AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
REGISTRATION NO. 333-39441
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN MEDICAL PROVIDERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8099 76-0530185
(STATE OR OTHER (PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
INCORPORATION OR CLASSIFICATION CODE (I.R.S. EMPLOYER
ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
8043
(SECONDARY STANDARD
INDUSTRIAL
CLASSIFICATION CODE
NUMBER)
------------------------
JACK N. MCCRARY
AMERICAN MEDICAL PROVIDERS, INC. AMERICAN MEDICAL PROVIDERS, INC.
3555 TIMMONS LANE, SUITE 1550 3555 TIMMONS LANE, SUITE 1550
HOUSTON, TEXAS 77027 HOUSTON, TEXAS 77027
(713) 621-5500 (713) 621-5500
(ADDRESS, INCLUDING ZIP CODE, AND (NAME AND ADDRESS, INCLUDING ZIP
TELEPHONE NUMBER, CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF AGENT
PRINCIPAL EXECUTIVE OFFICES) FOR SERVICE)
------------------------
COPIES TO:
IVAN WOOD DAVID J. RINGELMAN MICHAEL L. BOYKINS
BAKER & HOSTETLER LLP BAKER & HOSTETLER LLP BERNARD L. KRAMER
1000 LOUISIANA, SUITE 303 EAST 17TH AVENUE, MCDERMOTT, WILL & EMERY
2000 SUITE 1100 227 WEST MONROE STREET,
HOUSTON, TEXAS 77002 DENVER, COLORADO 80203 SUITE 3100
(713) 751-1600 (303) 861-0600 CHICAGO, ILLINOIS
60606-5096
(312) 372-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-1 ITEM
NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------ ----------------------
1. Forepart of the Registration
Statement and Outside
Front Cover Page of
Prospectus.................... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside and Outside Back Cover Pages
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges..... Prospectus Summary; Risk Factors
4. Use of Proceeds................. Use of Proceeds
5. Determination of Offering
Price......................... Underwriting
6. Dilution........................ Dilution
7. Selling Security Holders........ *
8. Plan of Distribution............ Underwriting
9. Description of Securities to be
Registered...................... Description of Capital Stock
10. Interests of Named Experts and
Counsel....................... Legal Matters
11. Information with Respect to the
Registrant.................... Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Use of
Proceeds; Capitalization; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Financial Statements
12. Disclosure of Commission Position
on Indemnification for
Securities Act
Liabilities.................... *
- ------------
* Answer is negative or item is not applicable.
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED DECEMBER 31, 1997
SHARES
AMERICAN MEDICAL PROVIDERS, INC.
CLASS A COMMON STOCK
------------------------
All of the shares of class A common stock, par value $.001 per share,
offered hereby are being sold by American Medical Providers, Inc. (the
"Company" or "AMP"). Prior to the offering made hereby (the "Offering"),
there has been no public market for the class A common stock. The Company has
authorized two classes of common stock: the class A common stock (the "Common
Stock") and class B common stock, par value $.001 per share (the "Class B
Common Stock"). Each holder of Common Stock is entitled to one vote per share
and each holder of Class B Common Stock is entitled to of a vote per
share on all matters submitted to a vote of stockholders. The Company's Board of
Directors consists of seven directors. Holders of Common Stock are entitled to
elect as a class six members of the Board of Directors and the holders of the
Class B Common Stock are entitled to elect as a class the remaining member of
the Board of Directors. Except in the election of the Board of Directors and as
required by law, holders of the Common Stock and the Class B Common Stock vote
together as a single class. Each share of Common Stock and Class B Common Stock
will share ratably in any dividends, or other distributions, including upon the
liquidation, dissolution or winding up of the Company. See "Description of
Capital Stock." It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Company has applied to have the shares of Common
Stock approved for quotation on the Nasdaq Stock Market under the symbol
"AMPZ."
The Company will file a shelf registration statement with the Securities
and Exchange Commission relating to the separate offering of up to
shares of Common Stock to be used in connection with future affiliations with
Affiliated Practices (as defined herein) and providers of ancillary services and
facilities and resales of the shares issued thereunder by the recipients of such
shares.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------
Per Share...... $ $ $
- --------------------------------------------------------------------------
Total(3)....... $ $ $
==========================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the
Company.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer or to reject any orders in whole or in part without notice. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998.
A.G. EDWARDS & SONS, INC. J.C. BRADFORD & CO.
