of organization
costs................................................ 1,000 2,000 1,000 1,000
------- ------------ --------- ----------
Net cash used in operating activities................ $ -- $ (4,000) $ (2,000) $ (12,000)
------- ------------ --------- ----------
------- ------------ --------- ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Integrated Physician Systems, Inc. ('IPS' or the 'Company'), was established
as a Delaware corporation on April 25, 1995, for the purpose of creating a
physician practice management company which will (i) own the assets of and
manage physician groups, (ii) own or manage Independent Practice Associations,
(iii) provide management services to independent physicians including
hospital-based physicians and (iv) own or manage medically related ancillary
services. The Company's operations to date have consisted primarily of seeking
affiliations with physicians, negotiating acquisitions of the assets of such
physician practices and negotiating agreements to provide management services to
such practices. The Company plans to make an initial public offering of its
common stock and convertible subordinated debentures (the "IPO") and
simultaneously exchange cash, notes and shares of its common stock for selected
assets and liabilities associated with 12 physician practices and a medical
billing company (referred to collectively as the 'Initial Affiliated
Practices').
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION COSTS
Organization costs incurred in the formation of the Company are amortized on
a straight-line basis over a five-year period.
B. DEFERRED REGISTRATION COSTS
Substantially all costs incurred to date have been in conjunction with the
anticipated initial public offering of the Company's common stock and
convertible subordinated debentures. All costs incurred in connection with such
efforts have been capitalized and will be charged against the proceeds of the
IPO upon its successful completion.
C. INCOME TAXES
As reflected in the accompanying statements of operations, the Company
incurred losses from operations during the period from inception, April 25,
1995, through December 31, 1995, the year ended December 31, 1996, and the three
months ended March 31, 1997. Due to the limited operations of the Company since
its inception and pending the IPO of its common stock and convertible
subordinated debentures, a valuation allowance has been recorded to fully
reserve for the deferred tax benefits generated by net operating losses. There
is no significant difference in the tax and book basis of the Company's assets
or liabilities that would give rise to deferred tax balances.
D. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY
The founding stockholder of the Company, Wellness Concepts, Inc., has
advanced funds on behalf of the Company in connection with the IPO. Such
payments have been reflected as amounts due to a related party in the
accompanying balance sheets and will be repaid at the closing of the IPO. The
Company has no resources to repay such amounts should the IPO not be
successfully completed.
4. SENIOR NOTES
As of March 31, 1997, the Company is obligated to pay an aggregate amount of
$310,000 pursuant to the terms of series A 10% Senior Notes (the 'Senior Notes')
in varying amounts issued by the Company in connection with its Bridge Financing
in contemplation of its IPO. The Senior Notes bear interest at the rate of 10%
per annum until the notes maturity, which is the earlier of 12 months from the
date of issuance or the closing of the IPO. Interest on the Senior Notes is
payable in arrears on the maturity date. In connection with the issuance of the
Senior Notes, the Company issued, as additional consideration, 31,000 shares of
common stock, par value $.01 per share.
5. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 105 "Disclosures About Fair Value of Financial Instruments"
requires disclosure about the fair value of all financial instruments. Carrying
amounts of all financial instruments approximate fair value as of December 31,
1996 and March 31, 1997.
6. INTERIM FINANCIAL STATEMENTS
The balance sheet at March 31, 1997, and the statements of operations and
cash flows for the three months ended March 31, 1997 are unaudited, but, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of results for the interim
period. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of results to be expected for the entire year.
7. SUBSEQUENT EVENTS
A. ISSUANCE OF ADDITIONAL SENIOR NOTES
On May 1, 1997, the Company issued an additional aggregate principal amount
of $125,000 Senior Notes, in varying amounts, issued by the Company in
connection with its Bridge Financing in contemplation of its IPO. The Senior
Notes are more fully described in Note 4 to the financial statements. In
connection with the issuance of the additional Senior Notes, the Company issued,
as additional consideration, 12,500 shares of common stock, par value $.01 per
share.
B. ACQUISITION OF PROFESSIONAL MEDICAL IMAGES, INC. (PMI)
On April 1, 1997, the Company acquired 100% of the outstanding common stock
of PMI, in return for $2,000 and the assumption, by the Company, of all of the
outstanding net liabilities of PMI in the amount of $37,000. PMI is a New Jersey
business corporation engaged in the business of managing and developing IPAs and
providing a full range of consulting services to physicians, hospitals and
managed care organizations.
C. CONSULTING AGREEMENT
Effective April 1, 1997, the Company entered into a Consulting Agreement
with several physician practices and a management service organization
collectively known as the Reliance Medical Group ("Reliance"). Under the terms
of a one year consulting agreement, the Company provides physician practice
management services to Reliance in return for fixed monthly compensation in the
amount of
F-7
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
$25,000. It is anticipated that the Reliance physician practices and management
service organization will be acquired as part of the Initial Affiliated
Practices.
D. COMMITMENTS AND CONTINGENCIES
The Company intends to consummate an initial public offering of its common
stock and convertible subordinated debentures and contemporaneously exchange
$7,937,000 in cash, $114,000 in notes and 365,800 shares of its common stock for
selected assets of, and certain liabilities associated with the Initial
Affiliated Practices. The Company has entered into purchase and sale and other
related acquisition agreements with the Initial Affiliated Practices the closing
of which will occur at the time of the IPO.
In connection with the consummation of the acquisitions, the Company will
enter into Practice Management Services Agreements ("PMSAs") to provide
management services to the Initial Affiliated Practices for initial terms of 40
years.
8. PRO FORMA INFORMATION
Summarized pro forma information which assumes that the acquisition of PMI
and the Initial Affiliated Practices occurred, utilizing the purchase method of
accounting, on March 31, 1997 for balance sheet purposes and on January 1, 1996
and January 1, 1997 for statement of operations purposes is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
PRO FORMA BALANCE SHEET (UNAUDITED)
- ------------------------------------------------------------------------------ --------------
<S> <C>
Working capital............................................................... $ 27,225,000
Total assets.................................................................. $ 41,957,000
Long-term debt................................................................ $ 25,407,000
Stockholders' equity.......................................................... $ 16,285,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
PRO FORMA STATEMENTS OF OPERATIONS DECEMBER 31, 1996 1997
- --------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Physician and related service revenues................... $ 18,470,000 $ 4,716,000
Net loss................................................. $ (2,548,000) $ (532,000)
Loss per share........................................... $ (0.52) $ (0.11)
</TABLE>
This pro forma information may not be indicative of actual results if the
transactions had occurred on the dates indicated or of results which may be
realized in the future.
9. STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The
purpose of the Plan is to provide directors, officers, key employees and certain
advisors with additional incentives by increasing their proprietary interest in
the Company. The Company has authorized 300,000 shares of Common Stock to be
issued pursuant to the Plan. As of December 31, 1995, 1996, and March 31, 1997
there were no options outstanding under the Plan.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Integrated Physician Systems, Inc.
We have audited the accompanying combined balance sheets of Professional
Medical Images ("PMI") and the Initial Affiliated Practices (as identified in
Note 1) as of December 31, 1995 and 1996, and the related combined statements of
operations, owners' deficit and cash flows for each of the three years in the
period ended December 31, 1996. These combined financial statements are the
responsibility of PMI and the Initial Affiliated Practices' management. Our
responsibility is to express an opinion on these financial statements based on
our audits
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of PMI and the Initial
Affiliated Practices as of December 31, 1995 and 1996, and the results of its
operations, owners' deficit and cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that PMI
and the Initial Affiliated Practices will continue as going concerns. As
discussed in Note 6 to the financial statements, one of the Initial Affiliated
Practices (the "Defaulted Practice") is currently in default under several of
its debt agreements and its current liabilities exceed its current assets by
$4,744,000 as of December 31, 1996. These matters raise substantial doubt about
the Defaulted Practices' ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Defaulted
Practice be unable to continue as a going concern.
FELDMAN RADIN & CO., P. C.
Certified Public Accountants
New York, New York
May 9, 1997
F-9
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 195,000 $ 254,000 $ 244,000
Accounts receivable, less allowance for contractual adjustments and
bad debts of $6,194,000 in 1995, $6,304,000 in 1996 and $6,039,000
in 1997............................................................. 1,484,000 2,153,000 2,554,000
Prepaid expenses and other current assets............................. 76,000 198,000 382,000
------------ ------------ ------------
Total current assets................................................ 1,755,000 2,605,000 3,180,000
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net............................................. 1,391,000 1,241,000 1,180,000
------------ ------------ ------------
OTHER NONCURRENT ASSETS, net............................................ 120,000 83,000 41,000
------------ ------------ ------------
$ 3,266,000 $ 3,929,000 $ 4,401,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' AND OWNERS' DEFICIT
CURRENT LIABILITIES:
Bank overdrafts....................................................... $ 199,000 $ 118,000 $ 116,000
Short-term notes payable.............................................. 1,966,000 2,243,000 2,145,000
Current portion of long-term debt..................................... 254,000 182,000 182,000
Current portion of obligations under capital lease.................... 53,000 39,000 37,000
Accounts payable and accrued expenses................................. 1,242,000 1,515,000 1,371,000
Accrued payroll and payroll taxes..................................... 2,011,000 3,252,000 3,600,000
------------ ------------ ------------
Total current liabilities........................................... 5,725,000 7,349,000 7,451,000
------------ ------------ ------------
LONG-TERM DEBT, net of current portion.................................. 488,000 545,000 598,000
------------ ------------ ------------
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASE, net of current portion....... 50,000 27,000 20,000
------------ ------------ ------------
OTHER LONG-TERM LIABILITIES............................................. 3,000 54,000 54,000
------------ ------------ ------------
Total liabilities................................................... 6,266,000 7,975,000 8,123,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' AND OWNERS' DEFICIT....................................... (3,000,000) (4,046,000) (3,722,000)
------------ ------------ ------------
$ 3,266,000 $ 3,929,000 $ 4,401,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements
F-10
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Medical services revenue, net of contractual
adjustments and bad debts.................. $ 18,351,000 $ 18,769,000 $ 18,470,000 $ 4,795,000 $ 4,716,000
Other revenue................................ 156,000 82,000 38,000 9,000 10,000
------------- ------------- ------------- ------------ ------------
Total revenue.............................. 18,507,000 18,851,000 18,508,000 4,804,000 4,726,000
------------- ------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Salaries and wages........................... 11,090,000 10,472,000 10,421,000 2,489,000 2,143,000
Medical supplies and expenses................ 504,000 623,000 426,000 110,000 98,000
General and administrative expenses.......... 5,879,000 4,533,000 4,564,000 1,280,500 1,552,000
Payroll tax interest and penalties........... 194,000 145,000 490,000 122,500 166,000
Depreciation and amortization................ 244,000 370,000 306,000 71,000 80,000
Interest expense............................. 246,000 254,000 203,000 55,000 59,000
------------- ------------- ------------- ------------ ------------
Total costs and expenses................... 18,157,000 16,397,000 16,410,000 4,128,000 4,098,000
------------- ------------- ------------- ------------ ------------
Net earnings distributable to owners before
owners' compensation..................... $ 350,000 $ 2,454,000 $ 2,098,000 $ 676,000 $ 628,000
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>
See notes to financial statements
F-11
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
COMBINED STATEMENTS OF STOCKHOLDERS' AND OWNERS' DEFICIT
<TABLE>
<S> <C>
BALANCE, December 31, 1993...................................................... $ (587,000)
Net earnings distributable to owners before owners' compensation................ 350,000
Compensation and distributions to owners........................................ (2,344,000)
----------
BALANCE, December 31, 1994...................................................... (2,581,000)
Net earnings distributable to owners before owners' compensation................ 2,454,000
Compensation and distributions to owners........................................ (2,873,000)
----------
BALANCE, December 31, 1995...................................................... (3,000,000)
Net earnings distributable to owners before owners' compensation................ 2,098,000
Compensation and distributions to owners........................................ (3,144,000)
----------
BALANCE, December 31, 1996...................................................... (4,046,000)
Net earnings distributable to owners before owners' compensation (unaudited).... 628,000
Compensation and distributions to owners (unaudited)............................ (304,000)
----------
BALANCE, March 31, 1997 (unaudited)............................................. $(3,722,000)
----------
----------
</TABLE>
See notes to financial statements
F-12
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ----------
<S> <C> <C> <C> <C>
1994 1995 1996 1996
------------ ------------ ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings distributable to owners................................ $ 350,000 $ 2,454,000 $ 2,098,000 $ 676,000
------------ ------------ ------------ ----------
Adjustments to reconcile net earnings distributable to owners to net
cash provided by operating activities -
Depreciation and amortization..................................... 244,000 370,000 306,000 71,000
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, net...................................... 55,000 (183,000) (669,000) (250,000)
Prepaid expenses and other current assets..................... 148,000 (31,000) (122,000) (172,000)
Increase (decrease) in -
Accounts payable and accrued expenses........................... (123,000) 453,000 273,000 (224,000)
Accrued payroll and payroll taxes............................... 910,000 111,000 1,241,000 15,000
------------ ------------ ------------ ----------
1,234,000 720,000 1,029,000 (560,000)
------------ ------------ ------------ ----------
Net cash provided by operating activities before compensation and
distributions of net earnings paid to owners...................... 1,584,000 3,174,000 3,127,000 116,000
Compensation and distributions of net earnings paid to owners......... (2,344,000) (2,873,000) (3,144,000) (394,000)
------------ ------------ ------------ ----------
Net cash provided by (used in) operating activities................. (760,000) 301,000 (17,000) (278,000)
------------ ------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................. (673,000) (419,000) (156,000) --
(Increase) decrease in of other noncurrent assets................... 76,000 (30,000) 37,000 34,000
------------ ------------ ------------ ----------
Net cash used in investing activities....................... (597,000) (449,000) (119,000) 34,000
------------ ------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) bank overdraft........................ 635,000 (436,000) (81,000) 205,000
Proceeds from (repayments of) short-term notes payable.............. -- 543,000 277,000 171,000
Proceeds from (repayments of) current portion of long-term debts.... 34,000 220,000 (72,000) (73,000)
Proceeds from (repayments of) obligations under capital leases...... 115,000 (12,000) (37,000) (25,000)
Proceeds from (repayments of) long-term debt........................ 347,000 (151,000) 57,000 (36,000)
Proceeds from (repayments of) other long-term liabilities........... 9,000 (6,000) 51,000 60,000
------------ ------------ ------------ ----------
Net cash provided by (used in) financing activities............... 1,140,000 158,000 195,000 302,000
------------ ------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (217,000) 10,000 59,000 58,000
CASH AND CASH EQUIVALENTS, beginning of period........................ 402,000 185,000 195,000 195,000
------------ ------------ ------------ ----------
CASH AND CASH EQUIVALENTS, end of period.............................. 185,000 $ 195,000 $ 254,000 $ 253,000
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
SUPPLEMENTAL CASHFLOW DISCLOSURE
Interest paid....................................................... $ 242,000 $ 248,000 $ 301,000 $ 76,000
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
<CAPTION>
<S> <C>
1997
----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings distributable to owners................................ $ 628,000
----------
Adjustments to reconcile net earnings distributable to owners to net
cash provided by operating activities -
Depreciation and amortization..................................... 80,000
Changes in assets and liabilities -
(Increase) decrease in -
Accounts receivable, net...................................... (401,000)
Prepaid expenses and other current assets..................... (184,000)
Increase (decrease) in -
Accounts payable and accrued expenses........................... (144,000)
Accrued payroll and payroll taxes............................... 348,000
----------
(301,000)
----------
Net cash provided by operating activities before compensation and
distributions of net earnings paid to owners...................... 327,000
Compensation and distributions of net earnings paid to owners......... (304,000)
----------
Net cash provided by (used in) operating activities................. 23,000
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................. (19,000)
(Increase) decrease in of other noncurrent assets................... 42,000
----------
Net cash used in investing activities....................... 23,000
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) bank overdraft........................ (2,000)
Proceeds from (repayments of) short-term notes payable.............. (98,000)
Proceeds from (repayments of) current portion of long-term debts.... --
Proceeds from (repayments of) obligations under capital leases...... (9,000)
Proceeds from (repayments of) long-term debt........................ 53,000
Proceeds from (repayments of) other long-term liabilities........... --
----------
Net cash provided by (used in) financing activities............... (56,000)
----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (10,000)
CASH AND CASH EQUIVALENTS, beginning of period........................ 254,000
----------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 244,000
----------
----------
SUPPLEMENTAL CASHFLOW DISCLOSURE
Interest paid....................................................... $ 52,000
----------
----------
</TABLE>
See notes to financial statements
F-13
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
The Initial Affiliated Practices are based in New Jersey and Pennsylvania
and are comprised of the following entities: Joel Fuhrman, M.D., P.C.; Bound
Brook Pediatric Associates, P.A.; Branchberg Eye Physicians, P.A.; Alexander
Kudryk, M.D.; Audrey Hinds--McDonald, M.D., P.A.; Hunterdon Ophthalmologists,
P.A.; Richard M. Weeder, M. D.; Felix Salerno, M. D.; Kenneth Stern, M. D., P.
A.; Flemington Medical Group, P.A.; John E. Durst, M. D.; Reliance Medical
Group, P.C.; and its affiliate Reliance Health Care Group, Inc.; and Medical
Billing and Management Services, Inc. and its subsidiary Radiology Billing and
Management Services, Inc. ("MBMS").
All of the Initial Affiliated Practices with the exception of Professional
Medical Images Ltd, (PMI) and MBMS have entered into binding agreements with
Integrated Physician Systems, Inc., (IPS) a physician practice management
company located in New Jersey and Pennsylvania, whose terms provide that, at the
closing thereof: a) IPS will acquire substantially all of the assets,
intangibles and goodwill of the Initial Affiliated Practices, in return for
$7,937,000 in cash, $114,000 in notes and 365,800 shares of its common stock; b)
IPS will assume certain liabilities of the Initial Affiliated Practices in the
amount of $486,000; c) each of the physicians associated with the Initial
Affiliated Practices (excluding MBMS) will become contracted employees of
professional corporations affiliated with IPS, (the "PC's"); and d) the PC's
will be managed by IPS in accordance with the terms of forty (40) year practice
management services agreements whereby IPS shall be responsible for all aspects
of the operation of the Initial Affiliated Practice (excluding MBMS) excluding
matters related to the practice of medicine. As a result of the combined effects
of these agreements, subsequent to the closing thereof, for the purposes of
financial reporting, the Initial Affiliated Practices will be controlled by IPS.
The combined financial statements of the Initial Affiliated Practices have
been presented as supplemental information concerning the entities that IPS
intends to acquire following its planned IPO and include the financial
statements of PMI, which was acquired by IPS in April 1997. The Initial
Affiliated Practices and PMI previously have operated as separate independent
entities. Their historical financial positions, results of operations, and cash
flows have been combined in the accompanying financial statements and do not
reflect any adjustments relating to the proposed transaction nor adjustments to
reflect changes that may have occurred if the actual operations of the Initial
Affiliated Practices had been combined. Within the Initial Affiliated Practices
and PMI all significant intercompany accounts and transactions have been
eliminated.
The accompanying financial statements have been prepared on the accrual
basis of accounting. These financial statements have been prepared to show the
combined operations and combined financial position of the Initial Affiliated
Practices and PMI. Because certain of the Initial Affiliated Practices are
nontaxpaying entities (i.e., S Corporations and sole proprietorships in which
case income taxes are the responsibility of the respective owners) and because
in certain C corporations substantially all of the income has been paid to the
owners as compensation, the financial statements have been presented on a
pre-tax basis, as is further described in Note 2. Therefore, net earnings
distributable to owners before physicians compensation reflects net earnings
before physician compensation, before distributions of earnings or losses and
before dividends.
F-14
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. METHOD OF ACCOUNTING
The combined financial statements of the Initial Affiliated Practices and
PMI are presented on the accrual basis of accounting. Accordingly, revenues are
recorded when earned, rather than when received and expenses are recorded when
incurred, rather than when paid.
B. REVENUES
Medical service revenues are accounted for in the period the services are
provided. The revenues are reported at the estimated realizable amounts from
patients, third-party payors and others. Provisions for estimated third-party
payor adjustments are recorded in the period the related services are provided.
Any adjustment to those amounts are recorded in the period in which the revised
amount is determined. A portion of the Initial Affiliated Practices' medical
services revenue is derived from Medicare, Medicaid and other governmental
programs. Medicare, Medicaid and other governmental programs reimburse
physicians based on fee schedules which are determined by the specific
governmental agency. Additionally, certain of the Initial Affiliated Practices
participate in agreements with managed care organizations to provide services at
negotiated fee-for-service rates or for capitated payments.
C. CONCENTRATION OF CREDIT RISK
The Initial Affiliated Practices (except for MBMS) extend credit to patients
covered by insurance programs such as Medicare and Medicaid and private
insurers. The Initial Affiliated Practices (except for MBMS) manage credit risk
with the various public and private insurance providers, as appropriate.
Allowances for doubtful accounts have been made for potential adjustments, where
appropriate.
D. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
E. INCOME TAXES
The Initial Affiliated Practices and PMI are comprised principally of
nontaxpaying entities or taxable entities that distribute substantially all of
their income as owners compensation. Accordingly no provision for income taxes
and deferred tax assets and liabilities is reflected in these financial
statements as they have been prepared on a pre-tax basis.
F. CASH AND CASH EQUIVALENTS
The Initial Affiliated Practices and PMI include as cash and cash
equivalents all cash accounts which are not subject to withdrawal restrictions
or penalties, and all highly liquid instruments, with original maturities of
three months or less.
F-15
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
Excess of cost over fair value of assets acquired..................... $ 75,000 $ 75,000
Customer lists........................................................ 70,000 70,000
---------- ----------
145,000 145,000
Less: Accumulated amortization........................................ (25,000) (61,000)
---------- ----------
$ 120,000 $ 84,000
---------- ----------
---------- ----------
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Initial Affiliated Practices are insured with respect to medical
malpractice risks except for Medical Billing Management Services, Inc. and its
subsidiary, Radiology Billing and Management Services, Inc. which are not in the
practice of medicine. In the normal course of business certain of the Initial
Affiliated Practices have been named in lawsuits. In the opinion of the
management of the Initial Affiliated Practices the ultimate liability, if any,
of the Initial Affiliated Practices with respect to any such lawsuit will not
exceed the insurance coverages carried by the Initial Affiliated Practices and
will not materially impact the operating results or results of financial
condition of the Initial Affiliated Practices.
All of the Initial Affiliated Practices have entered into binding agreements
with IPS, the terms of which provide that in exchange for $7,937,000 in cash,
$114,000 in notes, 365,800 shares of common stock, and the assumption of
liabilities in the amount of $486,000, IPS will acquire substantially all of the
assets, goodwill, and intangibles of the Initial Affiliated Practices. The
acquisitions by IPS will coincide with the consummation of its IPO.
In connection with the consummation of the acquisition of the Initial
Affiliated Practices by IPS, the Initial Affiliated Practices will enter into
PMSAs to receive management services for initial terms of 40 years.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------------------
(YEARS) 1995 1996
------------- ------------- ------------
<S> <C> <C> <C>
Land and building................................. 30 $ 375,000 $ 375,000
Leasehold improvements............................ 5-10 595,000 607,000
Medical and computer equipment.................... 5-7 1,129,000 1,141,000
Equipment under capital leases.................... 5-7 269,000 269,000
Furniture and fixtures............................ 7-10 238,000 244,000
Automobiles....................................... 3-5 238,000 267,000
------------- ------------
Total............................................. 2,844,000 2,903,000
Less: Accumulated depreciation.................... (1,453,000) (1,662,000)
------------- ------------
Net............................................. $ 1,391,000 $ 1,241,000
------------- ------------
------------- ------------
</TABLE>
F-16
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. SHORT-TERM AND LONG-TERM OBLIGATIONS AND COMMITMENTS
A. SHORT-TERM NOTES PAYABLE
Short-term notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Notes payable to various banks bearing interest at 5% to prime +3%
collateralized by various assets of the Initial Affiliated
Practices....................................................... $ 1,709,000 $ 1,355,000
Secured and unsecured demand notes payable to various owners of
the Initial Affiliated Practices and other individuals, bearing
interest at 5% to 9%............................................ 124,000 888,000
------------ ------------
$ 1,833,000 $ 2,243,000
------------ ------------
------------ ------------
</TABLE>
B. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Mortgage notes payable to New Jersey Economic Development
Authority, and South Jersey Transit Authority bearing interest
from 3% to 6%................................................... $ 270,000 $ 227,000
Term loans payable to banks, due through 2001, bearing interest at
9.25%, payable monthly.......................................... -- 182,000
Notes payable to a physician relating to the acquisition of
practice assets and accounts receivable, bearing interest
ranging from 0% to 10%.......................................... 106,000 52,000
Notes payable to several hospitals with whom certain of the
Initial Affiliated Practices are associated, bearing interest
ranging from 7% to 10 %, payable in periodic installments....... 328,000 94,000
Other debt........................................................ 171,000 172,000
------------ ------------
Total long-term debt.......................................... 875,000 727,000
Less: Current portion............................................. (128,000) (182,000)
------------ ------------
Long-term debt, excluding current portion..................... $ 747,000 $ 545,000
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1996 one of the Initial Affiliated Practices (the
"Defaulted Practice") has not complied with the payment provisions of its
mortgage note and its long term bank debt. Because of the significant arrearage
in payments with respect to the long term bank debt, the entire amount of long
term bank debt has been reclassified as short term obligations.
F-17
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
B. LONG-TERM DEBT (CONTINUED)
As of December 31, 1996, the aggregate amounts of annual principal
maturities of long-term debts (excluding capital lease obligations) are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $ 150,000
1998.............................................................. 259,000
1999.............................................................. 43,000
2000.............................................................. 23,000
2001.............................................................. 126,000
---------
Total........................................................... $ 601,000
---------
---------
</TABLE>
The Initial Affiliated Practices lease office space under noncancellable
operating lease agreements as well as certain equipment under capital leases and
noncancelable operating lease agreements, which expire at various dates. At
December 31, 1996, minimum annual rental commitments under capital leases and
noncancelable operating leases with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- ------------
<S> <C> <C>
1996............................................................ $ 46,000 $ 350,000
1997............................................................ 23,000 300,000
1998............................................................ 7,000 260,000
1999............................................................ -- 201,000
2000............................................................ -- 120,000
------------- ------------
Total minimum lease payments.................................. $ 76,000 $ 1,231,000
------------
------------
Less: Amounts representing interest............................. (10,000)
-------------
Present value of minimum capital lease payments............... 66,000
Less: Current portion of obligations under capital lease........ (39,000)
-------------
Long-term obligations under capital lease, net of current
portion....................................................... $ 27,000
-------------
-------------
</TABLE>
Rent expense related to operating leases amounted to $640,000, $746,000 and
$713,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
7. EMPLOYEE BENEFIT PLANS
Certain of the Initial Affiliated Practices have qualified and unqualified
defined contribution pension plans or profit sharing plans. The applicable
Initial Affiliated Practices pay all general and administrative expenses of
these plans. The applicable Initial Affiliated Practices made contributions
related to these plans totaling $224,000, $237,000 and $175,000 in 1994, 1995
and 1996, respectively.
The Initial Affiliated Practices do not typically provide employees any post
retirement benefits other than pensions and, accordingly, the impact of
Statement of Financial Accounting Standards No. 106 had no material effect on
the Initial Affiliated Practices.
F-18
<PAGE>
INITIAL AFFILIATED PRACTICES AND PMI
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires disclosure about the fair value of all financial instruments. Carrying
amounts of all financial instruments approximate fair value as of December 31,
1996.
9. ACCOUNTING FOR LONG-LIVED ASSETS
Under the requirements of SFAS No. 121 "Accounting for Long-Lived Assets and
for Long-Lived-Assets to be Disposed of", each of the Initial Affiliated
Practices and PMI is obligated to recognize an impairment loss on their long
lived assets whenever the sum of the expected future cash flows resulting from
their use is less than their carrying amount. As of December 31, 1996, no
impairment exists with respect to any of the Initial Affiliated Practices
long-lived assets.
10. RELATED PARTY TRANSACTIONS
Various related party transactions exists with respect to owners and/or
stockholders of the Initial Affiliated Practices primarily involving leasing and
lending activities.
Certain owners and/or stockholders made loans to their applicable entities.
Obligations payable to these owners and/or stockholders were $124,000 and
$438,000 as of December 31, 1995 and 1996, respectively. Interest paid
associated with these obligations was $2,000, $3,000 and $8,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Rent expense incurred for the lease of facilities used by the applicable
Initial Affiliated Practices and payable to various owners of the applicable
Initial Affiliated Practices was $88,000, $113,000 and $105,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
11. ACCRUED PAYROLL AND PAYROLL TAXES
Applicable to the "Defaulted Practice," as of December 31, 1995 and 1996 and
included in accrued payroll and payroll taxes are approximately $1,363,000 and
$2,871,000 of delinquent Federal and State of New Jersey payroll and withholding
taxes including interest and penalties thereon.
F-19
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following pro forma consolidated financial statements include the
unaudited pro forma consolidated balance sheet of Integrated Physician Systems,
Inc. (IPS or the Company), as of December 31, 1996, and the unaudited pro forma
consolidated statements of operations for the year ended December 31, 1996, and
the three months ended March 31, 1996 and 1997.
The following unaudited pro forma financial statements (i) give effect to
the acquisitions of the Initial Affiliated Practices and PMI, pursuant to which
the Company will acquire certain assets and assume certain liabilities in
exchange for 365,800 shares of the Company's Common Stock, cash and notes
payable (ii) reflect the effects of the provisions of the Practice Management
Services Agreements between the Company and each of the Initial Affiliated
Practices (except for the medical billing company) and (iii) give effect to the
consummation of the IPO. For purposes of developing the unaudited pro forma
balance sheet the value of the Company's Common Stock is based upon the assumed
initial public offering price of $10.00 per share. The estimated aggregate
amounts to be allocated to the assets acquired and liabilities assumed consist
of:
<TABLE>
<S> <C>
Common stock................................................... $3,658,000
Cash........................................................... 7,937,000
Notes payable.................................................. 114,000
----------
$11,709,000
----------
----------
</TABLE>
The allocation is based upon preliminary estimates in accordance with
generally accepted accounting principles. The actual allocation will be based on
the estimated fair market value of the tangible and intangible assets and
liabilities of such Initial Affiliated Practices and PMI as of the date of the
Acquisitions. For purposes of the pro forma financial statements, such
allocation has been estimated as follows:
<TABLE>
<S> <C>
Current assets................................................. $ 146,000
Intangible assets.............................................. 10,086,000
Property, equipment and improvements........................... 2,000,000
Liabilities.................................................... (523,000)
----------
$11,709,000
----------
----------
</TABLE>
The unaudited pro forma financial statements have been prepared by the
Company based upon the historical financial statements of Integrated Physician
Systems, Inc. and the Initial Affiliated Practices and PMI included elsewhere in
this Prospectus and certain preliminary estimates and assumptions deemed
appropriate by management of the Company. The pro forma balance sheet as of
March 31, 1997 gives effect to the Acquisitions and the consummation of the IPO
as if such transactions had occurred on March 31, 1997 and reflects certain
transactions occurring subsequent to March 31, 1997. The pro forma statements of
operations for the year ended December 31, 1996 and the three months ended March
31, 1996 and 1997 assumes the Acquisitions and the IPO were completed on January
1, 1996. These pro forma
F-20
<PAGE>
financial statements may not be indicative of actual results as if the
transactions had occurred on the dates indicated or which may be realized in the
future. Neither expected benefits nor cost efficiencies anticipated by the
Company following consummation of the Acquisitions have been reflected in such
pro forma financial statements; however, cost reductions as contractually agreed
per the Practice Management Services Agreements have been reflected in the pro
forma financial statements. The pro forma general and administrative expenses do
not include the anticipated incremental costs of managing such additional
Affiliated Practices as the related management fees are not included in the pro
forma revenues. Such costs may also be substantial and may vary according to the
operations of each new Initial Affiliated Practice.
The pro forma financial statements should be read in conjunction with the
historical financial statements of Integrated Physicians Systems, Inc. and the
Initial Affiliated Practices and PMI, including the related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appear elsewhere in this Prospectus.
F-21
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEGRATED INITIAL
PHYSICIAN AFFILIATED
SYSTEMS, PRACTICES ADJUSTMENTS
ASSETS INC. AND PMI (A) ADJUSTMENTS PRO FORMA
- ------------------------------------------------- ------------ --------- ----------- ----------- ----------
CURRENT ASSETS:
Cash and cash equivalents...................... $ 134,000 $ 244,000 $(244,000) 1$2,950,000(C) $27,407,000
22,625,000(C)
63,000(D)
(7,937,000)(D)
(435,000)(E)
125,000(E)
(118,000)(B)
Accounts receivable, net....................... -- 2,554,000 (2,554,000) 83,000(D) 83,000
Prepaid expenses............................... -- 382,000 (382,000) -- --
------------ --------- ----------- ----------- ----------
Total current assets....................... 134,000 3,180,000 (3,180,000) 27,356,000 27,490,000
------------ --------- ----------- ----------- ----------
PROPERTY AND EQUIPMENT........................... -- 1,180,000 (1,180,000) 2,000,000(D) 2,000,000
OTHER NONCURRENT ASSETS
Organization costs, net........................ 6,000 -- -- -- 6,000
Service agreements............................. -- -- -- 2,500,000(D) 2,500,000
Deferred registration costs.................... 333,000 -- -- 570,000(C) --
(903,000)(C)
Goodwill....................................... -- -- -- 6,696,000(D) 6,696,000
Deferred financing costs....................... -- -- -- 2,375,000(C) 2,375,000
Other noncurrent assets........................ -- 41,000 (41,000) 890,000(D) 890,000
------------ --------- ----------- ----------- ----------
339,000 1,221,000 (1,221,000) 14,128,000 14,467,000
------------ --------- ----------- ----------- ----------
$ 473,000 $4,401,000 ($4,401,000) 4$1,484,000 $41,957,000
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------------------
CURRENT LIABILITIES:
Bank overdraft................................. $ -- $ 116,000 $(116,000) $ -- $ --
Accounts payable and accrued liabilities....... 35,000 1,371,000 (1,371,000) 65,000(D) 100,000
Accrued payroll and payroll taxes.............. -- 3,600,000 (3,600,000) -- --
Due to related party........................... 118,000 -- -- (118,000)(B) --
Notes payables and current portion of long-term
debt......................................... -- 2,327,000 (2,327,000) 128,000(D) 128,000
Current portion of obligations under capital
lease........................................ -- 37,000 (37,000) 37,000(D) 37,000
Senior notes................................... 310,000 -- -- (435,000)(E) --
125,000(E)
------------ --------- ----------- ----------- ----------
Total current liabilities.................. 463,000 7,451,000 (7,451,000) (198,000) 265,000
------------ --------- ----------- ----------- ----------
LONG-TERM DEBT:
Notes payable, net of current portion.......... -- 598,000 (598,000) 273,000(D) 387,000
114,000(D)
Obligations under capital lease, net of current
portion...................................... -- 20,000 (20,000) 20,000(D) 20,000
% convertible subordinated debentures -- -- -- 25,000,000(C) 25,000,000
Other debts.................................... -- 54,000 (54,000) -- --
------------ --------- ----------- ----------- ----------
Total long-term debt......................... -- 672,000 (672,000) 25,407,000 25,407,000
------------ --------- ----------- ----------- ----------
Total liabilities.......................... 463,000 8,123,000 (8,123,000) 25,209,000 25,672,000
------------ --------- ----------- ----------- ----------
STOCKHOLDERS'/OWNERS' EQUITY (DEFICIT)
Common stock................................... 30,000 -- -- 15,000(C) 49,000
4,000(C)
Additional paid-in capital..................... -- -- -- 12,602,000(C) 16,256,000
3,654,000(D)
Accumulated deficit............................ (20,000) -- -- -- (20,000)
Accumulated/owners' deficit.................... (3,722,000) 3,722,000 -- --
------------ --------- ----------- ----------- ----------
Total stockholders'/owners' equity
(deficit).................................. 10,000 (3,722,000) 3,722,000 16,275,000 16,285,000
------------ --------- ----------- ----------- ----------
$ 473,000 $4,401,000 ($4,401,000) 4$1,484,000 $41,957,000
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
</TABLE>
See notes to pro forma consolidated financial statements
F-22
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------
INTEGRATED INITIAL
PHYSICIAN AFFILIATED
SYSTEMS, PRACTICES
INC. AND PMI ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Medical service revenue, net of contractual
adjustments and bad debts....................... $ -- $ 4,716,000 $ -- $ 4,716,000
Other revenue..................................... -- 10,000 -- 10,000
------------ ------------ ----------- ------------
Total revenue................................. -- 4,726,000 -- 4,726,000
------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Salaries and wages................................ -- 1,805,000 775,000 (AA 2,580,000
628,000 (AA
(628,000) AA)
Medical supplies and expenses..................... -- 98,000 -- 98,000
General and administrative expenses............... 12,000 1,890,000 (60,000) BB) 1,842,000
Payroll tax interest and penalties................ -- 166,000 (166,000) CC) --
Depreciation and amortization..................... 1,000 80,000 (80,000) DD) 300,000
299,000 (DD
Interest expense.................................. -- 59,000 (59,000) EE)
438,000 (FF 438,000
------------ ------------ ------------
Total costs and expenses...................... 13,000 4,098,000 5,258,000
------------ ------------ ------------
LOSS BEFORE INCOME TAXES............................ (13,000) -- (519,000) GG) (532,000)
NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE OWNERS'
COMPENSATION...................................... -- $ 628,000 (628,000) AA)
------------
------------
PROVISION FOR INCOME TAXES.......................... -- -- (HH --
------------ ------------
NET LOSS............................................ $ (13,000) $ (532,000)
------------ ------------
------------ ------------
LOSS PER SHARE...................................... $ (0.11)
------------
------------
</TABLE>
See notes to pro forma consolidated financial statements
F-23
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
INTEGRATED INITIAL
PHYSICIAN AFFILIATED
SYSTEMS, PRACTICES
INC. AND PMI ADJUSTMENTS PRO FORMA
------------ ------------- ------------- -------------
REVENUE:
Medical service revenue, net of contractual
adjustments and bad debts.................... $ -- $ 18,470,000 $ -- $ 18,470,000
Other revenue.................................. -- 38,000 -- 38,000
------------ ------------- ------------- -------------
Total revenue............................ -- 18,508,000 -- 18,508,000
------------ ------------- ------------- -------------
COSTS AND EXPENSES:
Salaries and wages............................. -- 10,421,000 3,098,000 (AA 13,519,000
2,098,000 (AA
(2,098,000 AA)
Medical supplies and expenses.................. -- 426,000 -- 426,000
General and administrative expenses............ 4,000 4,564,000 (394,000 BB) 4,174,000
Payroll tax interest and penalties............. -- 490,000 (490,000 CC) --
Depreciation and amortization.................. 2,000 306,000 (306,000 DD) 1,185,000
1,183,000 (DD
Interest expense............................... -- 203,000 (201,000 EE) 1,752,000
1,750,000 (FF
------------ ------------- -------------
Total costs and expenses..................... 6,000 16,410,000 21,056,000
------------ ------------- -------------
LOSS BEFORE INCOME TAXES......................... (6,000) -- (2,542,000 GG) (2,548,000)
NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE
OWNERS' COMPENSATION........................... $ 2,098,000 (2,098,000 AA) --
-------------
-------------
PROVISION FOR INCOME TAXES....................... -- - (HH --
------------ -------------
NET LOSS......................................... $ (6,000) $ (2,548,000)
------------ -------------
------------ -------------
LOSS PER SHARE................................... $ (0.52)
-------------
-------------
</TABLE>
See notes to pro forma consolidated financial statements
F-24
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
INTEGRATED INITIAL
PHYSICIAN AFFILIATED
SYSTEMS, PRACTICES
INC. AND PMI ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ------------
REVENUE:
Medical service revenue, net of contractual
adjustments and bad debts...................... $ -- $ 4,795,000 $ -- $ 4,795,000
Other revenue.................................... -- 9,000 -- 9,000
------------ ------------ ------------- ------------
Total revenue................................ -- 4,804,000 -- 4,804,000
------------ ------------ ------------- ------------
COSTS AND EXPENSES:
Salaries and wages............................... -- 2,489,000 774,000 (AA 3,263,000
676,000 (AA
(676,000 AA)
Medical supplies and expenses.................... -- 110,000 -- 110,000
General and administrative expenses.............. 2,000 1,281,000 -- 1,283,000
Payroll tax interest and penalties............... -- 122,000 (122,000 CC) --
Depreciation and amortization.................... 1,000 71,000 (71,000 DD) 298,000
297,000 (DD
Interest expense................................. -- 55,000 (55,000 EE) 438,000
438,000
------------ ------------ ------------
Total costs and expenses....................... 3,000 4,128,000 5,392,000
------------ ------------ ------------
LOSS BEFORE INCOME TAXES........................... (3,000) -- (585,000 GG) (588,000)
NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE
OWNERS' COMPENSATION............................. -- 676,000 (676,000 AA) --
------------
------------
PROVISION FOR INCOME TAXES......................... -- -- (HH --
------------ ------------
NET LOSS........................................... $ (3,000) $ $ (588,000)
------------ ------------
------------ ------------
LOSS PER SHARE..................................... $ (0.12)
------------
------------
</TABLE>
See notes to pro forma consolidated financial statements
F-25
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
(A) Reflects the elimination of the combined Initial Affiliated Practices'
historical balance sheet accounts prior to the pro forma adjustments
entries (B), (C), (D), and (E).
(B) Reflects the repayment of monies borrowed for the purpose of funding the
initial operations of the Company from Wellness Concepts, Inc., a related
party, in the amount of $118,000 from the net proceeds of the IPO.
(C) Reflects the issuance of 1,500,000 shares of common stock by the Company
at an assumed initial offering price of $10 per share and the issuance of
the aggregate principal amount of $25,000,000 of the % convertible
subordinated debentures, less underwriters' discount, offering expenses,
and non-accountable expense allowance and other expenses of the IPO.
(D) Reflects the purchase of the Initial Affiliated Practices and PMI which
includes (a) the public issuance of 365,800 shares of common stock of the
Company at the price of $10 per share (b) the issuance of a $114,000 note
by the Company and (c) the assumption of certain liabilities of the
Initial Affiliated Practices and PMI in the amount of $523,000. The
components of the entry are summarized as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 63,000
Accounts receivable............................................. 83,000
Property and equipment.......................................... 2,000,000
Other noncurrent assets......................................... 890,000
Service agreements.............................................. 2,500,000
Goodwill........................................................ 6,696,000
Accounts payable................................................ (65,000)
Issued long-term notes payable.................................. (114,000)
Short term notes payable and current portion of long-term
debt.......................................................... (128,000)
Current portion of obligations under capital lease.............. (37,000)
Long-term debt, net of current portion.......................... (273,000)
Long-term obligations under capital lease, net of current
portion....................................................... (20,000)
Common stock issued............................................. (4,000)
Additional paid-in-capital...................................... (3,654,000)
---------
Net cash payments made to Initial Affiliated Practices and
PMI........................................................... $7,937,000
---------
---------
</TABLE>
(E) Reflects the issuance after March 31, 1997 of an aggregate principal
amount of $125,000 Senior Notes as part of the Bridge Financing and the
repayment of the Senior Notes in the aggregate principal amount of
$435,000 from the net proceeds of the IPO.
F-26
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
(AA) To reclassify "Net Earnings Distributable to Owners Before Owners
Compensation" to "Salaries and Wages" and to adjust the physician and
owner compensation to agree with the contracted physician and management
salaries and incentive compensation.
(BB) Reflects the elimination of certain nonessential and non-practice related
expenses and other expenditures related to the Initial Affiliated
Practices which are non-recurring.
(CC) Reflects the elimination of penalties and interest associated with
delinquent federal and state payroll and withholding taxes of the
Defaulted Practices, since those obligations are neither being assumed by
the Company nor are expected to recur.
(DD) Reflects the elimination of depreciation and amortization related to the
historical asset basis of the Initial Affiliated Practices and PMI and
includes the depreciation and amortization expenses associated with the
assets acquired from the Initial Affiliated Practices and PMI. Goodwill
and service agreements associated with the acquisitions of the Initial
Affiliated Practices and PMI are being amortized over 20 and 30 years
respectively. Deferred financing costs associated with the convertible
subordinated debentures are being amortized over 7 years.
(EE) Reflects the elimination of interest expense incurred by the Initial
Affiliated Practices during the year ended December 31, 1996 and the
three months ended March 31, 1996 and 1997 because debt associated with
such interest expense has not been assumed by the Company.
(FF) Represents recording of interest expense on the convertible subordinated
debentures to be offered in the IPO. No estimated interest income on idle
funds associated with the proceeds from the issuance of the convertible
suordinated debentures has been assumed.
(GG) Represents the adjustment to income before income tax resulting from the
reclassification of "Net Earnings Distributable to Owners Before Owners
Compensation" to salaries and wages and the net effects of adjustments BB
through EE.
(HH) The Company has generated pro forma pre-tax losses for financial
reporting purposes. Recognition of deferred tax assets will require the
generation of future taxable income. Because there can be no assurance
that the Company will generate any earnings in future years a valuation
allowance has been established equal to the deferred tax assets created
by the pro forma losses.
F-27
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(II) The number of shares used in the pro forma loss per share calculations
are determined as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Outstanding shares after the Initial Public Offering............................. 4,500,000
Shares issued in connection with Bridge Financing................................ 43,500
Shares issued to acquire the Initial Affiliated Practices........................ 365,800
----------
Shares used to compute primary loss per share.................................... 4,909,300
Shares to be issued in connection with conversion of subordinated convertible
debentures..................................................................... 1,786,000
----------
Shares used to compute fully diluted loss per share (1).......................... 6,695,300
----------
----------
</TABLE>
- ------------------------
(1) Fully diluted loss per share has not been computed as it would be
anti-dilutive.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY 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 ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. 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 DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 8
Use of Proceeds.................................. 16
Dilution......................................... 17
Capitalization................................... 18
Dividend Policy.................................. 19
Selected Financial Data.......................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 22
Business......................................... 25
Management....................................... 39
Principal Stockholders........................... 44
Certain Transactions............................. 45
Description of Debentures........................ 46
Description of Capital Stock..................... 56
Certain United States Federal
Income Tax Considerations...................... 57
Shares Eligible for Future Sale.................. 60
Underwriting..................................... 61
Legal Matters.................................... 63
Experts.......................................... 63
Financial Statements............................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
INTEGRATED
PHYSICIAN SYSTEMS,
INC.
$25,000,000 [6 1/2% TO 8%]
CONVERTIBLE SUBORDINATED
DEBENTURES DUE , 2004
AND 1,500,000
SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
NATIONAL SECURITIES CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby (items
marked with an asterisk (*) represent estimated expenses);
<TABLE>
<S> <C>
SEC Registration Fee........................................... $14,584.90
NASD Filing Fees............................................... 5,530.00
AMEX Filing Fees............................................... 25,000.00
Legal Fees and Expenses........................................ 175,000.00*
Blue Sky Fees (including counsel fees)......................... 35,000.00*
Accounting Fees and Expenses................................... 250,000.00*
Transfer Agent and Registrar Fees.............................. 5,000.00*
Printing and Engraving Expenses................................ 80,000.00*
Miscellaneous.................................................. 34,885.10*
----------
Total.................................................... $625,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or a knowing violation of a law, the payment of a dividend or
approval of a stock repurchase which is deemed illegal or an improper personal
benefit is obtained. The Company's Certificate of Incorporation includes the
following language:
"The personal liability of the Directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of Subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware
as the same may be amended and supplemented."
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. Article VII, Section 7 of the By-laws of the Company
provides as follows:
"The corporation shall indemnify its officers, directors, employees, and
agents to the extent permitted by the General Corporation Law of Delaware."
Article 11 of the Certificate of Incorporation of the Company, as amended,
permits indemnification of, and advancement of expenses to, among others,
officers and directors of the Corporation. Such Article provides as follows:
"(a) Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or
indirect subsidiaries or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of any other corporation or of a
partnership, joint venture, trust, or other enterprise, including service
with respect
II-1
<PAGE>
to an employee benefit plan (hereinafter an "indemnitee"), whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than permitted prior thereto), against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided
in paragraph (c) of this Article 11 with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
"(b) The right to indemnification conferred in paragraph (a) of this
Article 11 shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not entitled to
be indemnified for such expenses under this Article 11 or otherwise.
"(c) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (a) and (b) of this Article 11 shall be contract
rights. If a claim under paragraph (a) or (b) of this Article 11 is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by an indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that
the indemnitee has not met such applicable standard of conduct, shall create
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the
II-2
<PAGE>
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article 11 or otherwise, shall be on the Corporation.
"(d) The rights to indemnification and to the advancement of expenses
conferred in this Article 11 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this certificate
of incorporation, by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
"(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the Corporation or
another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law.
"(f) The Corporation's obligation, if any, to indemnify any person who
was or is serving as a director, officer, employee, or agent of any direct
or indirect subsidiary of the Corporation or, at the request of the
Corporation, of any other corporation or of a partnership, joint venture,
trust, or other enterprise shall be reduced by any amount such person may
collect as indemnification from such other corporation, partnership, joint
venture, trust, or other enterprise.
"(g) Any repeal or modification of the foregoing provisions of this
Article 11 shall not adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of
such repeal or modification."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the numbers
of shares of Common Stock sold by the Company and the principal amount of debt
instruments issued by the Company since April 25, 1995, the consideration
received by the Company for such shares, options and debt instruments and
information relating to the section of the Securities Act of 1933, as amended
(the "Securities Act"), or rule of the Securities and Exchange Commission under
which exemption from registration was claimed. None of these securities was
registered under the Securities Act. Except as otherwise indicated, no sales of
securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities.
On April 27, 1995, the Company issued 1,000 shares of Common Stock to
Wellness Concepts, Inc. ("Wellness"), the founding stockholder of the Company at
a price of $.01 per share.
On April 24, 1996, the Company completed a 3,000-for-one stock split and
Wellness surrendered all of its Common Stock to the Company. On April 25, 1996,
the Company issued to certain stockholders, including certain directors and
officers of the Company, a total of 3,000,000 shares of Common Stock at a price
of $.01 per share.
Between December 1996 and May 1997, the Company consummated the private
placement of 8.7 Units, each Unit consisting of $50,000 principal amount of
Series A 10% Senior Notes and 5,000 shares of Common Stock. Pursuant thereto,
the Company issued an aggregate principal amount of $435,000 of Senior Notes and
43,500 shares of Common Stock. The Units were offered to, and purchased by,
accredited investors pursuant to section 4(2) of the Securities Act and the
rules promulgated thereunder.
Each purchaser of the securities described above has represented that
he/she/it understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Securities Act or the availability of
an exemption from the registration requirements of the Securities Act, and each
certificate evidencing the securities owned by each purchaser bears or will bear
upon issuance a legend to that effect.
II-3
<PAGE>
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation, as amended
3.2 Bylaws, as amended
4.1 Form of Representative's Warrant Agreement*
4.2 Specimen Common Stock Certificate *
4.3 Form of Indenture
5.1 Opinion of Brock Fensterstock Silverstein McAuliffe & Wade LLC *
10.1 Employment Agreements with Scott Pollock, Dennis B. Liotta, M.D., and Peter R.
Heisen, M.D.
10.2 1996 Stock Option Plan
10.3 Form of Asset Purchase Agreement with Affiliated Practices
10.4 Form of Employment Agreement with affiliated physicians
10.5 Form of Practice Management Services Agreement
10.6 Form of Goodwill Purchase Agreements*
23.1 Consent of Feldman Radin & Co., P.C.
23.2 Consent of Brock Fensterstock Silverstein McAuliffe & Wade LLC (contained in the
Opinion filed as Exhibit 5.1).*
23.3 Consent of Kalogredis Tsoules and Sweeney Ltd.
24.1 Power of Attorney (set forth on the signature page hereof)
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement;
(iii) To include any additional or changed material information on
the plan of distribution;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be treated as 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 remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
II-4
<PAGE>
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 Securities
Act and will be governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat 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 as part of this registration statement as of
the time the Commission declared it effective.
(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement relating to the securities offered therein,
and the offering of such securities at that time as the initial bona fide
offering thereof.
(d) The Registrant hereby undertakes that it will provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York on August 8, 1997.
INTEGRATED PHYSICIAN SYSTEMS, INC.
By: /s/ SCOTT G. POLLOCK
-----------------------------------------
Scott G. Pollock
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott G. Pollock and Joseph F. Murray, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, and in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments and registration statements filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
to said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform such and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
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.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SCOTT G. POLLOCK President, Chief Executive
- ------------------------------ Officer, Chief Financial August 8, 1997
Scott G. Pollock Officer and a Director
/s/ DENNIS B. LIOTTA, M.D. Executive Vice President,
- ------------------------------ Chief Operating Officer August 8, 1997
Dennis B. Liotta, M.D. and a Director
/s/ PETER HEISEN, M.D. Vice President, Chief
- ------------------------------ Medical Officer and a August 8, 1997
Peter Heisen, M.D. Director
/s/ DAVID I. ROSEN, M.D. Vice President for
- ------------------------------ Business Development and August 8, 1997
David I. Rosen, M.D. a Director
/s/ JOSEPH F. MURRAY
- ------------------------------ Secretary and a Director August 8, 1997
Joseph F. Murray
/s/ WALTER B. DUNSMORE
- ------------------------------ Corporate General Counsel August 8, 1997
Walter B. Dunsmore and a Director
/s/ ROBERT M. RUBIN
- ------------------------------ Director August 8, 1997
Robert M. Rubin
II-6
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTEGRATED PHYSICIAN SYSTEMS, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of
the laws of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified, and referred to as the "General Corporation Law of the
State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called "corporation") is
INTEGRATED PHYSICIAN SYSTEMS, INC.
SECOND: The address, including street, number, city, and county of the
registered office of the corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 and the name of
the registered agent of the corporation in the State of Delaware at such
address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to enter into a loan transaction
with Forrest Financial Corporation and a Securities Pledge Agreement; to
issue and repay a note with Forrest Financial Corporation; to acquire and
pledge the collateral and acquire an investment agreement to secure and repay
the note; to engage in any acts and transactions incidental or otherwise
related to the entry into the Securities Pledge Agreement, the issuance and
repayment of the note or the acquisition of the collateral and investment
agreement, and to do all other acts required by law or required or permitted
by the note or the Securities Pledge Agreement; and to engage in any act,
have any power, enter into any contract, and own any property allowed by law
as necessary or incidental to any of the foregoing.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue One Thousand (1000). The par value of each such share
is One Cent ($.01). All such shares are of one class and are shares of Common
Stock.
<PAGE>
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Michael Zelinsky Clark, Ladner, Fortenbaugh
& Young
One Commerce Square
22nd Floor
2005 Market Street
Philadelphia, PA 19103
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of Section 279
of Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three fourths in value
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors,and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors
<PAGE>
shall be fixed by, or in the manner provided in, the Bylaws. The
phrase "whole Board" and the phrase "total number of directors" shall
be deemed to have the same meaning, to wit, the total number of
directors which the corporation would have if there were not
vacancies. No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with
the provisions of Section 109 of the General Corporation Law of the
State of Delaware, and, after the corporation has received any payment
for any of its stock, the power to adopt, amend, or repeal the Bylaws
of the corporation may be exercised by the Board of Directors of the
corporation, provided, however, that any provision for the
classification of directors of the corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote for the corporation unless provisions for such classification
shall be set forth in this certificate of incorporation.
3. When ever the corporation shall be authorized to issue only one class of
stock, each outstanding shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting
power under the provisions of the certificate of incorporation shall
entitle the holder thereof to the right to vote at any meeting of
stockholders except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such
class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase or decrease in the number of
authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation Law
of the State of Delaware, as the same
<PAGE>
may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive or any other rights to which those indemnified
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
Signed on April 25, 1995
/s/ Michael A. Zelinsky
------------------------
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF INTEGRATED PHYSICIAN SYSTEMS, INC.
Adopted in accordance with the provisions of Section 242
of the General Corporation law of the State of Delaware
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Integrated Physician Systems, Inc.
2. The Corporation was incorporated on April 25, 1995.
3. The Certificate of Incorporation is hereby amended by deleting Article
FOURTH thereof and by substituting in lieu of said Article FOURTH, the
following:
"FOURTH:
A. The aggregate number of shares which the Corporation shall have
authority to issue is fifty-one million (51,000,000) shares, of
which one million (1,000,000) shares shall be designated
'Preferred Shares' and of which fifty million (50,000,000)
shares shall be designated 'Common Shares.' All shares of the
Corporation shall be of the par value of $.01 per share.
B. Authority is hereby expressly granted to the Board of
Directors of the Corporation (or a committee thereof designated
by the Board of Directors pursuant to the by-laws of the
Corporation, as from time to time amended (the "By-laws")) to
issue Preferred Shares from time to time as Preferred Shares of
any series and to declare and pay dividends thereon in accordance
with the terms thereof and, in connection with the creation of
each such series, to fix by the resolution or resolutions
providing for the issue of shares thereof, the number of shares
of such series, and the designations, powers, preferences, and
rights (including voting rights), and the qualifications,
limitations, and restrictions of such series, to the full extent
now or hereafter permitted by the laws of the State of Delaware."
4. The Certificate of Incorporation is hereby amended by adding as a new
Article TWELVE:
"TWELVE: At 5:00 P.M., Eastern Standard Time, on April 24, 1996, (i)
each of the one thousand (1,000) outstanding shares of the Common
Stock of the Corporation held by each holder of record on such date
shall be automatically changed from one (1) shares of Common Stock to
three thousand (3,000) shares of
<PAGE>
Common Stock. No fractional shares will be issued - a fractional
share, based on all the shares of Common Stock held by the record
holder of such shares, of four-tenths of one share or more shall be
increased to the next higher whole number share, and a fractional
share of less than four-tenths of one share shall be disregarded."
5. These amendments were authorized by written consent of the Directors
and by written consent of the holders of a majority of the outstanding shares
of Common Stock which consents were executed on April 24, 1996. A written
notice of action was provided to each stockholder who did not consent to this
Certificate of Amendment in pursuance of Section 228 of the General
Corporation law of the State of Delaware.
IN WITNESS WHEREOF, I have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained herein have been examined by me and are true and correct.
Dated as of April 25, 1996.
/s/ Joseph F. Murray
-----------------------------
Joseph F. Murray
Secretary
<PAGE>
Exhibit 3.2
BY-LAWS
of
INTEGRATED PHYSICIAN SYSTEMS, INC.
(A Delaware Corporation)
<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
(A Delaware Corporation)
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Places of Meetings.
All meetings of the stockholders shall be held at such place or places in
or outside of the State of Delaware as the Board of Directors may from time to
time determine, or as may be designated in the notice of meeting or waiver of
notice thereof, subject to any provisions of the laws of the State of Delaware.
Section 1.2 Annual Meetings.
The annual meeting of the stockholders of the Company, for the election of
directors and for the transaction of any other business which may properly be
transacted at the annual meeting, shall be held at such hour on such day and at
such place within or without the State of Delaware as may be fixed by the Board
of Directors.
Section 1.3 Special Meetings.
Special meetings of stockholders for any purpose or purposes may be held
at any time upon call of the Chairman of the Board, if any, the President, the
Secretary, or a majority of the Board of Directors, at such time and place
either within or without the State of Delaware as may be stated in the notice.
A special meeting of stockholders shall be called by the President or the
<PAGE>
Secretary upon the written request, stating time, place, and the purpose or
purposes of the meeting, of stockholders who together own of record at least
twenty percent (20%) of the outstanding stock of all classes entitled to vote
at such meeting.
Section 1.4 Notices of Meetings
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, any Vice President, the Secretary, or an Assistant
Secretary, to each stockholder entitled to vote thereat at least ten days but
not more than sixty days before the date of the meeting, unless a different
period is prescribed by law.
Section 1.5 Quorum.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws, at any meeting of stockholders, the holders of a majority of
the outstanding shares of each class of stock entitled to vote at the meeting
shall be present or represented by proxy in order to constitute a quorum for the
transaction of any business. In the absence of a quorum, a majority in interest
of the stockholders present or the chairman of the meeting may adjourn the
meeting from time to time in the manner provided in Section 1.5 of these By-Laws
until a quorum shall attend.
2
<PAGE>
Section 1.6 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.7 Organization.
The Chairman of the Board, if any, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all
meetings of stockholders, but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
3
<PAGE>
Section 1.8 Voting.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such question. At any meeting duly
called and held for the election of directors at which a quorum is present,
directors shall be elected by a plurality of the votes cast by the holders
(acting as such) of shares of stock of the Corporation entitled to elect such
directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a Board of at least three (3) directors; provided,
however, that the Board, by resolution adopted by vote of a majority of the then
authorized number of directors, may increase or decrease the number of
directors. The directors shall be elected by the holders of shares entitled to
vote thereon at the annual meeting of stockholders, and each shall serve
(subject to the provisions of Article IV) until the next succeeding annual
meeting of stockholders and until his respective successor has been elected and
qualified.
4
<PAGE>
Section 2.2 Chairman of the Board.
The directors may elect one of their members to be Chairman of the Board of
Directors. The Chairman shall be subject to the control of and may be removed
by the Board of Directors. He shall perform such duties as may from time to
time be assigned to him by the Board.
Section 2.3 Meetings.
The annual meeting of the Board of Directors, for the election of officers
and the transaction of such other business as may come before the meeting, shall
be held without notice at the same place as, and immediately following, the
annual meeting of the stockholders.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by the
Chairman of the Board, the President or by any two of the directors then in
office.
Section 2.4 Notice of Special Meetings.
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least five days before the
meeting, or by electronically confirmed facsimile or personal service at least
two days before the meeting. Unless otherwise stated in the notice thereof, any
and all business may be transacted at any meeting without specification of such
business in the notice.
5
<PAGE>
Section 2.5 Quorum and Organization of Meetings.
One-half of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place, and
the meeting may be held as adjourned without further notice or waiver. Except
as otherwise provided by law or in the Certificate of Incorporation or these
By-Laws, a majority of the directors present at any meeting at which a quorum is
present may decide any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in the absence of both by such other person as the directors may
select. The Secretary of the Corporation shall act as secretary of the meeting,
but in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.6 Committees.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation. The Board 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. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent
6
<PAGE>
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business, property, and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have power or authority in reference
to amending the Certificate of Incorporation of the Corporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors pursuant to authority expressly granted to the Board of Directors
by the Corporation's Certificate of Incorporation, fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation, or the conversion into, or the
exchange of such shares 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), adopting an agreement of merger or consolidation under Section
251 or 252 of the General Corporation Law of the State of Delaware,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or a revocation of
dissolution, or amending these By-Laws; and, unless the resolution expressly
so provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law
of the State of Delaware. Each committee which may be established by the
Board of Directors pursuant to these By-Laws may fix its own rules and
procedures. Notice of meetings of committees, other than of regular meetings
provided for by the rules, shall be given to committee members. All action
taken by committees shall be recorded in minutes of the meetings.
7
<PAGE>
Section 2.7 Action Without Meeting.
Nothing contained in these By-Laws shall be deemed to restrict the power of
members of the Board of Directors or any committee designated by the Board to
take any action required or permitted to be taken by them without a meeting.
Section 2.8 Telephone Meetings.
Nothing contained in these By-Laws shall be deemed to restrict the power of
members of the Board of Directors, or any committee designated by the Board, to
participate in a meeting of the Board, or committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation shall be a Chairman of the Board,
President, one or more Vice Presidents, and a Secretary, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or appoint
such other officers (including a Controller, a Treasurer and one or more
Assistant
8
<PAGE>
Treasurers and Assistant Secretaries) as it may deem necessary or desirable.
Each officer shall hold office for such term as may be prescribed by the
Board of Directors from time to time. Any person may hold at one time two or
more offices.
Section 3.2 Powers and Duties.
The Chairman of th Board shall be the chief executive officer of the
Corporation. The President shall be responsible for the day to day affairs of
the Corportion. In the absence of the President, a Vice President appointed by
the President or, if the President fails to make such appointment, by the Board,
shall perform all the duties of the President. The officers and agents of the
Corporation shall each have such powers and authority and shall perform such
duties in the management of the business, property, and affairs of the
Corporation as generally pertain to their respective offices, as well as such
powers and authorities and such duties as from time to time may be prescribed by
the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
Section 4.1 Resignations.
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
President, or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified
9
<PAGE>
therein or, if the time be not specified therein, then upon receipt thereof.
The acceptance of such resignation shall not be necessary to make it
effective.
Section 4.2 Removals.
The Board of Directors, by a vote of not less than a majority of the entire
Board, at any meeting thereof, or by written consent, at any time, may, to the
extent permitted by law, remove with or without cause from office or terminate
the employment of any officer or member of any committee and may, with or
without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at an election of directors.
Section 4.3 Vacancies.
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from increase in the number of directors, may be filled
at any time by a majority of the directors then in office (even though less than
a quorum remains) or, in the case of any vacancy in the office of any director,
by the stockholders, and, subject to the provisions of this Article IV, the
person so chosen shall hold office until his successor shall have been elected
and qualified; or, if the person so chosen is a director elected to fill a
vacancy, he
10
<PAGE>
shall (subject to the provisions of this Article IV) hold office for the
unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be prescribed by law and approved, from time to time,
by the Board of Directors.
Section 5.2 Transfer of Shares.
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate representing such stock properly endorsed.
Section 5.3 Fixing Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of
11
<PAGE>
any other lawful action, the Board of Directors may fix, in advance, a record
date, which, unless otherwise provided by law, shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action.
Section 5.4 Lost Certificates.
The Board of Directors, or any transfer agent of the Corporation may direct
a new certificate or certificates representing stock of the Corporation to be
issued in place of any certificate or certificates 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 to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of 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 certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
12
<PAGE>
Section 5.5 Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of organization, and the words "Corporate Seal" and
"Delaware."
Section 6.2 Fiscal Year.
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
Section 6.3 Notices and Waivers Thereof.
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these By-Laws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by telegram,
cable, or radiogram, addressed to such address as appears on the books of the
Corporation. Any notice given by telegram, cable, or radiogram shall be deemed
to have been given when it shall have been delivered for
13
<PAGE>
transmission and any notice given by mail shall be deemed to have been given
when it shall have been deposited in the United States mail with postage
thereon prepaid.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-Laws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of this Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, the Secretary, or such attorneys or
agents, may also execute and deliver on behalf of this Corporation powers of
attorney, proxies, consents, waivers, and other instruments relating to the
shares or securities owned or held by this Corporation.
14
<PAGE>
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the By-Laws of the
Corporation by vote of not less than a majority of such shares, and except as
otherwise provided by law, the Board of Directors shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal the By-Laws by
vote of not less than a majority of the entire Board. However, any By-Law
adopted by the Board may be amended or repealed by vote of the holders of a
majority of the shares entitled at the time to vote for the election of
directors.
15
<PAGE>
Exhibit 4.3
------------------------------
------------------------------
INTEGRATED PHYSICIAN SYSTEMS, INC.
Company,
and
-----------------------------
Trustee
-----------------------------
INDENTURE
Dated as of ___________, 1997
------------------------------
____% Convertible Subordinated Debentures due 2004
------------------------------
------------------------------
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939, as amended,
and Indenture dated as of _________, 1997
Trust Indenture Indenture
Act Section Section
- --------------- -------
Section 310 (a)(1) . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . 608, 610
Section 311 (a) . . . . . . . . . . . . . . . . . . . 613(a)
(b). . . . . . . . . . . . . . . . . . . . 613(b)
Section 312 (a). . . . . . . . . . . . . . . . . . . . 701, 702(a)
(b). . . . . . . . . . . . . . . . . . . . 702(b)
(c). . . . . . . . . . . . . . . . . . . . 702(c)
Section 313 (a). . . . . . . . . . . . . . . . . . . . 703(a)
(b). . . . . . . . . . . . . . . . . . . . 703(b)
(c). . . . . . . . . . . . . . . . . . . . 703(a)
(d). . . . . . . . . . . . . . . . . . . . 703(b)
(e). . . . . . . . . . . . . . . . . . . . 703(c)
Section 314 (a). . . . . . . . . . . . . . . . . . . . 704(a)
(a)(4) . . . . . . . . . . . . . . . . . . 101, 1004
(b). . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . 103
(c)(2) . . . . . . . . . . . . . . . . . . 103
(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(d). . . . . . . . . . . . . . . . . . . . Not Applicable
<PAGE>
(e). . . . . . . . . . . . . . . . . . . . 103
Section 315 (a). . . . . . . . . . . . . . . . . . . . 601(a)
(b). . . . . . . . . . . . . . . . . . . . 602, 703(a)(6)
(c). . . . . . . . . . . . . . . . . . . . 601(b)
(d). . . . . . . . . . . . . . . . . . . . 601(c)
(d)(1) . . . . . . . . . . . . . . . . . . 601(a)(1)
(d)(2) . . . . . . . . . . . . . . . . . . 601(c)(2)
(d)(3) . . . . . . . . . . . . . . . . . . 601(c)(3)
(e). . . . . . . . . . . . . . . . . . . . 514
Section 316 (a). . . . . . . . . . . . . . . . . . . . 103
(a)(1)(A). . . . . . . . . . . . . . . . . 502, 512
(a)(1)(B). . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b). . . . . . . . . . . . . . . . . . . . 508
(c). . . . . . . . . . . . . . . . . . . . 104(c)
Section 317 (a)(1) . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . 504
(b). . . . . . . . . . . . . . . . . . . . 1003
Section 318 (a). . . . . . . . . . . . . . . . . . . . 107
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE ----
[TITLE]
Section 101 Rules of Construction and Definitions...........................1
Act.............................................................2
Affiliate.......................................................2
Authenticating Agent............................................2
Board of Directors..............................................2
Board Resolution................................................2
Business Day....................................................2
Closing Price...................................................3
Common Stock....................................................3
Company.........................................................3
Company Request.................................................3
Corporate Trust Office..........................................3
Corporation.....................................................3
Default.........................................................3
Defaulted Interest..............................................3
Event of Default................................................3
Exchange Act....................................................4
Holder..........................................................4
Indenture.......................................................4
Interest Payment Date...........................................4
Junior Securities...............................................4
Maturity........................................................4
Officer.........................................................4
Officers' Certificate...........................................4
<PAGE>
Opinion of Counsel..............................................4
Outstanding.....................................................4
Paying Agent....................................................5
Person..........................................................5
Predecessor Security............................................5
Redemption Date.................................................5
Redemption Price................................................5
Regular Record Date.............................................5
Responsible Officer.............................................6
Securities......................................................6
Security Register...............................................6
SEC.............................................................6
Securityholder..................................................6
Senior Indebtedness.............................................7
Trustee.........................................................7
Underwriter.....................................................7
Vice President..................................................7
Voting Stock....................................................8
Section 102 Compliance certificates and Opinions............................8
Section 103 Form of Documents Delivered to Trustee..........................9
Section 104 Acts of Holders.................................................9
Section 105 Notices, etc., to Trustee and the Company......................10
Section 106 Notice to Holders; Waiver......................................10
Section 107 Conflict with Trust Indenture Act..............................10
Section 108 Effect of Headings and Table of Contents.......................11
Section 109 Successors and Assigns.........................................11
Section 110 Separability...................................................11
Section 111 Benefits of Indenture..........................................11
Section 112 Governing Law..................................................11
Section 113 Legal Holidays.................................................12
<PAGE>
Page
ARTICLE TWO ----
FORM OF SECURITIES
Section 201 Form Generally.................................................12
Section 202 Form of Face of Security.......................................12
Section 203 Form of Reverse of Security....................................14
Section 204 Form of Trustee's Certificate of Authentication................17
Section 205 Form of Election to Convert....................................17
ARTICLE THREE
The Securities
Section 301 Title and Terms................................................18
Section 302 Denominations..................................................19
Section 303 Execution, Authentication, Delivery, and Dating................19
Section 304 Temporary Securities...........................................20
Section 305 Registration; Registration of Transfer and Exchange............21
Section 306 Mutilated, Destroyed, Lost, and Stolen Securities..............21
Section 307 Payment of Interest; Interest Rights Preserved.................22
Section 308 Persons Deemed Owners..........................................23
Section 309 Cancellation...................................................24
Section 310 CUSIP Numbers..................................................24
Section 311 Computation of Interest.......................................24
ARTICLE FOUR
Satisfaction and Discharge
Section 401 Satisfaction and Discharge.....................................25
Section 402 Application of Trust Money.....................................26
Section 403 Reinstatement..................................................26
ARTICLE FIVE
Remedies
Section 501 Events of Default..............................................27
Section 502 Acceleration of Maturity; Rescission and Annulment.............29
Section 503 Collection of Indebtedness and Suits for Enforcement by
Trustee........................................................30
<PAGE>
Section 504 Trustee May File Proofs of Claim...............................31
Section 505 Trustee May Enforce Claims Without Possession of Securities....31
Section 506 Application of Money Collected.................................32
Section 507 Limitation on Suits............................................32
Section 508 Unconditional Right of Holders to Receive Principal
and Interest and to Convert....................................33
Section 509 Restoration of Rights and Remedies.............................33
Section 510 Rights and Remedies Cumulative.................................33
Section 511 Delay or Omission Not Waiver...................................33
Section 512 Control by Holders.............................................34
Section 513 Waiver of Past Defaults........................................34
Section 514 Undertaking for Costs..........................................34
Section 515 Waiver of Stay or Extension Laws...............................35
ARTICLE SIX
The Trustee
TO BE PROVIDED
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
Section 701 Company to Furnish Trustee Names and Addresses of Holders......
Section 702 Preservation of Information; Communications to Holders.........
Section 703 Reports by Trustee.............................................
Section 704 Reports by Company.............................................
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801 Company May Consolidate, Etc., Only on Certain Terms...........
Section 802 Successor Substituted..........................................
Section 803 Mergers into the Company.......................................
ARTICLE NINE
Supplemental Indentures
Section 901 Supplemental Indentures Without Consent of Holders.............
<PAGE>
Section 902 Supplemental Indentures With Consent of Holders................
Section 903 Execution of Supplemental Indentures...........................
Section 904 Effect of Supplemental Indentures..............................
Section 905 Conformity With Trust Indenture Act............................
Section 906 Reference in Securities to Supplemental Indentures.............
ARTICLE TEN
Covenants
Section 1001 Payment of Principal and Interest..............................
Section 1002 Maintenance of Office or Agency................................
Section 1003 Money for Security Payments to be Held in Trust................
Section 1004 Statement by Officers as to Default............................
Section 1005 Limitation on Dividends, Redemption, Etc.......................
Section 1006 Contingency for Sinking Fund...................................
Section 1007 Payment of Taxes and Other Claims..............................
ARTICLE ELEVEN
Redemption of Securities
Section 1101 Right of Redemption............................................
Section 1102 Applicability of Article.......................................
Section 1103 Election to Redeem; Notice to Trustee..........................
Section 1104 Selection by Trustee of Securities to be Redeemed..............
Section 1105 Notice of Redemption...........................................
Section 1106 Deposit of Redemption Price....................................
Section 1107 Securities Payable on Redemption Date..........................
Section 1108 Securities Redeemed in Part....................................
Section 1109 Conversion Arrangements on Call for Redemption.................
ARTICLE TWELVE
Conversion of Securities
Section 1201 Conversion Privilege and Conversion Price......................
Section 1202 Exercise of Conversion Privilege...............................
Section 1203 Fractions of Shares............................................
<PAGE>
Section 1204 Conversion Price Adjustments...................................
Section 1205 Notice of Adjustments of Conversion Price and Minimum Closing
Price..........................................................
Section 1206 Notice of Certain Corporate Action.............................
ARTICLE THIRTEEN
Subordination of Securities
Section 1301 Agreements to Subordinate by Company...........................
Section 1302 Distribution on Dissolution, Liquidation and Reorganization;
Subrogation....................................................
Section 1303 No Payment in Event of Default on Senior Indebtedness..........
Section 1304 Payments Permitted.............................................
Section 1305 Authorization of Trustee to Effect Subordination...............
Section 1306 Notices to Trustee.............................................
Section 1307 Trustee as Holder of Senior Indebtedness of the Company........
Section 1308 Modification of Terms of Senior Indebtedness of the Company....
Section 1309 Certain Conversions Not Deemed Payment.........................
Section 1310 Article Applicable to Paying Agents............................
ARTICLE FOURTEEN
Right to Require Repurchase
Section 1401 Right to Require Repurchase....................................
Section 1402 Notice; Method of Exercising Repurchase Right..................
Section 1403 Deposit of Repurchased Price...................................
Section 1404 Securities Not Repurchased on Repurchase Date..................
Section 1405 Securities Repurchased in Part.................................
Section 1406 Certain Definitions............................................
<PAGE>
INDENTURE, dated as of ________________, 1997, between INTEGRATED PHYSICIAN
SYSTEMS, INC., a Delaware corporation (the "Company"), and ___________________,
a corporation organized under the laws of the State of New York
(the "Trustee").
RECITALS OF THE COMPANY:
-----------------------
The Company has duly authorized the creation of an issue of a single series
of [6 to 8]% Convertible Subordinated Debentures due 2004 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 101 Rules of Construction and Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned thereto
in this Article, and words in the singular include the plural and words in the
plural include the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles
then in effect;
<PAGE>
(4) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, or other subdivision.
(5) the word "or" is not exclusive; and
(6) the word "including" means including, without limitation.
"Act" when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified person means any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate the Securities.
"Board of Directors" means either the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board of
Directors.
"Board Resolution" means a copy of a resolution certified by the Secretary
or Assistant Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means any day other than a Saturday or Sunday on which
banking institutions in the City of New York, New York by law, regulation, or
executive order are not required or authorized to close.
"Closing Price" on any Trading Day with respect to the per share price of
Common Stock means the last reported sales price regular way or, in case no such
reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices regular way on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
National Stock Market, as the case may be, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange or quoted on the
Nasdaq Stock Market, the closing bid price in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from time
to time by the Company for that purpose.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1211, shares issuable on conversions of Securities shall
include only shares of the class designated as Common Stock at the date of this
<PAGE>
Indenture or shares of any class or classes resulting from any reclassification
or reclassifications thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution,or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from such
reclassifications.
"Company" means the Person designated as the "Company" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, "Company" shall mean
such successor. The foregoing sentence shall likewise apply to any subsequent
such successor or successors.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board of Directors, its
Chief Executive Officer, its President, a Senior Vice President or a Vice
President, and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Consolidated Total Assets" means, as of any date of determination, the
consolidated total assets of the Company and its subsidiaries, determined in
accordance with generally accepted accounting principles then in effect
consistently applied.
"Corporate Trust Office" means the office of the Trustee in New York, New
York, at which at any particular time its corporate trust business shall be
principally administered and which at the date of this Indenture is located at
One State Street, New York, New York 10004.
"corporation" means a corporation, association, company, joint stock
company or business trust.
"Default" means any event which is, or after the giving of notice or the
passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof, including the provisions of the Trust
Indenture Act that are deemed to be part hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the
<PAGE>
Securities.
"Junior Securities" has the meaning specified in Section 1005.
"Maturity", when used with respect to any Security, means the date on which
the principal amount of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, upon repurchase, or otherwise.
"Officer" means the Chief Executive Officer, the Chairman of the Board of
Directors, the President, any Senior Vice President, any Vice President, the
Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of
the Company.
"Officers' Certificate" means a certificate signed by the Chief Executive
Officer, the President, or a Vice President, and by the Treasurer, Assistant
Treasurer, the Secretary, or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Securities; provided
that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306, or in
exchange for or, in lieu of which, other Securities have been
authenticated and delivered pursuant to this Indenture, other than
any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent, or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the
<PAGE>
Trustee knows to be so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal amount of, or interest on, any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, limited liability partnership, or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means the previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for, or in lieu of, a
mutilated, destroyed, lost, or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost, or stolen Security.
"Redemption Date" or "redemption date" shall mean the date specified for
redemption of the Securities by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the _________ 1 or _________ 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any senior trust officer, any trust officer or assistant
trust officer, the controller or any assistant controller, or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above-designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of, and familiarity with, the particular
subject.
"Securities" has the meaning specified in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
<PAGE>
"SEC" means the Securities and Exchange Commission as from time to time
constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture, the SEC is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Securityholder" means a person in whose name a security is registered on
the Security Registrar's books.
"Senior Indebtedness" means (a) the principal amount of, and premium, if
any, and unpaid interest (whether accruing before or after filing of any
petition in bankruptcy or any similar proceedings by or against the Company and
whether or not allowed as a claim in bankruptcy or any similar proceeding) on
the following, whether heretofore or hereafter created, incurred, assumed, or
guaranteed: (i) all indebtedness for borrowed money created, incurred, assumed,
or guaranteed by the Company (other than indebtedness evidenced by the
Securities and indebtedness which by the terms of the instrument creating or
evidencing the same is specifically stated to be not prior in right of payment
to the Securities); (ii) bankers' acceptances and reimbursement obligations
under letters of credit; (iii) obligations of the Company under interest rate
and currency swaps, caps, floors, collars, or similar agreements or arrangements
intended to protect the Company against fluctuations in interest or currency
rates; (iv) any other indebtedness evidenced by a note or written instrument;
and (v) obligations of the Company under any agreement to lease, or lease of,
any real or personal property, which obligations are required to be capitalized
on the books of the Company in accordance with generally accepted accounting
principles then in effect (other than leases which by their terms are
specifically stated to be not prior in right of payment to the Securities), or
guarantees by the Company of similar obligations of others; and (b) all
deferrals, modifications, renewals, or extensions of such indebtedness, and any
debentures, notes, or other evidence of indebtedness issued in exchange for such
indebtedness or to refund the same.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person, by one or more other Subsidiaries of such Person, or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, one or more other Subsidiaries of such
Person, or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in effect on the date of this Indenture, provided, however, that in the event
the Trust Indenture Act is amended after such date, "Trust Indenture Act" means,
to the extent required by any such amendment, the Trust Indenture Act as so
amended.
<PAGE>
"Trading Day" means a day during which trading in securities generally
occurs on the New York Stock Exchange or, if the Common Stock is not listed on
the New York Stock Exchange, on the principal other national or regional
securities exchanges on which the Common Stock is then listed, or, if the Common
Stock is not listed on a national or regional securities exchange, on the Nasdaq
Stock Market or the principal other market on which the Common Stock is then
traded.
"Trustee" means the Person identified as the "Trustee" in the first
paragraph of this Indenture until such time as a successor replaces it pursuant
to the applicable provisions of this Indenture and, thereafter, shall mean such
successor. The foregoing sentence shall likewise apply to any subsequent such
successor or successors.
"Underwriters" has the meaning specified under the heading "Underwriting"
in the Company's registration statement on Form S-1 No. 333-_______
initially filed with the Securities and Exchange Commission on _____________,
1997 and in any amendments thereto.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
Section 102 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such
<PAGE>
examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such conditions or covenant has been complied with.
Section 103 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give, or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver, or other action provided by this Indenture to be given or taken by
Holders may be embodied in, and evidenced by, one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public
<PAGE>
or other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof. Where such execution is by a
signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee or the Company, as the case may
be, deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver, or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof, in exchange therefor, or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
Section 105 Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver,
or Act of Holders or other document provided or permitted by this Indenture
to be made upon, given, or furnished to, or filed with, (1) the Trustee by
any Holder or by the Company shall be sufficient for every purpose hereunder
if made, given, furnished, or filed in writing to or with the Trustee at its
Corporate Trust Office, or (2) the Company by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
the Company addressed to it at the address of its principal office,
_______________, Attention: President, or at any other address previously
furnished in writing to the Trustee by the Company.
Section 106 Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
<PAGE>
Section 107 Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies, or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of, and
govern, this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Section 108 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 109 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 110 Separability.
In case any provision in this Indenture or in the Securities 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.
Section 111 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness of the Company, and the Holders of
Securities, any benefit or any legal or equitable right, remedy, or claim under
this Indenture.
Section 112 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
Section 113 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date, or Stated Maturity of any Security or the last date on which a Holder has
the right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or conversion of the Securities need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date,
or Repurchase Date, or at the Stated Maturity
<PAGE>
or on such last day for conversion, provided, that no interest shall accrue
for the period from and after such Interest Payment Date, Redemption Date,
Repurchase Date, or Stated Maturity, as the case may be.
ARTICLE TWO
Form of Securities
Section 201 Form Generally.
The Securities and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions, and other variations as are required or
permitted by this Indenture, and may have such letters, numbers, or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistent herewith, be determined by the officers executing such Securities, as
evidenced by their execution thereof.
The definitive Securities shall be typewritten or printed, lithographed or
engraved, or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Securities may be listed, all as determined by
the officers executing such Securities, as evidenced by their execution of such
Securities.
Section 202 Form of Face of Security.
INTEGRATED PHYSICIAN SYSTEMS, INC.
[6 to 8]% Convertible Subordinated Debenture Due 2004
No. $___________
Integrated Physician Systems, Inc., a Delaware corporation (herein called
the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to
pay to________ , or registered assigns, the principal sum of _______Dollars
on __________, 2004, and to pay interest thereon from ___________], 1997 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on _________ 15 and ________ 15 in each
year, commencing ___________ 15, 1997 at the rate of [6to 8]% per annum,
until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the ___________ 1 or __________ 1 (whether or not a
Business Day), as the case may be, next preceding each Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than
<PAGE>
10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of, and interest on, this Security will be made at
the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, City of New York or at any other office or agency
maintained by the Company for such purpose, in such coin or currency of the
United States of America at the time of payment is legal tender for payment
of public and private debts; provided, however, that, at the option of the
Company, payment of interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: INTEGRATED PHYSICIAN SYSTEMS, INC.
By:
----------------------
Name:
Title:
Attest:
Section 203 Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its [6 1/2 to 8]% Convertible Subordinated Debentures
Due 2004 (hereinafter referred to as the "Securities"), limited in aggregate
principal amount to $28,750,000.00, issued and to be issued under an
Indenture, dated as of _______________], 1996 (the "Indenture"), between the
Company and _____________________________, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
and immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness of the Company, and the Holders of the Securities and the terms
upon which the Securities are, and are to be, authenticated and delivered.
Subject to, and upon compliance with, the provisions of the Indenture,
the Holder of this Security is entitled, at his irrevocable option, at any
time and from time to time, on or before the close of business on __________
15, 2004, or in case this Security or a portion hereof is called for
redemption, through optional redemption by the Company, a sinking fund, or
otherwise, then in respect of this Security or such portion hereof until and
including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the fifth (5th) day preceding
the Redemption Date, to convert this Security (or any portion of the
principal amount hereof which is $1,000 or an integral multiple thereof), at
the principal amount hereof, or of such portion, into fully paid and
non-assessable shares (calculated as to each conversion to the nearest
<PAGE>
1/100 of a share) of Common Stock of the Company at a conversion price equal
to $_________ for each share of Common Stock (or at the current adjusted
conversion price if an adjustment has been made as provided in the Indenture)
by surrender of this Security, duly endorsed or assigned to the Company or in
blank, to the Company at its office or agency in the Borough of Manhattan,
The City of New York or at any other office or agency maintained by the
Company for such purpose, accompanied by written notice to the Company that
the Holder hereof elects to convert this Security, or if less than the entire
principal amount hereof is to be converted, the portion hereof to be
converted, and, in case such surrender shall be made during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (unless
this Security or the portion thereof being converted matures prior to such
Interest Payment Date or has been called for redemption on a Redemption Date
within such period), also accompanied by payment in New York Clearing House
or other funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of this
Security then being converted. Subject to the aforesaid requirements for
payment and, in the case of a conversion after the Regular Record Date next
preceding any Interest Payment Date and on or before such Interest Payment
Date, to the right of the Holder of this Security (or any Predecessor
Security) of record at such Regular Record Date to receive an installment of
interest (with certain exceptions provided in the Indenture), no payment or
adjustment is to be made on conversion for interest accrued hereon or for
dividends on the Common Stock issued on conversion. No fractions of shares or
scrip representing fractions of shares will be issued on conversion, but
instead of any fractional interest the Company shall pay a cash adjustment as
provided in the Indenture. The conversion price is subject to adjustment as
provided in the Indenture. In addition, the Indenture provides that in case
of certain consolidations or mergers to which the Company is a party or the
transfer of substantially all of the assets of the Company, the Indenture
shall be amended, without the consent of any Holders of Securities, so that
this Security, if then outstanding, will be convertible thereafter, during
the period this Security shall be convertible as specified above, only into
the kind and amount of securities, cash, and other property receivable upon
the consolidation, merger or transfer by a holder of the number of shares of
Common Stock into which this Security might have been converted immediately
prior to such consolidation, merger, or transfer (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
The Securities are redeemable, at the Company's option, as a whole or
from time to time in part, upon not less than 45 nor more than 60 days'
notice mailed to each Holder of Securities to be redeemed at his address
appearing in the Security Register, on any date on or after ________, 2000
and prior to maturity, at a Redemption Price equal to 100% of the principal
amount together in the case of any such redemption, with accrued but unpaid
interest to the Redemption Date, except that the Securities may not be
redeemed prior to Maturity unless for a period of 20 consecutive Trading Days
ending on the date immediately preceding the date on which notice of the
Redemption Date is given, the Closing Price per share of the Common Stock has
equaled or exceeded $_______, subject to adjustment in the case of the same
events which would result in an adjustment of the conversion price as
provided in Section 1204 of the Indenture with any adjustments to the Closing
Price to be effected in the same manner and to the same extent as provided in
Section 1204 with respect to adjustments to the conversion price. Interest
installments whose Stated Maturity is on or prior to such Redemption Date
will be payable to the Holders of such Securities (or one or more Predecessor
Securities) of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture.