The date of this Prospectus is , 1998
<PAGE>
46 AFFILIATED PRACTICES SERVING 57 CITIES THROUGH 89 OFFICES
[MAP OF LOCATIONS OF AFFILIATED PRACTICES' OFFICES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, OTHER STABILIZING AND SHORT-COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
(II) ASSUMES THE MID-POINT OF THE INITIAL PUBLIC OFFERING PRICE RANGE, (III)
ASSUMES NO EXERCISE OF ANY OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK, (IV)
ASSUMES THAT THE TRANSFERS (THE "TRANSFERS") TO THE COMPANY OF THE OPERATING
ASSETS AND RECEIVABLES OR STOCK OF 46 SEPARATE PODIATRIC PRACTICES (THESE
INITIAL PRACTICES AND ANY ADDITIONAL PRACTICES TRANSFERRED ARE COLLECTIVELY
REFERRED TO AS THE "AFFILIATED PRACTICES") IN EXCHANGE FOR SHARES OF THE
COMPANY'S COMMON STOCK, CASH AND/OR THE ASSUMPTION OF CERTAIN INDEBTEDNESS HAS
OCCURRED, (V) ASSUMES THAT THE ANESTHECARE ACQUISITION (AS DEFINED BELOW) HAS
OCCURRED AND (VI) GIVES EFFECT TO CONVERSION OF AMP'S EXISTING COMMON STOCK,
WITHOUT CLASS, INTO CLASS B COMMON STOCK (THE "SHARE CONVERSION") AND A STOCK
SPLIT OF THE OUTSTANDING SHARES OF CLASS B COMMON STOCK EFFECTED IN CONNECTION
WITH THE OFFERING (THE "STOCK SPLIT"). THIS PROSPECTUS CONTAINS SUMMARIES WITH
RESPECT TO SELECTED TERMS OF CERTAIN DOCUMENTS. PROSPECTIVE INVESTORS SHOULD
REFER TO THE ACTUAL DOCUMENTS SUMMARIZED THAT ARE EXHIBITS TO THE COMPANY'S
REGISTRATION STATEMENT FOR COMPLETE INFORMATION CONCERNING THE DOCUMENTS. ALL
SUMMARIES HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE COMPLETE
DOCUMENTS.
THE COMPANY
AMP was founded in August 1996 to provide practice management services and
comprehensive foot care delivery systems to podiatric practices throughout the
United States. AMP will generate revenue by providing to the Affiliated
Practices professional management, marketing, expertise, equipment and
facilities often unavailable to podiatrists with small practices. The initial 46
Affiliated Practices consist of 66 doctors of podiatric medicine ("DPMs")
operating 89 offices located in 7 states serving 57 cities. The Company intends
to grow rapidly by affiliating with additional podiatric practices and by making
available to the Affiliated Practices services that are ancillary and directly
related to the Affiliated Practices' existing podiatric care.
The Company has entered into definitive agreements to transfer cash and
Common Stock and assume certain liabilities in exchange for stock or certain
operating assets and receivables of the Affiliated Practices simultaneous with
and as a condition to the closing of the Offering. The DPMs will join regional
group practices organized by geographic location (the "Regional Group
Practices") and will enter into physician engagement agreements with the
Regional Group Practices. AMP will enter into a long-term management agreement
with each Regional Group Practice under which AMP will receive fees for its
services. The Company will own the operating assets and receivables of the
Affiliated Practices, hire the non-physician employees, and otherwise assume the
management of each practice. The initial Affiliated Practices were selected
based upon their location, size, historical profitability and growth and
reputation for high quality care. Management believes that the initial
Affiliated Practices are leading podiatric practices in their respective markets
and that, following the Transactions (as defined herein), AMP will be the
largest provider of comprehensive podiatric practice management services in the
United States.
A key element of the Company's strategy is to provide ancillary services
and facilities to the Affiliated Practices. These ancillary services and
facilities are expected to include, among other things, ambulatory surgical
centers, anesthesiology, pathology, radiology, MRIs, EKGs, laboratory work,
pharmacy, physical history and exams, physical therapy, orthotics, pain
management, home care, diabetic wound care, specialty shoes and other retail
products. The Company intends to make available some or all of these ancillary
services on a regional basis. The Affiliated Practices in each region will
primarily or exclusively use AMP's ancillary services, enabling the Company to
control the cost, quality and other important aspects of these services.