If there is a Repurchase Event (as defined in the Indenture), the Company
will be required to offer to purchase all Securities outstanding on a date 30
days after the Company gives notice of the Repurchase Event at a purchase
price equal to 100% of the principal amount thereof, together with accrued
and unpaid interest to the date of purchase.
In the event of redemption, conversion, or repurchase of this Security in
part only, a new
<PAGE>
Security or Securities for the unredeemed, unconverted, or unrepurchased
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness of the Company, and this Security
is issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Security, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate
the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture
at any time by the Company and the Trustee with the consent of the Holders of
a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal amount of, and interest
on, this Security at the times, place, and rate, and in the coin or currency,
herein prescribed or to convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York or at any other office or agency maintained by the Company for such
purpose, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Security Registrar duly executed
by the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration or transfer or
exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee, and any agent for the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee, nor any such agent shall be affected by notice to
the contrary.
<PAGE>
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned thereto in the Indenture.
Section 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
------------------------------------
as Trustee
By:
---------------------------------
Authorized Officer
Section 205. Form of Election to Convert.
To Integrated Physician Systems, Inc.:
The undersigned owner of this Security hereby irrevocably exercises
the option to convert this Security, or the portion below designated, into
shares of Common Stock of Integrated Physician Systems, Inc. in accordance
with the terms of the Indenture referred to in this Security, and directs
that the shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares, be issued in the name of and
delivered to the undersigned registered Holder hereof, unless a different
name has been indicated in the assignment below. If shares are to be issued
in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to
be paid by the undersigned on account of interest accompanies this Security.
Dated:
Portion of Security to be
converted ($1,000 or an
integral multiple thereof):
$
Signature (for conversion only)
If shares of Common Stock are to be issued and registered otherwise than to
the registered Holder named above, please print or type the name and
address, including zip code, and social security or other taxpayer
identification number.
ARTICLE THREE
The Securities
Section 301 Title and Terms.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is limited to the sum of (a) $25,000,000.00
and (b) such aggregate principal amount (which may not exceed $3,750,000.00
principal amount) of Securities, if any, as shall be purchased
<PAGE>
by the Underwriters pursuant to an over-allotment option in accordance with
the terms and provisions of the Underwriting Agreement, dated ___________,
1997, among the Company and the underwriters identified therein.
The Securities shall be known and designated as the "[6 1/2 to 8]%
Convertible Subordinated Debentures due 2004" of the Company. Their Stated
Maturity shall be _________, 2004, and they shall bear interest at the rate
of [6 1/2 to 8]% per annum, from __________, 1997 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
as the case may be, payable semi-annually on ____________ and ____________,
commencing _________, 1997 until the principal amount thereof is paid or made
available for payment.
The principal amount of, and interest on, the Securities shall be payable
at the office or agency of the Company in the United States maintained for
such purpose and at any other office or agency maintained by the Company for
such purpose 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;
provided, however, that at the option of the Company payment of interest may
be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven hereof.
The Securities shall be convertible as provided in Article Twelve hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article Thirteen hereof.
The Securities shall be subject to repurchase by the Company, at the
option of the Holders, as provided in Article Fourteen hereof.
Section 302 Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1000 and integral multiples thereof.
Section 303 Execution, Authentication, Delivery, and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board of Directors, its Vice Chairman of the Board of Directors, its
Chief Executive Officer, its President, or one of its Vice Presidents, under
its corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such
<PAGE>
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery
such Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
Section 304 Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten,
mimeographed, or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions,
and other variations as the officers executing such Securities may determine,
as evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation
of definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any
office or agency of the Company designated pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute, and the Trustee shall
authenticate and make available for delivery in exchange therefor, a like
principal amount of definitive Securities of authorized denominations. Until
so exchanged, the temporary Securities shall in all respects be entitled to
the same benefits under this Indenture as definitive Securities.
Section 305 Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office or in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office
or agency of the
<PAGE>
Company designated pursuant to Section 1002 for such purpose, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Sections 304, 906, 1108, 1202, or 1402 not
involving any transfer.
The Company shall not be required (i) in the case of a partial redemption
of the Securities, to issue, register the transfer of, or exchange, any
Security during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption of Securities selected for
redemption under Section 1104 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of, or exchange, any
Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
Section 306 Mutilated, Destroyed, Lost, and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute, and the Trustee shall authenticate and deliver in exchange
therefor, a new Security of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss, or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall authenticate
and deliver, in lieu of any such destroyed, lost, or stolen Security, a new
Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
<PAGE>
In case any such mutilated, destroyed, lost, or stolen Security has
become, or is about to become, due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security upon compliance
with the foregoing conditions.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost, or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost, or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost, or stolen Securities.
Section 307 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date notwithstanding the fact that such Holder was a Holder on
such Regular Record Date, and such Defaulted Interest may be paid by the
Company, at its election, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on
a Special Record Date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days, and not
less than 10 days, prior to the date of
<PAGE>
the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to
each Holder at his address as it appears in the Security Register,
not less than 10 days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if
so listed, upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of, or in
exchange for, or in lieu of, any other Security shall carry the rights to
interest accrued and unpaid, and to interest to accrue, which were carried by
such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date and any
Security called for redemption on a Redemption Date within such period),
interest the Stated Maturity of which is on such Interest Payment Date shall
be payable on such Interest Payment Date notwithstanding such conversion, and
such interest (whether or not punctually paid or duly provided for) shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on such Regular Record
Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security that is converted, interest whose
Stated Maturity is after the date of conversion of such Security shall not be
payable.
Section 308 Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee, and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of, and (subject
to Section 307) interest on, such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee, nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
<PAGE>
Section 309 Cancellation.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange, or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of, or in exchange for, any Securities canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be disposed of in accordance with
its customary procedures and a certificate of disposition delivered to the
Company, unless by Company Order, the Company directs that canceled certificates
be returned to it as directed by a Company Order.
Section 310 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
Section 311 Computation of Interest.
Interest on the Securities shall be computed on the basis of a year of
twelve 30-day months. Except as provided in the following sentence, the amount
of interest payable for any period shorter than a full monthly period for which
interest in computed, will be computed on the basis of the actual number of days
elapsed in such a 30-day month.
ARTICLE FOUR
Satisfaction and Discharge
Section 401 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer, or exchange of
Securities herein expressly provided for), and the Trustee, on demand of, and at
the expense of, the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when either:
(1) (A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost, or stolen
and which have been replaced or paid as provided in Section 306
and (ii) Securities the payment money for
<PAGE>
which has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid by the
Company or discharged from such trust, as provided in Section
1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, or (ii) will
become due and payable at their Stated Maturity within one year,
or (iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company and the Company, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee
as trust funds in trust for that purpose an amount sufficient to
pay and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614, and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
Section 402 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
payment of which such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request. Moneys held pursuant to this Section shall not
be subject to the claims of the holders of Senior Indebtedness of the Company
pursuant to Article Thirteen.
<PAGE>
Section 403 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in accordance
with Section 402 by reason of any order or judgment of any court or governmental
authority enjoining, restraining, or otherwise prohibiting such application,
then the Company's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Section 401
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 402: provided, however, that if the Company
makes any payment of principal of, or interest on, any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FIVE
Remedies
Section 501 Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Thirteen or be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree, or order
of any court or any order, rule, or regulation of any administrative or
governmental body):
(1) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period
of 30 days; or
(2) default in the payment of the principal amount of any Security when
due, whether at Maturity, upon redemption, by declaration, or
otherwise (except a default referred to in paragraph (4) below); or
(3) default in the deposit of any sinking fund obligation when such
obligation become due or payable, and continuance of such default for
a period of 30 days; or
(4) default in the payment of the Repurchase Price (as defined in Section
1401) in respect of any Security on the Repurchase Date (as defined in
Section 1401) therefor in accordance with the provisions of Article
Fourteen and the continuance of such default for a period of 10 days;
or
(5) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been
<PAGE>
given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(6) a default under any mortgage, indenture, or instrument under which
there may be issued, or by which there may be secured or evidenced,
any indebtedness of the Company or any Subsidiary in excess of
$1,000,000 either for borrowed money or representing any Senior
Indebtedness of the Company, which results in such indebtedness: (i)
being declared due and payable prior to the date on which it would
otherwise become due and payable after the expiration of any
applicable grace period or (ii) becoming due and payable prior to the
date on which it would otherwise become due and payable and the
holders of such indebtedness take any action to collect such
indebtedness; provided, however, that if such default under such
mortgage, indenture, or instrument shall be remedied or cured by the
Company, or waived by the holders of such indebtedness, then the Event
of Default hereunder by reason thereof shall be deemed likewise to
have been thereupon remedied, cured, or waived without further action
upon the part of either the Trustee or any of the Holders of the
Securities; and provided, further, that the Trustee (subject to
Sections 601 and 602) shall not have any rights, duties, liabilities,
or responsibilities with respect to such default unless and until the
Trustee shall have received written notice thereof at the Corporate
Trust Office from the Company, the trustee under any such mortgage,
indenture, or instrument of indebtedness or the agent of any such
holder or holders or the Holder or Holders of any Outstanding
Securities and provided, further, that any such default by a
Subsidiary shall not constitute an Event of Default unless such
Subsidiary or its property also constitutes more than 15% of the
Company's Consolidated Total Assets; or
(7) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization, or other similar law or (B) a decree or
order adjudging the Company or any Subsidiary thereof a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of, or in
respect of, the Company or any such Subsidiary under any applicable
Federal or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or other similar official of the
Company or any such Subsidiary or of any substantive part of their
respective property, or ordering the winding up or liquidation of
their respective affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; provided, however, that
notwithstanding anything in this clause to the contrary, any action by
or against a Subsidiary of the Company or its property shall not
constitute an Eventof Default unless such Subsidiary or its property
constitutes 15% or more of the Company's Consolidated Total Assets; or
<PAGE>
(8) the commencement by the Company or any Subsidiary thereof of a
voluntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization, or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Subsidiary to the entry of a
decree or order for relief in respect of itself in or an involuntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization, or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding
against the Company or any such Subsidiary, or the filing by the
Company or any such Subsidiary of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State
law, or the consent by the Company or any such Subsidiary to the
filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator,
or other similar official of the Company or any such Subsidiary or of
any substantial part of the property of the Company or any such
Subsidiary, or the making by the Company or any such Subsidiary of an
assignment for the benefit of creditors, or the admission by the
Company or any such Subsidiary in writing of their inability to pay
their debts generally as they become due, or the taking of corporate
action by the Company or any such Subsidiary in furtherance of any
such action; provided, however, that notwithstanding anything in this
clause to the contrary, any action by or against a Subsidiary of the
Company or its property shall not constitute an Event of Default
unless such Subsidiary or its property constitutes 15% or more of the
Company's Consolidated Total Assets.
The Trustee shall not be charged with knowledge of the identity of any
Subsidiary of the Company unless and until the Trustee shall have received
written notice thereof at its Corporate Trust Office from the Company or the
Holder or Holders of any Outstanding Securities.
Section 502 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities and any
other amounts payable hereunder to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal and all accrued interest shall become
immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided in this Article hereinafter, the Holders of a majority
in aggregate principal amount of the Outstanding Securities, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(i) all overdue interest on all Securities;
<PAGE>
(ii) the principal of any Securities which have become due otherwise
than by such declaration of acceleration and interest thereon at
the rate borne by the Securities;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the
Securities; and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements, and advances of
the Trustee, its agents, and counsel; and
(2) all Events of Default, other than the non-payment of the principal
amount of Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of any Security at
Maturity thereof (except for a default referred to in clause (4)), or
(3) default is made in the deposit of any sinking fund payment when due
hereunder, or
(4) default is made in the payment of the Repurchase Price in respect of
any Security on the Repurchase Date therefor in accordance with the
provisions of Article Fourteen and such default continues for a period
of 10 days,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment thereof
shall be legally enforceable, interest on any overdue principal and on any
overdue interest, at the rate borne by the Securities, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements, and
advances of the Trustee, its agents, and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
<PAGE>
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company of another obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may, in its
discretion, proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504 Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property, or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator, or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements, and advances of the
Trustee, its agents, and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements, and
advances of the Trustee, its agents, and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
Section 506 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
<PAGE>
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: Subject to Article Thirteen, to the payment of the amounts
then due and unpaid for principal amount of, and interest
on, the Securities in respect of which, or for the benefit
of which, such money has been collected, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Securities for principal and
interest, respectively.
Section 507 Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses, and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request, and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb, or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 508 Unconditional Right of Holders to Receive Principal and Interest
and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have
<PAGE>
the right, which is absolute and unconditional, to receive
payment of the principal amount of, and (subject to Section 307) interest on,
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date) and to convert such Security in accordance with Article Twelve
and to institute suit for the enforcement of any such payment and right to
convert, and such rights shall not be impaired without the consent of such
Holder.
Section 509 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee, and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 510 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost, or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 512 Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
<PAGE>
(3) subject to the provisions of Section 601, the Trustee shall have
the right to decline to follow any such direction if the Trustee
in good faith shall, by a Responsible Officer or Officers of the
Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability.
Section 513 Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than a majority in
principal amount of the Outstanding Securities may, on behalf of the Holders of
all the Securities, waive any past default hereunder and its consequences,
except a default:
(1) in the payment of the principal amount of, or interest on, any
Security (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the
Trustee); or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Setion 514 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may, in its
discretion, require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered, or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may,
in its discretion, assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in principal
amount of the Outstanding Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal amount of, or interest on,
any Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption or repurchase, on or after the
Redemption Date or Repurchase Date) or for the enforcement of the right to
convert any Security in accordance with Article Twelve.
Section 515 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay
<PAGE>
or extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture; and the
Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not
hinder, delay, or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
<PAGE>
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method, and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or
in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or affording
protection to, the Trustee shall be subject to the provisions of this Section.
Section 602 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Security Register, notice of such default hereunder known to the Trustee,
unless such default shall have been cured or waived, provided, however, that,
except in the case of a default in the payment of the principal amount of, or
interest on, any Security or in the payment of any sinking fund installment, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders. For the purpose
of this Section, the term "default" means any event which is, or after the
giving of notice or the lapse of time, or both would become, an Event of
Default.
Section 603 Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness, or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable
<PAGE>
that a matter be proved or established prior to taking, suffering, or
omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely
upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered, or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses, and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to reasonable examination of the books, records, and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 604 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be statements of the Company, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of the Securities or the proceeds thereof.
Section 605 Holding of Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar, or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Section
608 and Section 311 of the Trust Indenture Act, may otherwise deal with the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar, or such other agent.
<PAGE>
Section 606 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds, except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder, except as
otherwise agreed with the Company.
Section 607 Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such reasonable compensation
as the Company and the Trustee shall from time to time agree in
writing for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements,
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement, or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and to hold
it harmless against, any loss, liability, or expense incurred without
negligence or bad faith on its part arising out of or in connection
with the acceptance or administration of this trust, including the
costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of the principal amount of, or interest on, particular
Securities.
Section 608 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
Section 609 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof, or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by Federal or
State authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to
<PAGE>
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section or Section 310(a)(5) of the Trust Indenture Act, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 610 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide Holder
of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by any
such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation, or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of itself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed, or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal, or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company
<PAGE>
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and
accepted appointment in the manner hereinafter provided, any Holder who has
been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 107. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Section 611 Acceptance Of Appointment By Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge, and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed, or conveyance, shall become vested with all the rights, powers, trusts,
and duties of the retiring Trustee; provided, that on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers, and trusts of the retiring Trustee and shall duly assign,
transfer, and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments required to more fully and
certainly vest in, and confirm to, such successor Trustee all such rights,
powers, and trusts.
No successor Trustee shall accept its appointment unless, at the time of
such acceptance, such successor Trustee shall be qualified and eligible under
this Article.
Section 612 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion, or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
<PAGE>
Section 613 Appointment of Authenticating Agent.
The Trustee may, upon receipt of a Company Request, appoint an
Authenticating Agent or Agents which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon exchange, registration of
transfer, partial conversion, partial repurchase or partial redemption, or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State
thereof, or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or state
authority. If such Authenticating Agent publishes reports of condition at least
annually pursuant to law or to the requirements of said supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. If
at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion, or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Company or the Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company or the Trustee, as the
case may be. Upon receiving such a notice of resignation or upon such a
termination, or in the case at any time such Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all rights, powers, and duties of
its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable
<PAGE>
compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustees's certificate of authentication,
an alternate certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
-------------------------------------
as Trustee
By:
----------------------------------
As Authenticating Agent
By:
----------------------------------
Authorized Officer
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
Section 701 Company To Furnish Trustee Names And Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, not later than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
Section 702 Preservation Of Information; Communications To Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as
<PAGE>
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
Section 703 Reports By Trustee.
(a) Within 60 days after [EARLIER INTEREST PAYMENT DATE] of each year,
commencing with the year 1997, the Trustee shall transmit to Holders such
reports concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act in the manner provided pursuant
thereto.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed or if not listed on any exchange with the appropriate
division or market of the Nasdaq Stock Market, with the SEC, and with the
Company. The Company will notify the Trustee when the Securities are listed on
any stock exchange or division or market of the Nasdaq Stock Market.
Section 704 Reports By Company.
The Company shall:
(a) File with the Trustee, within 15 days after the Company is required to
file the same with the SEC, copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may from time to time by rules and regulations prescribe) which the
Company may be required to file with the SEC pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents, or reports pursuant to either of said Sections, then it
shall file with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such of the
supplementary and periodic information, documents, and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange or on any national
automated quotation system as may be prescribed from time
to time in such rules and regulations;
(b) File with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such additional
information, documents, and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
<PAGE>
(c) Transmit by mail to all Holders, as their names and addresses appear
in the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents, and reports required to
be filed by the Company pursuant to paragraphs (a) and (b) of this Section as
may be required by rules and regulations prescribed from time to time by the
SEC.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer, or Lease
Section 801 Company May Consolidate, Etc., Only On Certain Terms.
The Company shall not consolidate with, or merge into, any other Person or
convey, transfer, or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) the Person formed by such consolidation or into which the Company is
merged or the Person which acquired by conveyance, transfer, or sale, or which
leases the properties and assets of the Company substantially as an entirety
shall be a corporation, partnership, or trust, organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered by the successor corporation to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the principal
amount of, and interest on, all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 1211;
(2) immediately after giving effect to such merger, consolidation,
conveyance, transfer, sale, or lease, no Event of Default, and no event which,
after the giving of notice or the lapse of time, or both, would become an Event
of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, sale, or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with in all material
respects. [CHECK]
For purposes of this Section and Section 802, a conveyance, transfer, sale,
or lease of the properties and assets of the Company "substantially as an
entirety" shall mean a conveyance, transfer, or lease of properties and assets
of the Company representing 80% or more of the fair value (as determined in good
faith by the Board of Directors) of all of the Company's properties and assets
on the date of such conveyance, transfer, sale, or lease.
<PAGE>
Section 802 Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer, or lease of all or substantially
all the properties and assets of the Company in accordance with Section 801, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer, or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities.
Section 803 Mergers into the Company.
The Company shall not permit any other corporation to merge into the
Company, unless, after giving effect to such merger, the conditions precedent
contained in clauses (2) and (3) of Section 801 mutatis mutandis, have been
complied with.
ARTICLE NINE
Supplemental Indentures
Section 901 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Section 1211; or
(5) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture
which shall not be inconsistent with the provisions of this Indenture; provided,
that such action pursuant to this clause (5) shall not adversely affect the
interests of the Holders of the Securities; or
<PAGE>
(6) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Section 902 Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal amount of, or any
installment of interest on, any Security, or reduce the principal amount
thereof, or reduce the rate of interest thereon, or change the place of payment
where, or the coin or currency in which, any Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date or, in the case of a repurchase pursuant to
Article Fourteen, on or after 10 days following the Repurchase Date), or
adversely affect the right to convert any Security as provided in Article Twelve
(except as permitted by Section 901(4)), or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of the Holders of which is required for any waiver of
certain defaults hereunder and their consequences provided for in this
Indenture; or
(3) modify any of the provisions of this Section or Section 513, except to
increase any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or
(4) modify or affect, in any manner adverse to the Holders, the terms and
conditions of the obligations of the Company under Article Fourteen to
repurchase the Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 903 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying
upon an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized
<PAGE>
or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, or immunities under this Indenture or otherwise.
Section 904 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905 Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
Section 906 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants
Section 1001 Payment of Principal and Interest.
The Company will duly and punctually pay the principal amount of, and
interest on, the Securities in accordance with the terms of the Securities and
this Indenture.
Section 1002 Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, City of New York,
an office or agency where Securities may be presented or surrendered for
payment or conversion, where Securities may be surrendered for registration
of transfer or exchange, and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company
initially appoints the Corporate Trust Office of the Trustee as its agency
for the foregoing purposes. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office
or agency. If at any time the Company shall fail to maintain
<PAGE>
any such required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices, and demands may
be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices, and demands.
The Company may also from time to time designate one or more other offices
or agencies (within or outside the Borough of Manhattan) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
Section 1003 Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal amount of, or interest on, any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal amount and/or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and will promptly notify the Trustee of its action or failure so
to act.
Whenever the Company shall have one or more Paying Agents, it will, on or
prior to each due date of the principal amount of and/or interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay such amount,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will (i) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent and (ii) during the continuance of any default by the
Company (or any other obligor upon the Securities) in the making of any payment
in respect of the Securities, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal amount of, or interest
on, any Security and remaining unclaimed for two years after such principal or
interest has become due and payable shall be paid
<PAGE>
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of any such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may, at the
expense of the Company, cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the Borough of Manhattan, City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 1004 Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, one of the signatories to which shall be the Company's principal
executive officer, principal financial officer, or principal accounting officer,
stating whether or not to the best knowledge of the signers thereof the Company
is in default in the performance and observance of any of the terms, covenants,
provisions, and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
Section 1005 Limitation on Dividends, Redemptions, Etc.
Neither the Company nor any Subsidiary may (i) declare or pay any dividends
or make any other distribution on any Junior Securities (other than dividends or
distribution payable in Junior Securities), or (ii) purchase, redeem, or
otherwise acquire or retire for value any Junior Securities, except Junior
Securities acquired upon conversion thereof into other Junior Securities, or
(iii) permit a Subsidiary of the Company to purchase, redeem, or otherwise
acquire or retire for value any Junior Securities if, upon giving effect to such
dividend, distribution, purchase, redemption, or other acquisition, a default in
the payment of any interest upon any Security when it becomes due and payable or
a default in the payment of the principal of (or Repurchase Price or sinking
fund payment for, if any) any Security at its Maturity shall have occurred and
be continuing.
The term "Junior Securities" means (i) shares of the Common Stock, (ii)
shares of any other class or classes of capital stock of the Company, (iii) any
other non-debt securities of the Company (whether or not such other securities
are convertible into Junior Securities), or (iv) debt securities of the Company
(other than Senior Indebtedness of the Company and the Securities) as to which,
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is expressly provided that such debt securities are not
Senior Indebtedness of the Company with respect to, or do not rank pari passu
with, the Securities.
<PAGE>
Section 1006 Contingency for Sinking Fund.
If the Company provides for one or more sinking funds for securities or
other similar obligations representing indebtedness for money borrowed ranking
equal to or junior to the Securities, and such securities have a maturity or
weighted average time to maturity which is on or prior to the Stated Maturity of
the Securities, the Company will provide a sinking fund for the Securities
calculated to retire that amount of Securities equal to the lesser of (i) the
same percentage of outstanding Securities prior to maturity as the percentage of
the principal amount of such other indebtedness to be retired prior to maturity
on the same payment schedule as such other indebtedness or (ii) such amount of
Securities necessary to result in the Securities having the same weighted
average time to maturity as such securities or other similar indebtedness. Upon
the issuance of such securities, the Company will deliver to the Trustee an
Officers' Certificate setting forth the sinking fund schedule for the
Securities, demonstrating that such schedule has been calculated in accordance
with this Section and stating that such schedule complies with the provisions of
this Section. Except as set forth herein with respect to the credit against
mandatory sinking fund payments and the redemption price, the terms of the
sinking fund applicable to the Securities shall, to the extent reasonably
administratively acceptable to the Trustee, be the same as those applicable to
the relevant indebtedness. The redemption price of the Securities in connection
with any sinking fund shall be 100% of the principal amount thereof plus accrued
and unpaid interest to the date fixed for redemption. The Company may, at its
option, receive credit against mandatory sinking fund payments for the principal
amount of (i) Securities acquired by the Company and surrendered for
cancellation, (ii) Securities previously converted into Common Stock or
converted into Common Stock upon the call of such Securities for redemption
pursuant to the sinking fund, and (iii) Securities redeemed or called for
redemption otherwise than through the operation of the sinking fund. If the
Company wishes to exercise such option, it shall, not less than 60 days prior to
each sinking fund payment date for the Securities, deliver to the Trustee (i) an
Officers' Certificate specifying the portion of the sinking fund payment which
is to be satisfied by surrendering and crediting Securities, stating the basis
of such credit, and certifying that the Securities being used as a credit have
not previously been so credited and (ii) any Securities to be so surrendered.
Not more than 60 days before each sinking fund payment date the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 1104 and cause notice of the redemption thereof to
be given in the name of, and at the expense of, the Company in the manner
provided in Section 1105. Such notice having been duly given, the redemption of
such Securities shall be made upon the terms and in the manner stated in
Sections 1106, 1107, and 1108. All monies deposited to fund the sinking fund
which are not required by the Trustee for redemption of Securities through
operation of the sinking fund shall be promptly refunded to the Company.
Section 1007 Payment of Taxes and Other Claims.
The Company will pay or discharge, or cause to be paid or discharged,
before the same shall become delinquent, all taxes, assessments, and
governmental charges levied or imposed upon it or upon its income, profits, or
property; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge, or
claim whose amount, applicability, or validity is being contested in good faith
by appropriate proceedings and further provided that no failure to comply with
the terms of this Section shall constitute a default
<PAGE>
hereunder until such time as a final non-appealable judgment shall have been
rendered against the Company for any such taxes, assessments, or governmental
charges.
ARTICLE ELEVEN
Redemption of Securities
Section 1101 Right of Redemption.
The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or after ___________, 1999, at the
Redemption Price specified in the form of Security hereinbefore set forth for
redemptions, together with accrued and unpaid interest to the Redemption Date,
except that the Securities may not be redeemed prior to maturity unless for a
period of 20 consecutive Trading Days immediately preceding the date on which
notice of the Redemption Date is given, the Closing Price per share of the
Common Stock has equaled or exceeded $15.00 (the "Minimum Closing Price"),
subject to adjustment in the case of the same events which would result in an
adjustment of the conversion price as provided in Section 1204 of this Indenture
with any adjustments to the Redemption Price to be effected in the same matter
and to the same extent as provided in Section 1204 with respect to adjustments
to the conversion price. Prior to the mailing of any notice of the foregoing
redemption pursuant to Section 1105, the Company shall deliver to the Trustee an
Officers' Certificate evidencing compliance with the foregoing restriction.
Section 1102 Applicability of Article.
Redemption of Securities at the election of the Company, as permitted by
any provision of this Indenture, shall be made in accordance with such provision
and this Article.
Section 1103 Election to Redeem; Notice to Trustee.
The election of the Company to redeem Securities pursuant to Section 1101
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days, and no more than
90 days, prior to the Redemption Date fixed by the Company (unless a shorter
redemption price shall be satisfactory to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of Securities to be redeemed
and provide a copy of the notice of redemption to be given to Holders of
Securities to be redeemed pursuant to Section 1105.
Section 1104 Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall
<PAGE>
deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of
the principal amount of the Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed (so far as
may be) to be the portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed shall be treated by
the Trustee as Outstanding for the purpose of such selection. The Trustee shall
promptly notify the Company and the Security Registrar in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
Section 1105 Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 45, nor more than 60, days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at such Holder's address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (including, if relevant, CUSIP number and, in
the case of partial redemption, the principal amounts) of the
particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date;
(5) the conversion price, the date on which the right to convert the
principal of the Securities to be redeemed will terminate, and
the place or places where such Securities may be surrendered for
conversion;
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price; and
<PAGE>
(7) that the redemption is pursuant to the contingent sinking fund,
if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, upon Company Request, by the Trustee
in the name and at the expense of the Company.
Section 1106 Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date other than any Securities called for
redemption on that date which have been converted prior to the date of such
deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 307) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
Section 1107 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to the
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal amount shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
Section 1108 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
<PAGE>
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to, and in exchange for, the
unredeemed portion of the principal of the Security so surrendered.
Section 1109 Conversion Arrangements on Call for Redemption.
Notwithstanding anything to the contrary contained in this Indenture, in
connection with any redemption of Securities, the Company, by an agreement with
one or more investment bankers or other purchasers, may arrange for such
purchasers to purchase all Securities called for redemption (the "Called
Securities") which are either (i) surrendered for redemption or (ii) not duly
surrendered for redemption or conversion prior to the close of business on fifth
day prior to the Redemption Date, and to convert the same into shares of Common
Stock, by the purchasers' depositing with the Trustee (acting as Paying Agent
with respect to the deposit of such amount and as conversion agent with respect
to the conversion of such Called Securities), in trust for the Holders of the
Called Securities, on or prior to the Redemption Date in the manner agreed to by
the Company and such purchasers, an amount sufficient to pay the Redemption
Price, payable by the Company on redemption of such Called Securities. In
connection with any such arrangement for purchase and conversion, the Trustee as
Paying Agent shall pay on or after the Redemption Date such amounts so deposited
by the purchasers in exchange for Called Securities surrendered for redemption
prior to the close of business on the fifth day prior to the Redemption Date and
for all Called Securities surrendered after such Redemption Date.
Notwithstanding anything to the contrary contained in this Article Eleven, the
obligation of the Company to pay the Redemption Price of such Called Securities
shall be satisfied and discharged to the extent such amount is so paid by such
purchasers, provided, however, that nothing in this Section 1109 shall in any
way relieve the Company of the obligations to pay such Redemption Price on all
Called Securities to the extent such amount is not so paid by said purchasers.
For all purposes of this Indenture, any Called Securities surrendered by the
Holders for redemption, and any Called Securities not duly surrendered for
redemption or conversion prior to the close of business on the fifth day prior
to the Redemption Date, shall be deemed acquired by such purchasers from such
Holders and surrendered by such purchasers for conversion and shall in all
respects be deemed to have been converted, all as of immediately prior to the
close of business on the fifth day prior to the Redemption Date, subject to the
deposit by the purchasers of the above amount as aforesaid. Nothing in this
Section 1109 shall in any way limit the right of any Holder of a Security to
convert his Security pursuant to the terms of this Indenture any time prior to
the close of business on the fifth day preceding the Redemption Date.
ARTICLE TWELVE
Conversion of Securities
Section 1201 Conversion Privilege and Conversion Price.
Subject to, and upon compliance with, the provisions of this Article, at
the option of the Holder
<PAGE>
thereof, any Security or any portion of the principal amount thereof which is
$1,000 or an integral multiple of $1,000 may be converted at the principal
amount thereof, or of such portion thereof, into fully paid and nonassessable
shares (calculated as to each conversion to the nearest 1/100 of a share) of
Common Stock, at the conversion price, determined as hereinafter provided, in
effect at the time of conversion. Such conversion right shall expire at the
close of business on _____________, 2004. In case a Security or portion
thereof is called for redemption, such conversion right in respect of the
Security or portion so called shall expire at the close of business on the
fifth day preceding the Redemption Date, unless the Company defaults in
making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $ per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), and (f) of Section
1204.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in paragraph (a) or (d) of Section
1204 which does not give rise to a conversion price adjustment pursuant to
paragraphs (a) or (d) of Section 1204, the Holder of each Security, upon the
conversion thereof pursuant to this Article subsequent to the close of business
on the date fixed for the determination of stockholders entitled to receive such
distribution shall be entitled to receive for each share of Common Stock into
which such Security is converted, the portion of the evidences of indebtedness,
shares of capital stock, cash, and assets so distributed applicable to one share
of Common Stock, provided that, at the election of the Company (such election
shall be evidenced by a Board Resolution) with respect to all Holders so
converting, the Company may, in lieu of distributing to such Holder any portion
of such distribution not consisting of cash or securities of the Company, pay
such Holder an amount in cash equal to the fair market value thereof (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution). If any conversion of a Security described
in the immediately preceding sentence occurs prior to the payment date for a
distribution to holders of Common Stock which the Holder of the Security so
converted is entitled to receive in accordance with the immediately preceding
sentence, the Company may elect (such election to be evidenced by a Board
Resolution) to distribute to such Holder a due bill for the evidences of
indebtedness, shares of capital stock, cash, or assets to which such Holder is
so entitled, provided that such due bill (i) meets any applicable requirements
of the principal national securities exchange or other market on which the
Common Stock is then traded and (ii) requires payment or delivery of such
evidences of indebtedness, shares of capital stock, cash, or assets no later
than the date of payment or delivery thereof to holders of Common Stock
receiving such distribution.
Section 1202 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any Security
to be converted shall surrender such Security, duly endorsed or assigned to the
Company or in blank, at any office or agency maintained by the Company pursuant
to Section 1002, accompanied by written notice to the Company (in the form set
forth on the reverse of the Securities) at such office or agency that the Holder
elects to convert such Security or, if less than the entire principal amount
thereof is to be converted, the portion thereof to be converted. Securities
surrendered for conversion during the
<PAGE>
period from the close of business on any Regular Record Date next preceding
any Interest Payment Date to the opening of business on such Interest Payment
Date shall (except for Securities whose Maturity is prior to such Interest
Payment Date and Securities called for redemption on a Redemption Date within
such period) be accompanied by payment in New York Clearing House funds or
other funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Securities
being surrendered for conversion. Except as provided in the preceding
sentence and subject to the fourth paragraph of Section 307, no payment or
adjustment shall be made upon any conversion on account of any interest
accrued on the Securities surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion.
Securities shall be deemed to have been converted immediately prior to the
close of business on the last day prior to the day of surrender of such
Securities for conversion in accordance with the foregoing provisions, and at
such time the rights of Holders of such Securities as Holders shall cease, and
the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after the
conversion date, the Company shall issue and shall deliver at such office or
agency a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction of
a share, as provided in Section 1203.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
Section 1203 Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price per share of the Common Stock at
the close of business on the last day prior to the day of conversion (or, if
such day is not a Trading Day, on the Trading Day immediately preceding such
day).
Section 1204 Conversion Price Adjustments.
The conversion price shall be subject to adjustment (without duplication)
from time to time as follows:
(a) In case the Company shall declare a dividend or make a distribution
on the outstanding shares of Common Stock in shares of Common Stock or shall
declare or make a
<PAGE>
dividend or other distribution on any other class of capital stock of the
Company or any Subsidiary not wholly owned by the Company which dividend or
distribution includes Common Stock, the conversion price in effect at the
time of the record date for such dividend or distribution shall be reduced by
multiplying such conversion price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of business
on the record date for such dividend or distribution and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such adjustment to become
effective immediately after the record date for such dividend. [CHECK]Any
shares of Common Stock issuable in payment of a dividend shall be deemed to
have been issued immediately prior to the time of the record date for such
dividend for purposes of calculating the number of outstanding shares of
Common Stock of the Company under subsections (c) and (d) below. For the
purposes of this subsection (a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Company, but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company shall not
pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Company. In the event that any such dividend or
distribution is not paid or made, the conversion price then in effect shall
be readjusted, effective as of the date when the Board of Directors
determines not to pay or make such dividend or distribution, to the
conversion price which would be then in effect if such record date had not
been fixed. Such adjustments shall be made successively whenever any event
specified above shall occur.
(b) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the conversion price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(c) In case the Company shall fix a record date for the issuance of rights
or warrants to all holders of its Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned below) to subscribe for
or purchase shares of Common Stock (or securities convertible into shares of
Common Stock) at a price per share (or having an initial conversion price per
share) less than the Current Market Price (as defined in subsection (h) below)
of a share of Common Stock on such record date, the conversion price shall be
adjusted immediately thereafter so that it shall equal the price determined by
multiplying the conversion price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the number of shares of such Common Stock so
offered (or the aggregate initial conversion price of the convertible securities
so offered) would purchase at the Current Market Price per share, and of which
the denominator shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are initially convertible).
<PAGE>
For the purposes of this subsection (c), the number of shares of Common Stock
at any time outstanding shall not include shares held in the treasury of the
Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed and shall become
effective immediately after such record date. In the event that such rights
or warrants are not so issued, the conversion price then in effect shall be
readjusted, effective as of the date when the Board of Directors determines
not to issue such rights or warrants, to the conversion price which would
then be in effect if such record date had not been fixed.
(d) In case the Company shall fix a record date for making a distribution
by dividend or otherwise to holders of shares of its Common Stock or holders
(other than the Company or wholly-owned Subsidiaries) of capital stock of any
Subsidiary, (i) of evidences of indebtedness of the Company or any Subsidiary of
the Company, (ii) of assets (including shares of any class of capital stock,
cash or other securities, but excluding any rights or warrants referred to in
subsection (c) or securities referred to in subsection (e), excluding any
dividend or distribution referred to in subsection (a) and excluding any
dividend or distribution paid exclusively in cash out of retained or current
earnings), or (iii) of rights or warrants entitling the holders thereof to
receive upon payment of the consideration set forth therein shares of capital
stock of the Company (excluding those referred to in subsection (c) above), in
each such case the conversion price shall be adjusted so that it shall equal the
price determined by multiplying the conversion price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date multiplied by the Current Market
Price per share on such record date, less the fair market value (as determined
by the Board of Directors, whose determination shall be conclusive, and
described in a Board Resolution) on the date of the effectiveness of such
conversion price adjustment of said shares or evidences of indebtedness or
assets or rights or warrants so distributed, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date
multiplied by such Current Market Price per share, such reduction to become
effective immediately prior to the opening of business on the day following the
later of (a) the date fixed for the payment of such distribution and (b) the
date 20 days after the notice relating to such distribution is given pursuant to
Section 1206(a). If the Board of Directors determines the fair market value of
any distribution for purposes of this subsection (d) by reference to the actual
or when issued trading market for any securities comprising such distribution,
it must in doing so consider the prices in such market over the same period used
in computing the Current Market Price per share pursuant to subsection (h) of
this Section.
(e) In case the Company shall issue or distribute shares of Common Stock,
(excluding shares issued (i) in any of the transactions described in subsection
(a) above, (ii) upon conversion or exchange of securities (other than the
Securities) convertible into, or exchangeable for, Common Stock described in
subsection (f) below, (iii) to employees or consultants under the Company's 1996
Stock Option Plan, as now in effect or hereafter amended, if such shares would
otherwise be included in this Section 1204(e), (iv) to the Company's employees
or consultants under bona fide benefit plans, employment agreements, or
consulting agreements adopted by the Company's Board of Directors and approved
by its stockholders or granted at an exercise price of at least 100% of the fair
market value of the shares on the date of grant whether or not approved by
stockholders, if such shares would otherwise be included in this Section 1204(e)
(but only to the extent that the aggregate
<PAGE>
number of shares excluded by this subdivision (iv), and issued after the date
of this Indenture, shall not exceed 10% of the Common Stock outstanding at
the time of any such issuance), (v) upon exercise of rights or warrants
issued to the holders of Common Stock,(vi) to acquire, or in connection with
the acquisition of, all or any portion of a business as a going concern,
whether such acquisition shall be effected by purchase of assets, exchange of
securities, merger, consolidation, or otherwise, (vii) in connection with the
entry into a medical practice or other professional practice management
agreement by the Company for a term of at least 5 years, (viii) upon exercise
of rights or warrants issued in a bona fide public offering pursuant to a
firm commitment underwriting, but only if no adjustment is required pursuant
to this Section 1204 (without regard to subsection (j) of this Section 1204)
with respect to the transaction giving rise to such rights (provided,
however, that in the case of any event described in Subsections (v) through
(viii) above, the Board of Directors has determined that the consideration
received for such shares of Common Stock equals the Current Market Price of
such Common Shares on the date of their issuance), or (ix) pursuant to an
offering effected at a discount of less than 5% from the Current Market Price
per share determined as provided in Section 1204(h) below) for a
consideration per share less than the Current Market Price per share on the
date the Company fixes the offering price of such additional shares, the
conversion price shall be adjusted immediately thereafter so that it shall
equal the price determined by multiplying the conversion price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
sum of the total number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares and the number of shares of
Common Stock which the aggregate consideration received (determined as
provided in subsection (g) below) for the issuance of such additional shares
would purchase at the Current Market Price per share, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. For the purposes of
this subsection (e), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company, but
shall include shares issuable in respect of scrip certificates issued in lieu
of fractions of shares of Common Stock. Such adjustment shall be made
successively whenever such an issuance is made and shall become effective
immediately after such issuance.
(f) In case the Company shall issue any securities convertible into, or
exchangeable for, shares of Common Stock (excluding securities issued in
transactions described in subsections (c) and (d) above, or the Securities) for
a consideration per share of Common Stock initially deliverable upon conversion
or exchange of such securities (determined as provided in subsection (g) below)
less than the Current Market Price per share in effect immediately prior to the
issuance of such securities, the conversion price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
conversion price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities and the number
of shares of Common Stock which the aggregate consideration received (determined
as provided in subsection (g) below) for such securities would purchase at the
Current Market Price per share, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance and the maximum number of shares of Common Stock of the Company
deliverable upon conversion of, or in exchange for, such securities at the
initial conversion or exchange price or rate. For the purposes of this
subsection (f), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company, but shall
<PAGE>
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. Such adjustment shall be made
successively whenever such an issuance is made and shall become effective
immediately after such issuance.
Upon the termination of the right to convert or exchange such securities,
the conversion price shall forthwith be readjusted to such conversion price as
would have obtained had the adjustments made upon the issuance of such
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon conversion
or exchange of such securities and upon the basis of the consideration actually
received by the Company (determined as provided in subsection (g) below) for
such securities.
(g) For purposes of any computation respecting consideration received
pursuant to subsections (e) and (f) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that
in no case shall any deductions be made for any commissions,
discounts, or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors
(irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board
Resolution; and
(iii) in the case of the issuance of securities convertible into,
or exchangeable for, shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
sum of the consideration received by the Company for the
isuance of such securities and the additional minimum
consideration, if any, to be received by the Company upon
the conversion or exchange thereof (the consideration in
each case to be determined in the same manner as provided in
subparagraphs (i) and (ii) of this subsection (g)).
(h) For the purpose of any computation under subsections (c), (d), (e),
and (f) above, the "Current Market Price" per share at any date shall be deemed
to be the average of the daily Closing Prices for 30 consecutive Trading Days
commencing 45 Trading Days before such date.
(i) In any case in which this Section 1204 shall require that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
Holder of any Security converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the shares of Common Stock issuable upon such conversion before giving
effect to such adjustment and (ii) paying to such Holder any amount in cash in
lieu of a fractional share of Common Stock pursuant to Section 1203;
<PAGE>
provided, however, that the Company shall deliver to such Holder a due bill
or other appropriate instrument evidencing such Holder's right to receive
such additional shares of Common Stock, and such cash, upon the occurrence of
the event requiring such adjustment.
(j) No adjustment in the conversion price need be made unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any such adjustment which is not
required to be made by reason of this subsection (j) shall be carried forward
and taken into account in any subsequent adjustment.
(k) All calculations under this Section 1204 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(l) Notwithstanding any other provision of this Section 1204, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock other than in connection with one or more reverse stock splits or
(ii) that would or does result in any adjustment in the conversion price that,
if made without giving effect to the previous sentence, would cause the
conversion price to be less than the then par value share of the Common Stock;
provided, however, that the covenant in this sentence shall be suspended if
within 10 days of determining in good faith that such action would result in
such adjustment (but no later than the Business Day following the effectiveness
of such adjustment), the Company gives a notice under Section 1103 and effects
the redemption referred to in such notice on the Redemption Date
referred to herein, but shall be retroactively reinstated if such notice or
redemption does not occur.
Section 1205 Notice of Adjustments of Conversion Price and Minimum Closing
Price.
Whenever the conversion price is adjusted as provided in this Section 1204
or the Minimum Closing Price is adjusted as provided in Sections 1101 and 1204
or the Holders become entitled to receive evidences of indebtedness, shares of
capital stock, cash, or assets in connection with the conversion of the
Securities in accordance with the third paragraph of Section 1201 (an
"Entitlement"), the Company shall promptly file with the Trustee and each
Conversion Agent (i) an Officers' Certificate in the case of an adjustment
pursuant to subsection (a) of this Section 1204, or (ii) both an Officers'
Certificate and a certificate of a firm of independent public accountants, in
the case of any other adjustment or an Entitlement, which Officers' Certificate
and certificate of independent public accountants shall conform to the
provisions of Section 102, in each case setting forth the conversion price and
Minimum Closing Price after such adjustment or the amount and nature of such
Entitlement and setting forth a brief statement of the facts requiring such
adjustment or Entitlement and the computation thereof, which Officers'
Certificate and certificate of the firm of independent public accountants shall
be conclusive evidence of the correctness of any such adjustment or Entitlement,
and promptly after such filing the Company shall mail or cause to be mailed a
notice of such adjustment or Entitlement to each Securityholder at his last
address as the same appears on the Security Register. Neither the Trustee nor
any Conversion Agent shall be under any duty or responsibility with respect to
any such Officers' Certificate or certificate except to exhibit the same to any
Holder of Securities desiring inspection thereof.
<PAGE>
Section 1206 Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other distribution) on
the Common Stock payable otherwise than exclusively in cash; or
(b) the Company shall authorize the granting to all holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights (excluding rights, warrants, or
options issuable in connection with any employee benefit plan); or
(c) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock), or of any consolidation or merger
to which the Company is a party and for which approval of any stockholders of
the Company shall be required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation, or winding
up of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Securities pursuant to Section 1002, and
shall cause to be mailed to all Holders at their last addresses as they shall
appear in the Security Register, at least 20 days (or 10 days in any case
specified in clause (a) or (b) above) prior to the applicable record,
effectiveness, or expiration date hereinafter specified a notice stating (x)
the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, or granting of rights or warrants, or, if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights, or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation, or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash, or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation, or winding up.
Section 1207 Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then deliverable upon the conversion of all outstanding Securities.
All shares of Common Stock which shall be so deliverable shall be duly and
validly authorized and issued, fully paid, and nonassessable.
Section 1208 Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company
<PAGE>
shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Company the
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
Section 1209 Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and non-assessable
and, except as provided in Section 1208, the Company will pay all taxes, liens,
and charges with respect to the issue thereof.
Section 1210 Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Trustee, which shall dispose of the
same as provided in Section 309.
Section 1211 Provisions in Case of Consolidation, Merger, or Sale of Assets.
Subject to any applicable right of each Holder of Securities to cause the
Company to purchase his Securities upon a Repurchase Event pursuant to the
provisions of Article Fourteen of this Indenture, in case of any consolidation
of the Company with, or merger of the Company into, any other Person, any merger
of another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange, or cancellation of outstanding
shares of Common Stock) or any sale or transfer of all or substantially all of
the assets of the Company, the Person formed by such consolidation or resulting
from such merger or which acquires such assets, as the case may be, shall
execute and deliver to the Trustee a supplemental indenture providing that the
Holder of each Security then outstanding shall have the right thereafter, during
the period such Security shall be convertible as specified in Section 1201, to
convert such Security only into the kind and amount of securities, cash, and
other property receivable, if any, upon such consolidation, merger, sale, or
transfer by a holder of the number of shares of Common Stock into which such
Security might have been converted immediately prior to such consolidation,
merger, sale, or transfer, assuming such holder of Common Stock (i) is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be (a "Constituent Person"), or an Affiliate of a Constituent Person
and (ii) failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash, and other property receivable upon such
consolidation, merger, sale, or transfer (provided that if the kind or amount of
securities, cash, and other property receivable upon such consolidation, merger,
sale, or transfer is not the same for each share of Common Stock of the Company
held immediately prior to such consolidation, merger, sale, or transfer by other
than a Constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing share"), then
for the purpose of this Section the kind and amount of securities, cash, and
other property receivable upon such consolidation, merger, sale, or transfer by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of non-electing shares). Such supplemental indenture
shall provide for adjustments which,
<PAGE>
for events subsequent to the effective date of such supplemental indenture,
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article. The above provisions of this Section shall
similarly apply to successive consolidations, mergers, sales, or transfers.
Section 1212 Company to Cause Registration of Common Stock.
The Company covenants that if any shares of Common Stock required to be
reserved for purposes of conversion of Securities hereunder require registration
with, or approval of, any governmental authority under any Federal or State law,
or listing upon any national securities exchange, before such shares may be
issued upon conversion, the Company will in good faith and as expeditiously as
possible endeavor to cause such shares to be duly registered, approved or
listed, as the case may be.
Section 1213 Disclaimer by Trustee of Responsibility for Certain Matters.
Subject to Section 601, the Trustee shall not at any time be under any duty
or responsibility to any Holder of Securities to determine whether any facts
exist which may require any adjustment of the conversion price or Minimum
Closing Price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in making the same. The Trustee
shall not be accountable with respect to the validity, value, kind, or amount of
any shares of Common Stock, or of any securities or property, which may at any
time be issued or delivered upon the conversion of any Security, and it makes no
representation with respect thereto. The Trustee shall not be responsible for
any failure of the Company to issue, transfer, or deliver any shares of Common
Stock or stock certificates or other securities or property or cash upon the
surrender of any Security for the purpose of conversion or, subject to Section
601, to comply with any of the covenants of the Company contained in this
Article. Each conversion agent other than the Company shall have the same
protection under this Section as the Trustee.
ARTICLE THIRTEEN
Subordination of Securities
Section 1301 Agreements to Subordinate by Company.
The Company, for itself, its successors, and its assigns, covenants and
agrees, and each Holder of Securities, by his acceptance thereof, likewise
covenants and agrees, that payment by the Company of the principal amount of,
and interest on, each and all of the Securities is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all Senior Indebtedness of the Company.
<PAGE>
Section 1302 Distribution on Dissolution, Liquidation, and Reorganization;
Subrogation.
Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation, or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, reorganization, or receivership
proceedings, or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company or otherwise (subject to
the power of a court of competent jurisdiction to make other equitable provision
reflecting the rights conferred in this Indenture upon the Senior Indebtedness
of the Company and the holders thereof, with respect to the Securities and the
holders thereof, by a lawful plan of reorganization under applicable bankruptcy
law):
(a) the holders of all Senior Indebtedness of the Company shall be
entitled to receive payment in full of the principal amount thereof, premium, if
any, and the interest due thereon before the Holders of the Securities are
entitled to receive any payment upon the principal amount of, or interest on,
indebtedness evidenced by the Securities or on account of any other monetary
claims, including such monetary claims as may result from rights of repurchase
or rescission, under or in respect of the Securities; and
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property, or securities, to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article Thirteen, shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in bankruptcy, a
receiver, or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness of the Company or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Indebtedness of the Company may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the principal
amount of, premium, if any, and interest on, the Senior Indebtedness of the
Company, held or represented by each, to the extent necessary to make payment in
full of all Senior Indebtedness of the Company remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness of the Company; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property, or securities, shall be received by the Holders of the Securities or
by the Trustee before all Senior Indebtedness of the Company is paid in full,
such payment or distribution shall be paid over to the holders of such Senior
Indebtedness of the Company, or their representative or representatives or to
the trustee or trustees under any indenture under which any instruments
evidencing any such Senior Indebtedness of the Company may have been issued,
ratably as aforesaid, for application to the payment of all Senior Indebtedness
of the Company remaining unpaid until all such Senior Indebtedness of the
Company shall have been paid in full, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness of the
Company.
Subject to the payment in full of all Senior Indebtedness of the Company,
the Holders of the Securities shall be subrogated to the rights of the holders
of Senior Indebtedness of the Company to receive payments or distributions of
cash, property, or securities of the Company applicable to
<PAGE>
Senior Indebtedness of the Company until the principal amount of, and
interest on, the Securities shall be paid in full, and no such payments or
distributions to the Holders of the Securities of cash, property, or
securities otherwise distributable to the holders of Senior Indebtedness of
the Company shall, as between the Company, its creditors other than the
holders of Senior Indebtedness of the Company, and the Holders of the
Securities, be deemed to be a payment by the Company to, or on account of,
the Securities. It is understood that the provisions of this Article Thirteen
are, and are intended, solely for the purpose of defining the relative rights
of the Holders of the Securities, on the one hand, and the holders of Senior
Indebtedness of the Company, on the other hand. Nothing contained in this
Article Thirteen or elsewhere in this Indenture or in the Securities is
intended to, or shall, impair, as between the Company, its creditors other
than the holders of Senior Indebtedness of the Company, and the Holders of
the Securities, the obligations of the Company, which are unconditional and
absolute, to pay to the Holders of the Securities the principal amount of,
and interest on, the Securities as and when the same shall become due and
payable in accordance with their terms, or to affect the relative rights of
the Holders of the Securities and the creditors of the Company other than the
holders of Senior Indebtedness of the Company, nor shall anything herein or
in the Securities prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article
Thirteen of the holders of Senior Indebtedness of the Company in respect of
cash, property, or securities of the Company received upon the exercise of
any such remedy. Upon any payment or distribution of assets of the Company
referred to in this Article Thirteen, the Trustee, subject to the provisions
of Section 601, shall be entitled to rely upon a certificate of the
liquidating trustee or agent or other Person making any distribution to the
Trustee for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of Senior Indebtedness of the Company and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon, and all other facts pertinent
thereto or to this Article Thirteen.
The Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness of the Company. The Trustee shall not be liable
to any such holder if it shall pay over or distribute to or on behalf of Holders
of the Securities or the Company monies or assets to which any holder of Senior
Indebtedness of the Company shall be entitled by virtue of this Article
Thirteen.
Nothing in this Article Thirteen shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 607.
If the Trustee or any Holder of Securities does not file a proper claim
or proof of debt in the form required in any proceeding referred to above
prior to thirty (30) days before the expiration of the time to file such
claim in such proceeding, then the holder of any Senior Indebtedness of the
Company or any trustee, representative, or agent therefor is hereby
authorized, and has the right, to file an appropriate claim or claims for, or
on behalf of, such Holders of Securities.
<PAGE>
Section 1303 No Payment in Event of Default on Senior Indebtedness.
No payment by the Company on account of principal of, or interest on, the
Securities, and no payment in respect of sinking fund requirements, if any, the
Redemption Price, or any Repurchase Price shall be made before amounts then due
for principal of, premium of, if any, and interest on, Senior Indebtedness of
the Company have been made or duly provided for in money or money's worth if:
(i) there is an event of default on or under any Senior Indebtedness with
respect to the payment of all or any portion of any Senior Indebtedness; or (ii)
there shall exist a default in any covenant with respect to any Senior
Indebtedness (other than as specified in clause (i) of this sentence) and, in
such event, such default shall not have been cured or waived or shall not have
ceased to exist, the Trustee and the Company shall have received written notice
from the holder of such Senior Indebtedness or if there is more than one holder
of such Senior Indebtedness from the trustee, representative, or agent of the
holders of such Senior Indebtedness stating that no payment shall be made with
respect to the Securities, and such default would permit the maturity of such
Senior Indebtedness (if not already due and payable) to be accelerated, provided
that no such default will prevent any payment on, or in respect of, the
Securities for more than 120 days unless the maturity of such Senior
Indebtedness has been accelerated, except for a payment under Article Eleven and
Section 1006 if, at the time of mailing of notice of redemption pursuant to
Section 1105 relating to such payment, there is no event of default on or under
Senior Indebtedness of the Company known to the Trustee.
Section 1304 Payments Permitted.
Nothing contained in this Indenture or in any of the Securities shall (a)
affect the obligations of the Company to make, or prevent the Company from
making, at any time, except as provided in Sections 1302 and 1303, payments of
the principal amount of, or interest on, the Securities or (b) prevent the
application by the Trustee of any moneys deposited with it hereunder to the
payment of, or on account of, the principal amount of, or interest on, the
Securities, unless the Trustee shall have received at is Corporate Trust Office
written notice of any event prohibiting the making of such payment except as
provided in Section 1303 with respect to payments under Article Eleven and
Section 1006.
Section 1305 Authorization to Trustee to Effect Subordination.
Each Holder of Securities by its acceptance thereof authorizes and directs
the Trustee in its behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in this Article Thirteen and
appoints the Trustee his attorney-in-fact for any and all such purposes.
Section 1306 Notices to Trustee.
Notwithstanding the provisions of this Article or any provisions of this
Indenture, neither the Trustee nor any Paying Agent (other than the Company)
shall be charged with the knowledge of the existence of any Senior Indebtedness
of the Company or of any event which would prohibit the making of any payment of
monies to or by the Trustee or such Paying Agent, unless and until the
<PAGE>
Trustee or such Paying Agent shall have received (in the case of the Trustee,
at its Corporate Trust Office) written notice thereof from the Company or
from the holder of any Senior Indebtedness of the Company or from the
trustee, representative, or agent for any such holder, together with proof
satisfactory to the Trustee for any such holding of Senior Indebtedness of
the Company or of the authority of such trustee, representative, or agent;
provided, however, that if at least two Business Days prior to the date upon
which by the terms hereof any such monies may become payable for any purpose
(including, without limitation, the payment of either the principal amount
of, or interest on, any Security) the Trustee shall not have received with
respect to any such monies the notice provided for in this Section 1306,
then, anything herein to the contrary notwithstanding, the Trustee shall have
the full power and authority to receive such monies and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such two
Business Days prior to such date. The Trustee shall be entitled to rely on
the delivery to it of a written notice by a Person representing himself to be
a holder of Senior Indebtedness of the Company (or a trustee, representative,
or agent on behalf of such holder) to establish that such a notice has been
given by a holder of Senior Indebtedness of the Company or a trustee,
representative, or agent on behalf of any such holder. In the event that the
Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness of the
Company to participate in any payment or distribution pursuant to this
Article Thirteen, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness of the Company held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution, and any
other facts pertinent to the rights of such Person under this Article
Thirteen and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
Section 1307 Trustee as Holder of Senior Indebtedness of the Company.
The Trustee shall be entitled to all the rights set forth in this Article
Thirteen with respect to any Senior Indebtedness of the Company at any time held
by it to the same extent as any other holder of Senior Indebtedness of the
Company and nothing in Section 311 of the Trust Indenture Act or in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
Section 1308 Modification of Terms of Senior Indebtedness of the Company.
Any renewal or extension of the time of payment of any Senior Indebtedness
of the Company or the exercise by the holders of Senior Indebtedness of the
Company of any of their rights under any instrument creating or evidencing
Senior Indebtedness of the Company, including, without limitation, the waiver of
default thereunder, may be made or done all without notice to or assent from the
Holders of the Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal,
or other change of, or waiver, consent, or other action (collectively an
"Action") in respect of, any liability or obligation under or in respect of,
or of any of the terms, covenants, or conditions of any indenture or other
instrument under which any Senior Indebtedness of the Company is outstanding
or of such Senior Indebtedness of the Company, whether or not the Action is
in accordance with the provisions
<PAGE>
of any applicable document, shall in any way alter or affect any of the
provisions of this Article Thirteen or of the Securities relating to the
subordination thereof.
Section 1309 Certain Conversions Not Deemed Payment.
For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article
Twelve shall not be deemed to constitute a payment or distribution on account of
the principal amount of, or interest on, Securities or on account of the
purchase or other acquisition of Securities unless (i) such conversion would
result in a change of control for purposes of Section 382 of the Internal
Revenue Code and the rules and regulations promulgated thereunder, and (ii) such
change in control would result in the loss of, or a limitation on, the annual
availability of net operating losses to the Company for tax purposes, and (2)
the payment, issuance, or delivery of cash, property, or securities (other than
junior securities) upon conversion of a Security shall be deemed to constitute
payment on account of the principal amount of, such Security. For the purposes
of this Section, the term "junior securities" means (a) shares of any stock of
any class of the Company and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to the same
extent as, or to a greater extent than, the Securities are so subordinated as
provided in this Article. Nothing contained in this Article or elsewhere in
this Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, the right, which is absolute and unconditional, of
the Holder of any Security, to convert such Security in accordance with Article
Thirteen.
Section 1310 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article Thirteen shall in such case (unless the context otherwise
requires) be construed as extending to, and including, such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to, or in place of, the Trustee; provided,
however, that Section 1307 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE FOURTEEN
Right to Require Repurchase
Section 1401 Right to Require Repurchase.
In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1303, purchase,
<PAGE>
all or any part of such Holder's Securities on the date (the "Repurchase
Date") that is 30 days after the date the Company gives notice of the
Repurchase Event as contemplated in Section 1402(a) at a price (the
"Repurchase Price") equal to 100% of the principal amount thereof, together
with accrued and unpaid interest to the Repurchase Date. Such right to
require the repurchase of Securities shall not continue after a discharge of
the Company from its obligations with respect to the Securities in accordance
with Article Four.
Section 1402 Notice; Method of Exercising Repurchase Right.
(a) On or before the 15th day after the Repurchase Event, the Company, or,
upon Company Request, the Trustee (in the name and at the expense of the
Company), shall give notice of the occurrence of the Repurchase Event and of the
repurchase right set forth herein arising as a result thereof by first-class
mail, postage prepaid, to each Holder of the Securities at such Holder's address
appearing in the Security Register. The Company shall at the same time also
deliver a copy of such notice of a repurchase right to the Trustee.
Each notice of repurchase right shall state:
(1) the Repurchase Date;
(2) the date by which the repurchase right must be exercised;
(3) the Repurchase Price; and
(4) the instructions a Holder must follow to exercise a repurchase
right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Repurchase
Event.
(b) To exercise the repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) and to the Trustee on or before the fifth (5th) day
prior to the Repurchase Date (i) written notice of Holder's exercise of such
right, which notice shall set forth the name of the Holder, the principal amount
of the Security or Securities (or portion of a Security) to be repurchased, and
a statement that an election to exercise the repurchase right is being made
thereby, and (ii) the Security or Securities with respect to which the
repurchase right is being exercised, duly endorsed for transfer to the Company.
Such written notice shall be irrevocable following the close of business on
the fifth (5th) day prior to the Repurchase Date, provided, however, that the
Company, in its sole and absolute discretion, may consent to the withdrawal of
any Securities after such date and prior to the Repurchase Date. If the
Repurchase Date falls between any Regular Record Date and the next succeeding
Interest Payment Date, Securities to be repurchased must be accompanied by
payment from the Holder of an amount equal to the interest thereon which the
registered Holder thereof is to receive on such Interest Payment Date.
<PAGE>
(c) In the event that a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall on the Repurchase Date pay or cause to
be paid in cash to the holder thereof the Repurchase Price of the Security or
Securities as to which the repurchase right had been exercised. In the event
that a repurchase right is exercised with respect to less than the entire
principal amount of a surrendered Security, the Company shall execute and
deliver to the Trustee, and the Trustee shall authenticate for issuance in the
name of the Holder, a new Security or Securities in the aggregate principal
amount of the unrepurchased portion of such surrendered Security.
Section 1403 Deposit of Repurchased Price.
Prior to the Repurchase Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Repurchase Price of the Securities which are to be
repurchased on the Repurchase Date.
Section 1404 Securities Not Repurchased on Repurchase Date.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal amount shall, until paid, bear interest to the
extent permitted by applicable law from the Repurchase Date at a rate per annum
borne by such Security.
Section 1405 Securities Repurchased in Part.
Any Security which is to be repurchased only in part shall be surrendered
at any office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to, and in exchange for, the
unrepurchased portion of the principal of the Security so surrendered.
Section 1406 Certain Definitions.
For purposes of this Article:
(a) "Fundamental Change" means the occurrence of any transaction or event
in connection with which all or substantially all of the Common Stock shall be
exchanged for, converted into, acquired for, or constitute the right to receive
consideration (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise) which is not all or substantially all common stock which is (or, upon
consummation of or immediately following such transaction or event, will be)
listed on a national securities exchange or approved for quotation in any Nasdaq
Stock Market or any similar system of automated dissemination of quotations of
securities prices. A Fundamental Change shall not include
<PAGE>
any acquisition of Common Stock by any person or group so long as it does not
result in termination of such listing or approval for quotation. For purposes
of the definition of a "Fundamental Change," (i) "substantially all of the
Common Stock" shall mean at least 85% of the Common Stock outstanding
immediately prior to the transaction giving rise to a Fundamental Change, and
(ii) consideration shall be "substantially all common stock" if at least 80%
of the fair value (as determined in good faith by the Board of Directors) of
the total consideration is attributable to common stock.
(b) A "Repurchase Event" shall have occurred if a Fundamental Change shall
have occurred unless (i) the current market price of the Common Stock per share
(which, for the purposes of this Article, shall be deemed to be the average of
the daily Closing Prices of the Common Stock for the five consecutive Trading
Days before the Fundamental Change) is at least equal to the conversion price
per share of the Securities in effect immediately preceding the time of such
Fundamental Change, or (ii) (A) the consideration, in the transaction or event
giving rise to a Fundamental Change, to the holders of Common Stock consists of
(w) cash, (x) securities (other than common stock) that are, or immediately upon
issuance will be, listed on a national securities exchange or quoted in the
Nasdaq National Market System, or (y) common stock that is, or immediately upon
issuance will be, listed on a national securities exchange or approved for
quotation in any Nasdaq Stock Market or similar system of automated
dissemination of quotations of securities prices, or (z) any combination of cash
and such securities, including common stock, and (B) the aggregate fair market
value of such consideration (which, in the case of such securities, shall be
equal to the average of the daily Closing Prices of such securities during the
10 (ten) consecutive Trading Days commencing with the sixth Trading Day
following consummation of such transaction or event) is at least 105% of the
conversion price of the Securities in effect on the date immediately preceding
the closing date of such transaction or event.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INTEGRATED PHYSICIAN SYSTEMS, INC.
By:
--------------------------
Name:
Title:
Attest:
------------------------------
By:
--------------------------
Name:
Title:
Attest:
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the day of __________, 1997, before me personally came , to me known,
who, being by me duly sworn, did depose and say that he/she is the
______________ of INTEGRATED PHYSICIAN SYSTEMS, INC., one of the corporations
described in and which executed the foregoing instrument; and that he/she signed
his/her name thereto by authority of the Board of Directors of such corporation.
Notary Public
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the day of __________, 1997, before me personally came , to me known,
who, being by me duly sworn, did depose and say that he/she is the
______________ of ________________________________, one of the corporations
described in and which executed the foregoing instrument; and that he/she signed
his/her name thereto by authority of the Board of Directors of such corporation.
Notary Public
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made this 16th day of June, 1997, by and between INTEGRATED
PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with a principal
place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter
referred to as "Company") and SCOTT G. POLLOCK, an adult individual residing
at 1627 Fairfield Road, Yardley, PA 19067, (hereinafter referred to as
"Employee".)
WHEREAS, Company wishes to hire and employ Employee on the terms and
conditions hereinafter set forth; and
WHEREAS, Employee wishes to accept such employment in return for the
compensation set forth herein.
NOW, THEREFORE, in return for the mutual covenants and conditions set
forth herein, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts
employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Duties
(a) Employee shall serve Company generally in the capacity
described on Exhibit A, attached hereto and incorporated herein by this
reference, and shall have such authority and responsibilities as Company may
reasonably determine from time to time. Employee shall perform any other
duties reasonably required by Company.
(b) Throughout the term of this Agreement, Employee shall devote
his entire business working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company.
3. Term
Unless sooner terminated as herein provided, this Agreement shall
be for the term set forth on Exhibit A attached hereto and incorporated
herein by this reference.
4. Compensation
(a) For all of the services rendered by Employee to Company,
Employee shall receive the compensation set forth on Exhibit A attached
hereto, payable in reasonable periodic installments in accordance with
Company's regular payroll practices in effect from time to time.
<PAGE>
(b) Throughout the term of this Agreement and provided that
Employee shall be deemed to be a full-time employee, Employee shall be
provided the health, dental, life and disability insurance benefits set forth
in paragraph 4 of Exhibit "A" attached hereto, and shall be entitled to
participate in the Company's 401K plan as described in paragraph 5 of Exhibit
"A".
(c) Employee shall be entitled to the paid vacation set forth on
Exhibit A attached hereto.
(d) During Employee's employment hereunder, Company shall reimburse
Employee for all ordinary and necessary business expenses incurred by him in
connection with the business of Company. Such payments shall be made by
Company upon submission by Employee of vouchers itemizing such expenses in a
form reasonably satisfactory to Company.
5. Disability
If Employee becomes unable to perform his/her duties hereunder due
to partial or total disability or incapacity resulting from a mental or
physical illness or any similar cause, and such disability continues for a
period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement upon
thirty (30) days written notice to Employee. In the event of such
disability, Company shall pay Employee his then current compensation,
including any and all accrued salary, bonus compensation and vacation pay,
through the date of the commencement of Employee's entitlements under
Company's long-term disability insurance policy. Thereafter, Company shall
have no further obligations or liabilities to Employee hereunder.
6. Death
If Employee dies, this Agreement shall automatically terminate and
all payments hereunder shall cease at the end of the month in which
Employee's death shall occur and Company shall have no further obligations or
liabilities hereunder to Employee's estate or legal representative or
otherwise, other than the payment of any and all accrued bonus compensation
and accrued vacation pay.
7. Discharge for Cause
(a) Notwithstanding the state term of employment, this Agreement
and the Employee's employment may be sooner terminated by the Company for any
of the following reasons:
(i) The willful failure or refusal of Employee to perform
his duties as may, from time to time, be delegated to him by the Company,
through the Board of Directors.
(ii) Employee's gross negligence which materially and
adversely affects the business or affairs of the Company.
<PAGE>
(iii) Any act by Employee of fraud, dishonesty or criminal
wrongdoing, which materially adversely effects the Company.
(iv) Any intentional or willful breach by Employee of any
material covenant of this Agreement including but not limited to the
provisions regarding noncompetition and confidentiality.
All of the foregoing shall be, separately and collectively,
known as "cause" for termination.
(b) The Company shall effect termination pursuant to this Section 7
by written notice to Employee specifying in reasonable detail the
circumstances alleged by Company to constitute "cause" and the specific
provisions of this Section 7 relied upon in effecting such termination. The
date of such termination shall be the date ten (10) days after Company gives
such notice of termination to Employee. If the grounds for termination are
solely the grounds set forth in Section 7(a)(ii) or (iv) above, then during
such ten (10) day period, Employee shall be afforded an opportunity to
discuss the basis for such termination with the full Board of Directors of
the Company, and Employee shall, at his election exercised in writing prior
to the expiration of such ten (10) day period, be entitled to a period of not
less than thirty (30) days after the date of such discussion to attempt to
remedy or cure the conduct alleged to constitute such grounds and the harm
caused thereby if in the good faith judgment of the Board of Directors such
conduct and harm is capable of being remedied or cured within such thirty
(30) day period. If, after the expiration of such cure period, the Employee
has not in the good faith judgment of the Board of Directors remedied or
cured the conduct alleged to constitute such grounds and the harm caused
thereby, the termination shall be effective upon notice to Employee of such
adverse Board judgment.
(c) In the event of early termination of Employee's employment
hereunder, for any reason, Employee shall, simultaneously with such
termination, be conclusively deemed to have resigned any other position he
might hold with the Company. Employee agrees to execute any and all
documents reasonably requested of him by Company's Board of Directors to
evidence such resignation(s).
8. Compensation Upon Termination
In the event that the Employee's employment and this Agreement is
terminated by Company prior to the end of its term, for cause as is set forth
in paragraph 7 hereof, Company shall pay to Employee, as severance
compensation, in circumstances other than by Employee's death or disability,
or other than as a result of change in control of the Company, an amount equal
to two months' salary. This amount shall be in addition to all compensation
earned or accrued by Employee through the last day of actual employment. In
the event that Employee's employment is terminated by the Company as a result
of change in control of the Company, the Company shall pay to Employee, as
severance compensation, an amount equal to two times (i) Employee's base
annual salary and (ii) Employee's maximum potential annual bonus
compensation. After the payment of such severance compensation, Company
shall have no further obligation or liability to Employee hereunder.
<PAGE>
9. Key Man Insurance. Company shall have the right to obtain, at its sole
discretion, what is commonly known as Key Man Insurance on the life of the
Employee in such amount as the Company deems appropriate. Executive agrees to
cooperate in all respects in the obtaining of such a policy. All expenses
involved in connection with the obtaining and maintaining of such a policy
shall be paid by the Company.
10. Company Property; Noncompetition
(a) All research, experiments, discoveries, inventions, improvements,
materials or information, including without limitation, reports, analysis,
handbooks, manuals, invoices, price lists or information, customer lists,
information about costs, profits, markets, sales, pricing, methods and other
business affairs including future expansion plans, or any other materials or
data of any kind furnished to Employee by Company or developed by Employee on
behalf of Company or at Company's direction or for Company's use or otherwise
in connection with Employee's employment hereunder, are and shall remain the
sole and confidential property of Company, and Employee shall immediately
deliver the same to Company at the termination of Employee's employment or at
any other time if so requested by Company.
(b) During the term of this Agreement and at all times thereafter,
Employee shall not use for his/her personal benefit, or disclose, communicate
or divulge to, or use for the direct or indirect benefit of any person, firm
association, or company other than the Company, any material referred to in
subparagraph (a) above or any information regarding the business methods,
business policies, procedures, techniques, research or development projects
or results, trade secrets, or any other confidential information relating to
or dealing with the business operations or activities of the Company.
(c) During the term of this Agreement and for a period of two (2)
years after termination of his/her employment with Company for any reason
whatsoever, Employee shall not directly or indirectly induce or attempt to
influence any employee of Company to terminate his employment with Company.
(d) During the period of time which Employee is employed by Company
pursuant to the terms of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Company, Employee shall not,
directly or indirectly, within a State wherein Company then does business,
own, manage, operate, join, control, finance, or participate in the
ownership, management, operation, control, or financing of, or be connected
as an officer, director, employee, partner, principal, agent, representative,
or otherwise, with any enterprise, business, firm or corporation which is in
competition with the Company. If Employee violates the provisions of this
Paragraph 10 (d), the restrictive period set forth herein shall be extended
by a period of time equal to the number of days, if any, during which the
Employee is in violation of the provisions hereof.
(e) Employee hereby acknowledges and agrees that the covenants and
restrictions contained in this Paragraph 10 relate to matters which are of a
special, unique, and extraordinary importance to Company. Employee
acknowledges that the restrictions contained in the foregoing subparagraphs
are reasonable and necessary in order to protect the legitimate interests
<PAGE>
of Company and that without such restrictions, Company would be unwilling to
enter into this Agreement. Employee acknowledges that any violation of any of
the terms hereof will result in irreparable injury to Company for which money
damages alone will be insufficient. Accordingly, Employee agrees that Company
shall be entitled to obtain from any Court of competent jurisdiction,
preliminary and permanent injunctive relief for a violation or threatened
violation of any such restrictions without having to prove actual damages or
to post a bond. Company shall also be entitled to an equitable accounting of
all earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled in law or equity. Employee hereby waives any
objections on the grounds of improper jurisdiction or venue to the
commencement of an action in the state of New Jersey and agrees that
effective service of process may be made upon him/her by mail under the
notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT THE
TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE
REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE
OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL
EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY
AND VOLUNTARILY AGREES TO BE BOUND HEREBY.
(f) It is the intent of the parties that the provisions of this
Paragraph 10 be enforceable to the fullest extent permitted by law. If,
however, any portion of any section of this Agreement including the
restrictive covenant as set forth herein is held by a court of law to be
unreasonable in any proceeding, then the period of time, the geographic area,
or such other restrictions shall be reduced by the elimination or reduction
of such portion thereof, so that such restrictions may be enforced in a
manner that is adjudged to be reasonable.
11) Miscellaneous
(a) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by
and construed in a accordance with the laws of the State of New Jersey.
(b) Indulgences, etc. Neither the failure nor any delay on the part
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege, for a
particular occurrence, constitute a waiver with respect to any other
occurrence.
(c) Binding Nature. This Agreement shall be binding upon and inure to
the benefit of Company and its successors and assigns and shall be binding
upon Employee, his heirs and legal representatives.
(d) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied,
<PAGE>
oral or written, except as herein contained. This Agreement may not be
modified or amended other than by an agreement in writing, signed by the
parties.
(e) Assignment. This Agreement may be assigned by Company upon thirty
(30) days written notice to Employee. Employee may not assign his duties,
obligations or entitlements hereunder.
(f) Right To Independent Counsel. The parties hereto recognize that
this Agreement is a legal document which may affect them adversely.
Consequently, the parties acknowledge that prior to executing this Agreement
they were given the opportunity to seek the advice of independent legal
counsel regarding the provisions of this Agreement and their legal
involvement herein. By executing this Agreement, the parties acknowledge that
they have reviewed this Agreement with independent counsel or have waived
their opportunity to do so.
(g) Expenses of Agreement. Each of the parties hereto shall bear its
own expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
(h) Notices. Any notice required to be given pursuant to the terms of
this Agreement shall be in writing and sent by registered mail or nationally
recognized carrier, to the parties at the following addresses:
To Company at:
Integrated Physician Systems, Inc.
615 Hope Road
Eatontown, NJ
To Employee at:
1627 Fairfield Road
Yardley, PA 19067
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTEGRATED PHYSICIAN SYSTEMS, INC.
Attest: By: /s/ Joseph F. Murray
----------------------------- --------------------------------
EMPLOYEE:
Witness: /s/ Walter B. Dunsmore /S/ Scott G. Pollock
---------------------------- ------------------------------------
SCOTT G. POLLOCK
<PAGE>
EXHIBIT "A"
EMPLOYMENT AGREEMENT BETWEEN
INTEGRATED PHYSICIAN SYSTEMS, INC. AND SCOTT G. POLLOCK
-------------------------------------------------------
DUTIES - (Pursuant to Paragraph 2) - Employee shall occupy the office of
Chief Executive Officer of the Company and shall have all duties and
responsibilities attendant to such position including such duties as are set
forth in the by-laws of the Company and as may be imposed by the Board of
Directors of the Company from time to time. Employee shall also serve as
Chief Financial Officer of the Company, and, as such, shall be responsible
for all financial affairs of the Company including financial reporting.
Employee shall report to and follow the directions of the Board of Directors
of the Company. Employee shall serve as one of management's representatives
on the Board of Directors of the Company. Employee shall be indemnified and
held harmless by the Company for all acts of Employee as an officer or
director of the Company in accordance with (i) the provisions set forth in
the amended articles of incorporation of the Company, (ii) the provisions set
forth in the by-laws of the Company, and (iii) the provisions of the
directors and officers liability insurance policy to be maintained by the
Company. Company shall provide Employee with copies of the articles of
incorporation, the by-laws, and the insurance policy.
TERM - (Pursuant to Paragraph 3) - This Agreement shall be for a term of
three years, commencing on August 1, 1997. This Agreement shall not be
terminated except in accordance with its terms.
COMPENSATION - (Pursuant to Paragraph 4) -
1) Salary - For all of his services to be rendered hereunder,
including his service on the Board of Directors and any committees thereof,
Employee shall be paid an annual salary of Two Hundred Thousand ($200,000)
Dollars during his first year of employment hereunder. Employee's
compensation for the second year of employment shall be the initial annual
compensation, increased by a factor equal to the prior year's inflation.
Employee's compensation for the third year of employment hereunder shall be
as mutually agreed upon by the parties after good faith negotiations at the
end of the second employment year, provided, however, that in no event shall
such third year compensation be less than the compensation paid in the second
year of employment increased by factor equal to the prior year's inflation.
2) Bonus - Employee shall be entitled to an annual bonus in an
amount equal to either 10%, 20%, or 30% of base compensation, depending upon
the achievement, by the Company, of certain financial and operational goals,
the definition of which shall be provided to Employee by the Board of
Directors of the Company prior to the commencement of employment hereunder.
Employee shall receive the most favorable bonus as shall have been paid to
any other executive officer of the Company. Bonus compensation hereunder
shall be paid to Employee within ninety (90) days of the end of the period of
measurement thereof.
<PAGE>
3) Automobile Allowance - Employee shall be paid a monthly
automobile allowance in the amount of Six Hundred ($600) Dollars which is
intended to represent reimbursement to Employee of all costs incurred in the
operation of his automobile on Company business. The amount set forth herein
shall be the maximum amount allowed to Employee for any automobile expenses.
4) Health, Dental, Disability and Life Insurance - Employee shall
receive, at no cost to Employee, full coverage for Employee and his
dependents, in such health, dental, accident and long-term disability
insurance as shall be in force in the Company from time to time. Employee
shall receive from the Company, at no cost to Employee, life insurance on the
life of Employee in an amount equal to the Employee's annual salary
hereunder. Employee may, subject to the provisions of the group life
insurance contract, purchase additional life insurance at Employee's sole
cost and expense.
5) 401 (K) Plan/Stock Option Plan - Employee shall be entitled to
participate in any 401(K) or employee stock option plan adopted by the
Company. The amount of contribution thereto by Company, if any, shall be at
Company's sole discretion.
6) Vacation - Employee shall be entitled to four (4) weeks paid
vacation during each year of employment hereunder which may be accumulated up
to a maximum of eight (8) weeks during any one calendar year.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 1st day of April, 1997, by and between INTEGRATED
PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with its principle
place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter
referred to as "Company") and Dennis B. Liotta, M.D., an adult individual
residing at 33 High Ridge Road, Wayside, NJ 07712, (hereinafter referred to
as "Employee".)
WHEREAS, Company wishes to hire and employ Employee on the terms and
conditions hereinafter set forth; and
WHEREAS, Employee wishes to accept such employment in return for the
compensation set forth herein.
NOW, THEREFORE, in return for the mutual covenants and conditions set
forth herein, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts
employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Duties
(a) Employee shall serve Company generally in the capacity
described on Exhibit A, attached hereto and incorporated herein by this
reference, shall be an authorized agent of the Company, and shall have such
authority and responsibilities commensurate with the position held, as
Company may reasonably determine from time to time. Employee shall perform
any other duties reasonably required or requested by Company.
(b) Throughout the term of this Agreement, Employee shall
devote his entire business working time, energy, skill and best efforts to
the performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company.
3. Term
Unless sooner terminated as herein provided, this Agreement
shall be for the term set forth on Exhibit A attached hereto and incorporated
herein by this reference.
<PAGE>
4. Compensation
(a) For all of the services rendered by Employee to Company,
Employee shall receive the compensation set forth on Exhibit A attached hereto,
payable in reasonable periodic installments in accordance with Company's
regular payroll practices in effect from time to time.
(b) Throughout the term of this Agreement and provided that
Employee shall be deemed to be a full-time employee, Employee shall be
entitled to participate in and receive the benefits of any pension, profit
sharing plan, or 401K plan. Company will provide Employee and his
designated dependents with Company paid health, life, accident and disability
insurance in addition to any other plans or programs that are paid for other
similarly situated employees of Company.
(c) Employee shall be entitled to the paid vacation set forth on
Exhibit A attached hereto.
(d) During Employee's employment hereunder, and in accordance with
Exhibit "A" attached hereto, Company shall reimburse Employee for all
ordinary and necessary business expenses incurred by him in connection with
the business of Company, including, but not limited to reimbursement for use
of home telephone, home fax, and personal cellular phone. Such payments shall
be made by Company upon submission by Employee of vouchers itemizing such
expenses in a form reasonably satisfactory to Company.
5. Disability
If Employee becomes unable to perform his/her duties hereunder due
to partial or total disability or incapacity resulting from a mental or
physical illness or any similar cause, and such disability continues for a
period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement
upon thirty (30) days written notice to Employee. In the event of such
disability, Company shall pay Employee his then current compensation,
including any and all accrued salary, bonus compensation and vacation pay,
through the date of the commencement of Employee's entitlements under
Company's long-term disability insurance policy. Thereafter, Company shall
have no further obligations or liabilities to Employee hereunder.
6. Death
If Employee dies, this Agreement shall automatically terminate and
all payments hereunder shall cease at the end of the month in which
Employee's death shall occur and Company shall have no further obligations or
liabilities hereunder to Employee's estate or legal representative or
otherwise.
<PAGE>
7. Discharge for Cause
(a) Notwithstanding the stated term of employment, this Agreement
and the Employee's employment may be sooner terminated by the Company for any
of the following reasons:
(i) The willful failure, or refusal of Employee to perform his
duties as may, from time to time, be delegated to him by the Company, through
the President, the Chief Executive Officer, or the Board of Directors.
(ii) Employee's gross negligence or intentional failure to act
which materially and adversely affects the business or affairs of the Company.
(iii) Any act by Employee of fraud, dishonesty or criminal
wrongdoing.
(iv) Any intentional or willful breach by Employee of any
material covenant of this Agreement including but not limited to the
provisions regarding noncompetition and confidentiality.
All of the foregoing shall be, separately and collectively, known
as "cause" for termination.
(b) The Company shall effect termination pursuant to this Section 7
by written notice to Employee specifying in reasonable detail the
circumstances alleged by Company to constitute "cause" and the specific
provisions of this Section 7 relied upon in effecting such termination. The
date of such termination shall be the date ten (10) days after Company gives
such notice of termination to Employee. If the grounds for termination are
solely the grounds set forth in Section 7(a)(ii) or (iv) above, then during
such ten (10) day period, Employee shall be afforded an opportunity to
discuss the basis for such termination with the full Board of Directors of
the Company, and Employee shall, at his election exercised in writing prior
to the expiration of such ten (10) day period, be entitled to a period of not
less than thirty (30) days after the date of such discussion to attempt to
remedy or cure the conduct alleged to constitute such grounds and the harm
caused thereby if in the good faith judgment of the Board of Directors such
conduct and harm is capable of being remedied or cured within such thirty
(30) day period. If, after the expiration of such cure period, the Employee
has not in the good faith judgement of the Board of Directors remedied or cured
the conduct alleged to constitute such grounds and the harm caused thereby,
the termination shall be effective upon notice to Employee of such adverse
Board judgment.
(c) In the event of early termination of Employee's employment
hereunder, for any reason, Employee shall, simultaneously with such
termination, be conclusively deemed to have resigned any other position he
might hold with the Company. Employee agrees to execute any and all documents
reasonably requested of him by Company's Board of Directors to evidence such
resignation(s).
<PAGE>
8. Compensation Upon Termination.
In the event that the Employee's employment and this Agreement is
terminated by Company prior to the end of its term,
Company shall pay to Employee, as severance compensation, in circumstances
other than by Employee's death or disability, or other than as a result of
change in control of the Company, an amount equal to two months' salary. This
amount shall be in addition to all compensation earned or accrued by
Employee through the last day of actual employment. In the event that
Employee's employment is terminated by the Company as a result of change in
control of the Company, the Company shall pay to Employee, as severance
compensation, an amount equal to two times (i) Employee's base annual salary
and (ii) Employee's maximum potential annual bonus compensation. After the
payment of such severance compensation, Company shall have no further
obligation or liability to Employee hereunder.
9. Key Man Insurance. Company shall the right to obtain, at its sole
discretion, what is commonly known as Key Man Insurance on the life of the
Employee in such amount as the Company deems appropriate. Executive agrees to
cooperate in all respects in the obtaining of such a policy. All expenses
involved in connection with the obtaining and maintaining of such a policy
shall be paid by the Company.
10. Company Property; Noncompetition
(a) All research, experiments, discoveries, inventions,
improvements, materials or information, including without limitation, reports,
analysis, handbooks, manuals, invoices, price lists or information, customer
lists, information about costs, profits, markets, sales, pricing, methods and
other business affairs including future expansion plans, or any other
materials or data of any kind furnished to Employee by Company or developed
by Employee on behalf of Company or at Company's direction or for Company's
use or otherwise in connection with Employee's employment hereunder, are and
shall remain the sole and confidential property of Company, and Employee
shall immediately deliver the same to Company at the termination of
Employee's employment or at any other time if so requested by Company.
(b) During the term of this Agreement and at all times thereafter,
Employee shall not use for his/her personal benefit, or disclose, communicate
or divulge to, or use for the direct or indirect benefit of any person, firm
association, or company other than the Company, any material referred to in
subparagraph (a) above or any information regarding the business methods,
business policies, procedures, techniques, research or development projects
or results, trade secrets, or any other confidential information relating to
or dealing with the business operations or activities of the Company.
(c) During the term of this Agreement and for a period of two (2)
years after termination of his/her employment with Company for any reason
whatsoever, Employee shall not directly or indirectly induce or attempt to
influence any employee of Company to terminate his employment with Company.
<PAGE>
(d) During the period of time which Employee is employed by Company
pursuant to the terms of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Company, Employee shall not,
directly or indirectly, within a State wherein Company then does business,
own, manage, operate, join, control, finance, or participate in the
ownership, management, operation, control, or financing of, or be connected
as an officer, director, employee, partner, principal, agent, representative,
consultant, or otherwise, with any enterprise, business, firm or corporation
which is in direct competition with the Company. If Employee violates the
provisions of this Paragraph 10(d), the restrictive period set forth herein
shall be extended by a period of time equal to the number of days, if any,
during which the Employee is in violation of the provisions hereof.