Pursuant to this strategy, AMP has entered into a definitive agreement to
purchase certain assets (including the name "AnestheCare, Inc.") of Pyramid
Anesthesiology Group, Inc. (the "AnestheCare Acquisition"), an anesthesiology
management services organization currently servicing 15 locations in
metropolitan Atlanta, Georgia ("AnestheCare").
Podiatry is the practice of medicine whereby DPMs provide preventative,
diagnostic, surgical and other foot care to patients. Podiatric care ranges from
relatively simple procedures, such as treating foot infections, to complex
surgeries, such as reconstructing the bones in a foot. Today, there are
approximately 10,700 active DPMs throughout the United States handling
approximately 55 million patient visits per year. According to the American
Podiatric Medical Association, billing receipts of all DPMs in the United States
3
<PAGE>
increased to approximately $2.3 billion in 1995 from approximately $1.3 billion
in 1987, a compound annual growth rate of 7.7%.
AMP's objective is to be the nation's leading provider of management
services and comprehensive foot care delivery systems to podiatric practices. To
achieve its objective, AMP will employ the following operating strategies: (i)
enhance quality of DPM patient care, (ii) achieve operational efficiencies,
(iii) develop Regional Group Practice structure, (iv) provide effective
marketing, and (v) implement comprehensive foot care delivery systems. AMP
intends to grow rapidly by: (i) growing Affiliated Practices, (ii) developing
ancillary provider networks, and (iii) affiliating with new practices.
THE TRANSACTIONS
Of the 46 Transfers of the initial Affiliated Practices, 45 will be
accounted for by the Company under SEC Staff Accounting Bulletin No. 48,
"Transfers of Non-Monetary Assets by Promoters or Shareholders" ("SAB 48"),
such that the non-monetary assets of these initial Affiliated Practices will be
received by the Company at the transferor's historical cost basis for accounting
purposes. Following the SAB 48 transactions and the consummation of the
offering, AMP will consummate the AnestheCare Acquisition and AMP or a
subsidiary will acquire the stock of Dr. Jerald N. Kramer ("Dr. Kramer"), one
of its Affiliated Practices (the "Kramer Transfer", and together with the
other Transfers and the AnestheCare Acquisition, the "Transactions"). Dr.
Kramer will receive cash in exchange for stock acquired by the Company in the
Kramer Transfer, but Dr. Kramer will not enter into a management services
agreement or a physician engagement agreement with a Regional Group Practice.
The AnestheCare Acquisition and the Kramer Transfer will not be accounted for
under SAB 48. Instead, these and all future individual practice affiliations
will be accounted for as purchases at fair market value and are expected to
result in purchase prices in excess of net assets acquired (goodwill) which will
require subsequent noncash amortization charges for intangible assets in the
Company's statements of operations. The aggregate consideration to be paid by
the Company in the Transfers is approximately $34.5 million, consisting of
approximately $22.4 million payable in shares of Common Stock at the initial
public offering price attributed to the net non-monetary assets, approximately
$5.3 million in cash and $656,000 of assumed indebtedness attributed to the net
non-monetary assets of the SAB 48 Transfers, $4.7 million in cash attributed
to the net monetary assets of the SAB 48 Transfers, and $1.4 million in cash
attributed to the Kramer Transfer. The consideration to be paid by the Company
to AnestheCare is approximately $4.5 million in cash. Additional consideration
of up to $1.5 million in cash and a number of shares of Common Stock equal to
$500,000 valued at the initial public offering price will be held in escrow and
may be paid to the owners of AnestheCare pending AnestheCare's achievement of
certain performance targets over a three-year period beginning January 1, 1998.
Proceeds from the Offering will be used to pay the cash portion of the
consideration.
The Company's principal executive offices are at 3555 Timmons Lane, Suite
1550, Houston, Texas 77027, and its telephone number is (713) 621-5500.