(e) Employee hereby acknowledges and agrees that the covenants and
restrictions contained in this Paragraph 10 relate to matters which are of a
special, unique, and extraordinary importance to Company. Employee
acknowledges that the restrictions contained in the foregoing subparagraphs
are reasonable and necessary in order to protect the legitimate interests of
Company and that without such restrictions, Company would be unwilling to
enter into this Agreement. Employee acknowledges that any violation of any
of the terms hereof will result in irreparable injury to Company for which
money damages alone will be insufficient. Accordingly, Employee agrees that
Company shall be entitled to obtain from any Court of competent jurisdiction,
preliminary and permanent injunctive relief for a violation or threatened
violation of any such restrictions without having to prove actual damages or
to post a bond. Company shall also be entitled to an equitable accounting of
all earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled in law or equity. Employee hereby waives any
objections on the grounds of improper jurisdiction or venue to the
commencement of an action in the state of New Jersey and agrees that
effective service of process may be made upon him/her by mail under the
notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT
THE TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE
REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE
OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL
EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY
AND VOLUNTARILY AGREES TO BE BOUND HEREBY.
(f) It is the intent of the parties that the provisions of this
Paragraph 10 be enforceable to the fullest extent permitted by law. If,
however, any portion of any section of this Agreement including the
restrictive covenant as set forth herein is held by a court of law to be
unreasonable in any proceeding, then the period of time, the geographic area,
or such other restrictions shall be reduced by the elimination or reduction
of such portion thereof, so that such restrictions may be enforced in a
manner that is adjudged to be reasonable.
11) Miscellaneous
(a) Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement, shall be governed
by and construed in accordance with the laws of the State of New Jersey.
<PAGE>
(b) Indulgences, etc. Neither the failure nor any delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any waiver
of any right, remedy, power or privilege, for a particular occurrence,
constitute a waiver with respect to any other occurrence.
(c) Binding Nature. This Agreement shall be binding upon and
inure to the benefit of Company and its successors and assigns and shall be
binding upon Employee, his heirs and legal representatives.
(d) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or
written, except as herein contained. This Agreement may not be modified or
amended other than by an agreement in writing, signed by the parties.
(e) Assignment. This Agreement may be assigned by Company upon
thirty (30) days written notice to Employee. Employee may not assign his
duties, obligations or entitlements hereunder.
(f) Right To Independent Counsel. The parties hereto recognize
that this Agreement is a legal document which may affect them adversely.
Consequently, the parties acknowledge that prior to executing this Agreement
they were given the opportunity to seek the advice of independent legal
counsel regarding the provisions of this Agreement and their legal
involvement herein. By executing this Agreement, the parties acknowledge
that they have reviewed this Agreement with independent counsel or have
waived their opportunity to do so.
(g) Expenses of Agreement. Each of the parties hereto shall bear
its own expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
(h) Notices. Any notice required to be given pursuant to the terms
of this Agreement shall be in writing and sent by registered mail or
nationally recognized carrier, to the parties at the following addresses:
To the Employer at:
Integrated Physician Systems, Inc.
2644 Bristol Road
Warrington, PA 18976
To the Employee at:
<PAGE>
Dennis B. Liotta, M.D.
33 High Ridge Road
Wayside, NJ 07712
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
INTEGRATED PHYSICIAN SYSTEMS, INC.
Attest:/S/ Joseph F. Murray By: /S/ Scott G. Pollock
______________________ __________________________
EMPLOYEE:
Witness:/S/ Manuela E. Jackson /S/ Dennis B. Liotta, M.D.
______________________ ______________________________
Dennis B. Liotta, M.D.
<PAGE>
EMPLOYMENT AGREEMENT BETWEEN INTEGRATED PHYSICIAN SYSTEMS
INC. AND DENNIS B. LIOTTA, M.D.
EXHIBIT "A"
DUTIES-(Pursuant to Paragraph 2)-Employee shall occupy the office of
Executive Vice President. Employee shall serve as the Chief Operating Officer
of the Company, and, as such, shall be responsible for the day to day
operations of the Company. Employee shall also serve as President of
Professional Medical Images, LTD., a subsidiary of the Company involved in
IPA development and management services. Employee shall report to and follow
the directions of the President of the Company. Employee shall serve as one
of management's representatives on the Board of Directors of the Company.
Employee shall be indemnified and held harmless by the Company for all acts
of Employee as an officer or director of the Company in accordance with (i)
the provisions set forth in the amended articles of incorporation of the
Company, (ii) the provisions set forth in the by-laws of the Company, and
(iii) the provisions of the directors and officers liability insurance policy
to be maintained by the Company. Company shall provide Employee with copies
of the articles of incorporation, the by-laws, and the insurance policy.
TERM-(Pursuant to Paragraph 3)-This Agreement shall be for a term of
three (3) years from August 1, 1997.
COMPENSATION-(Pursuant to Paragraph 4)-
Salary-For all of his services to be rendered hereunder,
including his service on the Board of Directors and any committees thereof,
Executive Employee shall be paid an annual salary of Two Hundred Thousand
Dollars ($200,000) commencing with the closing of the Company's
initial public offering. From April 1, 1997 until the closing of the
Company's initial public offering, Employee's annual compensation will be
One Hundred Fifty Thousand Dollars ($150,000). Employee's compensation for
the second and third years of employment shall be the initial
annual compensation, increased by a factor equal to the prior year's inflation.
Bonus-Employee shall be entitled to an annual bonus in an amount
equal to either 10%, 20% or 30% of base compensation depending upon the
achievement, by the Company, of certain financial and operational goals, the
definition of which shall be provided to Employee by the Chief Executive
Officer prior to the commencement of employment hereunder. Employee shall
receive the most favorable bonus as shall have been paid to any other
executive officer of the Company. Bonus compensation hereunder shall be paid
to Employee within ninety (90) days of the end of the period of measurement
thereof.
<PAGE>
Automobile Allowance-Employee shall be paid a monthly automobile
allowance in the amount of Six Hundred ($600) Dollars which is intended to
represent reimbursement to Employee of all costs incurred in the operation of
his automobile on Company business. The amount set forth herein shall be the
maximum amount allowed to Employee for any automobile expenses.
Health, Dental, Disability and Life Insurance-Employee shall
receive, at no cost to Employee, full coverage for Employee and his
dependents, in such health, dental, accident and long-term disability
insurance programs as shall be in force in the Company from time to time, and
shall receive any such other benefits as shall be received by other employees
of the Company similarly situate. Employee shall receive from the Company, at
no cost to Employee, life insurance on the life of the Employee in an amount
equal to Employee's annual salary hereunder. Employee may, subject to the
provisions of the group life insurance contract, purchase additional life
insurance at Employee's sole cost and expense.
401(K)Plan-Employee shall be entitled to participate in any 401(K)
plan adopted by the company. The amount of contribution thereto by Company,
if any, shall be at Company's sole discretion.
Vacation-Employee shall be entitled to four (4) weeks paid vacation
during each year of employment hereunder which may be accumulated up to a
maximum of eight (8) weeks during any one calendar year.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made this 8th day of June, 1997, by and between INTEGRATED
PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with a principal
place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter
referred to as "Company") and PETER R. HEISEN, M.D., an adult individual
residing at 38 Timber Knoll Drive, Washington Crossing, PA 18977,
(hereinafter referred to as "Employee".)
WHEREAS, Company wishes to hire and employ Employee on the terms and
conditions hereinafter set forth; and
WHEREAS, Employee wishes to accept such employment in return for the
compensation set forth herein.
NOW, THEREFORE, in return for the mutual covenants and conditions set
forth herein, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts
employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Duties
(a) Employee shall serve Company generally in the capacity
described on Exhibit A, attached hereto and incorporated herein by this
reference, and shall have such authority and responsibilities as Company may
reasonably determine from time to time. Employee shall perform any other
duties reasonably required by Company.
(b) Throughout the term of this Agreement, Employee shall
devote his entire business working time, energy, skill and best efforts to
the performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company.
3. Term
Unless sooner terminated as herein provided, this Agreement
shall be for the term set forth on Exhibit A attached hereto and incorporated
herein by this reference.
4. Compensation
(a) For all of the services rendered by Employee to Company,
Employee shall receive the compensation set forth on Exhibit A attached
hereto, payable in reasonable periodic installments in accordance with
Company's regular payroll practices in effect from time to time.
<PAGE>
(b) Throughout the term of this Agreement and provided that
Employee shall be deemed to be a full-time employee, Employee shall be
provided the health, dental, life and disability insurance benefits set forth
in paragraph 4 of Exhibit "A" attached hereto, and shall be entitled to
participate in the Company's 401K plan as described in paragraph 5 of Exhibit
"A."
(c) Employee shall be entitled to the paid vacation set forth
on Exhibit A attached hereto.
(d) During Employee's employment hereunder, Company shall
reimburse Employee for all ordinary and necessary business expenses incurred
by him in connection with the business of Company. Such payments shall be
made by Company upon submission by Employee of vouchers itemizing such
expenses in a form reasonably satisfactory to Company.
5. Disability
If Employee becomes unable to perform his/her duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness or any similar cause, and such disability continues for a
period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement
upon thirty (30) days written notice to Employee. In the event of such
disability, Company shall pay Employee his then current compensation,
including any and all accrued salary, bonus compensation and vacation pay,
through the date of the commencement of Employee's entitlements under
Company's long-term disability insurance policy. Thereafter, Company
shall have no further obligations or liabilities to Employee hereunder.
6. Death
If Employee dies, this Agreement shall automatically terminate
and all payments hereunder shall cease at the end of the month in which
Employee's death shall occur and Company shall have no further obligations or
liabilities hereunder to Employee's estate or legal representative or
otherwise, other than the payment of any and all accrued bonus compensation
and accrued vacation pay.
7. Discharge for Cause
(a) Notwithstanding the stated term of employment, this
Agreement and the Employee's employment may be sooner terminated by the
Company for any of the following reasons:
(i) The willful failure or refusal of Employee to
perform his duties as may, from time to time, be delegated to him by the
Company, through the Chief Executive Officer, or the Board of Directors.
(ii) Employee's gross negligence which materially and
adversely affects the business or affairs of the Company.
<PAGE>
(iii) Any act by Employee of fraud, dishonesty or criminal wrongdoing,
which materially adversely effects the Company.
(iv) Any intentional or willful breach by Employee of any material
covenant of this Agreement including but not limited to the provisions
regarding noncompetition and confidentiality.
All of the foregoing shall be, separately and collectively, known as
"cause" for termination.
(b) The Company shall effect termination pursuant to this Section 7 by
written notice to Employee specifying in reasonable detail the circumstances
alleged by Company to constitute "cause" and the specific provisions of this
Section 7 relied upon in effecting such termination. The date of such
termination shall be the date ten (10) days after Company gives such notice of
termination to Employee. If the grounds for termination are solely the
grounds set forth in Section 7(a)(ii) or (iv) above, then during such ten
(10) day period, Employee shall be afforded an opportunity to discuss the
basis for such termination with the full Board of Directors of the Company,
and Employee shall, at his election exercised in writing prior to the
expiration of such ten (10) day period, be entitled to a period of not less
than thirty (30) days after the date of such discussion to attempt to remedy
or cure the conduct alleged to constitute such grounds and the harm caused
thereby if in the good faith judgment of the Board of Directors such conduct
and harm is capable of being remedied or cured within such thirty (30) day
period. If, after the expiration of such cure period, the Employee has not in
the good faith judgment of the Board of Directors remedied or cured the
conduct alleged to constitute such grounds and the harm caused thereby, the
termination shall be effective upon notice to Employee of such adverse Board
judgment.
(c) In the event of early termination of Employee's employment hereunder,
for any reason, Employee shall, simultaneously with such termination, be
conclusively deemed to have resigned any other position he might hold with
the Company. Employee agrees to execute any and all documents reasonably
requested of him by Company's Board of Directors to evidence such
resignations(s).
8. Termination of Agreement by Employee for Cause.
(a) Employee may terminate this Agreement by written notice to Company on
or before the thirtieth (30th) day after the earlier of notice of or the
occurrence of the following events: (i) the giving of a title to Employee
below the level of Chief Medical Officer of the Company; (ii) the assignment
to Employee of any duties or a change in Employee status materially
inconsistent with those set forth herein, including the removal of Employee
from the Board of Directors of the Company; (iii) the Company's willful
breach of any material covenant of this Agreement which breach continues ten
(10) days after written notice to Company from Employee specifying the nature
of the breach and the remedy expected; or (iv) the relocation of the offices
at which Employee is based to a location outside of the Philadelphia or New
York metropolitan area.
<PAGE>
(b) If Employee terminates his employment with Company for any reason
specified in paragraph (a) above, in addition to any other remedies to which
Employee may be lawfully entitled, Employee shall be entitled to receive
severance pay as follows: (i) his then base salary paid monthly for the
remainder of the Term, but in no event less than one hundred and twenty-five
(125%) of such base salary for six (6) months, and (ii) the maximum possible
bonus compensation in accordance with the terms of Exhibit "A" attached
hereto. Furthermore, within ten (10) business days after such termination,
Company shall pay to Employee a per diem amount based upon such base salary for
any accrued vacation days not previously taken by Employee.
9. Compensation Upon Termination.
In the event that the Employee's employment and this Agreement is terminated
by Company prior to the end of its term, for cause as is set forth in
paragraph 7 hereof, Company shall pay to Employee, as severance compensation,
in circumstances other than by Employee's death or disability, or other than
as a result of change in control of the Company, an amount equal to two
months' salary. This amount shall be in addition to all compensation earned
or accrued by Employee through the last day of actual employment. In the
event that Employee's employment is terminated by the Company as a result of
change in control of the Company, the Company shall pay to Employee, as
severance compensation, an amount equal to two times (i) Employee's base
annual salary and (ii) Employee's maximum potential annual bonus
compensation. After the payment of such severance compensation, Company shall
have no further obligation or liability to Employee hereunder.
10. Key Man Insurance. Company shall have the right to obtain, at its
sole discretion, what is commonly known as Key Man Insurance on the life of
the Employee in such amount as the Company deems appropriate. Executive
agrees to cooperate in all respects in the obtaining of such a policy. All
expenses involved in connection with the obtaining and maintaining of such a
policy shall be paid by the Company.
11. Company Property; Noncompetition.
(a) All research, experiments, discoveries, inventions, improvements,
materials or information, including without limitation, reports, analysis,
handbooks, manuals, invoices, price lists or information, customer lists,
information about costs, profits, markets, sales, pricing, methods and other
business affairs including future expansion plans, or any other materials or
data of any kind furnished to Employee by Company or developed by Employee on
behalf of Company or at Company's direction or for Company's use or otherwise
in connection with Employee's employment hereunder, are and shall remain the
sole and confidential property of Company, and Employee shall immediately
deliver the same to Company at the termination of Employee's employment or at
any other time if so requested by Company.
(b) During the term of this Agreement and at all times thereafter, Employee
shall not use for his/her personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm
association, or company other than the Company, any
<PAGE>
material referred to in subparagraph (a) above or any information regarding
the business methods, business policies, procedures, techniques, research or
development projects or results, trade secrets, or any other confidential
information relating to or dealing with the business operations or activities
of the Company.
(c) During the term of this Agreement and for a period of two (2) years
after termination of his/her employment with Company for any reason
whatsoever, Employee shall not directly or indirectly induce or attempt to
influence any employee of Company to terminate his employment with Company.
(d) During the period of time which Employee is employed by Company
pursuant to the terms of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Company, Employee shall not,
directly or indirectly, within a State wherein Company then does business,
own, manage, operate, join, control, finance, or participate in the
ownership, management, operation, control, or financing of, or be connected
as an officer, director, employee, partner, principal, agent, representative,
or otherwise, with any enterprise, business, firm or corporation which is in
competition with the Company, other than providing consulting services to
William M. Mercer, Inc. or a similar consulting firm. If Employee violates the
provisions of this Paragraph 11(d), the restrictive period set forth herein
shall be extended by a period of time equal to the number of days, if any,
during which the Employee is in violation of the provisions hereof.
(e) Employee hereby acknowledges and agrees that the covenants and
restrictions contained in this Paragraph 11 relate to matters which are of a
special, unique, and extraordinary importance to Company. Employee
acknowledges that the restrictions contained in the foregoing subparagraphs
are reasonable and necessary in order to protect the legitimate interests of
Company and that without such restrictions, Company would be unwilling to
enter into this Agreement. Employee acknowledges that any violation of any of
the terms hereof will result in irreparable injury to Company for which
money damages alone will be insufficient. Accordingly, Employee agrees that
Company shall be entitled to obtain from any Court of competent jurisdiction,
preliminary and permanent injunctive relief for a violation or threatened
violation of any such restrictions without having to prove actual damages or
to post a bond. Company shall also be entitled to an equitable accounting of
all earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled in law or equity. Employee hereby waives any
objections on the grounds of improper jurisdiction or venue to the
commencement of an action in the state of New Jersey and agrees that
effective service of process may be made upon him/her by mail under the
notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT THE
TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE
REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE
OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL
EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY
AND VOLUNTARILY AGREES TO BE BOUND HEREBY.
<PAGE>
(f) It is the intent of the parties that the provisions of this
Paragraph 11 be enforceable to the fullest extent permitted by law. If,
however, any portion of any section of this Agreement including the
restrictive covenant as set forth herein is held by a court of law to be
unreasonable in any proceeding, then the period of time, the geographic area,
or such other restrictions shall be reduced by the elimination or reduction
of such portion thereof, so that such restrictions may be enforced in a
manner that is adjudged to be reasonable.
12) Miscellaneous
(a) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by
and construed in accordance with the laws of the State of New Jersey.
(b) Indulgences, etc. Neither the failure nor any delay on the part
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege, for a
particular occurrence, constitute a waiver with respect to any other
occurrence.
(c) Binding Nature. This Agreement shall be binding upon and inure to
the benefit of Company and its successors and assigns and shall be binding
upon Employee, his heirs and legal representatives.
(d) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or
written, except as herein contained. This Agreement may not be modified or
amended other than by an agreement in writing, signed by the parties.
(e) Assignment. This Agreement may be assigned by Company upon
thirty (30) days written notice to Employee. Employee may not assign his
duties, obligations or entitlements hereunder.
(f) Right to Independent Counsel. The parties hereto recognize that
this Agreement is a legal document which may affect them adversely.
Consequently, the parties acknowledge that prior to executing this Agreement
they were given the opportunity to seek the advice of independent legal
counsel regarding the provisions of this Agreement and their legal
involvement herein. By executing this Agreement, the parties acknowledge that
they have reviewed this Agreement with independent counsel or have waived
their opportunity to do so.
(g) Expenses of Agreement. Each of the parties hereto shall bear its
own expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
<PAGE>
(h) Notices. Any notice required to be given pursuant to the terms of
this Agreement shall be in writing and sent by registered mail or nationally
recognized carrier, to the parties at the following addresses:
To Company at:
Integrated Physician Systems, Inc.
615 Hope Road
Eatontown, NJ
To Employee at:
38 Timber Knoll Drive,
Washington Crossing, PA 18977
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTEGRATED PHYSICIAN SYSTEMS, INC.
Attest: /s/ Walter B. Dunsmore By: /s/ Scott G. Pollock
---------------------- -------------------------
Chief Executive Officer
EMPLOYEE:
Witness:/s/ Walter B. Dunsmore By: /s/ PETER R. HEISEN, M.D.
---------------------- -------------------------
PETER R. HEISEN, M.D.
<PAGE>
3) AUTOMOBILE ALLOWANCE - Employee shall be paid a monthly automobile
allowance in the amount of Six Hundred ($600) Dollars which is intended to
represent reimbursement to Employee of all costs incurred in the operation of
his automobile on Company business. The amount set forth herein shall be the
maximum amount allowed to Employee for any automobile expenses.
4) HEALTH, DENTAL, DISABILITY AND LIFE INSURANCE - Employee shall
receive, at no cost to Employee, full coverage for Employee and his
dependents, in such health, dental, accident and long-term disability
insurance as shall be in force in the Company from time to time. Employee
shall receive from the Company, at no cost to Employee, life insurance on the
life of Employee in an amount equal to twice the Employee's annual salary
hereunder. Employee may, subject to the provisions of the group life
insurance contract, purchase additional life insurance at Employee's sole
cost and expense.
5) 401(K) PLAN/STOCK OPTION PLAN - Employee shall be entitled to
participate in any 401(K) or employee stock option plan adopted by the
Company. The amount of contribution thereto by Company, if any, shall be at
Company's sole discretion.
6) VACATION - Employee shall be entitled to four (4) weeks paid vacation
during each year of employment hereunder which may be accumulated up to a
maximum of eight (8) weeks during any one calendar year.
<PAGE>
Exhibit 10.2
DRAFT 040597A
INTEGRATED PHYSICIAN SYSTEMS, INC.
1996 STOCK OPTION PLAN
ADOPTED APRIL 24, 1996
I. PURPOSE.
The purpose of the Integrated Physician Systems, Inc. 1997 Stock Option
Plan (the "Plan") is to provide a means whereby selected employees, officers,
directors, and consultants of Integrated Physician Systems, Inc., a Delaware
corporation (the "Company"), or of any parent or subsidiary (as defined in
subsection 5.7 hereof and referred to hereinafter as "Affiliates") thereof,
may be granted incentive stock options and/or nonqualified stock options to
purchase shares of common stock, $.01 par value (the "Common Stock") in
order to attract and retain the services or advice of such employees,
officers, directors, and consultants and to provide additional incentive for
such persons to exert maximum efforts for the success of the Company and its
Affiliates by encouraging stock ownership in the Company.
II. ADMINISTRATION.
Subject to Section 2.3 hereof, the Plan shall be administered by the
Board of Directors of the Company (the "Board") or, in the event the Board
shall appoint and/or authorize a committee of two or more members of the
Board to administer the Plan, by such committee. The administrator of the
Plan shall hereinafter be referred to as the "Plan Administrator."
The foregoing notwithstanding, in the event the Company shall register
any of its equity securities pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any
directors are eligible to receive options under the Plan, then with respect
to grants to be made to directors: (a) the Plan Administrator shall be
constituted so as to meet the requirements of Section 16(b) of the Exchange
Act and Rule 16b-3 thereunder, each as amended from time to time, or (b) if
the Plan Administrator cannot be so constituted, no options shall be granted
under the Plan to any directors.
SECTION 2.1 PROCEDURES. The Board shall designate one of the members of
the Plan Administrator as chairman. The Plan Administrator may hold meetings
at such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum
exists, or acts approved in writing by all Plan Administrator members, shall
be valid acts of the Plan Administrator.
SECTION 2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly
set forth herein, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
the Plan, including, without limitation, selection of whether an option will be
an incentive stock option or a nonqualified stock option, selection of the
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<PAGE>
individuals to be granted options, the number of shares to be subject to each
option, the exercise price per share, the timing of grants and all other
terms and conditions of the options. Grants under the Plan need not be
identical in any respect, even when made simultaneously. The Plan
Administrator may also establish, amend, and revoke rules and regulations for
the administration of the Plan. The interpretation and construction by the
Plan Administrator of any terms or provisions of the Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties, so long
as such interpretation and construction with respect to incentive stock
options corresponds to the requirements of Internal Revenue Code of 1986, as
amended (the "Code") Section 422, the regulations thereunder, and any
amendments thereto. The Plan Administrator shall not be personally liable for
any action made in good faith with respect to the Plan or any option granted
thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN. It is
the intention of the Company that the Plan comply in all respects with Rule
16b-3 under the Exchange Act to the extent applicable, and in all events the
Plan shall be construed in favor of its meeting the requirements of Rule
16b-3. If any Plan provision is later found not to be in compliance with such
Rule, such provision shall be deemed null and void. The Board of Directors
may act under the Plan only if all members thereof are "disinterested
persons" as defined in Rule 16b-3 and further described in Section 4 hereof;
and from and after the date that the Company first registers a class of
equity securities under Section 12 of the Exchange Act, no director or
officer or other Company "insider" subject to Section 16 of the Exchange Act
may sell shares received upon the exercise of an option during the six month
period immediately following the grant of the option. Notwithstanding
anything in the Plan to the contrary, the Board, in its absolute discretion,
may bifurcate the Plan so as to restrict, limit, or condition the use of any
provision of the Plan to participants who are officers and directors or other
persons subject to Section 16(b) of the Exchange Act without so restricting,
limiting, or conditioning the Plan with respect to other participants.
SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan shall
be the Common Stock, presently authorized but unissued or subsequently acquired
by the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under the Plan shall not exceed in the aggregate 300,000 shares
as such Common Stock was constituted on the effective date of the Plan. If any
option granted under the Plan shall expire, be surrendered, exchanged for
another option, canceled, or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of the Plan, including for replacement options which
may be granted in exchange for such surrendered, canceled, or terminated
options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to any
individual who, at the time the option is granted, is an employee of the Company
or any Affiliate thereof. A nonqualified stock option may be granted to any
employee, officer, director, or consultant of the Company or any Affiliate
thereof, whether an individual or an entity. Any party to whom an option
2
<PAGE>
is granted under the Plan shall be referred to hereinafter as an "Optionee."
A director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of a director as
a person to whom options may be granted, or in the determination of the
number of shares which may be covered by options granted to the director: (a)
the Board of Directors has delegated its discretionary authority over the
Plan to a committee consisting solely of "disinterested persons" (as defined
below) or (b) the Plan otherwise complies with the requirements of Rule 16b-3
under the Exchange Act. For purposes of this paragraph, a "disinterested
person" shall mean a director (i) who was not during the one year prior to
service as Plan Administrator granted or awarded equity securities pursuant
to the Plan or any other plan of the Company or its Affiliates entitling the
participants therein to acquire equity securities of the Company or its
Affiliates except as permitted by Rule 16b-3(c)(2)(i), or (ii) who is
otherwise considered to be a "disinterested person" in accordance with such
Rule 16b-3(c)(2)(i) or any other applicable rules, regulations, or
interpretations of the Securities and Exchange Commission.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under the
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations, and restrictions as the Plan Administrator shall
deem advisable and which are not inconsistent with the Plan. Notwithstanding
the foregoing, options shall include or incorporate by reference the
following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that may
be purchased pursuant to the exercise of each option, and the price per share
at which such option is exercisable (the "exercise price"), shall be as
established by the Plan Administrator; provided, that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not
less than 100% of the fair market value per share of the Common Stock at the
time of grant of the option with respect to incentive stock options; and
provided, further, that, with respect to incentive stock options granted to
greater than ten percent stockholders, the exercise price shall be as
required by Section 6 hereof.
5.2 TERM AND MATURITY. Subject to the restrictions contained in Section
6 hereof with respect to granting stock options to greater than ten percent
stockholders, the term of each stock option shall be as established by the
Plan Administrator and, if not so established, shall be ten years from the
date of its grant, but in no event shall the term of any incentive stock
option exceed a ten year period. To ensure that the Company or Affiliate will
achieve the purpose and receive the benefits contemplated in the Plan, any
option granted to any Optionee hereunder shall, unless the condition of this
sentence is waived or modified in the agreement evidencing the option or by
resolution adopted by the Plan Administrator, be exercisable according to the
following schedule:
3
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<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR
AFFILIATE FROM THE DATE PORTION OF TOTAL OPTION
THE OPTION IS GRANTED WHICH IS EXERCISABLE
------------------------- ------------------------
<S> <C>
1 year 25%
2 years 50%
3 years 75%
4 years 100%
</TABLE>
5.3 EXERCISE. Subject to the vesting schedule described in subsection
5.2 hereof, each option may be exercised in whole or in part; provided, that
only whole shares may be issued pursuant to the exercise of any option.
Subject to any other terms and conditions herein, the Plan Administrator may
provide that an option may not be exercised in whole or in part for a stated
period or periods of time during which such option is outstanding; provided,
that the Plan Administrator may rescind, modify, or waive any such limitation
at any time and from time to time after the grant date thereof. During an
Optionee's lifetime, any incentive stock options granted under the Plan are
personal to such Optionee and are exercisable solely by such Optionee.
Options shall be exercised by delivery to the Company of notice of the number
of shares with respect to which the option is exercised, together with
payment of the exercise price in accordance with Section 5.4 hereof.
5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of exercise the Plan
Administrator in a particular case determines not to accept a personal check)
for shares of Common Stock being purchased.
The Plan Administrator can determine at the time the option is granted in
the case of incentive stock options, or at any time before exercise in the
case of nonqualified stock options, that additional forms of payment will be
permitted. To the extent permitted by the Plan Administrator and applicable
laws and regulations (including, without limitation, federal tax and
securities laws and regulations and state corporate law), an option may be
exercised by:
(a) delivery of shares of Common Stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market
value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed Notice of Exercise, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and
4
<PAGE>
any federal, state, or local withholding tax obligations that may arise in
connection with the exercise;
(c) delivery of a properly executed Notice of Exercise, together with
instructions to the Company to withhold from the shares of Common Stock that
would otherwise be issued upon exercise that number of shares of Common Stock
having a fair market value equal to the option exercise price.
5.5 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate thereof
shall have the right to retain and withhold from any payment of cash or
Common Stock under the Plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. No
option may be exercised unless and until arrangements satisfactory to the
Company, in its sole discretion, to pay such withholding taxes are made. At
its discretion, the Company may require an Optionee to reimburse the Company
for any such taxes required to be withheld by the Company and withhold any
distribution in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the Optionee an amount equal
to such taxes or retain and withhold a number of shares having a market value
not less than the amount of such taxes required to be withheld by the Company
to reimburse the Company for any such taxes and cancel (in whole or in part)
any such shares of Common Stock so withheld. If required by Section 16(b) of
the Exchange Act, the election to pay withholding taxes by delivery of shares
of Common Stock held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act shall be made either six months prior to
the date the option exercise becomes taxable or at such other times as the
Company may determine as necessary to comply with Section 16(b) of the
Exchange Act. Although the Company may, in its discretion, accept Common
Stock as payment of withholding taxes, the Company shall not be obligated to
do so.
5.6 NONTRANSFERABILITY.
5.6.1 OPTION. Options granted under the Plan and the rights and
privileges conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in Section 414(p)
of the Code, or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder, and shall not be subject to
execution, attachment, or similar process. Any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of any option under the Plan or of
any right or privilege conferred hereby, contrary to the Code or to the
provisions of the Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby shall be null and
void ab initio. The designation by an Optionee of a beneficiary does not, in
and of itself, constitute an impermissible transfer under this subsection
5.6.1.
5.6.2 STOCK. The Plan Administrator may provide in the agreement
granting the option that (a) the Optionee may not transfer or otherwise
dispose of shares acquired upon
5
<PAGE>
exercise of an option without first offering such shares to the Company for
purchase on the same terms and conditions as those offered to the proposed
transferee or (b) upon termination of employment of an Optionee the Company
shall have a six month right of repurchase as to the shares acquired upon
exercise, which right of repurchase shall allow for a maximum purchase price
equal to the fair market value of the shares on the termination date. The
foregoing rights of the Company shall be assignable by the Company upon
reasonable written notice to the Optionee.
5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship with
the Company or any Affiliate thereof ceases for any reason other than
termination for cause, death, or total disability, and unless by its terms
the option sooner terminates or expires, then the Optionee may exercise, for
a three month period, that portion of the Optionee's option which is
exercisable at the time of such cessation, but the Optionee's option shall
terminate at the end of the three month period following such cessation as to
all shares for which it has not theretofore been exercised, unless, in the
case of a nonqualified stock option, such provision is waived in the
agreement evidencing the option or by resolution adopted by the Plan
Administrator within 90 days of such cessation. If, in the case of an
incentive stock option, an Optionee's relationship with the Company or
Affiliate thereof changes from employee to nonemployee (i.e., from employee
to a position such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or Affiliate and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct, or disclosure
of confidential information. If an Optionee's relationship with the Company
or any Affiliate thereof is suspended pending an investigation of whether or
not the Optionee shall be terminated for cause, all Optionee's rights under
any option granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any Affiliate thereof
ceases because of a total disability, the Optionee's option shall not
terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12 month period following
such cessation (unless by its terms it sooner terminates and expires). As
used in the Plan, the term "total disability" refers to a mental or physical
impairment of the Optionee which is expected to result in death or which has
lasted or is, in the opinion of the Company and two independent physicians,
expected to last for a continuous period of 12 months or more and which
causes or is, in such opinion, expected to cause the Optionee to be unable to
perform his or her duties for the Company and to be engaged in any
substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
6
<PAGE>
For purposes of this subsection 5.7, a transfer of relationship between
or among the Company and/or any Affiliate thereof shall not be deemed to
constitute a cessation of relationship with the Company or any of its
Affiliates. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is
on military leave, sick leave, or other bona fide leave of absence (as
determined by the Plan Administrator). The foregoing notwithstanding,
employment shall not be deemed to continue beyond the first 90 days of such
leave, unless the Optionee's reemployment rights are guaranteed by statute or
by contract.
As used herein, the term "Affiliate" shall be defined as follows: (a)
when referring to a subsidiary corporation, "Affiliate" shall mean any
corporation (other than the Company), at the time of the granting of the
option, in an unbroken chain of corporations ending with the Company, if
stock possessing 50% or more of the total combined voting power of all
classes of stock of each of the corporations other than the Company is owned
by one of the other corporations in such chain; and (b) when referring to a
parent corporation, "Affiliate" shall mean any corporation in an unbroken
chain of corporations ending with the Company if, at the time of the granting
of the option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any Affiliate thereof or within the three
month period (or 12 month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee,
to the extent that the Optionee would have been entitled to exercise such
option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or persons to
whom the Optionee's rights under the option shall pass by will or by the
applicable laws of descent and distribution.
5.9 STATUS OF STOCKHOLDER. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or
have any of the rights or privileges of, a stockholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under the Plan unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any option
granted pursuant to the Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of an Affiliate thereof, or to
continue to be engaged as a consultant to the Company or such Affiliate, or
to interfere in any way with the right of the Company or of any such
Affiliate to terminate his or her employment or other relationship with the
Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the requirements of
Section 422 of the Code with respect to incentive stock options and to the terms
and conditions and within the limitations of the Plan, including, without
limitation, Section 9.1 hereof, the Plan Administrator may modify or amend
outstanding options granted under the Plan. The modification
7
<PAGE>
or amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the
obligations of the Company under such option. Except as otherwise provided
herein, no outstanding option shall be terminated without the consent of the
Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under the Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Section 424(h) of the Code and so as not to cause any incentive stock option
issued hereunder to fail to continue to qualify as an incentive stock option
as defined in Section 422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of the Plan, to the extent
that the aggregate fair market value (determined at the time of the grant of
the incentive stock option) of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under the Plan and all other incentive
stock option plans of the Company, an Affiliate thereof or a predecessor
corporation) exceeds $100,000, such options shall be treated as nonqualified
stock options. The foregoing sentence shall not apply, and the limitation
shall be that provided by the Code or the Internal Revenue Service, as the
case may be, if such annual limit is changed or eliminated by (a) amendment
of the Code or (b) issuance by the Internal Revenue Service of (i) a Revenue
ruling, (ii) a Private Letter ruling to any of the Company, any Optionee, or
any legatee, personal representative, or distributee of any Optionee, or
(iii) regulations.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
5.13.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.4(a) AND (c). The value
of Common Stock received by the Optionee from an exercise under Sections
5.4(a) and 5.4(c) hereof shall be the fair market value as determined by the
Plan Administrator, provided, that if the Common Stock is traded in a public
market, such valuation shall be the average of the high and low trading
prices or bid and asked prices, as applicable, of the Common Stock for the
date of receipt by the Company of the Optionee's delivery of shares under
Section 5.4(a) hereof or delivery of the Notice of Exercise under Section
5.4(c) hereof, determined as of the trading day immediately preceding such
date (or, if no sale of shares is reported for such trading day, on the next
preceding day on which any sale shall have been reported).
5.13.2 EXERCISE OF OPTION UNDER SECTION 5.4(b). The value of Common Stock
received by the Optionee from an exercise under Section 5.4(b) hereof shall
equal the sales price received for such shares.
SECTION 6. GREATER THAN TEN PERCENT STOCKHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive stock
options are granted under the Plan to employees who, at the time of such grant,
own greater than ten percent of the total combined voting power of all classes
of stock of the Company or any Affiliate thereof, the term of such incentive
stock options shall not exceed five years and the
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<PAGE>
exercise price shall be not less than 110% of the fair market value of the
Common Stock at the time of grant of the incentive stock option. This
provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document. The term and exercise price
limitations of this provision shall be amended to conform to any change
required by a change in the Code or by ruling or pronouncement of the
Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned, directly
or indirectly, by or for his or her brothers, sisters, spouse, ancestors, and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership estate, or trust shall be deemed to be owned
proportionately by or for its stockholders, partners, or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion
of the option or warrant which is unexercised shall not be counted in
determining stock ownership. For purposes of this Section 6, stock owned by
an employee shall include all stock owned by him or her which is actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may be granted under the Plan,
the number and class of shares covered by each outstanding option, and the
exercise price per share thereof (but not the total price), and each such
option, shall all be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company resulting from a
split or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as provided
in subsection 7.1.2 hereof, upon a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of common stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or
stock, separation, reorganization (other than mere reincorporation or
creation of a holding company), or liquidation of the Company (each, an
"event"), as a result of which the stockholders of the Company receive cash,
stock, or other property in exchange for, or in connection with, their shares
of Common Stock, any option granted hereunder shall terminate, but the time
during which such options may be exercised shall be accelerated as follows:
the Optionee shall have the right immediately prior to any such event to
exercise such Optionee's option in whole or in part whether or not the
vesting requirements set forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger
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<PAGE>
have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, or reorganization (other than mere
reincorporation or creation of a holding company), all options granted
hereunder shall be converted into options to purchase shares of Exchange
Stock unless the Company and corporation issuing the Exchange Stock, in their
sole discretion, determine that any or all such options granted hereunder
shall not be converted into options to purchase shares of Exchange Stock but
instead shall terminate in accordance with the provisions of subsection 7.1.1
hereof. The amount and price of converted options shall be determined by
adjusting the amount and price of the options granted hereunder in the same
proportion as used for determining the number of shares of Exchange Stock the
holders of the Common Stock receive in such merger, consolidation,
acquisition, separation, or reorganization. Unless the Board determines
otherwise, the converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise required
for the Plan to qualify for the exemption afforded by Rule 16b-3 under the
Exchange Act, all adjustments under this Section 7 shall be made by the
Board, and its determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding, and conclusive. Unless an Optionee
agrees otherwise, any change or adjustment to an incentive stock option shall
be made in such a manner so as not to constitute a "modification" as defined
in Section 425(h) of the Code and so as not to cause the incentive stock
option issued hereunder to fail to continue to qualify as an incentive stock
option as defined in Section 422(b) of the Code.
SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with
respect to an option granted under the Plan unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation,
any applicable state securities laws, the Securities Act of 1933, as amended
(the "Act"), the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance, including, without
limitation, the availability of an exemption from registration for the
issuance and sale of any shares hereunder. Inability of the Company to obtain
from any regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any
shares hereunder or the unavailability of an exemption from registration for
the issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares as to
which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of
counsel for the Company, assurances are required by any relevant provision of
the aforementioned laws, the Company may
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<PAGE>
require the Optionee to give written assurances satisfactory to the Company
at the time of any such exercise (a) as to the Optionee's knowledge and
experience in financial and business matters (and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters) and that such Optionee is
capable of evaluating, either alone or with the purchaser representative, the
merits and risks of exercising the option or (b) that the shares are being
purchased only for investment and without any present intention to sell or
distribute such shares. The foregoing requirements shall be inoperative if
the issuance of the shares upon the exercise of the option has been
registered under a then currently effective registration statement under the
Act.
At the option of the Company, a stop-transfer order against any shares
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold, or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order
to assure exemption from registration. The Plan Administrator may also
require such other action or agreement by the Optionees as may from time to
time be necessary to comply with the federal and state securities laws. NONE
OF THE ABOVE SHALL BE CONSTRUED TO IMPLY AN OBLIGATION ON THE PART OF THE
COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange or on the NASDAQ National Market, all stock issued hereunder if not
previously listed on such exchange or market shall, if required by the rules
of such exchange or market, be authorized by that exchange or market for
listing thereon prior to the issuance thereof.
SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from the
sale of shares pursuant to the exercise of options granted hereunder shall
constitute general funds of the Company.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 BOARD ACTION. The Board may at any time suspend, amend, or
terminate the Plan, provided, that no amendment shall be made without
stockholder approval within 12 months before or after adoption of the Plan if
such approval is necessary to comply with any applicable tax or regulatory
requirement, including any such approval as may be necessary to satisfy the
requirements for exemptive relief under Rule 16b-3 of the Exchange Act or any
successor provision. Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of
the Plan unless the Company requests the consent of the person to whom the
option was granted and such person consents in writing thereto.
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<PAGE>
10.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, the
Plan shall terminate ten years from the earlier of (a) the date on which the
Plan is adopted by the Board or (b) the date on which the Plan is approved by
the stockholders of the Company. No option may be granted after such
termination or during any suspension of the Plan. The amendment or
termination of the Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option theretofore
granted under the Plan.
SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any
time within 12 months before or after the adoption of the Plan by the Board.
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<PAGE>
INTEGRATED PHYSICIAN SYSTEMS, INC.
[INCENTIVE][NONQUALIFIED] STOCK OPTION LETTER AGREEMENT
TO:____________________________
We are pleased to inform you that you have been selected by the Plan
Administrator of the Integrated Physician Systems, Inc. (the "Company") 1997
Stock Option Plan (the "Plan") to receive a(n) [incentive][nonqualified]
option for the purchase of _____ shares of the Company's common stock, $.001
par value, at an exercise price of $________ per share (the "exercise
price"). A copy of the Plan is attached and the provisions thereof,
including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are
summarized as follows:
TERM. The term of the option is ten years from date of grant, unless
sooner terminated.
EXERCISE. During your lifetime only you can exercise the option. The
Plan also provides for exercise of the option by the personal representative
of your estate or the beneficiary thereof following your death. You may use
the Notice of Exercise in the form attached to this Agreement when you
exercise the option.
PAYMENT FOR SHARES. The option may be exercised by the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or bank certified or cashier's checks;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a
fair market value at the time of exercise, as determined in good faith by the
Plan Administrator, equal to the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with instructions
to the Company to withhold from the shares that would otherwise be issued
upon exercise that number of shares having a fair market value equal to the
option exercise price; or
(d) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of
sale or loan proceeds to pay the exercise price.
TERMINATION. The option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or an Affiliate
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thereof, unless cessation is due to death or total disability, in which case
the option shall terminate 12 months after cessation of such relationship.
TRANSFER OF OPTION. The option is not transferable except by will or by
the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
VESTING. The option is vested according to the following schedule:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR
AFFILIATE FROM THE DATE PORTION OF TOTAL OPTION
THE OPTION IS GRANTED WHICH IS EXERCISABLE
------------------------- ------------------------
<S> <C>
1 year 25%
2 years 50%
3 years 75%
4 years 100%
</TABLE>
DATE OF GRANT. The date of grant of the option is ______________________.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE
SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND
BEFORE THE COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION
TO REGISTER THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION,
AND IF IT NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE
OPTION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT
TIME, EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS
ARE VERY LIMITED AND MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF
THE OPTION. CONSEQUENTLY, YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE
OPTION AND TO RECEIVE SHARES UPON SUCH EXERCISE. IN ADDITION, YOU SHOULD
CONSULT WITH YOUR TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING
OR EXERCISING YOUR OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH
OPTIONS.
You understand that, during any period in which the shares which may be
acquired pursuant to your option are subject to the provisions of Section 16
of the Securities Exchange Act of 1934, as amended (and you yourself are also
so subject), in order for your transactions under the Plan to qualify for the
exemption from Section 16(b) provided by Rule 16b-3, a total of six months
must elapse between the grant of the option and the sale of shares underlying
the option.
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Please execute the Acceptance and Acknowledgement set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very Truly Yours,
INTEGRATED PHYSICIAN SYSTEMS, INC.
By: ________________________________
Name:
Title:
3
<PAGE>
ACCEPTANCE AND ACKNOWLEDGEMENT
I, a resident of the State of _________, accept the stock option
described above granted under the Integrated Physician Systems, Inc. 1996
Stock Option Plan, and acknowledge receipt of a copy of this Agreement,
including a copy of the Plan. I have read and understand the Plan, including
the provisions of Section 8 thereof.
Dated: __________________________
____________________________________ ____________________________________
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of such Optionee's execution of
this Agreement, acknowledges that he or she has read this Agreement and the
Plan and is familiar with the terms and provisions thereof, and agrees to be
bound by all the terms and conditions of this Agreement and the Plan.
Dated: __________________________
__________________________
Spouse's Signature
__________________________
Printed Name
4
<PAGE>
NOTICE OF EXERCISE
The undersigned, pursuant to a(n) [incentive] [nonqualified] Stock Option
Letter Agreement (the "Agreement") between the undersigned and Integrated
Physician Systems, Inc. (the "Company"), hereby irrevocably elects to
exercise purchase rights represented by the Agreement, and to purchase
thereunder _____ shares (the "Shares") of the Company's common stock, $.001
par value ("Common Stock"), covered by the Agreement and herewith makes
payment in full therefor.