PENDING TRANSFERS
The Company plans to use shares subject to its shelf registration statement
to be filed with the Securities and Exchange Commission (the "Commission")
relating to the separate offering of up to 4,000,000 shares of Common Stock (the
"Shelf Registration") to acquire certain operating assets of, or the stock of
entities holding certain operating assets of additional podiatric practices and
enter into management services agreements with these entities. The Company has
entered into negotiations with eight podiatric practices (collectively, the
"Pending Transfers"). The aggregate consideration to be paid by the Company
with respect to the Pending Transfers, if consummated, will be approximately
$3.0 million. Unlike the initial Affiliated Practices, except for the Kramer
Transfer, which will be accounted for in accordance with SAB 48, the Pending
Transfers will be accounted for as asset acquisitions at fair market value and
will result in subsequent annual noncash amortization charges for intangible
assets in the Company's statements of operations. Each of the Pending Transfers
is subject to, among other conditions, execution of definitive agreements, the
completion of the Offering, the effectiveness of the Shelf Registration and
satisfactory due diligence review of each practice by the Company.
4
<PAGE>
THE OFFERING
Common Stock offered by the Company..... shares
Common Stock to be outstanding after the
Offering.............................. shares(1)
Class B Common Stock to be outstanding
after the Offering.................... shares
Voting rights........................... Holders of Common Stock of the
Company are entitled to one vote per
share and the holders of Class B
Common Stock of the Company are
entitled to of a vote per share. The
Company's Board of Directors
consists of seven directors. Holders
of Common Stock are entitled to
elect as a class six members of the
Board of Directors and the holders
of the Class B Common Stock are
entitled to elect as a class the
remaining member of the Board of
Directors. The Common Stock and
Class B Common Stock possess
ordinary voting rights and vote
together as a single class in
respect of all other corporate
matters. See "Description of Capital
Stock."
Conversion of the Class B Common
Stock................................. Each share of Class B Common Stock
will automatically convert to Common
Stock on a share-for-share basis (i)
in the event of a disposition of
such share of Class B Common Stock
by the holder thereof (excluding
dispositions to such holder's
affiliates), (ii) in the event any
person not affiliated with the
Company acquires beneficial
ownership of 15% or more of the
outstanding shares of capital stock
of the Company, (iii) in the event
any person not affiliated with the
Company offers to acquire 15% or
more of the outstanding shares of
capital stock of the Company, (iv)
in the event the holder of such
shares elects to so convert at any
time after the second anniversary of
the date of this Prospectus, (v) on
the fifth anniversary of the date of
this Prospectus, or (vi) in the
event the holders of a majority of
the outstanding shares of Common
Stock approve such conversion. In
addition, the Company may elect to
convert any outstanding shares of
Class B Common Stock into shares of
Common Stock in the event 80% or
more of the outstanding shares of
Class B Common Stock as of the date
of this Prospectus have previously
been converted into shares of Common
Stock.
5
<PAGE>
Use of proceeds......................... To fund the cash portion of the
consideration to be paid in the
Transactions; to repay certain
indebtedness and deferred expenses
of the Company; to complete the
purchase of the Company's management
information system; and for general
corporate purposes, which are
expected to include (among other
things) future transfers of DPM
practices and certain development
costs of ancillary services. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol................................ "AMPZ"
- ------------
(1) Excludes shares of Common Stock issuable upon exercise of
outstanding options to purchase Common Stock, at the initial public offering
price, and shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS, INCLUDING STATEMENTS
CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS" AND
WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS." THESE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY OR ITS INDUSTRY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS.
THESE RISK FACTORS INCLUDE, AMONG OTHERS, THE LIMITED COMPANY AND COMBINED
OPERATING HISTORY, DEPENDENCE ON CERTAIN OPERATIVE AGREEMENTS, DEPENDENCE ON
REGIONAL GROUP PRACTICES, DEPENDENCE ON IMPLEMENTATION AND INTEGRATION OF
INFORMATION SYSTEMS, DEPENDENCE UPON KEY PERSONNEL, DEPENDENCE ON IMPLEMENTATION
OF GROWTH STRATEGY, MOVEMENT TOWARD MANAGED CARE, CHANGES IN PAYMENT FOR MEDICAL
SERVICES, POTENTIAL ADVERSE CONSEQUENCES OF GOVERNMENT REGULATION, FUTURE HEALTH
CARE REFORM, COMPETITION, NEED FOR ADDITIONAL FUNDS, LIABILITY AND INSURANCE
RISKS ASSOCIATED WITH PODIATRIC PRACTICES, NO PRIOR PUBLIC MARKET FOR THE COMMON
STOCK, THE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE, SUBSTANTIAL PROCEEDS OF
THE OFFERING PAYABLE TO AFFILIATED PRACTICES AND AFFILIATES, CONTROL BY EXISTING
MANAGEMENT AND STOCKHOLDERS, CERTAIN ANTI-TAKEOVER PROVISIONS IN THE COMPANY'S
ARTICLES AND BYLAWS, IMMEDIATE AND SUBSTANTIAL DILUTION TO INVESTORS IN THE
COMMON STOCK, NO INTENT TO PAY DIVIDENDS, AND OTHER FACTORS REFERENCED IN THIS
PROSPECTUS. CERTAIN OF THESE FACTORS ARE DISCUSSED IN MORE DETAIL ELSEWHERE IN
THIS PROSPECTUS, INCLUDING UNDER THE CAPTIONS "PROSPECTUS SUMMARY" AND "RISK
FACTORS." GIVEN THESE UNCERTAINTIES, POTENTIAL INVESTORS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS
ANY OBLIGATION TO UPDATE ANY OF THESE FACTORS OR TO PUBLICLY ANNOUNCE THE RESULT
OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO
REFLECT FUTURE EVENTS OR DEVELOPMENTS.
6
<PAGE>
SUMMARY FINANCIAL DATA
THE FOLLOWING INFORMATION IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE
COMPANY INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS INDICATED, THIS
INFORMATION DOES NOT REFLECT THE EFFECTS OF THE TRANSACTIONS OR THE OFFERING.
FOR CERTAIN INFORMATION CONCERNING THE TRANSACTIONS, SEE NOTE 4 OF NOTES TO
FINANCIAL STATEMENTS OF THE COMPANY AND UNAUDITED PRO FORMA COMBINED BALANCE
SHEET AND THE NOTES THERETO.
PERIOD FROM FOR THE NINE
AUGUST 9, 1996 TO MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA(1):
Revenues............................... $-- $ --
Expenses............................... 514,141 1,397,178
----------------- ------------------
Net loss............................... $(514,141) $(1,397,178)
================= ==================
SEPTEMBER 30, 1997
----------------------------
AS
HISTORICAL ADJUSTED(2)
-------------- ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents............... $ -- $
Working capital deficit(3).............. (2,120,333)
Total assets(4)......................... 2,026,316
Long-term debt.......................... --
Stockholders' deficit................... (1,911,119)
- ------------
(1) The Company has conducted no significant on-going, non-developmental
business operations to date and will not conduct significant business
operations until the affiliation of the Company with the initial Affiliated
Practices and the Offering are completed. Pursuant to a reimbursement
agreement (the "Reimbursement Agreement") dated December , 1997 between
the Company and Ankle & Foot Centers of America, LLC ("AFC"), the Company
will reimburse the affiliation-related expenses incurred by AFC since May
1996, including AFC's payroll, travel and entertainment, office equipment
and audit expenses. AFC currently holds shares of Class B Common
Stock which management plans to distribute to AFC members upon consummation
of the Offering.
(2) As adjusted gives effect to the Transactions, the sale of million shares
of Common Stock offered by the Company, and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
(3) The historical balance includes $2.4 millon due to AFC which will be repaid
upon consummation of the Offering.
(4) The Company will record the non-monetary assets transferred to the Company
in connection with the Transfers at the historical cost basis of the
transferors.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. A PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER ALL OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO PURCHASE THE
COMMON STOCK OFFERED HEREBY AND, IN PARTICULAR, THE FOLLOWING FACTORS:
LIMITED COMPANY AND COMBINED OPERATING HISTORY. The Company was
incorporated in August 1996 and has no history of operations or earnings.
Certain members of the Company's management group have been assembled recently.
As a result of the Transfers, certain members of AMP expect to be responsible
for the management of all non-medical aspects of the operations and all
non-physician employees of the initial Affiliated Practices. There can be no
assurance that such persons will be able to effectively manage the initial
Affiliated Practices or oversee the implementation of the Company's operating,
growth and business strategies. Further, there can be no assurance that
management will be able to operate the Company successfully, manage the initial
Affiliated Practices' operations, achieve any cost savings as a result of the
Transactions or institute the necessary systems and procedures to manage the
Company on a profitable basis. The inability of the Company to successfully
integrate or operate the Affiliated Practices could have a material adverse
effect on the Company's business, financial condition and results of operations
and make it unlikely that the Company's affiliations with the Affiliated
Practices will be successful.