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"),
the undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and not for the account of others), for investment and not with a view to
the distribution or resale thereof;
(b) By virtue of his or her position, the undersigned has access to
the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a legend to
the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a
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registration statement filed and declared effective under the Act, the
undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of
Common Stock represented by the Shares.
Very Truly Yours,
___________________________________
(type name under signature line)
Social Security No. ________________
Address: ____________________________
_____________________________________
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<PAGE>
Exhibit 10.3
ASSET PURCHASE AGREEMENT
by and among
Integrated Physician Systems, Inc.
and
IPS Physicians/__________________, P.C.
and
_____________________________
and
_____________________________
May __, 1997
<PAGE>
INDEX
1. Purchase of Assets..........................................................
2. Purchase Price..............................................................
3. Representation and Warranties of Seller and Managing Physician..............
4. Representation and Warranties of Buyer and Affiliate........................
5. Actions of Seller Prior to Closing..........................................
6. The Closing.................................................................
7. Conditions to Buyer's Obligation to Close...................................
8. Conditions to Seller's Obligation to Close..................................
9. Conditions to Buyer's and Seller's Obligations to Close.....................
10. Brokers' Fees...............................................................
11. Patient Billing Matters; Accounts Receivable; Reconciliation................
12. Indemnification.............................................................
13. Transition..................................................................
14. No Legal or Tax Advice......................................................
15. Understanding of Nature of Securities.......................................
16. Miscellaneous...............................................................
EXHIBITS
Exhibit A - Medical Equipment...................................................
Exhibit B - Furniture...........................................................
Exhibit C - Contracts...........................................................
Exhibit D - Convertible Subordinated Promissory Note............................
Exhibit E - Employment Agreement................................................
Exhibit F - Lease Agreement/Assignment of Lease.................................
<PAGE>
DISCLOSURE STATEMENT
Schedule 1(c) Excluded Assets
Schedule 1(d)(ii) Excluded Employees
Schedule 3(b) Conflicts
Schedule 3(d) Liens and Encumbrances
Schedule 3(e) Litigation
Schedule 3(i) Authorizations
Schedule 3(l) Nonassignable Contracts
Schedule 3(n) Third Party Payor Claims
Schedule 3(r) Employee Benefits Plans
Schedule 3(s) Managing Physician Employees
Schedule 3(v) Intellectual Property
Schedule 3(y) Interests in Medical Ventures
SCHEDULES
Schedule I Representations and Warranties of Seller and Managing Physician
Schedule II Conditions to Buyer's Obligation to Close
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") made this ________ of May, 1997
by and among Integrated Physician Systems, Inc., a Delaware corporation (the
"Buyer"); IPS Physicians/______________, P.C., a New Jersey professional
corporation ("Affiliate")_________________, M.D., P.A. ("Seller") and
_________________________ ,M.D., "Managing Physician").
WITNESSETH:
WHEREAS, Seller and Managing Physician operate a medical practice located at
_________________ (the "Office"); and
WHEREAS, the Managing Physician is the sole shareholder of Seller; and
WHEREAS, Seller owns the accounts receivable, inventory, and other assets
utilized in the medical practice, and owns or leases the furniture, equipment,
and real property of the Practice; and
WHEREAS, the Buyer is in the business of owning, managing, and furnishing such
assets to physician through the acquisition of physician practices and the
employment of such physician through its affiliated entity, Affiliate; and
WHEREAS, in furtherance of its purposes Buyer has determined it is in its best
interest to acquire the medical practice, business, and assets of the Seller
(the "Practice"), on the terms and conditions described herein; and
WHEREAS, upon the terms and subject to the conditions hereinafter set forth,
Seller desires to sell to Buyer the Practice; and
WHEREAS, the Managing Physician will enter into an Employment Agreement with
Affiliate, pursuant to which the Managing Physician will agree to provide
professional medical services in connection with the Practice.
NOW, THEREFORE, in consideration of the covenants, conditions, representations,
and warranties contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Purchase of Assets
(a) Subject to the terms and conditions hereof and on the basis of and in
reliance upon the covenants, agreements, representations, and warranties set
forth herein, Seller hereby agrees to sell, assign, transfer, convey, set over
and deliver to Buyer, and Buyer hereby agrees to purchase and to accept, all of
Seller's right, title, and interest in and to the following property and
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assets of the Practice (the "Practice Assets") except the property and assets
excluded under Section 1(c) ("Excluded Assets"):
(i) All assets related to the Practice, including, without
limitation, all items of fixed and movable medical equipment owned by Seller
(a list of which is set forth on Exhibit "A" attached hereto) (the
"Equipment"); the medical and office supplies owned by Seller (the
"Supplies"); and all items of office equipment and furniture owned by Seller
(a list of which is set forth on Exhibit "B" attached hereto) (the
"Furniture") (hereinafter collectively referred to as the "Equipment,
Supplies, and Furniture");
(ii) To the extent transferable under applicable law, all currently
existing patient lists, patient credit information and histories, charts, files,
medical records, X-rays, and other documents and records generated in connection
with Seller's Practice (the "Patient Records");
(iii) Seller's intangible property associated with the Practice,
together with all of Seller's rights in and to its name and any fictitious names
used in connection with the Practice, or any variations thereof, and the
telephone number(s) for the Practice, to the extent assignable;
(iv) All other personal property of Seller used in the Practice,
including, without limitation, prepaid items, utility and other deposits,
supplier lists, all copies of all computer programs and software or interests
therein or rights thereto which are used for the purpose of supporting the
Practice together with the media on which such software or programs are stored,
including all documentation and information relating thereto, and, to the extent
assignable, all present and future causes of action and claims, including claims
under warranties relating to the Practice Assets, but excluding claims for
payment for medical services rendered prior to Closing as hereinafter defined
(collectively referred to as "Personal Property"); and
(v) Seller's interest in and rights under all contracts, including,
but not limited to, managed care agreements, governmental and private third
party payor agreements, service contracts, utility contracts, licenses, leases,
and agreements related to the operation of the Practice to which Seller or the
Managing Physician are a party, a list of which is set forth on Exhibit "C"
attached hereto ("Contracts"). Anything in this Agreement to the contrary
notwithstanding, Seller is not obligated to sell, assign, transfer, or convey to
Buyer, Seller's respective rights and obligations in any of the Contracts
without first obtaining all necessary approvals, consents, or waivers. Seller
shall use all reasonable efforts, and Buyer shall cooperate with Seller to
obtain all approvals, consents, or waivers necessary to convey to Buyer such
interest in and rights under all the Contracts as soon as practical; provided
however, that neither Seller nor Buyer shall be obligated to pay any
consideration therefor to any third party from whom such approval, consent, or
waiver is requested.
(b) If Seller is conveying to Buyer an interest in the Practice Assets
which is other than an interest as an owner, such as a lessee, Seller shall be
deemed to have transferred all of its interests in such Practice Assets to
Buyer.
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<PAGE>
(c) Buyer and Seller agree that Buyer is not acquiring hereunder the
following Excluded Assets: Seller's accounts receivable, cash, insurance
policies, investments, and rights with respect thereto; any real estate; and any
of the property and assets of Seller noted on Schedule 1(c) of the Disclosure
Statement.
(d) Except as described in the following sentence, Buyer is not assuming
any debts, liabilities, or obligations of Seller of any kind or nature
whatsoever, whether known or unknown, accrued or existing, including but not
limited to: tort claims asserted against Seller, Managing Physician, the
Practice, and/or its employees; claims against Seller, the Practice, or Managing
Physician for breach of contract, which are based on acts or omissions of Seller
or Managing Physician prior to the Closing Date; obligations under any
employment agreements or employee benefit plans, or to pay termination or
severance pay; or any obligation or liability to any local, state, or federal
government or agency thereof with respect to withholding, payroll, unemployment
compensation, or similar taxes, contributions, or assessments relating to
individuals who provided services on behalf of Seller or Managing Physician at
the Practice prior to the Closing Date. Buyer shall assume only the following
obligations:
(i) Obligations of Seller or Managing Physician under Contracts that
Buyer elects to assume, but only with respect to performance that becomes due
after the Closing Date;
(ii) Buyer or Affiliate agree to hire the employees of Seller on
terms and conditions acceptable to Buyer, except to the extent set forth on
Schedule 1(d)(ii) of the Disclosure Statement, but shall not assume any
obligation or liability of Seller, Managing Physician, or any other party with
respect to such employees which arose prior to the Closing Date, whether such
liability or obligation is to an individual employee or to a third party.
However, the hiring of any non-physician employee shall not create any
continuing obligation on behalf of the Buyer or Affiliate to retain such
employee. Buyer shall give each such hired non-physician employee credit for
accrued vacation and sick time and Buyer will be credited with the value of such
accrued vacation and sick time in connection with the reconciliation referred to
in Section 11(d).
2. Purchase Price
(a) The purchase price for the Practice Assets ("Purchase Price") shall
be ______ Dollars ($______). Buyer shall pay the Purchase Price by
delivering to Seller at Closing (i) the amount of_____________________($______)
in cash or certified funds in accordance with Section 6 hereof and
(ii)________________(___) shares of Buyers Common Stock.
(b) Buyer and Seller agree that at the Closing, they shall allocate the
Purchase Price among the Equipment, Supplies, and Furniture, Patient Records,
Name (if any), Contracts, and other intangible assets comprising the Practice
Assets for federal and state income tax purposes, and that they each will report
the transactions contemplated in this Agreement consistent with such allocation.
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<PAGE>
3. Representations and Warranties of Seller and Managing Physician.
The Seller and the Managing Physician jointly and severally represent and
warrant to Buyer as set forth in Schedule I, attached hereto and incorporated
herein by reference, and further warrant that all such representations and
warranties shall be true and correct as of the Closing Date.
4. Representations and Warranties of Buyer and Affiliate.
Buyer and Affiliate represent and warrant to Seller that:
(a) Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware and has all necessary corporate
power and authority to carry on its business as presently conducted, and,
subject to approval of the transactions contemplated hereby by Buyer's
appropriate governing board, has full power and authority to execute, deliver,
and perform this Agreement and all other agreements pertaining to the
transactions contemplated hereby in accordance with their respective terms.
(b) Affiliate is a professional corporation duly organized, validly
existing, and in good standing under the laws of the state of New Jersey and has
all necessary corporate power and authority to carry on its business as
presently conducted and subject to approval of the transactions contemplated
hereby by appropriate governing boards, has full power and authority to execute,
deliver, and perform this Agreement and all other agreements pertaining to the
transactions contemplated hereby, in accordance with their respective terms.
(c) Neither the execution nor delivery of this Agreement, or any documents
to be delivered by Buyer hereunder, nor the performance thereof, will materially
breach or conflict with either Buyer's or Affiliate's Articles of Incorporation
or Bylaws, any state, federal, or local law, or any of the terms, conditions, or
provisions of any agreement, instrument or decree to which Buyer or Affiliate is
a party or by which Buyer or Affiliate is bound, or constitute a default
thereunder, or result in a termination of such agreement or instrument, and the
execution and delivery of this Agreement and any other documents to be delivered
hereunder will not be in violation of or conflict with any of the terms of any
order, judgment, or decree applicable to Buyer or Affiliate or by which Buyer or
Affiliate is bound.
(d) This Agreement has been duly authorized, executed, and delivered by
Buyer and Affiliate. This Agreement is the legal, valid, and binding obligation
of Buyer and Affiliate and is enforceable against the Buyer and Affiliate in
accordance with its terms.
(e) There is no action, suit, or proceeding pending or, to the best of
Buyer's knowledge, threatened against the Buyer which would in any way affect
the ability of Buyer to enter into this Agreement, or to complete the
transaction contemplated hereby.
(f) There is no action, suit, or proceeding pending or, to the best of
Affiliate's knowledge, threatened against Affiliate which would in any way
affect the ability of Affiliate to
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enter into this Agreement or the Employment Agreements or to complete the
transaction contemplated hereby.
5. Actions of Seller Prior to Closing
Seller and Managing Physician each covenant and agree that pending the
Closing and except as otherwise agreed to in writing by Buyer that:
(a) The business of Seller shall be conducted solely in the ordinary
course of business consistent with past practice;
(b) Seller and Managing Physician shall continue to maintain and service
the Practice Assets in the same manner as has been its consistent past practice;
(c) Seller and Managing Physician shall use their respective best efforts
to retain the services of the present employees and agents of Seller and to
maintain their relationships and goodwill with the suppliers, customers,
patients, and others having business relations with Seller;
(d) Seller shall not directly or indirectly sell or encumber any or any
part of the Practice Assets, or initiate or participate in any discussions or
negotiations or enter into any agreement to do any of the foregoing;
(e) Seller and Managing Physician shall give to Buyer and its counsel,
accountants, or other representatives free and full access to and the right to
inspect, during normal business hours, all of the Practice Assets, records,
contracts, and other documents relating to the Practice and the Practice Assets
(including all records of billings and collections) for the purpose of making
such investigation of the business as Buyer shall desire to make, provided that
such investigation shall not unreasonably interfere with Seller's business
operations;
(f) Seller shall promptly advise Buyer in writing of the threat or
commencement against Seller or the Managing Physician of any dispute, claim,
action, suit, proceeding, arbitration, or investigation by, against, or
affecting Seller or any of its operations, assets, or prospects, or which
challenges or may affect the validity of this Agreement or the ability of Seller
or the Managing Physician to consummate the transactions contemplated herein;
(g) Seller shall promptly advise Buyer in writing of any event or the
existence of any fact which makes untrue, or will make untrue as of the Closing
Date, any representation or warranty of Seller or Managing Physician set forth
in this Agreement; and
(h) Seller shall send, or cause to be sent, within the period of time
prescribed by law, all notices and/or requests for clearance required to be
sent or provided to any taxing authority of the State of New Jersey with respect
to the sale of any assets hereunder.
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6. The Closing
(a) The Closing of the transactions hereunder ("Closing") shall take place
within ten business days of the receipt by Buyer of the proceeds from the
initial public offering of its securities as contemplated in Paragraph 8(e) or
on such other date as the parties shall mutually agree, but in no case later
than June 30, 1997 (the "Closing Date"), at the office of Buyer or at such other
location as the parties mutually agree.
(b) Seller shall deliver to Buyer at Closing the following, all of which
shall be in a form satisfactory to Buyer:
(i) A Certificate of Seller and Managing Physician dated as of the
Closing Date confirming that each of the representations and warranties of
Seller and Managing Physician contained herein (including but not limited to the
representations and warranties set forth in Schedule I) is true and correct at
and as of the Closing Date and that Seller and Managing Physician shall have
complied with and performed all of the agreements, covenants, and conditions
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date.
(ii) A letter from the Seller's accountant stating that all income
and other tax returns required to be filed by the Seller relating to the
Practice have been filed and all taxes shown thereon as due have been paid.
(iii) Such bills of sale with covenants of warranty, assignments,
endorsements, and other good and sufficient instruments and documents of
conveyance and transfer, in form reasonably satisfactory to Buyer and its
counsel, as shall be necessary and effective to transfer and assign to, and vest
in Buyer, all of Seller's right, title, and interest in and to the Practice
Assets.
(iv) A Certificate of Good Standing as of a date within fifteen (15)
days prior to the Closing Date for Seller, certified by the Secretary of State
of the state of New Jersey and copies of the Resolutions of the Board of
Directors and Shareholders of Seller authorizing the execution, delivery, and
performance of this Agreement and other agreements and instruments referred to
herein.
(v) An Employment Agreement between Managing Physician and Affiliate
substantially in the form attached hereto as Exhibit "D", which shall have been
duly executed by the Managing Physician.
(vi) Such other documents and instruments as Buyer may reasonably
request to effectuate or evidence the transactions contemplated by this
Agreement.
(c) Buyer shall deliver to Seller or the appropriate individual at Closing
the following, all of which shall be in a form satisfactory to Seller:
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(i) A Certificate of Buyer dated as of the Closing Date confirming
that each of the representations and warranties of Buyer contained herein is
true and correct at and as of the Closing Date.
(ii) A Certificate of Affiliate dated as of the Closing Date
confirming that each of the representations and warranties of Affiliate
contained herein is true and correct at and as of the Closing Date.
(iii) The payment of __________ Dollars ($______) in cash or
certified funds.
(iv) The Employment Agreement, which shall have been duly executed by
Affiliate and Buyer.
(v) Certificates for ________ shares of Buyers Common Stock.
(vi) Such other documents and instruments as Seller may reasonably
request to effectuate or evidence the transactions contemplated by this
Agreement.
(d) Seller or Managing Physician and Buyer, or those affiliates designated
by Seller and Buyer, shall execute and deliver:
(i) An Assignment of Lease Agreement between Seller and Buyer for the
lease of __________________ ("Assignment of Lease"). If required by the terms
of such lease, Seller shall obtain the written consent of the landlord of the
premises to such assignment prior to the Closing hereunder.
(ii) A duly executed and fully enforceable Lease Agreement between
Buyer ("Lessee") and ____________________ ("Lessor") for the premises located
and known as _______________________, with terms mutually acceptable to Lessee
and Lessor.
(ii) Such other documents or instruments as Seller or Buyer shall
require to effectuate the intent of this paragraph.
(e) Following the Closing Date, at Buyer's request, Seller and Managing
Physician will execute, acknowledge, and deliver to Buyer such other instruments
of conveyance and transfer and will take such other actions and deliver such
other documents, certifications, and further assurances as Buyer may reasonably
require in order to vest in Buyer good title to the Practice Assets or to
otherwise effectuate the purposes of this Agreement.
7. Conditions to Buyer's Obligation to Close
Buyer shall not be obligated to close hereunder or perform any other
obligations under this Agreement unless:
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a) the conditions set forth in Schedule II, attached hereto and
incorporated herein by reference, have been satisfied by Seller or Managing
Physician or waived by Buyer in writing; and
b) Buyer shall have successfully completed and received the proceeds
from an offering of its securities in a minimum amount of Ten Million Dollars
($10,000,000).
8. Conditions to Seller's Obligation to Close
Seller shall not be obligated to sell or transfer the Practice Assets or to
perform any other obligations under this Agreement unless the following
conditions have been satisfied by Buyer or waived by Seller in writing:
(a) The representations and warranties of Buyer contained herein shall be
accurate, true, and correct in all material respects on the Closing Date as
though restated and made again on such date, and Buyer shall have performed and
complied with each of its agreements and undertakings hereunder.
(b) Affiliate shall have executed and delivered to each Managing Physician
an Employment Agreement.
(c) No action, suit, or proceeding by any governmental agency or other
person shall have been instituted or threatened to restrain, prohibit, or
otherwise challenge the legality of the transactions contemplated hereby.
(d) Subject to the conditions and covenants of Section 6(d) and Schedule
II hereto, Buyer shall have executed and delivered to Seller or Managing
Physician the Assignment of Lease.
(e) Buyer shall have successfully completed and received the proceeds from
an offering of its securities in a minimum amount of Ten Million Dollars
($10,000,000).
9. Conditions to Buyer's and Seller's Obligations to Close
(a) Notwithstanding any other provision of this Agreement, if there is any
Change of Law (as defined below) which results in an Adverse Consequence (as
defined below) prior to Closing, the parties hereto agree to cooperate in making
reasonable revisions (the "Revisions") to this Agreement, including all exhibits
hereto, in order to avoid such Adverse Consequence(s). If the parties fail to
agree to the Revisions after sixty (60) days following written notice by either
party of the Change of Law and the Adverse Consequence(s) (the "Notice"), then
either party may terminate the Agreement. In the event of a Change of Law that
results in an Adverse
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Consequence, the Closing Date shall be postponed, if necessary, to the first
business day following such sixty (60) day period or such other date as the
parties mutually agree.
(b) As used herein, "Change of Law" shall mean: (i) any new legislation
enacted by the federal or any state government; (ii) any new law, rule,
regulation, guideline, or new development or interpretation passed, issued, or
promulgated by any governmental agency or third party payor; or (iii) any order
or decree issued by any judicial or administrative body.
(c) As used herein, "Adverse Consequence" shall mean a Change of Law that
prohibits, restricts, limits, or otherwise affects any party's rights or
obligations hereunder in a material manner or otherwise makes it desirable for
any party to this Agreement to restructure the relationship established
hereunder because of material legal or financial consequences expected to result
from such Change of Law.
10. Brokers' Fees
In the event that any claim is asserted by any person, firm or corporation,
whether broker or otherwise, claiming a commission and/or finder's fee with
respect to this Agreement resulting from any alleged act, representation, or
promise of the Buyer, Buyer shall indemnify and hold harmless Seller from any
such promise or claim to pay such brokers commission. In the event any such
claim shall be made against Buyer resulting from any alleged act,
representation, or promise of Seller or Managing Physician with respect to this
Agreement, Seller and Managing Physician shall jointly and severally likewise
indemnify and hold harmless Buyer from any such claim to pay such brokers
commission.
11. Patient Billing Matters; Accounts Receivable; Reconciliation
(a) Commencing as of the Closing, all billing to patients or their third
party payors for medical services provided in connection with the Practice shall
be performed by Affiliate or its agent for its own account, and all operating
expenses associated with the Practice shall be borne by Affiliate.
(b) Buyer, Affiliate, Seller, and the Managing Physician acknowledge and
agree that, commencing as of Closing, Affiliate will be entitled to accounts
receivable with respect to services rendered in connection with the Practice on
or subsequent to the Closing Date. Buyer, Affiliate, Seller, and the Managing
Physician further acknowledge and agree that all accounts receivable with
respect to services rendered by the Seller and Managing Physician prior to the
Closing Date shall be the property of Seller. In connection with the accounts
receivable relating to services rendered by the Seller and Managing Physician
prior to the Closing Date, Buyer and Affiliate shall reasonably cooperate with
Managing Physician and Seller with respect to the collection of Seller's
accounts receivable provided such cooperation shall not result in any material
expense to Buyer or Affiliate.
(c) If Seller receives any payment (other than Managed Care Withhold
Payments, as defined below) after the Closing Date from or on behalf of a
patient who is indebted to both the
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Seller and Affiliate, such payment shall be credited according to the payor's
instructions. If there are no instructions from payor, then the payment
shall first be applied to the Seller's accounts in respect of invoices no
more than one hundred twenty (120) days outstanding, and then any remaining
balance shall be promptly delivered to Affiliate.
(d) Buyer, Affiliate, Seller, and Managing Physician acknowledge and agree
that they shall use the best financial and accounting information available to
reconcile (i) the prepaid expenses and accrued but unpaid expenses of Seller
relating to the Practice and (ii) the value of the accrued vacation and sick
time with which the Practice's employees hired by Buyer or Affiliate will be
credited as of the Closing Date. Prepaid expenses subject to reconciliation
shall be limited to prepaid malpractice insurance, utility deposits, and such
other prepaid expenses as are agreed upon by the parties prior to Closing;
accrued but unpaid expenses shall be limited to payment obligations outstanding
on the Closing Date relating to goods and services consumed by Seller in the
ordinary course of business prior to the Closing Date. If the reconciliation
results in one party owing an amount of money to the other party, such amounts
shall be paid over to such other party, in cash, within thirty (30) days after
the Closing Date.
(e) All Managed Care Withhold Payments (as defined below) shall be
allocated between Seller and Buyer based on the number of days in the relevant
withhold period that each of Seller and Buyer owned the Practice. The portion
of Managed Care Withhold Payments allocated to Seller shall be paid to Seller by
Buyer upon receipt by Buyer or Affiliate. "Managed Care Withhold Payments"
shall mean any unpaid amounts from health maintenance organizations or other
managed care plans, the payment of which is contingent upon the utilization or
claims history of patients that are subscribers to the managed care plans during
a particular withhold period.
12. Indemnification
(a) Seller and Managing Physician, jointly and severally, shall indemnify
and hold harmless Buyer, Affiliate, and their respective affiliates, officers,
directors, employees, successors, and assigns from and against any and all
losses, liabilities, deficiencies, penalties, interest, claims, damages,
actions, suits, proceedings, settlements, judgments, losses, costs, and expenses
(including reasonable attorneys' fees) arising out of, in connection with, or
incident to:
(i) Any breach by Seller or Managing Physician of any covenant,
promise, agreement, representation, and/or warranty contained in this Agreement
or in any Exhibit hereto;
(ii) Any and all debts, liabilities, obligations, and duties of Seller
or Managing Physician of any nature whatsoever, whether known or unknown,
accrued or contingent, that are not expressly assumed by Buyer pursuant to this
Agreement, (including but not limited to such unassumed debts, liabilities,
obligations, and duties relating to the Practice that arose on or prior to the
Closing Date) and any and all actions and conduct by or on behalf of Seller
(including but not limited to such actions and conduct of the Managing Physician
and employees or agents of Seller or the Practice occurring on or prior to the
Closing date); and
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(iii) Any and all claims arising from the assertion by any third party
that the entering into of this Agreement by Seller or Managing Physician is a
breach of any other contract to which Seller or Managing Physician are a party.
(b) Buyer and Affiliate shall indemnify and hold harmless Seller and its
officers, directors, partners, employees, successors, and assigns from and
against any and all losses, liabilities, deficiencies, penalties, interest,
claims, damages, actions, suits, proceedings, settlements, judgments, losses,
costs, and expenses (including reasonable attorneys fees) arising out of, or in
connection with, or incident to:
(i) Any breach by Buyer or Affiliate of any covenant, promise,
agreement, representation and/or warranty of Buyer or Affiliate contained in
this Agreement; and
(ii) Any and all debts, liabilities, obligations, and duties of Buyer
or Affiliate, except those debts, liabilities, obligations, and duties: (A) for
which Seller and Managing Physician are obligated to indemnify Buyer and
Affiliate under Section 12(a) and (b) for which Buyer or Affiliate is
vicariously liable due to the action or conduct of Seller or Managing Physician.
(iii) Any and all claims arising from the assertion by any third party
that the entering into of this Agreement by Buyer is a breach of any other
contract to which Buyer is a party.
(c) The indemnification obligations of Seller, Managing Physician, Buyer
or Affiliate contained herein, including any rights of setoff as described
herein, are not intended to waive or preclude any other claims, rights, or
remedies which may exist at law (whether statutory or otherwise) or in equity
with respect to the matters covered by the indemnification described herein.
13. Transition
Immediately prior to the Closing, Seller and Managing Physician shall
prepare and deliver to Buyer and Affiliate a list of the names and addresses of
the active and inactive patients of the Practice. Following the Closing, Seller
and Managing Physician shall provide assistance to Buyer and Affiliate to assure
the orderly transition of the Practice to Buyer and Affiliate.
14. No Legal or Tax Advice
Seller and Managing Physician should consult with its respective counsel,
accountant, or business adviser as to legal, tax, and related matters concerning
this transaction. This transaction may involve certain material federal and
state consequences.
15. Understanding of Nature of Securities
Seller understands that:
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(a) The shares of Buyers Common Stock (collectively the "Securities") have
not been registered under the Securities Act of 1933, as amended (the "Act") or
any state securities laws and are being issued and sold in reliance upon certain
of the exemptions contained in the Act and under applicable state securities
laws.
(b) The Securities are "restricted securities" as that term is defined in
Rule 144 promulgated under this Act.
(c) The Securities cannot be sold or transferred without registration
under the Act and applicable state securities laws, or unless the Buyer receives
an opinion of counsel reasonably acceptable to it (as to both counsel and the
opinion) that such registration is not necessary.
(d) The Securities and any certificates issued in replacement therefore
shall bear the following legends, in addition to any other legend required by
law or otherwise.
"The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
represented by this certificate have been taken by the registered owner for
investment, and without a view to resale or distribution thereof, and may not be
transferred or disposed of without an opinion of counsel satisfactory to the
issuer that such transfer or disposition does not violate the Securities Act of
1933, as amended, or the rules and regulations thereunder."
(e) Only the Buyer can register the Securities under the Act and
applicable state securities laws.
16. Miscellaneous
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
any party to exercise any right, remedy, power, or privilege ("Right") under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any Right preclude any other or further exercise of the same
or of any other Right, nor shall any waiver of any Right with respect to any
occurrence be construed as a waiver of such Right with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver.
(b) Survival of Representations and Warranties. The representations,
warranties, covenants, and agreements made herein by Seller, Managing Physician,
and Buyer shall survive the Closing for a period of five (5) years, and
notwithstanding any investigation conducted before or after the Closing or the
decision of any party to complete the Closing, each party hereto shall be
entitled to rely upon the representations and warranties of the other parties.
(c) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance, and enforcement shall be governed by and
construed in accordance with the laws of the state of New Jersey,
notwithstanding any conflict-of-laws doctrines to the
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contrary, and without the aid of any canon, custom, or rule of law requiring
construction against the draftsman.
(d) Notices. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made, and received only when personally
delivered or upon actual receipt of registered or certified mail, postage
prepaid, return receipt requested, or by a nationally recognized overnight
courier service, addressed as set forth below:
If to Seller or Managing Physician:
With a required copy to:
[Counsel for Seller/Physicians]
If to Buyer or Affiliate:
Integrated Physician Systems, Inc.
1129 Broad Street, Suite 3
Shrewsbury, New Jersey 07702-4314
Attention: Dennis B. Liotta, M.D., MBA
Chief Operating Officer
With a required copy to:
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(e) Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement may not be assigned by Seller without
the prior written consent of Buyer. Buyer may assign this Agreement in whole
or in part to any person or entity controlling, controlled by, or under
common control with Buyer. This Agreement shall not be construed as giving
any person, other than the parties hereto and their permitted successors,
heirs, and assigns, any legal or equitable right, remedy, or claim under or
in respect of this Agreement or any of the provisions herein contained, this
Agreement and all provisions hereof being intended to be, and being, for the
sole and exclusive benefit of such parties, and permitted successors, heirs,
and assigns and for the benefit of no other person or entity.
(f) Further Assurances. Each party hereto shall cooperate and take such
action as may be reasonably requested by the other party in order to carry out
the terms and purposes of this Agreement and the other transactions contemplated
herein.
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(g) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually, or taken together,
shall bear the signatures of all the parties reflected herein as the
signatories.
(h) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
one or others of them may be invalid or unenforceable in whole or in part.
(i) Entire Agreement. This Agreement, the schedules, and exhibits hereto
and the documents contemplated hereby contain the entire understanding between
the parties hereto with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified
or amended other than by an agreement in writing.
(j) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
(k) Confidentiality. The terms of this Agreement are confidential and
shall not be disclosed to any individual or entity by either party hereto
without the express written consent of the other party, except (i) as may be
required by law, (ii) as may be required in connection with audits by third
party payors, government agency investigations or proceedings, or court order,
(iii) to Seller's, Managing Physician's, Buyer's, or Affiliate's professional
advisors or (iv) as may be required in conjunction with the sale of Buyers
securities as contemplated in Paragraph 8(e) herein.
(l) Public Announcements. Prior to the Closing, neither Buyer, Affiliate,
Seller, nor Managing Physician shall make any public announcement or disclosure
relating to the transactions contemplated herein without the prior written
agreement of Seller and Buyer.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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(m) Seller's Restriction on Practice Operation. From and after the
Closing, Seller shall not engage, directly or indirectly, in the practice of
medicine or the provision of medical services.
(n) Best Efforts. Seller, Managing Physician, Buyer, and Affiliate shall
use their respective best efforts with respect to matters within their control
to cause the transactions contemplated by this Agreement to be consummated.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
Attest: Integrated Physician Systems, Inc.
By:
- ------------------------- ----------------------------------
Dennis B. Liotta, M.D., MBA
Chief Operating Officer
Attest: IPS Physicians/__________, P.C.
By:
- ------------------------- ----------------------------------
Attest: By:
- ------------------------- ----------------------------------
Witness:
- ------------------------- --------------------------
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SCHEDULE I
Representations and Warranties of Seller and Managing Physician
Seller and Managing Physician jointly and severally represent and warrant
to Buyer as follows, and all such representations and warranties shall be true
and correct as of the Closing Date:
(a) Seller is a professional corporation, duly organized, validly existing
and in good standing under the laws of the state of New Jersey, and Seller has
full power and authority to operate the Practice, own the Practice Assets and to
execute, deliver, and perform this Agreement in accordance with its terms.
Seller has taken all steps and will do all things appropriate and necessary to
consummate the transactions contemplated herein. Seller does not own or lease
properties or carry on any activities that require qualification to do business
as a foreign corporation in any jurisdiction.
(b) Except as set forth in Schedule 3(b) of the Disclosure Statement, the
execution and delivery of this Agreement and all related documents by Seller
does not, and the consummation by Seller of the transactions contemplated hereby
will not: (i) conflict with any provision of the Articles of Incorporation,
By-Laws, or any shareholder agreement or other corporate documents of Seller,
(ii) violate or conflict with any applicable law, or any applicable rule,
judgment, order, writ, injunction or decree of any court; (iii) violate or
conflict with any applicable rule or regulation of any administrative agency or
other governmental authority; or (iv) result in a breach of or a default under
(or with notice or lapse of time, or both, result in a breach of or constitute a
default under) any agreement, lease, indenture, instrument, or contract to which
Seller is now a party or by which it is bound. Such execution, delivery, and
performance will not result in the creation or imposition of any liens or other
encumbrances on any of the Practice Assets in favor of third parties.
(c) Seller's execution, delivery, and performance of its obligations under
this Agreement, and the consummation of the transactions contemplated herein,
have been duly authorized by Seller's Board of Directors and shareholders and no
other action or authorization is required by law, or otherwise. This Agreement
is the legal, valid, and binding obligation of Seller and is enforceable against
Seller in accordance with its terms. Managing Physician is the only shareholder
of Seller and no other individual or entity has any rights with respect to the
stock or ownership of Seller.
(d) Seller has good and marketable title to the Practice Assets, free and
clear of all claims, security interests, encumbrances, and liens, except as set
forth on Schedule 3(d) of the Disclosure Statement. At the Closing, Seller
shall convey to Buyer, and Buyer shall acquire good and marketable title to the
Practice Assets, free and clear of all claims, security interests, encumbrances,
and liens.
(e) Other than malpractice claims described below and except as set forth
of Schedule 3(e) of the Disclosure Statement, there are no actions, suits,
legal, or administrative proceedings
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or governmental investigations pending or, to the best of Seller's and
Physicians knowledge after the exercise of due diligence, threatened against
or affecting Seller or Managing Physician, the Practice Assets, the Practice
or the Office, nor are there any judgments, decrees, orders, rulings, writs,
or injunctions specifically referring to Seller or Managing Physician which
may adversely affect the Practice, the Office or the Practice Assets or
relate in any way to the transactions contemplated by this Agreement. Seller
has provided Buyer with a true, correct, and complete schedule listing all
malpractice claims filed or threatened against Seller or Managing Physician
within the last five years, including the names of all parties bringing the
action, all named and potential defendants, a description of the claim,
whether the claim is covered by insurance, the name of the insurance company,
the amount of coverage, and the stage or disposition of the proceedings
(e.g., settled, adjudicated, pending).
(f) The Practice Assets, whether owned or leased by Seller, (i) are in
good operating condition and repair, subject to normal wear and maintenance,
(ii) are usable in the regular and ordinary course of business (iii) conform to
all applicable laws, ordinances, codes, rules, and regulations, and (iv) are in
compliance with all required consents, approvals, and authorizations
("Authorizations") relating to their use and operation, including but not
limited to any environmental regulations. No person or entity other than Seller
owns any of the Practice Assets. All Authorizations required for the operation
of the Practice as currently conducted are in full force and effect without any
default or violation thereunder by Seller or, to the knowledge of Seller, by any
other party thereto and Seller has not received any notice of any claim or
charge that Seller is or was in violation of or in default under any such
Authorization.
(g) Seller or Managing Physician have maintained in full force and effect
all policies of insurance applicable to Seller, Managing Physician, the Office,
and the Practice, including medical malpractice insurance covering all physician
of Seller (including Physicians) in at least the minimum amounts required by
law, casualty insurance on the premises where the Office is located, and general
liability insurance. The Seller is not in default under the requirements of any
such insurance policy. All medical malpractice insurance maintained by Seller
and all medical malpractice insurance maintained by Managing Physician will
provide coverage through the Closing on an occurrence basis or, if on a claims
made basis, will provide coverage through the Closing and Seller will obtain,
prior to the Closing, at its sole cost and expense, tail coverage for the period
prior to the Closing.
(h) Seller and Managing Physician have maintained the Practice and Office
in compliance with all applicable federal, state, and local governmental laws,
rules, and regulations, including but not limited to those relating to
environmental, occupational, health, and hazardous and medical waste, those
relating to the payment and withholding of taxes and those relating to third
party payment programs such as Medicare, Medicaid and Blue Cross/Blue Shield as
they have been in effect from time to time. Seller has used its best efforts to
preserve its business and its relationship with patients, third party payors,
referring physician, contractors, and others with whom Seller and Managing
Physician deal. Neither Seller nor Managing Physician have received any claim
or notice that the Practice is not in compliance with any of the foregoing.
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(i) Seller owns, holds, possesses or lawfully uses in the operation of the
Practice all the Authorizations which are in any manner necessary for it to
conduct its business as now or previously conducted or for the ownership and the
use of the Practice Assets (including but not limited to laboratory or radiology
permits issued by governmental agencies), and Schedule 3(i) of the Disclosure
Statement contains a true and complete list of all such Authorizations. Except
as set forth in Schedule 3(i) of the Disclosure Statement, the Authorizations
are renewable by their term or in the ordinary course of business without the
need to comply with any special qualification procedures or to pay any amount
other than routine filing fees. None of such Authorizations will be adversely
affected by the consummation of the transactions contemplated hereby.
(j) Seller acknowledges that there are no outstanding injunctions, fines,
or judgments against Seller, any Managing Physician or the Practice which would
adversely affect the Practice Assets, the Practice or the operation or
maintenance of any of the foregoing.
(k) The Seller has filed and is up to date on all federal, state, local,
and foreign income and other tax returns and reports required to be filed which
relate to the Practice or income derived therefrom, and Seller has paid all
required taxes and assessments with respect to the Practice and the Practice
Assets, and no additional taxes or assessments are due and payable. Any taxes
that are due or properly shown to be due on any return or report of Seller up to
the date hereof have been fully and timely paid or, in the case of taxes not yet
due, fully provided for on the books of account of Seller; and there are no
levies, liens, or other encumbrances relating to such taxes existing or
threatened or pending with respect to any asset of the Seller.
(l) Each of Exhibits A, B, and C contains a true and compete list of all
Equipment, Furniture, and Contracts, respectively, used or useful in connection
with the Practice. The Supplies include such medical and office supplies
necessary for the continued operation of the Practice consistent with Seller's
historical levels. All of the material contractual relationships, if any,
relating to the Practice, including but not limited to the agreements with
health maintenance organizations, preferred provider organizations and other
similar managed care plans, are in full force and effect, and neither Seller nor
Managing Physician is in violation or breach of any such contractual
relationship. All of the contracts described in the preceding sentence are
assignable without obtaining the consent of the other party thereto in
accordance with the terms of the contracts and none of such contracts will be
affected by the consummation of the transactions contemplated hereby, except as
specifically described on Schedule 3(1) of the Disclosure Statement.
(m) Neither Seller, Managing Physician, nor any professional employee of
Seller are currently or ever have been under investigation for any civil or
criminal offense related to the delivery of or payment for an item or service
under the Medicare, Medicaid, or any other state or federally funded programs
(including but not limited to a criminal offense related to neglect or abuse of
patients in connection with the delivery of a health care item or service;
obstructing an investigation of any crime referred to above; or unlawful
manufacture, distribution, prescription, or dispensing of a controlled
substance). Neither Seller, Managing Physician, nor any professional employee
of Seller has ever been determined to be a Sanctioned Person. As used
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herein, the term "Sanctioned Person" means a person who: (a) has been
convicted of any offense related to the delivery of an item or service under
the Medicare or New Jersey Medical Assistance programs or any other federally
or state-funded program, or any other federal or state law or regulation; (b)
has been required to pay a civil monetary penalty under Section 1128A of the
Social Security Act or any state Medicaid Program; or (c) has been excluded
from participation in the Medicare, New Jersey Medical Assistance, or any
other federally or state-funded program.
(n) To the best of the Seller's knowledge, there are no known claims
against Seller by any patient of Seller, insurer, or third party payor, with
respect to overpayments made to Seller in connection with medical services
rendered by Seller, other than disputes or claims that are immaterial and have
arisen in the ordinary course of business, and except as described on Schedule
3(n) of the Disclosure Statement. Neither Seller nor Managing Physician are
aware of any pending or threatened claims against Seller by any patient,
insurer, or third party payor for overpayments in connection with the provision
of medical services, other than disputes or claims that are immaterial and have
arisen in the ordinary course of business, and except as described on Schedule
3(n) of the Disclosure Statement.
(o) With respect to any existing lease agreement governing Seller's
occupancy of the Office, neither Seller nor the lessor under such lease
agreement is in default of any of its obligations thereunder, nor will this
transaction result in a default thereunder.
(p) Seller has provided Buyer and its designated agents and
representatives with full access to all documents, books, data, financial
records, and other information relating to the current and past operations of
the Practice.
(q) Seller will deliver as of the Closing Date all the Patient Records of
Seller to Buyer to house or otherwise store and protect. All such Patient
Records must be complete and accurate to the best of the Physicians knowledge in
all material respects and have been maintained in accordance with all
governmental regulations.
(r) Except as described on Schedule 3(r) of the Disclosure Statement,
Seller does not now sponsor, maintain, or support, nor in the past three years
has it sponsored, maintained, or supported, or otherwise been a party to, in
default under, or had any liability or accrued obligations, under any plan,
program, fund, or arrangement, either qualified or non-qualified for federal
income tax purposes, relating to its employees, whether for the benefit of a
single individual or for more than one individual, and whether or not funded,
including without limitation, any employee pension benefit plan (as defined in
Section 3(1) of ERISA), or any incentive, deferred compensation or other benefit
or compensation arrangement for employees, their dependents, and/or their
beneficiaries. Seller has complied with all applicable federal, state, and
local laws and the regulations, rulings, and pronouncements issued thereunder,
relating to employee benefit plans and the employment of labor, including but
not limited to the provisions thereof relative to wages, hours, collective
bargaining, contributions to pension or benefit plans, and payment of Social
Security taxes, and seller is not liable for any arrearages of wages or any
taxes or penalties for failure to comply with any of the foregoing.
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(s) The Seller acknowledges and has so informed his/her employees that all
employees of Seller are employees-at-will and upon Closing of this Agreement may
be terminated by Seller without penalty or liability. Except for physician
listed on Schedule 3(s), the Managing Physician are the only physician employed
by Seller or otherwise providing medical services on behalf of Seller at the
Practice within the last twelve (12) months. Seller has no unusual or cash
payment arrangements with any of Seller's employees. All employees are paid
through Seller's payroll system and receive only the payments disclosed by such
system.
(t) Seller shall have sole and exclusive responsibility for any duties and
obligations owed to its employees, including any and all vacation, bonuses, and
other benefits which have accrued prior to the Closing Date. Neither Buyer nor
Affiliate are assuming any of such obligations.
(u) Managing Physician are qualified and licensed to engage in the
practice of medicine in the manner engaged in by Managing Physician prior to
Closing Date, without restriction or limitation.
(v) Except as otherwise described on Schedule 3(v) of the Disclosure
Statement, Seller is the sole owner or has the exclusive perpetual right to use
without consideration, any intellectual property (including but not limited to
computer software license rights), free and clear of any lien, security
interest, restriction, encumbrance or other adverse claim, and the intellectual
property is sufficient for the conduct of the Practice of Seller as such as been
conducted during the last five years and as it is presently conducted.
(w) No representation or warranty by Seller or Managing Physician in this
Agreement nor any certificate, schedule, statement, exhibit, document, or
instrument furnished or to be furnished by Buyer pursuant hereto, or in
connection with the negotiation, execution or performance of this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not misleading.
(x) Seller has delivered to Buyer true and complete copies of the
following: (i) internally prepared books and records including bank statements,
(ii) federal income tax returns for the Seller for the years ended December 31,
1993, 1994, and 1995, and (iii) balance sheets and income statements of Seller
for the years ended December 31, 1993, 1994, and 1995 and a balance sheet and
income statement for the nine (9) month period ended September 30, 1996 (the
"Financial Statements").
(y) Except for the interests identified on Schedule 3(y) of the Disclosure
Statement, after the date hereof, neither Seller nor Managing Physician will
have any interest or investment in any partnership, joint venture, other
business organization or facility which owns, operates, or has any interest in
any medical practice, medical clinic, diagnostic facility or clinical laboratory
or any other entity which provides health care services. After the date hereof,
Managing Physician shall make no referrals to any of the partnerships, joint
ventures, business organizations, or facilities identified on Schedule 3(y),
and this covenant shall survive the closing
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of the transactions contemplated hereunder for as long as Managing Physician
shall be employed by Affiliate.