Prior to the Offering, the initial Affiliated Practices were not under
common control or management and have operated as separate, independent
entities. As a result, the financial results of the respective initial
Affiliated Practices prior to the Offering will not necessarily be similar to
the results of the initial Affiliated Practices after the Offering. The Company
may experience delays, complications and expenses in implementing, integrating
and operating such initial Affiliated Practices, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON OPERATIVE AGREEMENTS. To effect AMP's affiliation with the
Affiliated Practices, the following agreements have been entered into or will be
entered into (collectively, the "Operative Agreements"): (i) Business Purchase
Agreements by and between the Affiliated Practices and the Company; (ii)
Management Agreements by and between the Regional Group Practices and the
Company; (iii) Physician Engagement Agreements by and between the Regional Group
Practices and each owner of an Affiliated Practice; and (iv) employment
agreements between the Regional Group Practices and each non-owner DPM. The
consummation of the affiliations with the Affiliated Practices and the
subsequent viability of the Company are dependent on the initial and continuing
enforceability of the Operative Agreements. While the Company has attempted to
structure the Operative Agreements in accordance with applicable law, there can
be no assurance that the enforceability of certain non-compete and other
provisions contained in the Operative Agreements will not be successfully
challenged. Further, because each of the Physician Engagement Agreements is
between a Regional Group Practice and each owner of the Affiliated Practices,
there can be no assurance that the parties thereto will not terminate or amend
the terms and conditions of such agreements. See "Business -- Purchase
Agreements," " -- Management Agreements" and " -- Physician Engagement
Agreements."
DEPENDENCE ON REGIONAL GROUP PRACTICES. The Company's operations will be
entirely dependent upon its continued ability to negotiate and enter into
management services agreements (the "Management Agreements") with Regional
Group Practices and upon the success of such practices. The Company expects to
receive fees for services provided to Regional Group Practices under the
Management Agreements, but will not employ podiatrists or control or own the
medical practice of Regional Group Practices. The Management Agreements have
40-year terms but are subject to prior termination by the Regional Group
Practice or the Company for, among other things, a default in the performance of
a material duty or obligation. There can be no assurance that the initial
Regional Group Practices will maintain successful practices, that Management
Agreements will not be terminated or that any of the key DPMs in a particular
Regional Group Practice will continue affiliation with any Regional Group
Practice. Any termination of such Management Agreements or affiliation could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Some of the initial Regional Group Practices will derive, and any
additional Regional Group Practices may derive, a significant portion of their
revenue from a limited number of DPMs. Particularly, because none of the DPMs in
the initial Regional Group Practices will have previously entered into
management arrangements similar to those embodied in the Company's Management
Agreements, there can be no assurance that the Company or the Regional Group
Practices will maintain cooperative relationships with these key DPMs. In
addition, there can be no assurance that key members of a Regional Group
Practice will not retire, become disabled or otherwise become unable or
unwilling to continue practicing their profession with a Regional Group
Practice. The loss by a Regional Group Practice of one or more key members would
have a material adverse effect on the revenue of such Regional Group Practice
and, thus, on the Company. The material loss of revenue by any Regional Group
Practice could have a material adverse effect on AMP.
Rates paid by private third party payors, including those that provide
Medicare supplemental insurance, are based on established health care provider
and hospital charges and are generally higher than Medicare payment rates. A
change in the patient mix of any Regional Group Practice that results in a
decrease in patients covered by private insurance could have a material adverse
effect on the Regional Group Practice and, as a result, on the Company.
DEPENDENCE ON IMPLEMENTATION AND INTEGRATION OF INFORMATION SYSTEMS. A key
element in the Company's business strategy is implementing new sophisticated
management information systems. The Company expects to have these systems
operating at its corporate office in Houston at the time of the Offering and to
complete hardware and software deployment of the systems to the Affiliated
Practices within approximately 90 days after the Offering. The Company's success
is dependent upon its ability, within a reasonable period of time, to implement
its new management information systems and to integrate these systems into the
initial Regional Group Practices' and the Affiliated Practices' existing
operational, financial and clinical information systems. In addition to their
integral role in helping the Regional Group Practices realize operating
efficiencies, these systems are critical to negotiating, pricing and managing
managed care contracts. The Company will need to continue to invest in and
administer sophisticated management information systems to support these
activities. AMP may experience unanticipated delays, complications and expenses
in implementing, integrating and operating these systems. Furthermore, these
systems may require modifications, improvements or replacements as the Company
expands or if new technologies become available. These modifications,
improvements or replacements may require substantial expenditures and may
require interruptions in operations during periods of implementation. The
Company's failure to successfully implement and maintain operational, financial
and clinical information systems on a timely basis would have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company is highly dependent upon its
three executive officers, Jack McCrary, Wayne Bertsch, and Randy Johnson, and
other key personnel, for the management of the Company, the Affiliated Practices
and the implementation of its business strategy. The Company has entered into
employment contracts and non-compete agreements with these executive officers
and others. Due to the likely difficulty in finding suitable replacements for
these individuals, the loss of the services of any of these persons or the
Company's inability in the future to attract and retain management or other key
personnel could have a material adverse effect on the Company. AMP does not have
key man insurance for any of its executive officers or other key personnel.