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SCHEDULE II
Conditions to Buyer's Obligation to Close
Buyer shall not be obligated to close hereunder or perform any other obligations
under this Agreement unless the following conditions have been satisfied by
Seller and Managing Physician or waived by Buyer in writing:
(a) The representations and warranties of Seller and Managing Physician
shall be accurate, true, and correct in all material respects on the Closing
Date as though restated and made again on such date and Seller shall have
performed and complied with each of its agreements and undertakings hereunder.
(b) The Practice Assets shall not have been damaged or destroyed,
reasonable wear and tear excepted, regardless of whether or not the Practice
Assets have been insured against such damage or destruction, and the Office
shall continue to be Seller's primary locations for the treatment of patients in
connection with the Practice.
(c) The Office shall not have been damaged or destroyed.
(d) Each Managing Physician shall have executed and delivered to Affiliate
and Buyer the Employment Agreement.
(e) No action, suit, or proceeding by any governmental agency or other
person shall have been instituted or threatened to restrain, prohibit, or
otherwise challenge the legality of the transactions contemplated hereby, or
which would impair the Practice in any way.
(f) This Agreement shall have been approved by any necessary governmental
authority, by the Board of Directors of Buyer and Affiliate and by the governing
boards of any affiliate of the Buyer deemed reasonably necessary by counsel to
Buyer.
(g) Seller shall have delivered to Buyer, prior to Closing, all required
assignments to Buyer of any of the Contracts, together with any required
consents for such assignments, in such form as is reasonably acceptable to
counsel for the Buyer.
(h) Since the date of this Agreement or the date of the last Financial
Statement, there has not been any material adverse change in the business,
operations, properties, assets, prospects, working capital, or condition
(financial or otherwise) of Seller and the Practice or any event, condition, or
contingency that is likely to result in such a material adverse change.
(i) Seller and the Managing Physician shall have prepared and delivered to
the Buyer a list of names and addresses of its active and inactive patients.
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(j) Buyer's due diligence investigation and review of Seller's Practice,
business, prospects, obligations, capitalization, and properties, including, but
not limited to, an evaluation of the minute books, financial records, tax
returns, contracts, leases, employment agreements, employee benefit plans, all
other contracts material to the operation of the Seller's businesses, compliance
with laws and environmental matters shall have been completed to Buyer's sole
satisfaction, and Buyer shall have notified Seller no later than ten (10) days
prior to the Closing Date that it does not intend to close the transactions
contemplated hereby in reliance on this condition as a result of such due
diligence investigation.
(k) Seller or Managing Physician shall have delivered to Buyer a
nondisturbance agreement in favor of Buyer, in form reasonably satisfactory to
Buyer, from the mortgagee of the real estate in which the ______________ Office
is located.
(l) Seller or Managing Physician shall have delivered to Buyer an
Assignment of Lease Agreement, in form reasonably satisfactory to Buyer, for
________, if required, shall have obtained the written consent of the landlord
of the _________________ Office thereto.
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Exhibit 10.4
EMPLOYMENT AGREEMENT
by and between
IPS Physicians/_______________, P.C.
and
___________________________
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made this _______ day of May, 1997 by and between IPS
Physicians/___________ P.C., a New Jersey professional corporation ("Employer")
and _____________ an adult individual (the "Managing Physician").
WHEREAS, Employer is a professional corporation affiliated with Integrated
Physicians Systems, Inc., ("IPS"), which desires to develop a network of primary
care and specialty physicians in order to enhance the delivery of health care
services as part of an integrated delivery system for health care; and
WHEREAS, on the date hereof, IPS is acquiring the medical practice (the
"Practice") of Managing Physician, as contemplated by an Asset Purchase
Agreement dated of even date herewith (the "Purchase Agreement") by and among
IPS, Employer, Managing Physician, and Managing Physician's professional
corporation, ____________ ("P.C."); and
WHEREAS, IPS's obligations to consummate the transactions contemplated by the
Purchase Agreement are conditioned upon Managing Physician entering into an
employment agreement with Employer to provide professional medical services
through Employer on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, and
representations contained herein and in the Purchase Agreement, Employer and
Managing Physician, intending to be legally bound, hereby agree as follows:
EMPLOYMENT AND DUTIES
1.1 Employment. Employer hereby employs Managing Physician, and Managing
Physician hereby accepts employment, for the period and upon the terms and
conditions set forth herein.
1.2 Professional Services.
(a) As set forth herein, Managing Physician shall provide his
professional medical services exclusively for and on a full-time
basis to the Employer. Such services shall include those which
are customarily performed by physicians practicing in the
specialty which Managing Physician is board certified or
eligible. Managing Physician shall perform professional services
in accordance with generally accepted professional standards for
such services and with the standards established by the Employer.
Although Managing Physician shall be considered an employee of
Employer, Managing Physician shall exercise professional,
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independent clinical judgment in the provision of medical
services to all of his patients while under this Agreement
without bias, compromise, or reservation.
(b) Managing Physician shall be required to provide office, weekend,
evening, vacation, and after-hours call coverage during such
hours as are scheduled by Employer, which schedule shall be
prepared with the understanding that it is the Employers goal to
reduce the weekend, evening, vacation, and after-hours call hours
required by Managing Physician as the number of physician
employees increases. Managing Physician shall be required to
work at least the number of hours per week required of other
physician employees of Employer, according to Employer's policies
as amended from time to time.
(c) In providing services hereunder, Managing Physician shall report
to the Medical Director of Employer for clinical matters and the
Director of Employer for administrative matters, or their
designees.
1.3 Administrative Services. Managing Physician acknowledges that as
situations and circumstances warrant he can be called upon to perform
administrative services as may be reasonably requested by Employer;
provided, however, that such administrative duties shall not be of a
scope and nature which materially interferes with the ability of Managing
Physician to provide direct patient care services at the Practice in a
manner substantially consistent with that maintained by Managing Physician
prior to the sale of the Practice to IPS.
1.4 Other Duties. Managing Physician shall perform such other duties, not
inconsistent with this Agreement, as may be assigned to him from time to
time by Employer.
1.5 Practice Location. During the term of this Agreement, Managing Physician
shall practice at the location mutually agreed upon (the "Practice
Location"). Managing Physician shall practice at the given location unless
(a) the Practice Location is no longer suitable for the operation of a
medical practice due to fire, condemnation, act of God or other casualty,
(b) termination of the Lease Agreement between Managing Physician and IPS
for the Practice Location as a result of a default by Landlord, or
(c) Employer, after obtaining Managing Physician's consent, which shall not
be unreasonably withheld, determines in good faith that maintenance of the
Practice at the Practice Location will have a material adverse financial
impact on Employer. Both parties will use their best efforts to address
and correct the financial situation of the Practice at the Practice Location
prior to relocating the Practice to a different location. During the term
of this Agreement, Managing Physician shall perform his duties hereunder at
such medical office or offices or other practice locations of Employer to
which Managing Physician may be scheduled. Notwithstanding the foregoing,
during the Initial Employment Term (as hereinafter defined), without the
consent of Managing Physician, Employer shall not assign Managing
Physician to any practice location outside a ten (10) mile radius of the
original Practice Location.
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1.6 Record Keeping. Managing Physician shall prepare, in accordance with
generally accepted medical practice the clinical record of all examinations,
procedures, and other professional services rendered by Managing Physician.
Managing Physician will participate in the further development of such
record keeping as required to more adequately, effectively, and efficiently
document the clinical course of all lives placed in his charge. The
ownership and right of control of all reports, records, and supporting
documents prepared by Managing Physician for the performance of all services
shall vest exclusively in Employer; provided, however, Managing Physician
shall have such right of authorship and responsibility for all such
records, as well as access to all reports, records, and supporting
documentation for purposes of reimbursement, defense of malpractice claims,
and other legal compliance reasons consistent with Employer, clinical,
and/or business policies. Upon termination or expiration of this Agreement,
all records of patients treated by Managing Physician shall remain in the
possession of Employer.
1.7 Devotion of Time and Effort. Managing Physician shall devote his best
efforts exclusively for his practice of medicine with the Employer and his
full working time to the performance of his duties under this Agreement.
1.8 Policies and Performance Standards. Managing Physician shall abide by all
policies, procedures, and directives instituted by Employer, including those
related to quality assurance, utilization review, practice protocols,
clinical outcomes assessment, patient/family satisfaction and peer review,
and shall comply with the performance standards to be established by the
Board of Directors of Employer, (the "Performance Standards"). Managing
Physician agrees to actively participate in the design, development, and
implementation of all such policies, procedures, and directives that will
effect him and other physicians working for Employer.
QUALIFICATIONS AND COMPLIANCE STANDARDS
2.1 Licensure; DEA Registration.
(a) Managing Physician represents and warrants that (i) he is and
shall continue to be qualified and licensed to practice medicine
without restriction or limitation in the state of New Jersey, and
(ii) that he is and shall continue to be registered with the
Federal Drug Enforcement Administration ("DEA") and the New
Jersey Controlled Drug Agency ("CDA") to prescribe controlled
substances without sanction, restriction, or limitation. A
sanction or restriction of the Managing Physician's license, DEA,
or CDA registration, shall include, but not be limited to
attachment, suspension or revocation of Managing Physician's
license to practice medicine or suspension or revocation of DEA
or CDA registration, including but not limited to a suspension
for any period of time or any other type of disciplinary or
corrective action taken by the State Board of Medical Examiners,
the Health Care Financing Administration (HCFA) as it relates to
Medicare or Medicaid, the imposition of a monetary fine by the
appropriate state licensing or federal
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authority, or any reprimand or monetary fine or penalty imposed
by any governmental authority or regulatory agency having
jurisdiction over Managing Physician.
(b) Managing Physician represents and warrants that to his knowledge
there are currently no investigations or proceedings pending, nor
to his knowledge threatened, that could lead to a suspension,
revocation, restriction, limitation, or other termination of his
license to practice medicine. Upon demand Managing Physician
shall produce true copies of federal DEA registration.
2.2 Medical Staff Membership.
(a) Managing Physician shall as of the effective date hereof be, and
throughout the term hereof remain, a member in good standing of
the Active Medical Staff of ________ Hospital or its successor
with all clinical privileges and appointments appropriate and
necessary to the performance of his clinical duties hereunder.
(b) Managing Physician represents and warrants that to his knowledge
there are currently no investigations or proceedings pending, nor
threatened, the basis of which implicates the professional
competence of Managing Physician, that could lead to a
suspension, revocation, restriction, limitation, or other
termination of his medical staff privileges at any hospital,
including his primary Hospital affiliation.
2.3 Statutes/Regulations. Managing Physician shall perform the professional
and other duties provided for in this Agreement in conformity with all
applicable federal, state, and local laws, statutes, and regulations.
2.4 Provider Status. Throughout the term of this Agreement, unless Managing
Physician is unable to participate for reasons not related to Managing
Physician's own conduct or qualifications, Managing Physician shall have
and shall maintain status as a participating provider in all managed care
organizations, and shall maintain or make application to accept assignment
for payment under Medicare and Medicaid and any other such reimbursement
programs, where and when applicable. Managing Physician shall participate
in any other third party payor program, including any health maintenance
organization, preferred provider organization, or other governmental or
private managed care program in which Employer directs Managing Physician
to participate.
2.5 Specialty Board Certification. If Managing Physician is or becomes
certified by a medical specialty board, Managing Physician shall maintain
such certification throughout the term of this Agreement, including
complying with any applicable recertification process.
2.6 Records and Allocation Agreements. Managing Physician agrees to follow
Employer's policies, procedures, and directives and to comply with all
requirements of law relating to the preparation and maintenance of complete
and accurate records.
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2.7 Other Professional Services. All amounts earned by Managing Physician
which are from activities which are not related to the performance of
professional services, and which activities do not interfere with the
performance of Managing Physicians obligations under paragraph 1.2
hereunder, including but not limited to, fees, honoraria, and royalties
for teaching, writing, and speaking engagements, shall belong to Managing
Physician. Managing Physician shall not engage in, or commit to engage in
any professional services on behalf of any patient, practice, entity,
partnership or professional corporation, other than Employer.
COMPENSATION
3.1 Managing Physician Compensation. As compensation for the services to be
provided by Managing Physician under this Agreement, Employer shall pay the
Target Compensation (which is composed of Base Compensation plus Incentive
Compensation) and Bonus Compensation, as described below.
(a) Target Compensation. .
Target Compensation for each year during the Initial Employment Term
shall be allocated between Base Compensation and Incentive Compensation
as follows:
Year Base Compensation Incentive Compensation Target Compensation
---- ---- ------------ ---------------------- -------------------
1 $ $ $
2 $ $ $
3 $ $ $
4 $ $ $
5 $ $ $
(i) Base Compensation. Managing Physician shall be entitled to
receive and Employer shall be obligated to pay to Managing
Physician Base Compensation in equal periodic installments, no
less frequently than monthly, in accordance with Employer's
normal payroll practices for physician employees in effect from
time to time. Managing Physician shall not be required to meet
any performance goals to receive such Base Compensation.
(ii) Incentive Compensation. The amount to be paid to Managing
Physician as Incentive Compensation in any twelve (12) month
period shall depend on the net revenue generated by Managing
Physician on Employer's behalf (as defined below) during that
year. If the net revenue generated by the Managing Physician
during each year equals or exceeds the Revenue Goal, Managing
Physician shall receive the total amount of Incentive
Compensation set forth above. If the net revenue generated by
Managing
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Physician during each year is less than Managing Physician's
Revenue Goal, the Incentive Compensation of Managing Physician
shall be reduced by one dollar ($1) for each dollar by which
Managing Physician fails to generate revenue equal to Managing
Physician's Revenue Goal. Employer may periodically pay to
Managing Physician throughout the year a portion of the Incentive
Compensation which Employer deems reasonable given the net revenue
production of Managing Physician throughout the year, subject to
adjustment and reconciliation at year end to reflect actual
performance.
(iii) Revenue Goal. The Revenue Goal during the initial Term shall be
as follows: _________________________
(b) Bonus Compensation. Employer will pay to Managing Physician an
amount equal to percent ( %) of the net revenue of Managing
Physician during each employment year which is in excess of the
Revenue Goal for each year ("Bonus Compensation"). Employer will
pay to Managing Physician such Bonus Compensation earned for any
Employment Year promptly after calculation thereof, but in no
event later than ninety (90) days after the end of each year.
(c) Net Revenue. The net target revenue of Managing Physician shall
mean the aggregate net revenue of Employer attributable to
physician services provided personally by Managing Physician,
including the aggregate amount received in periodic capitation
fees, including bonuses, withhold, open status, and similar
payments from each health maintenance organization, preferred
provider organization, or other managed care plan compensating
Employer on a capitated basis and whose enrollees have selected
Managing Physician as their primary care physician. The net
revenue of Managing Physician shall be determined on an accrual
basis in accordance with generally accepted accounting
principles. Notwithstanding, the Employer will not in any manner
penalize Managing Physician for any revenue losses that are not
within Managing Physician's purview of control. This would
include those happenstances that will occur during the course of
doing business under managed care. Such happenstances are not
limited to, but will include reduction in capitation rates or
loss of contract overall or in part. In this regard, Managing
Physician's net target revenue will be appropriately reduced,
provided that Managing Physician is not the cause for the loss
of such revenue.
ALTERNATE
3.1 Managing Physician Compensation. As compensation for the services to be
provided by the Managing Physician under this Agreement, Employer shall pay
Managing Physician, as follows:
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(i) Base Compensation. Managing Physician shall be entitled to
receive and Employer shall be obligated to pay to Base
Compensation in equal periodic installments, no less frequently
than monthly, in accordance with Employee's normal payroll
practices for physician employees in effect from time to time.
Managing Physician shall not be required to meet any performance
goals to receive such Base Compensation. Managing Physicians Base
Compensation shall be _______________________ Dollars
($__________) per annum.
(ii) Increase in Managing Physician Base Compensation. In the event
that the net operating income from the Practice before physician
compensation ("NOI") exceeds $___________ per year, Managing
Physician shall receive, as additional compensation, an amount
equal to __________ (____%) Percent thereof, which amount shall
be paid within ninety (90) days of the close of the fiscal year.
(iii) Decrease in Managing Physician Compensation. In the event that
the net operating income from the Practice before physician
compensation ("NOI") is less than $_____________ per year,
Physicians Base Compensation shall be reduced by an amount equal
to ____________ (_____%) Percent of such difference.
(iv) Definition of NOI. For the purposes herein, net operating income
before Managing Physician compensation shall be defined to mean
the amount of gross revenue remaining after deducting therefrom
(a) all ordinary costs and expenses incurred in the operation of
the practice, including, by way of illustration and not by
limitation, rent, utilities, telephone, insurance, payroll and
benefits (excluding Physicians compensation hereunder), marketing
expenses, advertising, repairs and maintenance, leases, equipment
depreciation, and similar expenses, (b) bad debts and contractual
allowances, and (c) depreciation and amortization
3.2 Continuing Education. Managing Physician shall be provided with an
allowance of $5,000 per year for continuing medical education.
3.3 Benefits. Managing Physician shall be entitled to those Employee benefits
set forth in Exhibit A. However, such benefits may be changed by Employer
at any time effective upon written notice to Managing Physician if all such
changes are generally applicable to all physician employees of Employer.
3.4 Billing. Employer shall bill on behalf of all professional services
performed by Managing Physician. Managing Physician shall cooperate fully
with Employer in facilitating such billing. In the event regulatory or
third party payment programs require any or all services performed by
Managing Physician to be billed in the name of or on behalf of Managing
Physician, Managing Physician shall designate, authorize, and
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appoint Employer as Managing Physician's agent and grant Employer a power of
attorney to bill on behalf of Managing Physician for all services performed
pursuant to this Agreement and to obtain provider number(s) to facilitate
such billing. Managing Physician hereby acknowledges and agrees that except
for compensation owing to Managing Physician pursuant to this Agreement, all
revenues arising from the provision of Managing Physician's services shall
be the sole and exclusive property of Employer. Managing Physician further
acknowledges that under the terms of Managing Physician's employment only
Employer is entitled to claim or receive any fees or charges for Managing
Physician's services rendered up to the effective date of termination of
this Agreement.
3.5 Insurance. On behalf of Managing Physician the Employer shall maintain
limits of professional liability (malpractice) insurance coverage during the
term of this Agreement in a form and in amounts not less than $1,000,000 per
occurrence and $3,000,000 per annual aggregate. Upon termination of this
Agreement, to the extent the above referenced coverage was purchased on a
claims-made basis, Employer shall purchase the appropriate tail coverage for
Managing Physician.
3.6 Vacation. Managing Physician shall be entitled to four (4) weeks paid
vacation each year of employment hereunder.
TERM AND TERMINATION.
4.1 Term. Subject to the rights of termination provided for herein, this
Agreement shall continue in effect for an initial term of five (5) years
("Initial Employment Term"), commencing on the date of the Closing of the
Purchase Agreement. This Agreement shall automatically continue for a
successive five (5) year term, provided that the parties, after good faith
negotiations, mutually agree to Managing Physicians compensation and other
employment conditions for such successive term. Each twelve (12) month
period during the term of this Agreement is herein referred to as an
"Employment Year"
4.2 Termination by Employer. Anything in this Agreement to the contrary
notwithstanding, Employer may terminate this Agreement for any of the
following reasons:
4.2.1 Upon three (3) days prior written notice from Employer to
Managing Physician if Managing Physician's license to practice medicine in
the state of New Jersey or DEA registration is suspended or revoked for any
reason and such license or registration has not been fully reinstated to
Managing Physician within ten (10) days after written notice to Managing
Physician by Employer directing Managing Physician to seek such
reinstatement;
4.2.2 Upon three (3) days prior written notice from Employer to Managing
Physician if Managing Physician's active Medical Staff privileges at any
hospital are reduced, suspended, or revoked for any reason whatsoever, and
such privileges have not been fully reinstated to Managing Physician within
thirty (30) days after written notice from
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Employer to Managing Physician directing Managing Physician to seek such
reinstatement;
4.2.3 Upon thirty (30) days prior written notice from Employer to Managing
Physician if Managing Physician, whether due to physical or mental
disability or otherwise, has not performed the duties required hereunder
for at least twelve (12) consecutive weeks;
4.2.4 Upon three (3) days prior written notice from Employer to Managing
Physician if Managing Physician violates any material provision of this
Agreement and such violation is not remedied within thirty (30) days after
an initial notice to Managing Physician specifying the violation;
4.2.5 Upon three (3) days prior written notice from Employer to Managing
Physician, if Managing Physician is determined to be a Sanctioned Person.
As used herein, the term "Sanctioned Person" means a person who: (a) has
been convicted of any offense related to the delivery of an item or service
under the Medicare or Medicaid programs or any other federally or state
funded program, or any other federal or state law or regulation; (b) has
been required to pay any civil monetary penalty under Section 1128A of the
Social Security Act or any state Medicaid program; or (c) has been excluded
from participation in the Medicare, Medicaid, or any other federally or
state funded program; and
4.2.6 Automatically upon the death of Managing Physician.
In addition, nothing in this Section 4.2 shall preclude Employer from
suspending Managing Physician from the performance of any or all duties
normally performed by Managing Physician for any reason whatsoever;
provided, however, that Employer shall be required to compensate Managing
Physician fully during any such suspension until termination of this
Agreement as specified in this Section 4.
4.3 Termination by Managing Physician. Anything in this Agreement to the
contrary notwithstanding, Managing Physician may terminate this Agreement
upon three (3) days written notice from Managing Physician to Employer if
Employer violates any material provision of this Agreement and such
violation is not remedied within thirty (30) days from the date of delivery
by Managing Physician to Employer of written notice specifying the
violation.
4.4 Effect of Termination.
(a) In the event of termination of this Agreement for any reason,
Managing Physician shall only be entitled to Base Compensation
for services performed to the date of termination.
(b) If this Agreement is terminated, other than pursuant to Sections
4.2.3 (relating to disability), 4.2.6 (relating to death), or
4.3 (relating to Employer breach), before the end of the Initial
Employment Term or any Extended Term ("Early
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Termination"), the Managing Physician shall: (i) no longer be
entitled to any payments under this Agreement (as described in
Section 4.4(a) above) and (ii) forfeit a percentage of all
amounts paid or to be paid by IPS to the P.C. and/or Managing
Physician under the Purchase Agreement (the "Forfeited Amounts").
If the Forfeited Amounts are greater than the remaining unpaid
amounts due to P.C. or the Managing Physician under the Purchase
Agreement on the date of Early Termination, the Managing Physician
shall repay to Employer within thirty (30) days of such
termination the difference between the Forfeited Amounts and such
unpaid amounts. The percentage of the amounts paid or to be paid
by IPS pursuant to the Purchase Agreement which shall be forfeited
upon Early Termination shall be as follows:
Percentage to be
Date of Termination Forfeited
------------------- ------------------
During first Employment Year 100%
During second Employment Year 90%
During third Employment Year 80%
During fourth Employment Year 70%
During fifth Employment Year 60%
In the event that this Agreement is terminated at the end of its
initial five year term, or at the end of any extended term, there
shall be no penalty or forfeiture as a result thereof.
Notwithstanding the foregoing, Managing Physician shall forfeit
one hundred percent (100%) of the amounts paid or to be paid by
IPS to the P.C. and/or to Managing Physician under the Purchase
Agreement if Managing Physician voluntarily terminates his
employment hereunder without providing Employer with one hundred
eighty (180) days prior written notice. The foregoing shall not
be construed to limit any other remedies which Employer may have
upon a breach of or other default under this Agreement by
Managing Physician.
NON-COMPETITION
5.1 Covenant Not to Compete.
(a) During the period of time which Managing Physician is employed by
Employer pursuant to the terms of this Agreement and for a period of
two (2) years thereafter, without the prior written consent of Employer
and IPS, Managing Physician shall not, directly or indirectly, own,
manage, operate, join, control, finance, or participate in the
ownership, management, operation, control, or financing of, or be
connected as an officer, director, employee, partner, principal, agent,
representative, consultant, or otherwise, with any medical practice
located
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within a ten (10) mile radius of (i) the current office of the
Practice or (ii) any other office at which Managing Physician regularly
provides services. In such regard, "regularly provides services" means
spending more than fifty percent (50%) of Managing Physician's work
hours at such office within the immediately preceding six (6) month
period. If Managing Physician violates the provisions of this
Section 5.1, the restrictive period set forth herein shall be extended
by a period of time equal to the number of days, if any, during which
Managing Physician is in violation of the provisions hereof.
(b) At any time during a two year period subsequent to the termination of
this Agreement for any reason, Managing Physician shall not solicit or
induce any patient of the Practice to cease being a patient of the
practice for any reason whatsoever, including but not limited to
becoming a patient of Managing Physician.
(c) The restrictions of Section 5.1 shall not apply to Managing Physician
during the two (2) year period after Managing Physician's employment
with Employer expires or terminates if:
(i) Managing Physician terminates this Agreement pursuant to
Section 4.3 hereof;
(ii) This Agreement is terminated by Employer without cause at
any time;
(iii) Employer decides not to offer to extend Managing Physician's
employment with Employer for a period following the Initial
Employment Term at a compensation level (including incentive
compensation) that is comparable to the then current median
compensation for Managing Physician's specialty as reflected
in the physician compensation survey published by the
Medical Group Management Association ("MGMA") for the last
year of the Initial Employment Term; or
(iv) This Agreement is terminated by Employer because of Managing
Physician's disability, and after Managing Physician
notifies Employer that he is able to perform services again
for Employer on a full-time basis, Employer fails to rehire
Managing Physician for the remainder of the Initial
Employment Term at a compensation level which is comparable
to that which would have been received by Managing Physician
during the Employment Year in which Managing Physician
returns or with Employer's compensation plan (including
incentive compensation) then in effect and reasonably
equivalent to that of other physician employees of Employer
with a similar medical specialty, similar productivity, and
similar seniority.
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5.2 Remedies for Violation of Agreement Not to Compete. Managing Physician
hereby acknowledges and agrees that the covenants and restrictions contained
in this Section 5 relate to matters which are of a special, unique, and
extraordinary importance to Employer and IPS and that without such
covenants, IPS would be unwilling to purchase the Practice and Practice
Assets pursuant to the Asset Purchase Agreement or consummate any of the
transactions related thereto and Employer would be unwilling to enter into
this Agreement, and that a violation of any of the terms hereof will result
in irreparable injury to both IPS and Employer. Accordingly, Managing
Physician agrees that IPS and Employer shall be entitled to preliminary and
permanent injunctive relief for a violation or threatened violation of any
such restrictions without having to prove actual damages or to post a bond,
IPS and Employer shall also be entitled to an equitable accounting of all
earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies
to which IPS and Employer may be entitled in law or equity. Managing
Physician hereby waives any objections on the grounds of improper
jurisdiction or venue to the commencement of an action in the state of New
Jersey and agrees that effective service of process may be made upon
him/her by mail under the notice provisions contained in Section 6.5 of
this Agreement. MANAGING PHYSICIAN ACKNOWLEDGES THAT THE TERMS OF THIS
AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. THE MANAGING PHYSICIAN
REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE
OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE
FULL EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY
KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND HEREBY.
5.3 Enforcement. It is the intent of the parties that the provisions of this
Section 5 herein be enforceable to the fullest extent permitted by law. If,
however, any portion of any section of this Agreement including the
restrictive covenant as set forth herein is held by a court of law to be
unreasonable in any proceeding, then the period of time, the geographic
area, or such other restrictions shall be reduced by the elimination or
reduction of such portionthereof, so that such restrictions may be enforced
in a manner that is adjudged to be reasonable.
GENERAL PROVISIONS
6.1 Assignment. The rights and obligations of Employer under this Agreement
shall inure to the benefit of and be binding upon the successors and assigns
of Employer. This Agreement may be assigned by Employer, without the
consent of Managing Physician, to any parent, subsidiary, or affiliated
entity of Employer. This Agreement, being a contract for the personal
services of Managing Physician, shall not be assignable by Managing
Physician.
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6.2 Waiver. No waiver of any term, provision, or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances shall be
deemed or be construed as a further or continuing waiver of any such term,
provision, or condition of this Agreement.
6.3 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application
of such term or provision to persons or circumstances other than those to
which it is held invalid or unenforceable shall not be affected thereby
and each term and provision of the Agreement shall be valid and enforceable
to the fullest extent permitted by law.
6.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of state of New Jersey.
6.5 Notices. Notices under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by
certified, registered mail, return receipt requested, by nationally
recognized overnight mail, courier, or in person as of the date of receipt
to the parties hereto at the following addresses:
If to Managing Physician:
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With a required copy to:
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If to Employer:
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With a required copy to:
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6.6 Integration. This Agreement between the parties with respect to the
subject matter hereof supersedes and takes the place of all prior agreements
and negotiations, either oral,
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written, or implied. This Agreement may be modified only by an agreement
in writing signed by both parties.
6.7 Counterparts. This Agreement may be executed in counterparts each of which
shall be deemed an original and all of which together shall be one and the
same instrument.
6.8 Change of Law.
(a) Not withstanding any other provision of this Agreement, if during
the term hereof any Change of Law results in an Adverse
Consequence (as such terms are defined below), Employer and
Managing Physician agree to cooperate in making reasonable
revisions to this Agreement in order to avoid such Adverse
Consequence(s). If Employer and Managing Physician fail to agree
to such revisions after 60 days following notice by either Party
to the other requesting renegotiation, then either Party may
terminate this Agreement upon 30 days further written notice.
(b) As used herein, "Change of Law" shall mean: (a) any new
legislation enacted by the federal or any state government; (b)
any third party payor or any governmental agency (including but
not limited to the IRS or the Office of Inspector General of the
Department of Health and Human Services) passes, issues or
promulgates any new rule, regulation, or guideline or any
interpretation of an existing law, rule, regulation, or
guideline; or (c) any judicial or administrative body issues any
order or decree.
(c) As used herein, "Adverse Consequence" shall mean a Change of Law
that prohibits, restricts, limits, or otherwise affects either
Party's rights or obligations hereunder in a material manner or
otherwise makes it desirable for either Party to restructure the
relationship established hereunder because of material legal or
financial consequence expected to result from such Change of Law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
IPS Physicians/__________, P.A
ATTEST: ____________________ By: ________________________
WITNESS: ____________________ _____________________
Managing Physician
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EXHIBIT "A"
BENEFITS
1. Healthcare Benefits Plan for Managing Physician and his/her legal
dependents.
2. Prescription Card with minimum $10 co-payment.
3. Disability Insurance.
4. Optional Dental Benefit.
5. Vision Care Benefit.
6. Pension Plan - 401(K) - Employers contributions, if any, are discretionary
7. Continuing Medical Education Credit
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Exhibit 10.5
INTEGRATED PHYSICIAN SYSTEMS INC.
PRACTICE MANAGEMENT
SERVICES AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS............................................... 2
ARTICLE 2 RELATIONSHIP OF THE PARTIES............................... 6
2.1 Independent Relationship
2.2 Responsibilities of the Parties
2.3 Provider Matters
2.4 Patient Referrals
ARTICLE 3 DUTIES OF THE POLICY BOARD................................ 7
3.1 Formation of the Policy Board
3.2 Duties and Responsibilities of the Policy Board
ARTICLE 4 FACILITIES AND SERVICES TO BE PROVIDED BY IPS............. 8
4.1 Facilities
4.2 Additional Facilities
4.3 Performance of Management Functions
4.4 Financial Planning and Goals
4.5 Audits and Statements
4.6 Inventory and Supplies
4.7 Management Services and Administration
4.8 Executive Director
4.9 Personnel
4.10 Practice Expenses
4.11 Events Excusing Performance
4.12 Compliance with Applicable Laws
4.13 Quality Assurance
4.14 Ancillary Services
ARTICLE 5 OBLIGATIONS OF PROVIDER.................................. 12
5.1 Professional Services
5.2 Medical Practice
5.3 Employment of Physician Employees
5.4 Professional Dues and Education Expenses
5.5 Fees for Professional Services
5.6 Provider Expenses
5.7 Professional Insurance Eligibility
5.8 Events Excusing Performance
ARTICLE 6 RESTRICTIVE COVENANTS.................................... 13
6.1 Restrictive Covenants by Provider
<PAGE>
6.2 Restrictive Covenants by Current Physician Stockholders and
Physician Employees
6.3 Restrictive Covenants by Future Physician Employees
6.4 Enforcement
ARTICLE 7 FINANCIAL ARRANGEMENTS................................... 14
7.1 Provider Compensation
7.2 Draws
7.3 Determination and Payment of Provider Compensation
7.4 Assignment of Fees for Medical Service
7.5 Collection of Governmental Receivables
7.6 Collection of Non-Governmental Receivables
7.7 Procedures Without Lockbox
7.8 Misdirected Payments
7.9 Representations and Warranties with respect to Accounts
Receivable
ARTICLE 8 RECORDS................................................. 21
8.1 Patient Records
8.2 Records Owned by IPS
8.3 Access to Records
8.4 Maintenance of Records/Subcontracts
ARTICLE 9 INSURANCE AND INDEMNITY................................. 22
9.1 Insurance to be Maintained by Provider
9.2 Insurance to be Maintained by IPS
9.3 Additional Insureds
9.4 Indemnification
ARTICLE 10 TERM AND TERMINATION................................... 23
10.1 Term of Agreement
10.2 Extended Term
10.3 Termination by Provider
10.4 Termination by IPS
ARTICLE 11 GENERAL PROVISIONS..................................... 24
11.1 Assignment
11.2 Whole Agreement; Modification
11.3 Notices
11.4 Binding on Successors
11.5 Waiver of Provisions
11.6 Governing Law
11.7 Severability
11.8 Additional Documents
11.9 Time is of the Essence
11.10 Confidentiality
<PAGE>
11.11 Contract Modifications for Prospective Legal Events
11.12 Remedies Cumulative
11.13 No Obligation to Third Parties
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INTEGRATED PHYSICIAN SYSTEMS INC.
PRACTICE MANAGEMENT SERVICES AGREEMENT
THIS PRACTICE MANAGEMENT SERVICES AGREEMENT dated as of May, 1997,
by and between INTEGRATED PHYSICIAN SYSTEMS, INC., a Delaware Corporation with
its principal place of business at 2644 Bristol Road, Warrington, Pennsylvania
18976 (hereinafter "IPS") and IPS/PHYSICIANS _____________, P.C., a New Jersey
professional corporation with its principal place of business at
___________________________ (hereinafter "Provider"), _______________, an adult
individual with a business address at ____________ (hereinafter "Physician
Stockholder"), and _______________, duly licensed physician(s), with a business
address at _________________ (hereinafter "Physician Employee(s)").
RECITALS:
WHEREAS, Provider is a professional corporation which conducts a
muti-specialty group medical practice (the "Practice") which provides
comprehensive professional medical care to the public at several locations
("Practice Sites") in the_____________ county area; and
WHEREAS, Physician Stockholder is a duly licensed physician who owns
all of the issued and outstanding common stock of Provider; and
WHEREAS, Physician Employee(s) is/are employees of Provider and render
medical services at the practice Sites; and
WHEREAS, IPS is in the business of owning certain assets of and
managing and operating physician practices and furnishing such medical practices
with necessary facilities. equipment, personnel, supplies, and support staff;
and
WHEREAS, Provider desires to engage IPS to perform such management
functions and render such services which will enable Provider to devote its
efforts on a concentrated and continuous basis to the rendering of medical
services to its patients;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Provider hereby agrees to purchase from IPS the management and
support services herein described and IPS agrees to provide to Provider such
management and support services on the terms and conditions set forth in this
Agreement.
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ARTICLE 1
DEFINITIONS
Definitions. For purposes of this Agreement, the following
definitions shall apply:
(a) "Account Debtor" means an account debtor or any other person or
entity obligated in respect of an Account Receivable.
(b) "Accounts Receivable" means, with respect to the Provider, all
accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether classified
under the Uniform Commercial Code ("UCC") as accounts, chattel paper, general
intangibles or otherwise) for goods sold or leased or for services rendered by
the Provider, including, but not limited to, accounts receivable, proceeds of
any letters of credit naming the Provider as beneficiary, chattel paper
insurance proceeds, contract rights, notes, drafts, instruments, documents,
acceptances and all other debts, obligations and liabilities in whatever form,
from any other person or entity; provided, however, that cash, checks and credit
card purchases are not included in the definition of Accounts Receivable.
(c) "Assigned A/R" shall mean, with respect to the Provider, the
Accounts Receivable assigned pursuant to Article 7 of this Agreement.
(d) "CHAMPUS" means the Civilian Health and Medical Program of the
Uniformed Services.
(e) "Collecting Bank" means the main office of ____________________
located at___________________ or such other financial institution agreed to by
IPS.
(f) "Finance Charge Rate" means a rate of interest equal to the lessor
of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest
allowed by applicable law from time to time in effect.
(g) "GAAP" shall mean generally accepted accounting principles as 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 or in such other
statements by such entity or other practices and procedures as may be approved
by a significant segment of the accounting profession. For purposes of this
Agreement, GAAP shall be applied in a manner consistent with the historic
practices used by IPS or Provider as applicable.
(h) "Governmental Receivables" means an Account Receivable of Provider
which (i) arises in the ordinary course of business of Provider, (ii) has as its
third party payor the United
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States of America or any state or any agency or instrumentality of the United
States of America or any state which makes any payments with respect to
Medicare or Medicaid or with respect to any other program (including CHAMPUS)
established by federal or state law, and (iii) is required by federal or
state law to be paid or to be made to Provider as a health care provider.
Governmental Receivables shall not, however, refer to amounts payable by
private insurers under contract to provide benefits under the Federal
Employee Health Benefit Program.
(i) "Governmental Lockbox Account" means an account established at
the Collecting Bank by Provider into which all proceeds of Providers
Governmental Receivables are remitted.
(j) "IPS' Expenses" shall be the sole obligation of IPS and shall
mean, pursuant to GAAP applied on a consistent basis: (i) any general and
administrative expenses of IPS and other items or expenses incurred by IPS that
are not incurred specifically for the purpose of providing services to Provider
or are not directly attributable to Provider (or cannot be reasonably allocated
to Provider), as determined by IPS , including, without limitation, salaries
and benefits of executive officers of IPS, except as otherwise provided for in
the definition of Provider Expenses; and (ii) all taxes of IPS, 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 to Provider, property taxes on assets used by Provider and other taxes
specifically included in Provider Expenses.
(k) "Lender" shall mean any lender to IPS that has a security
interest in the Accounts Receivable from time to time.
(l) "Lockbox Agreements" means those certain agreements to be entered
into between the Collecting Bank and Provider as to Governmental Receivables
and the Non-Governmental Receivables, respectively, in form and substance
acceptable to IPS and its legal counsel.
(m) "Main Account" means IPS operating account established at the
Collecting Bank.
(n) "Medicaid" means any state program pursuant to which health care
providers are paid or reimbursed for care given or goods afforded to indigent
persons and administered pursuant to a plan approved by the Health Care
Financing Administration under Title XIX of the Social Security Act.
(o) "Medicare" means any medical program established under Title XVIII
of the Social Security Act and administered by the Health Care Financing
Administration.
(p) "Non-Governmental Lockbox Account" means the account established
by IPS with the Collecting Bank into which all proceeds from Providers Accounts
Receivable from third party payors or patients ( other than Governmental
Receivables ) are remitted.
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(q) "Non-Governmental Receivables" means any Accounts Receivable
which are not Governmental Receivables.
(r) "Notification Letter" means a written notification from Provider
to third party payors that all proceeds due under Providers Accounts Receivable
are to be remitted to the Non-Governmental Lockbox Account or the Governmental
Lockbox Account, as the case may be, with such Notification Letter to be in
form acceptable to IPS and its legal counsel.
(s) "Physician Employees" shall mean only those who are doctors of
medicine (including Physician Stockholders) and who are employed by Provider or
are otherwise under contract with Provider to provide professional services to
patients at the Practice Sites and are duly licensed to provide medical services
in the State of New Jersey.
(t) "Physician Extender Employees" shall mean physician assistants,
midwives, nurse practitioners and other such persons who are employees of IPS,
excluding, however, all Technical Employees.
(u) "Physician Stockholders" shall mean those Physician Employees who
own an interest, directly or indirectly, in the equity of Provider.
(v) "Practice Expenses" shall be the sole obligation of IPS and shall
mean, pursuant to GAAP applied on a consistent basis, all operating and
nonoperating expenses of Provider arising hereunder in connection with the
operation of the Practice Sites, unless expressly provided otherwise herein
(e.g., Provider Expenses), including but not limited to:
(i) Salaries, benefits and other direct costs of all
non-physician employees working at the Practice Sites or elsewhere on behalf of
Provider, excluding Technical Employees.
(ii) Obligations of Provider under leases of space and equipment
for the proper and efficient operation of the Practice Sites. If IPS is the
lessor of such space or equipment under Practice Site Lease Agreements and/or
Practice Equipment Lease Agreements, the rental values therefor shall be clearly
delineated in the lease agreement(s), for such items and shall be set at a rate
equal to their fair market value regardless of the relationship between IPS and
Provider;
(iii) All expenses and charges associated with the operation of
the Practice Sites, including, without limitation, utilities, telephone,
janitorial/maintenance, etc.;
(iv) Personal property taxes assessed against IPSs assets
utilized by Provider in the Practice Sites from and after the date of this
Agreement;
(v) Malpractice insurance premiums, and fire, workers
compensation and general liability insurance premiums;
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(vi) The cost of any goods purchased for resale;
(vii) Direct costs of all employees or consultants of IPS engaged
to provide services at or in connection with Provider or who actually provide
services at or in connection with the Practice (whether or not at a Practice
Site) for improved performance, such as quality assurance, materials management,
purchasing programs, coding analysis and physician recruitment; provided,
however, that only the portion of expenses related to such employee or
consultant, that is allocable to work performed at or for the benefit of
Provider shall be included in Practice Expenses, without mark up;
(viii) Reasonable expenses related to professional meetings,
seminars, dues and professional licensing fees for Physician Employees (
including Physician Stockholder(s)) and Physician Extender Employees; and
(ix) Any and all other ordinary and necessary expenses incurred
by Provider or IPS for the direct benefit of the Provider in carrying out their
respective obligations under this Agreement.
(w) "Practice Site" shall mean any office, clinic, laboratory, or
other location from which Provider renders professional medical services.
(x) "Professional Services Revenue" shall mean all fees actually
recorded each month (net of any amounts reimbursed to any patient or third party
payors during the applicable month and net of any adjustments for contractual
allowances and reserves for uncollectible amounts based on the historical
experience of Provider, as determined by IPS in its sole discretion) by or on
behalf of Provider as a result of professional medical services personally
furnished to patients (including but not limited to fee for service revenues,
managed care payments and capitation revenues from risk contracts) and other
fees or income generated by Physician Stockholder(s), Physician Employees,
Physician Extender Employees and other non-physician employees, plus any
revenues from the sale or provision of any goods, supplies, diagnostic tests,
therapies or other ancillary services or items by Provider. References to
"actually recorded" shall mean all amounts recorded in accordance with GAAP.
(y) "Provider Equipment Lease Agreement(s)" shall mean any lease for
equipment utilized at a Practice Site which is entered into by and between IPS
as lessor and Provider as lessee.
(z) "Provider Expenses" shall be the sole obligation of Provider and
shall mean, pursuant to GAAP (as defined herein) applied on a consistent basis:
(i) federal, state or local income taxes payable by Provider and the costs of
preparing federal, state or local tax returns for Provider; (ii) all
compensation and other benefits payable with respect to Physician Stockholders,
Physician Employees and Technical Employees (as defined herein) and all
employment taxes and costs associated therewith; (iii) physician licensure fees,
board certification fees and costs of membership in professional associations
for Physician Stockholders, Physician Employees and Technical Employees; (iv)
costs associated with legal, accounting and professional services
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incurred by or on behalf of Provider; (v) final and non-appealable judgments in
excess of professional liability insurance policy limits rendered against
Provider, Physician Stockholders, Physician Employees and Technical Employees,
or any of them, in the performance of medical services as employees or
contractors of Provider; (vi) direct personal expenses of Physician
Stockholders, Physician Employees or Technical Employees of a kind which
Provider has historically charged to its Physician Stockholders, Physician
Employees or Technical Employees as the case may be; and (vii) costs of
continuing professional education for Physician Stockholders, Physician
Employees and Technical Employees.
(aa) "Provider Practice Site Lease Agreement(s)" shall mean any lease
for Provider office space which is entered into by and between IPS as lessor and
Provider as lessee.
(bb) "Provider Operating Account" shall mean the main bank account
maintained by Provider.
(cc) "Technical Employees" shall mean those individuals who provide
billable services on behalf of Provider and are employees of Provider, but are
neither Physician Employees nor Physician Extender Employees.
ARTICLE 2
RELATIONSHIP OF THE PARTIES
2.1 Independent Relationship. Provider and IPS intend to act and
perform as independent contractors. Notwithstanding the authority granted to IPS
herein, IPS and Provider agree that Provider will retain the sole authority to
direct the medical, professional and ethical aspects of its medical practice.
Each party shall be responsible for and shall comply with all state and federal
laws with respect to employment taxes, income tax withholding, unemployment
compensation contributions and such other employment related statutes as may be
applicable to that party.
2.2 Responsibilities of the Parties. As more specifically set forth
herein, IPS shall provide Provider with offices, facilities, equipment,
supplies, support personnel and practice management and financial advisory
services. As more specifically set forth herein, Provider shall be responsible
for the recruitment and hiring of physicians and all issues related to medical
practice patterns and documentation thereof. Notwithstanding anything herein to
the contrary, any clinical laboratory service shall be operated in full
compliance with Section 6204 of the Omnibus Budget Reconciliation Act of 1989.
2.3 Provider Matters. Matters involving the internal agreements and
finances of Provider, including the distribution of professional fee income
among the individual Physician Stockholders (as hereinafter defined), tax
planning, pension and investment planning (and expenses relating solely to
these internal business matters) shall remain the sole responsibility of
Provider and the individual Physician Stockholders.
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2.4 Patient Referrals. The parties agree that the benefits to
Provider hereunder do not require, are not payment for, and are not contingent
upon the admission, referral or any other arrangement for the provision of any
item or service offered by IPS to any of Providers patients in any facility or
laboratory controlled, managed or operated by IPS.
ARTICLE 3
THE POLICY BOARD
3.1 Formation of the Policy Board. The Parties hereto shall
establish a Policy Board which shall be responsible for developing management
and administrative policies for the overall operation of the Practice. The
Policy Board shall consist of six (6) members. IPS shall designate, in its sole
discretion, three (3) members of the Policy Board. Provider shall elect from
among its shareholders and employed physicians, the other three (3) members of
the Policy Board.
3.2 Duties and Responsibilities of the Policy Board. The Policy
Board shall have the following duties and obligations:
3.2.1 Capital Improvements and Expansion. Any renovation or
expansion plan and any capital equipment expenditure with respect to the
Practice shall be first reviewed and approved by the Policy Board and shall be
based upon economic feasibility, physician support. productivity and the then
current market conditions.
3.2.2 Annual Budgets. All annual capital and operating
budgets prepared by IPS, as set forth in Section 4.2 hereof, shall be subject
to the review and approval of the Policy Board.
3.2.3 Advertising. All advertising and other marketing of the
services performed by the Practice shall be subject to the prior review and
approval of the Policy Board.
3.2.4 Patient Fees. As a part of the annual operating budget,
in consultation with IPS, the Policy Board shall review and adopt a fee
schedule for all physician and ancillary services rendered by the Practice.
3.2.5 Ancillary Services. The Policy Board shall approve any
ancillary services provided by the Practice based upon the pricing and quality
of such services.
3.2.6 Provider and Payor Relationships. Decisions regarding
the establishment or maintenance of relationships with institutional health care
providers and payors shall be made by the Policy Board in consultation with IPS.
3.2.7 Strategic Planning. The Policy Board shall develop long
term strategic objectives.
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3.2.8 Capital Expenditures. The Policy Board shall determine
the priority of major capital expenditures.
3.2.9 Physician Hiring. The Policy Board shall determine the
number and type of physicians required for the efficient operation of the
Practice. The approval of the Policy Board shall be required prior to any
variation in the restrictive covenants contained in any employment agreement
between a physician and Provider.
3.2.10 Executive Director. The selection and retention of the
Executive Director pursuant to Section 4.8 by IPS shall be subject to the
approval of the Policy Board. If Provider is dissatisfied with the services
provided by the Executive Director, Provider shall so inform the Policy Board.
IPS and the Policy Board shall in good faith determine whether the Executive
Director should be terminated, counseled or assisted.
3.2.11 Grievance Referrals. The Policy Board shall consider
and make final decisions on all grievances pertaining to matters not
specifically addressed in this Agreement.
ARTICLE 4
FACILITIES AND ADMINISTRATIVE SERVICES TO BE PROVIDED BY IPS
4.1 Facilities. IPS hereby agrees to furnish to Provider and be
responsible for the offices and facilities more fully described in Exhibit 4.1,
including, but not limited to, all costs of repairs, maintenance, improvements,
utilities (telephone, electric, gas, water), normal janitorial service, refuse
disposal, real or personal property lease or sublease expenses, taxes, insurance
and all other costs and expenses reasonably incurred in conducting the
Practices during the term of this Agreement. IPS shall consult with Provider
regarding the condition, use and needs for the offices, facilities and
improvements.
4.2 Additional Facilities. In the event that additional physicians
shall be employed by Provider, and provided that the circumstances so require,
IPS shall expand the offices, facilities and improvements provided hereunder to
accommodate any additional needs of the Practice. IPS shall consult with
Provider regarding the need for additional offices, facilities and improvements.
4.3 Performance of Management Functions. IPS shall provide or arrange
for the services set forth in this Article 4, the cost of which shall be
included in Practice Expenses (hereinafter defined). IPS is hereby expressly
authorized to perform its services hereunder in whatever manner it deems
reasonably appropriate to meet the day to day requirements of practice
operations in accordance with the general standards approved by the Policy
Board, including, without limitation, performance of some of the business office
functions at locations
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other than the Practice locations. Provider will not act in a manner which
prevents IPS from efficiently managing the day to day operations of the Practice
in a business like manner.
4.4 Financial Planning and Goals. IPS shall prepare annual capital
and operating budgets reflecting, in reasonable detail, anticipated revenues and
expenses, sources and uses of capital for growth in the Practice, and medical
services to be rendered at the Practice. The budgets shall be presented to the
Policy Board at least thirty (30) days prior to the end of the preceding fiscal
year. IPS shall determine the amount and form of capital to be invested annually
in the Practice and shall specify the targeted profit margin for the Practice
which shall be reflected in the budget.
4.5 Audits and Statements. IPS shall prepare, after consultation with
the Policy Board, annual financial statements for the operations of Provider and
shall cause the annual financial statements to be audited by an independent
certified public accountant selected by IPS.
4.6 Inventory and Supplies. IPS shall order and purchase for the
Practice all inventory supplies and other ordinary, necessary and appropriate
materials.
4.7 Management Services and Administration.
(a) Provider hereby appoints IPS as its sole and exclusive
manager and administrator for all day to day business functions of the Practice.
Provider agrees that the purpose and intent of this Practice Management
Services Agreement is to relieve the Physician Stockholders and Physician
Employees, to the maximum extent possible, of the administrative, accounting,
personnel and business functions of the Practice and to have IPS assume
responsibility for and be given all necessary authority to perform these
functions. IPS agrees that Provider, and only Provider, will perform all medical
functions of its practice. IPS will have no authority, directly or indirectly,
to perform, and will not perform, any medical function. IPS may, however, advise
Provider regarding the relationship between its performance of medical functions
and the overall administrative and business functioning of the Practice. To the
extent that they assist Provider in performing medical functions, all clinical
support personnel provided by IPS shall be subject solely to the direction and
supervision of Provider and in the performance of such medical functions, shall
not be subject to any direction or control by, or liability to, IPS, except as
may be specifically authorized by Provider.
(b) IPS shall, on behalf of Provider, bill patients and collect the
professional fees for medical services rendered by Provider at the Practice
Sites, for services performed outside the Practice Sites; for hospitalized
patients; and for all other professional services. Provider hereby appoints IPS
for the term hereof to be its true and lawful attorney-in-fact, for the
following purposes: (i) to bill patients in Providers name and on its behalf;
(ii) to collect accounts receivable resulting from such billing in Providers
name and on its behalf; (iii) to receive payments from Blue Shield, health and
other insurance companies, prepayments from health care plans, Medicare,
Medicaid and all other third party payors; (iv) to take possession of and to
endorse in the name of Provider (and/or in the name of an individual physician)
any notes,
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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 Provider to collect any accounts and moneys owed to
Provider; (vi) to enforce the rights of Provider as creditors under any contract
or in connection with the rendering of any service; and (vii) to contest
adjustments and denials by governmental agencies (or their fiscal
intermediaries) as third party payors. All adjustments made for uncollectible
accounts, professional courtesies and other activities that do not generate a
collectible fee shall be done in a reasonable and consistent manner approved by
IPS independent certified public accountants.
(c) IPS shall design, supervise and maintain custody of all files and
records relating to the operation of Provider, including but not limited to
accounting, billing, patient medical records, and collection records. Patient
medical records shall at all times be and remain the property of Provider and
shall be located at the Practice Sites so that they are readily accessible for
patient care. The management of all files and records shall comply with
applicable state and federal statutes. IPS shall use its best efforts to
preserve the confidentiality of patient medical records and use information
contained in such records only for the limited purposes necessary to perform the
services set forth herein; provided however, that in no event shall a breach of
said confidentiality be deemed a default under this Agreement.
(d) IPS shall supply to Provider all clerical, accounting,
bookkeeping, transcription and computer services, printing, postage and
duplication services, medical transcription services and all other ordinary,
necessary or appropriate services for the operation of the Practice.
(e) Subject to the provisions of Section 3.2.3, IPS shall design and
implement an adequate and appropriate public relations program on behalf of
Provider, with appropriate emphasis on public awareness of the availability of
services at the Practice Sites. The public relations program shall be conducted
in compliance with applicable laws and regulations governing advertising by the
medical profession.
(f) IPS shall provide the data necessary for Provider to prepare its
annual income tax returns and financial statements. IPS shall have no
responsibility for the preparation of Provider federal or state income tax
returns other than as provided in Section 4.5(i) nor shall IPS have any
responsibility for the payment of any such income taxes.
(g) IPS shall assist Provider in recruiting additional physicians,
performing such administrative functions as may be appropriate such as
advertising for and identifying potential candidates, checking credentials,
and arranging interviews; provided however, that Provider shall interview and
make the decision as to the suitability of any physician to become associated
with the Provider. All physicians recruited by IPS and accepted by Provider
shall be the employees of Provider and not of IPS. Subject to Section 5.3,
any expenses incurred in the recruitment of physicians, including, but not
limited to, employment agency fees, relocation costs and interviewing
expenses shall be budgeted Practice Expenses. Such expenses shall be approved
by IPS.
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(h) Subject to the direction and approval of the Policy Board, IPS
shall negotiate and administer all managed care contracts on behalf of Provider.
(i) IPS shall arrange for all legal and accounting services related to
Practice operations incurred traditionally in the ordinary course of business,
including enforcing any physician contract containing any restrictive covenants,
provided that such service shall first be approved in advance by the Executive
Director.
(j) IPS will provide for the proper cleanliness of the premises, and
maintenance and cleaning of the equipment, furniture and furnishings located
upon such premises.
(k) IPS shall negotiate for and cause premiums to be paid with respect
to the Insurance provided in Section 9.1. All premiums and deductibles with
respect to such policies shall be Practice expenses.
4.8 Executive Director. Subject to the provisions of Section 3.2.11,
IPS, if in its sole discretion it deems it to be prudent and necessary, shall
hire and appoint an Executive Director to manage and administer all of the day
to day business functions of the Practice. IPS shall determine the salary and
fringe benefits of the Executive Director. At the direction of, and under the
supervision and control of IPS, the Executive Director, subject to the terms of
this Agreement, shall implement the policies established by the Policy Board and
shall generally perform the duties and have the responsibilities of an
administrator. The Executive Director shall be responsible for organizing the
agenda for the meetings of the Policy Board referred to in Article 3.
4.9 Personnel. IPS shall provide physician extender employees,
nursing and other non-physician professional support (other than Technical
Employees) and administrative personnel, clerical, secretarial, and bookkeeping
and collection personnel reasonably necessary for the conduct of the Practice.
IPS shall determine and cause to be paid the salaries and fringe benefits of all
such personnel. Such personnel shall be under the direction, supervision and
control of IPS, with those personnel performing patient care services subject to
the professional supervision of Provider. If Provider is dissatisfied with the
services of any person, Provider shall consult with IPS. IPS shall in good faith
determine whether the performance of that employee could be brought to
acceptable levels through counsel and assistance, or whether such employee
should be terminated. IPS obligations regarding staff shall be governed by the
overriding principle and goal of providing the highest quality of medical care.
Employee assignments shall be made in a manner which assures consistent and
continued rendering of high quality medical support services and prompt
availability and accessibility of individual medical support personnel to
physicians, in order to develop constant, familiar and routine working
relationships between individual physicians and individual members of the
medical support staff. IPS shall maintain established working relationships
wherever possible and IPS shall make every effort consistent with sound business
practices to honor the specific requests of Provider with regard to the
assignment of its employees.
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4.10 Practice Expenses. During the term of this Agreement, IPS shall
be solely responsible for, and shall pay on a timely basis, when due, all
Practice Expenses.
4.11 Events Excusing Performance. IPS shall not be liable to Provider
for failure to perform any of the services required herein in the event of
strikes, lockouts, calamities, acts of God, unavailability of supplies, or other
events over which IPS has no control for so long as such events continue, and
for a reasonable time thereafter.
4.12 Compliance with Applicable Laws. IPS shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.13 Quality Assurance. IPS shall assist Provider in fulfilling its
obligation to its patients to maintain a high quality of medical and
professional services. The Physician Stockholders hereby acknowledge their
obligations to each other and to the public to maintain appropriate standards of
medical care.
4.14 Ancillary Services. IPS shall operate such ancillary services as
are approved by the Policy Board.
ARTICLE 5
OBLIGATIONS OF PROVIDER
5.1 Professional Services. Provider shall provide professional
services to patients in compliance at all times with all ethical standards, laws
and regulations applying to the medical profession. Provider shall ensure that
each physician associated with Provider that provides medical care to patients
of Provider is licensed to do so by the State of New Jersey. In the event that
any disciplinary action or medical malpractice action is initiated against any
such physician, Provider shall immediately inform the Executive Director of the
existence of such action and the facts and circumstances underlying the action.
Provider shall establish a program which monitors the medical care delivered at
the Practice Sites.
5.2 Medical Practice. Provider shall use and occupy the Practice
Sites exclusively for the practice of medicine and shall comply with all
applicable local rules, ordinances and standards of medical care. It is
expressly acknowledged by the parties that the medical practice or practices
conducted at the Practice Sites shall be conducted solely by physicians
associated with Provider and no other physician or other medical practitioner
shall be permitted to use or occupy the Practice Sites without the prior written
consent of IPS.
5.3 Employment of Physician Employees and Technical Employees.
Provider shall have complete control of and responsibility for the hiring,
compensation, evaluation and termination of its Physician Employees and
Technical Employees, although at the request of Provider, IPS shall consult with
Provider respecting such matters. Provider shall be responsible
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for the payment of all Physician Employees and Technical Employees salaries
and wages, payroll taxes, benefits and all other charges now or hereafter
applicable to them. Provider shall only employ and contract with licensed
physicians meeting applicable credentialing guidelines established by the
Policy Board.
5.4 Professional Dues and Educational Expenses. Provider and its
Physician Employees shall be solely responsible for the cost of membership in
professional associations, and continuing professional education. Provider shall
ensure that each of its Physician Employees participates in such continuing
medical education as may be required in order for such physician to remain in
compliance with all appropriate standards.
5.5 Fees for Professional Services. Provider shall be solely
responsible for all legal, accounting and other professional service fees
incurred by Provider.
5.6 Provider Expenses. During the term of this Agreement, Provider
shall be solely responsible for, and shall pay on a timely basis, when due, all
Provider Expenses.
5.7 Professional Insurance Eligibility. Provider shall cooperate with
IPS in obtaining and retaining professional liability insurance; shall make
certain that its Physician Employees are properly insurable; and shall
participate in an ongoing risk management program.
5.8 Events Excusing Performance. Provider shall not be liable to IPS
for failure to perform any of the services required herein in the event of
strikes, lockouts, calamities, acts of God, unavailability of supplies, or other
events over which Provider has no control, for so long as such events continue
and for a reasonable period of time thereafter.
ARTICLE 6
RESTRICTIVE COVENANTS
The parties recognize that the services to be provided by IPS
hereunder shall be effective only if Provider operates an active medical
practice to which the physicians associated with Provider devote their full time
and attention. To that end:
6.1 Restrictive Covenants by Provider. During the term of this
Agreement, Provider shall not establish, operate or provide physician services
at any medical office, clinic or other health care facility providing services
substantially similar to those provided by Provider pursuant to this Agreement,
located within 35 miles of the Practice Sites (wherever located at such time).
6.2 Restrictive Covenants by Current Physician Stockholders and
Physician Employees. Provider shall obtain and enforce (subject to IPS
obligations under Section 4.5(i) of this Agreement) formal agreements from its
current Physician Stockholders, pursuant to which the Physician Stockholders
agree not to establish, operate or provide physician services at any
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medical office, clinic or outpatient and/or ambulatory treatment or diagnostic
facility providing services substantially similar to those provided by Provider
within 10 miles of the Practice Sites (wherever located at such time) during
the term of such agreements and for a period of two (2) years after any
termination of employment with Provider. Provider shall not waive any of the
provisions of such agreements.
6.3 Restrictive Covenants by Future Physician Employees. Provider
shall obtain and enforce formal agreements from each of its future Physician
Employees (and future Physician Stockholders) hired or contracted, pursuant to
which such physicians agree not to establish, operate or provide physician
services at any medical office, clinic or outpatient and/or ambulatory treatment
or diagnostic facility providing services substantially similar to those
provided by Provider within 10 miles of the Practice Sites (wherever located at
such time) during the term of said Physician Employees employment agreement with
Provider and for a period of two (2) years thereafter.
6.4 Enforcement. IPS and Provider acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Article 6 shall be inadequate, 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 all other remedies which may exist
at law or equity. The parties hereto also waive any requirement for the securing
or posting of any bond in connection with the obtaining of any injunctive or
other equitable relief. If any provision of Article 6 relating to the
restrictive period, scope of activity restricted and/or the geographic
limitation described therein shall be declared by a court of competent
jurisdiction to exceed the maximum time period, scope of activity restricted, or
geographic 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 the
restrictive covenant provisions in this Article 6. The invalidity or
non-enforceability of this Article 6 in any respect shall not affect the
validity or enforceability of the remainder of this Article 6 or any other
provisions of this Agreement.
ARTICLE 7
FINANCIAL ARRANGEMENTS
7.1. Provider Compensation. As compensation for the services rendered at
the Practice Sites, Provider shall receive compensation as set forth on Appendix
"A", attached hereto and made a part hereof ("Provider Compensation"). With
respect to any partial calendar years during which this Agreement is in effect,
Provider Compensation shall be prorated according to the number of calendar days
actually elapsed during such partial calendar year.
7.2 Draws. At the beginning of each month, IPS shall make a reasonable
estimate of the amount of Provider Compensation which shall be due and payable
to Provider for such months operations. IPS shall pay such estimated amount
("Estimated Provider Compensation")
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as a Draw to Provider, on or before the tenth (10th) day of each calendar month.
The Estimated Provider Compensation may vary from month to month depending upon
historical factors and other adjustments.
7.3 Determination and Payment of Provider Compensation.
(a) Between July 1 and July 15 of the calendar year immediately
following each calendar year during the term of this Agreement, IPS shall make a
determination as to the amount of the total Provider Compensation earned by
Provider during the immediately preceding year. No later than each such July 15,
IPS shall cause a payment to be made to Provider in an amount equal to the
aggregate Provider Compensation payable with respect to such calendar year, less
the aggregate sum of all Draws received by Provider pursuant to Section 7.2
during such calendar year. All Net Practice Revenues with respect to any
calendar year, in excess of Provider Compensation for such calendar year, shall
be the sole property of IPS, pursuant to the terms of Section 7.4(a) hereof.
(b) In the event that, after making the determination provided for in
Section 7.3(a), it is determined that the aggregate Draws by Provider under
Section 7.2 for the applicable calendar year exceed the actual amount of
Provider Compensation which Provider is ultimately entitled to receive with
respect to such calendar year (an "overdraft"), Provider shall pay the amount of
the overdraft to IPS within thirty (30) days after receipt by Provider of
written notice from IPS specifying the amount of such overdraft or, at the
option of IPS, Provider shall have the amounts payable to it pursuant to Section
7.1 with respect to the next succeeding calendar year reduced by the amount of
such overdraft.
In the event that Provider shall ever disagree with any determination by
IPS of the total Provider Compensation for any calendar year, Provider shall
have the right to review, upon reasonable notice to IPS, the documents used by
IPS in determining such amounts.
7.4 Assignment of Fees for Medical Services.
(a) As compensation to IPS for all of the facilities, equipment and
services rendered by it to Provider pursuant to the terms of this Agreement, and
as full and complete payment therefor, Provider, Physician Stockholders, and
Physician Employees hereby irrevocably assign and set over to IPS all of their
rights to receive payment for the provision of medical services to patients of
the Practice, including all charges which Provider or the Physician Stockholders
or Physician Employees would otherwise bill and retain for their own account,
and all of their rights to all other income or revenue generated by the
operations of the Practice.. The parties acknowledge and agree that the
compensation and benefits payable to Provider pursuant to the provisions of
Section 7.1 are intended to be in lieu of charges which Provider or its
Physician Stockholders or Physician Employees would otherwise earn for the
provision of medical services to patients of their medical practice. Provider
shall obtain, or cause to be obtained, from each Physician Stockholder and
Physician Employee, an assignment of all of his right, title and interest in and
to all fees for medical services rendered to patients of the practice and all of
his rights to any other income or revenue generated by the operations of the
Practice.
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Provider, Physician Stockholders and Physician Employees shall endorse any
payments received on account of such services to the order of IPS and shall take
such other actions as may be necessary to confirm to IPS the rights set forth in
this Section 7.4(a).
(b) Without limiting the generality of the foregoing, it is the
intent of the parties that the assignment to IPS of the rights described in
Section 7.4(a) above shall be inclusive of the rights of Provider and the
Physician Stockholders and Physician Employees to receive payment with respect
to any services rendered prior to the effective date of any expiration or
termination of this Agreement. Provider agrees, and shall cause each Physician
Stockholder and Physician Employee to agree, that IPS shall retain the right to
collect and retain for its own account any accounts receivable relating to any
such services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable").
(c) Provider acknowledges that it is the intent of IPS to grant a
security interest in the Pre-Termination Accounts Receivable to the lender(s)
under its working capital line of credit facility (whether one or more,
"Lender"), as in effect from time to time. Provider agrees that such security
interest of the Lender is intended to be a first priority security interest and
is superior to any right, title or interest which may be asserted by Provider or
any Physician Stockholder or Physician Employee with respect to Pre-Termination
Accounts Receivable or the proceeds thereof. Provider further agrees, and shall
cause each Physician Stockholder and Physician Employee to agree, that, upon the
occurrence of an event which, under the terms of such working capital credit
facility, would allow the Lender to exercise its right to collect
Pre-Termination Accounts Receivable and apply the proceeds thereof toward
amounts due under such working capital credit facility, the Lender will succeed
to all rights and powers of IPS under the powers of attorney provided for in
Section 4.7(b) above as if such Lender had been named as the attorney-in-fact
therein.
(d) If, contrary to the mutual intent of IPS and Provider, the
assignment of rights described in this Section 7.4 shall be deemed, for any
reason, to be ineffective as an outright assignment, then Provider and each
Physician Stockholder and each Physician Employee shall, effective as of the
date of this Agreement, be deemed to have granted (and Provider does hereby
grant, and shall cause each Physician Stockholder and Physician Employee to
grant) to IPS, a first priority lien on and security interest in and to any and
all interests of Provider and such Physician Stockholders and Physician
Employees in any accounts receivable generated by the medical practice of
Provider and its Physician Stockholders and Physician Employees or otherwise
generated through the operations of the Practice, and all proceeds with respect
thereto, to secure the payment to IPS of all Net Practice Revenues in excess of
Provider Compensation, and this Agreement shall be deemed to be a security
agreement to the extent necessary to give effect to the foregoing. Provider
shall execute and deliver and cause each Physician Stockholder and Physician
Employee to execute and deliver, all such financing statements as IPS may
request in order to perfect such security interest, Provider shall not grant
(and shall not suffer any Physician Stockholder or Physician Employee to grant)
any other lien on or security interest in or to such accounts receivable or any
proceeds thereof.
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7.5. Collection of Governmental Receivables. With respect to payments on
Governmental Receivables, at the request and option of IPS, Provider agrees that
the following procedures shall apply:
(a) Provider shall enter into a lockbox agreement applicable to
Governmental Receivables and establish a Governmental Lockbox Account. The
Governmental Lockbox Account shall be an account in the name of Provider. All
payments in respect of Providers Governmental Receivables are to be made
directly to such account. In the event IPS exercises this option, Provider shall
instruct each Account Debtor in respect of Providers Governmental Receivables to
remit all such payments directly to such Governmental Lockbox Account pursuant
to a Notification Letter. In addition, Provider shall attach written
instructions to each invoice directing that said invoice be paid to the
Governmental Lockbox Account. Provider agrees that it shall not deposit any
funds other than payments of Governmental Receivables into, nor make any
withdrawals from, the Governmental Lockbox Account without the prior written
consent of IPS. Provider further agrees that it shall not during the term of
this Agreement, terminate, modify or amend in any manner the Lockbox Agreement
applicable to the Governmental Lockbox Account.
(b) In accordance with the Lockbox Agreement pertaining to
Governmental Receivables, Provider shall instruct the Collecting Bank to
transfer all amounts deposited in the Governmental Lockbox Account constituting
collected funds to IPSs Main Account. Provider shall have no right or interest
in the Main Account. Provider shall not, so long as any Assigned A/R remains
unpaid, change or cancel such automatic transfer at any time, or, without the
prior written consent of IPS, change either the identity of the Governmental
Lockbox Account or the instructions to each Account Debtor of the related
Governmental Receivable to make its payments to such Account. Any such action
shall be considered a breach of this Agreement for which IPS shall be entitled
to all remedies at law and in equity, including the obtaining of an injunction.
(c) Provider will cooperate with IPS and its agents in the
identification of sums deposited into the Governmental Lockbox Account, which
cooperation shall continue until all Assigned A/R have been collected.
(d) Provider agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any payment of a Governmental Receivable received by
Provider that is not deposited in the Governmental Lockbox Account within
forty-eight (48) hours after receipt by Provider.
7.6. Collection of Non-Governmental Receivables. With respect to payments
on Non-Governmental Receivables, if requested by IPS at IPSs option, Provider
agrees that the following procedures shall apply:
(a) Prior to the assignment of any Non-Governmental Receivable
hereunder, IPS, the Collecting Bank and Lender (if requested by Lender) shall
enter into a Lockbox Agreement applicable to Non-Governmental Receivables, and
IPS shall establish a Non-Governmental
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Lockbox Account. The Non-Governmental Lockbox Account shall be an account in the
name of IPS. All payments in respect of Providers Non-Governmental Receivables
are to be made directly to such account. In the event IPS exercises this option,
Provider shall instruct each Account Debtor in respect of Providers
Non-Governmental Receivables to remit all such payments directly to such
Non-Governmental Lockbox Account pursuant to a Notification Letter. In addition,
Provider shall attach written instructions to each invoice representing such
Non-Governmental Receivables generated subsequent to the date of this Agreement
instructing such third party payor or Account Debtor that payment of such
invoice is to be paid to the Non- Governmental Lockbox Account. Provider agrees
that it shall not deposit any funds other than payments of Non-Governmental
Receivables into, nor make any withdrawals from, the Non-Governmental Lockbox
Account without the prior written consent of IPS. Provider further agrees that
it shall not during the term of this Agreement terminate, modify or amend in any
manner the Lockbox Agreement applicable to the Non-Governmental Lockbox Account.
(b) In accordance with the Lockbox Agreement pertaining to
Non-Governmental Receivables, Provider and IPS shall instruct the Collecting
Bank to transfer all amounts deposited in the Governmental Lockbox Account
constituting good funds to IPSs Main Account. Provider shall have no right or
interest in the Non-Governmental Lockbox Account nor to the Main Account and
such accounts shall be in the name of and under the control of IPS. Provider
shall not, so long as any Assigned A/R remains uncollected, and in any event,
during the term of this Agreement, at any time, or, without the prior written
consent of IPS, change the instructions to each Account Debtor of the related
Non-Governmental Receivable to make its payments to such Account. Any such
action shall be considered a breach of this Agreement for which IPS shall be
entitled to all remedies at law and in equity, including the obtaining of an
injunction.
(c) Provider will cooperate with IPS and its agents in the
identification of sums deposited into the Non-Governmental Lockbox Account,
which cooperation shall continue until all Assigned A/R have been collected.
(d) Provider agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any payment on a Non-Governmental Receivable received by
Provider that is not deposited into the Non-Governmental Lockbox Account within
forty-eight (48) hours after receipt by Provider.
7.7. Procedures Without Lockbox. In the event that IPS elects to forego the
procedures established in Sections 7.5 and 7.6, Provider shall instruct the
Collecting Bank to transfer automatically all amounts constituting collected
funds in the account or accounts of Provider established for the collection of
Governmental and Non-Governmental Receivables to IPSs Main Account pursuant to a
standing order in form and substance acceptable to IPS and its legal counsel.
Provider shall have no right or interest in IPSs Main Account and such account
shall be in the name of and under the control of IPS. Provider shall not, so
long as any Assigned Accounts Receivable remain unpaid, change or cancel such
standing order at any time, or, without the prior written consent of IPS, change
the instructions to any Account Debtor of each Governmental Receivable and
Non-Governmental Receivable to make its payments to such
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account. Any such action shall be considered a breach of this Agreement for
which IPS shall be entitled to all remedies at law and in equity, including the
obtaining of an injunction.
7.8. Misdirected Payments. If, after the date of this Agreement, an Account
Debtor shall make payment of any Assigned A/R to a location other than is
provided in the Notification Letter, or Provider otherwise receives payments on
Accounts Receivable that are assigned to IPS under the terms of this Agreement
("Misdirected Payments"), Provider (at its own cost and expense) shall promptly
take all necessary steps to effect collection of such Misdirected Payments from
any other party claiming an interest therein or having possession thereof and
(i) hold such payment in trust for IPS, (ii) segregate such payment, (iii) use
its best efforts not to commingle such payment with Providers own funds or other
assets, and (iv) deliver such payment no later than forty-eight (48) hours from
the day of receipt to the Governmental Lockbox Account or the Non-Governmental
Lockbox Account, as applicable. Provider agrees to pay, on demand, the Finance
Charge Rate on any Misdirected Payment received by Provider that is not
deposited in IPSs Main Account within forty-eight (48) hours after receipt by
Provider.
7.9. Representations and Warranties with respect to Accounts Receivable.
Provider hereby represents and warrants that with respect to the Assigned A/R,
as of the date of assignment:
(a)(i) All documents and agreements relating to Assigned A/R that have
been delivered to IPS are true and correct; (ii) Provider has delivered or
caused to be delivered to IPS all requested supporting claim documents with
respect to IPSs billing and collection of such Accounts Receivable on its
behalf; and (iii) all information provided by Provider to IPS and to be set
forth on the bill and supporting claims documents is true and correct, and, if
any error has been made, Provider will promptly correct the same and cooperate
with IPS to rebill such Accounts Receivable.
(b) The Assigned A/R are exclusively owned by Provider and there is no
security interest or lien in favor of any third party, nor has there been any
UCC recording or filing against Provider, as debtor, covering or purporting to
cover any interest of any kind in any Accounts Receivable, except as may have
been released by each party holding such adverse interest in the Accounts
Receivable. With respect to the Assigned A/R and with respect to Governmental
Receivables, to the extent permissible by law, all right, title and interest of
Provider with respect thereto shall be vested in IPS, free and clear of any
lien, security interest or encumbrance of any kind, Provider agrees to defend
the same (or pay the costs and expenses incurred in undertaking such a defense
on behalf of Provider) against the claims of all persons to the Assigned A/R.
(c) The Assigned A/R (i) are payable in an amount not less than their
face amount, (ii) are based on an actual and bona fide rendition of services or
sale of goods to the patient by Provider in the ordinary course of Provider's
business, (iii) are denominated and payable only in lawful currency of the
United States; and (iv) are accounts of general intangibles within the meaning
of the UCC of the state in which Provider has its principal place of business,
or are rights to payment under a policy of insurance or proceeds thereof, and
are not evidenced by any
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instrument or chattel paper. There are no payors other than the Account Debtor
identified by Provider as the payor primarily liable on any Assigned A/R.
(d) The Assigned A/R are not: (i) subject to any action, suit,
proceeding or dispute (pending or threatened), set-off. counterclaim, defense,
abatement, suspension, deferment, deductible, reduction or termination by the
Account Debtors other than routine adjustments and disallowances made in the
ordinary course of business, to the extent of such adjustments and
disallowances; (ii) past or within sixty (60) days of the statutory limit for
collection applicable to the Account Debtor; (iii) subject to an invoice which
provides for payment more than forty-five days from the date of such invoice;
(iv) an account which arises out of a sale or other transaction by or between
Provider and an Affiliate of Provider; (v) from an Account Debtor who is also a
creditor of Provider; (vi) Accounts Receivable in which the Account Debtor has
commenced a voluntary case, or an involuntary proceeding has been instituted,
under the federal bankruptcy laws , as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or if a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect to the Account Debtor; (vii) an account of which the services giving
rise to such Accounts Receivable have not been performed by Provider and
accepted by the Account Debtor or the Accounts Receivable otherwise do not
represent a final sale; (viii) is evidenced by an instrument or chattel paper
unless such instrument or chattel paper is delivered to IPS with all appropriate
endorsements in favor of IPS, or (ix) other than a complete bona fide
transaction which requires no further act under any circumstances on the part of
Provider to make the Accounts Receivable payable by the Account Debtor.
(e) Provider does not have any guaranty of, letter of credit providing
support for, or collateral support for, the Assigned A/R, other than any such
guaranty, letter of credit or collateral security as has been assigned to IPS,
and any such guaranty, letter of cedit or collateral security is not subject to
any lien in favor of any other person.
(f) The goods or services provided and reflected by the Assigned A/R
have been or will be medically necessary for the patient in the opinion of
Provider and the patient received such goods or services.
(g) The face amount of the Accounts Receivable for the services
constituting the basis for the Assigned A/R are consistent with the usual,
customary and reasonable fees charged by other similar medical service providers
in Providers community for the same or similar services.
(h) Each Account Debtor with respect to the Assigned A/R (i) is not
the subject of any bankruptcy, insolvency or receivership proceeding, nor is it
generally unable to make payments on its obligations when due, (ii) is located
in the United States, and (iii) is one of the following: (x) a party which in
the ordinary course of its business or activities agrees to pay for health care
services received by individuals, including without limitation, Medicare,
Medicaid, governmental bodies, commercial insurance companies and nonprofit
insurance companies (such as Blue Cross and Blue Shield entities) issuing
health, personal injury, workers compensation or other types of insurance; (y)
employers or unions which self-insure for employee or member
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health insurance, prepaid health care organizations, managed care entities,
preferred provider organizations or any other similar organization or entity, or
(z) a third party payor of the types described in the definition of Governmental
Receivables.
(i) Except with respect to Governmental Receivables, the insurance
policy, contract or other instrument obligating an Account Debtor to make
payment with respect to the Assigned A/R (i) does not contain any provision
prohibiting the transfer of such payment obligation from the patient to the
Provider, or from Provider to IPS, and if any such does contain such a
provision, the consent of the third party to the transfer has been obtained in
writing; (ii) has been duly authorized and, together with the Assigned A/R,
constitutes the legal, valid and binding obligations of the Account Debtor in
accordance with its terms; (iii) together with the applicable Assigned A/R, does
not contravene in any material respect any requirement of law applicable
thereto; and (iv) was in full force and effect and applicable to the patient at
the time the services constituting the basis for the Assigned A/R were
performed.
None of the foregoing representations and warranties shall be deemed to
constitute a guaranty by Provider that the Assigned A/R will be collected by
IPS.
ARTICLE 8
RECORDS
8.1. Patient Records. Upon termination of this Agreement, Provider
shall retain all patient medical records maintained by Provider or by IPS on
behalf of Provider. Provider shall, at its option, be entitled to retain copies
of financial and accounting records relating to all services performed by
Provider.
8.2. Records Owned by IPS. All records relating in any way to the operation
of the Practice which are not the property of Provider under the provisions of
Section 8.1 above, shall at all times be the property of IPS.
8.3. Access to Records. During the term of this Agreement, and thereafter,
Provider or its designee shall have reasonable access during normal business
hours to the financial records of the Practice, including but not limited to,
revenues, records of collections, expenses and disbursements maintained by IPS
pursuant to this Agreement, and Provider may copy any or all such records.
8.4 Maintenance of Records/Subcontracts Pursuant to Title 42 of the
United States Code and applicable rules and regulations thereunder, until the
expiration of four (4) years after termination of this Agreement, IPS shall make
available, upon appropriate written request by the Secretary of the United
States Department of Health and Human Services or the Comptroller General of the
United States General Accounting Office, or any of their duly authorized
representatives, a copy of this Agreement and such books, documents and records
as are necessary to certify the nature and extent of the costs of the services
provided by IPS under this
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Agreement. IPS further agrees that if it carries out any of its duties under
this Agreement through a subcontract with a value or cost of Ten Thousand
($10,000) Dollars or more over a twelve (12) month period with a related
organization, such subcontract shall contain a clause to the effect that until
the expiration of four (4) years after the furnishing of such services pursuant
to such subcontract, the related organization shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organization as are necessary to verify the nature and extent of the such costs.
Disclosure pursuant to this Section shall not be construed as a waiver of any
other legal right to which IPS may be entitled under law or regulation.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1. Insurance to be Maintained by Provider. Throughout the term of this
Agreement, subject to the provisions of Section 5.5, Provider shall maintain
comprehensive professional liability insurance with limits of not less than
$2,000,000 per claim and with aggregate policy limits of not less than
$4,000,000 per physician, and a separate limit for Provider. Provider shall be
responsible for all liabilities in excess of the limits of such policies. IPS
shall have the option, subject to Policy Board approval, of providing such
professional liability insurance through an alternative program, provided that
such program meets the requirements of the Insurance Commissioner of the State
of New Jersey.
9.2. Insurance to be Maintained by IPS Throughout the term of this
Agreement, IPS, as a Practice Expense, shall provide and maintain comprehensive
professional liability insurance for all professional employees of IPS with
limits as determined reasonable by IPS in its national program, comprehensive
general liability and property insurance covering the premises and operations at
all Practice Sites.
9.3. Additional Insureds Provider and IPS agree to use their best efforts
to have each other named as an additional insured on the others respective
professional liability insurance program, at IPS's expense.
9.4. Indemnification PROVIDER SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND
IPS, ITS OFFICERS, DIRECTORS AND EMPLOYEES, FROM AND AGAINST ANY AND ALL
LIABILITY, LOSS, DAMAGE, CLAIM, CAUSES OF ACTION, AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES), WHETHER OR NOT COVERED BY INSURANCE, CAUSED OR
ASSERTED TO HAVE BEEN CAUSED, DIRECTLY OR INDIRECTLY, BY OR AS A RESULT OF THE
PROVISION OF MEDICAL
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SERVICES OR ANY OTHER ACTS OR OMISSIONS BY PROVIDER AND/OR ITS SHAREHOLDERS,
AGENTS, EMPLOYEES AND/OR SUBCONTRACTORS (OTHER THAN IPS) DURING THE TERM HEREOF.
IPS SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND PROVIDER, ITS OFFICERS, DIRECTORS
AND EMPLOYEES, FROM AND AGAINST ANY AND ALL LIABILITY, LOSS, DAMAGE, CLAIM,
CAUSES OF ACTION AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), 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 IPS AND/OR
ITS SHAREHOLDERS, AGENTS, EMPLOYEES AND/OR SUBCONTRACTORS (OTHER THAN PROVIDER)
DURING THE TERM OF THIS AGREEMENT.
ARTICLE 10
TERM AND TERMINATION
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 hereof.
10.2. Extended Term. Unless earlier terminated as provided for in this
Agreement, 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 proceeding term, written notice of such
partys intention not to extend the term of this Agreement.
10.3. Termination by Provider. Provider may terminate this Agreement in
the following circumstances:
(a) In the event of a filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by IPS, or upon other action taken or
suffered, voluntarily or involuntarily, under any federal or state law for the
benefit of debtors by IPS, except for the filing of a petition in involuntary
bankruptcy against IPS which is dismissed within sixty (60) days thereafter,
Provider may give written notice of the immediate termination of this Agreement,
and such termination shall be effective upon receipt of such notice by IPS.
(b) In the event IPS shall materially default in the performance of any
duty or obligation imposed upon it by this Agreement, and such default shall
continue for a period of ninety (90) days after written notice thereof has been
given to IPS by Provider; or IPS shall fail to remit the payments as provided
for in this Agreement and such failure to remit shall continue for a period of
sixty (60) days after written notice thereof, Provider may terminate this
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Agreement. Termination of this Agreement pursuant to this subsection (b) by
Provider shall require the affirmative vote of seventy-five percent (75%) of
Physician Stockholders.
10.4. Termination by IPS. IPS may terminate this Agreement in the
following circumstances:
(a) In the event of the filing of a voluntary petition in bankruptcy or an
assignment for the benefit of creditors by Provider, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by Provider, except for the filing of a petition in
involuntary bankruptcy against Provider which is dismissed within sixty (60)
days thereafter, IPS may give notice of the immediate termination of this
Agreement, and such termination shall be effective upon receipt of such notice
by Provider
(b) In the event Provider shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement, and such default shall
continue for a period of ninety (90) days after written notice thereof has been
given to Provider by IPS, IPS may thereafter terminate this Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 Assignment. IPS shall have the right to assign its rights hereunder
to any person, firm or corporation under common control with IPS and to any
lending institution, for security purposes or as collateral, from which IPS
obtains financing. Except as set forth above, neither IPS nor Provider shall
have the right to assign their respective rights and obligations hereunder
without the written consent of the other party.
11.2 Whole Agreement; Modification. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. 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) shall be attached
hereto.
11.3 Notices All notices required or permitted by this Agreement shall be
in writing and shall be addressed as :
To IPS: Integrated Physician Systems, Inc.
2644 Bristol Road
Warrington, PA 18976
With copies to: Joseph F. Murray, Esq.
2644 Bristol Road
Warrington, PA 18976
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To Provider IPS Physicians / ________, P.C.
_____________________
_____________________
With copies to: _____________________
_____________________
_____________________
or to such other address as either party shall notify the other.
11.4 Binding on Successors. Subject to Section 11.1, this Agreement shall
be binding upon the parties hereto, and their successors, assigns and
beneficiaries.
11.5 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
of the other terms and conditions hereof.
11.6 Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey. The parties acknowledge that IPS is not authorized or
qualified to engage in any activity which may be construed or deemed to
constitute the practice of medicine. To the extent any act or service required
of IPS 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 IPS shall be deemed waived and forever
unenforceable.
11.7 Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
11.8 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 partys obligations pursuant to this Agreement.
11.9 Time is of the Essence. Time is hereby expressly declared to be of the
essence in this Agreement.
11.10 Confidentiality. Except for disclosure to its bankers,
underwriters or lenders or as necessary or desirable for conduct of business,
neither party hereto shall disseminate or release to any third party any
information regarding any provision of this Agreement, or any financial
information regarding the other (past, present or future) that was obtained by
the other in the course of the negotiations of this Agreement, without the other
partys written approval.
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11.11 Contract Modifications for Prospective Legal Events. In the event
any state or federal laws or regulations, now existing or enacted or promulgated
after the effective date of this Agreement, are interpreted by judicial
decision, a regulatory agency or legal counsel in such a manner as to indicate
that the structure of this Agreement may be in violation of such laws or
regulations, Provider and IPS shall amend this Agreement as necessary. To the
maximum extent possible, any such amendment shall preserve the underlying
economic and financial arrangements between Provider and IPS.
11.12 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any other 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 expedient.
11.13 No Obligations to Third Parties. None of the obligations and
duties of IPS or Provider under this Agreement shall in any way or in any manner
be deemed to create any obligation of IPS or of Provider to, or any rights, in
any person or entity not a party to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
IPS Physicians/__________P.C.
Attest:__________________ By:_______________________
Title:______________________
Integrated Physician Systems, Inc.
Attest:__________________ By:________________________
Title:_______________________
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EXHIBIT 4.1
LIST OF PRACTICE SITES AND FACILITIES
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EXHIBIT A
PROVIDER COMPENSATION
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our reports dated May 9, 1997 relating to
the financial statements of Integrated Physician Systems, Inc. and The Initial
Affiliated Practices, which are contained in that Prospectus. We also consent to
the reference to our Firm under the caption "Experts" in the Prospectus.
/s/ FELDMAN RADIN & CO., P.C.
-----------------------------------------
Feldman Radin & Co., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
August 8, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF KALOGREDIS TSOULES AND SWEENEY LTD.
We hereby consent to the use of our name under the caption "Experts" in the
Prospectus constituting part of the Registration Statement on Form S-1 of
Integrated Physician Systems, Inc.
/s/ KALOGREDIS, TSOULES AND SWEENEY,
LTD.
- -------------------------------------------
Kalogredis, Tsoules and Sweeney,
Ltd.
Wayne, Pennsylvania
August 8, 1997