DEPENDENCE ON IMPLEMENTATION OF GROWTH STRATEGY. One of the Company's
principal strategies is to acquire the operating assets and receivables or stock
of certain Affiliated Practices in targeted markets which meet its affiliation
criteria and enter into management services contracts with the Regional Group
Practices. The Company's growth strategy also involves expanding the Affiliated
Practices and, to the extent permitted by applicable law, contracting with or
acquiring ancillary facilities and providers, to provide services such as
ambulatory surgical centers, anesthesiology, pathology, radiology, MRIs, EKGs,
laboratory work, pharmacy, physical history and exams, physical therapy,
orthotics, pain management, home care, diabetic wound care, specialty shoes and
other related retail products. The process of (i)
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identifying appropriate DPM group practices, DPMs and ancillary providers and
facilities and (ii) proposing, negotiating and implementing economically
attractive affiliations with them is lengthy, complex and costly. The failure of
the Company to identify and effect additional practice affiliations would have a
material adverse effect on the Company. Moreover, there can be no assurance that
future practice affiliations, if any, will contribute to the Company's
profitability. Further, such arrangements involve a number of risks, including
diversion of management's attention, dependence on hiring, training and
retaining key personnel, and risks associated with the assumption of certain
contingent legal liabilities, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, there can be no assurance that the Affiliated Practices will
achieve anticipated revenues and earnings or that suitable additional practice
affiliations can be accomplished on terms favorable to the Company or that
financing, if necessary, can be obtained for such affiliations.
The Company's ability to implement its growth strategy is also dependent
upon the Company's and the Regional Group Practices' ability to (i) adapt the
Company's arrangements with the Regional Group Practices to comply with current
and future legal requirements, including state prohibitions on (a) fee-
splitting, (b) corporate practice of medicine, (c) referrals to facilities in
which physicians have a financial interest, and (d) kickbacks, (ii) obtain
regulatory approvals and certificates of need, where necessary, and (iii) comply
with licensing requirements applicable to physicians and to facilities operated,
and services offered, by physicians. There can be no assurance that application
of current laws or changes in legal requirements will not adversely affect the
Company or that the Company or its Regional Group Practices will be able to
obtain and maintain all necessary regulatory approvals and comply with
applicable laws, regulations and licensing requirements.
AMP is highly dependent upon the revenue stream, in the form of management
fees, that it expects to receive under the Management Agreements. In addition,
AMP will pay the liabilities of certain Affiliated Practices in connection with
the Transfers. Failure by the Regional Group Practices to generate sufficient
management fees to permit AMP to pay such liabilities could have a material
adverse effect on AMP's business, financial condition and results of operations.
In addition, failure by the Regional Group Practices to calculate or pay the
management fees required, whether by mistake, fraud or otherwise, would have a
material adverse effect on AMP.
In addition, AMP expects to make loans to the Regional Group Practices to
enable them to make loans to certain DPM owners in Affiliated Practices after
the date of this Offering in order to assist them in temporarily replacing any
salary reductions incurred as a result of the Transfers. The loans to each of
the owner DPMs will be limited to an amount equal to (i) the difference between
90% of the average monthly compensation of such DPM in the year prior to the
Offering and the current period's levels of distributions from the practice for
the first three months after the Offering and (ii) the difference between 80% of
the average monthly compensation of such DPM in the year prior to the Offering
and the current period's level of distributions for the second three months
after the Offering. The loans will only be available to owner DPMs for the first
six months of the DPM's engagement by the Regional Group Practice. Funds
advanced by the Company to the Regional Group Practices to make such loans are
required to be repaid to the Company by the Regional Group Practice although
there can be no assurance such owner DPMs will repay any such loans or that the
Regional Group Practices will be able to repay funds advanced by the Company.
See Unaudited Pro Forma Combined Balance Sheet and the notes thereto, "Certain
Transactions," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Management."
MOVEMENT TOWARD MANAGED CARE. An increasing percentage of patients have
entered into health care coverage arrangements with managed care payors in
recent years. AMP believes that its success will be dependent upon its ability
to negotiate contracts on behalf of the Regional Group Practices with HMOs,
employer groups and other private third party payors. Many such managed care or
other third party payors already have existing provider structures in place and
may not be able or willing to change their provider networks. Managed care and
third party payors have established primary care providers who often have
considerable discretion over who delivers various medical services, including
the provision of podiatric
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services. Many such third party payors do not recognize DPMs as primary care
providers. Therefore, many non-DPM physicians, acting as primary care providers,
may elect to (i) perform podiatric services themselves, (ii) contract with other
podiatrists or podiatric practices which are not Affiliated Practices or (iii)
contract with other providers, such as orthopedists. The inability of AMP to
establish or maintain arrangements on behalf of the Regional Group Practices
with third party providers could have a material adverse effect on the Company.
CHANGES IN PAYMENT FOR MEDICAL SERVICES. The Company anticipates that the
Regional Group Practices will be licensed under applicable state law and
certified as providers under the federal Medicare program and state Medicaid
programs. These programs are highly regulated and subject to frequent and
substantial changes. In recent years, basic changes in Medicare reimbursement
programs have resulted, and are expected to continue to result, in reduced
levels of reimbursement for individuals covered by these programs. Changes in
Medicare and Medicaid reimbursement rates, policies or practices could adversely
affect the Company.
In certain instances, AMP may seek to negotiate special fee arrangements
with respect to third party payors on behalf of regional podiatric care networks
consisting of Regional Group Practices affiliated with the Company and other
physicians or group practices willing to permit the Company to negotiate on
their behalf. In these instances, the Company expects that future payor
contracts entered into on behalf of the Regional Group Practices and any related
physician networks may include capitated fee arrangements. Under these types of
contracts, a health care provider agrees either to accept a predetermined dollar
amount per member per month in exchange for undertaking to provide all covered
services to patients or to provide treatment on an episode-of-care basis. These
health care providers bear the risk, generally subject to certain loss limits,
that the aggregate costs of providing medical services will exceed the premiums
received. In these instances, agreements may also contain "shared risk"
provisions under which affiliated physicians may earn additional compensation
based on utilization control of institutional, ancillary and other services by
patients, and the Regional Group Practices may be required to bear a portion of
any loss in connection with these "shared risk" provisions. To the extent that
patients or enrollees covered by these contracts require more frequent or more
extensive care than anticipated, there could be a material adverse effect on a
Regional Group Practice and, therefore, on the Company. Any material reduction
or elimination of earnings to the Regional Group Practices could have a material
adverse effect on the Company.
If, as a result of special fee arrangements that the Company may negotiate
on behalf of the Regional Group Practices or may enter into in the future with
third-party payors, the Company is deemed to assume certain risks related to the
cost of services provided in connection with capitated fee arrangements,
episode-of-care treatment, shared risk agreements or the like, the Company could
be viewed by federal or state regulatory authorities to be engaged in the
business of insurance. If so, the Company might be required to obtain a license
to act as an insurer in certain states and to restructure some or all of its
operations to comply with the insurance laws of certain states.
POTENTIAL ADVERSE CONSEQUENCES OF GOVERNMENT REGULATION. The delivery of
podiatric care services and health care generally are subject to extensive
federal and state regulation. The Company believes that its operations are and
will be conducted in material compliance with applicable laws. However, the
Company has not received or applied for an opinion from any federal or state
judicial or regulatory authority to this effect, and many aspects of the
Company's business operations to date have not been the subject of state or
federal regulatory interpretation. There can be no assurance that a review of
AMP's operations by federal or state judicial or regulatory authorities will not
result in a determination that AMP or one or more of its Regional Group
Practices have violated one or more provisions of federal or state law. Any such
determination could have a material adverse effect on the Company.
The fraud and abuse provisions of the Social Security Act and anti-kickback
laws and regulations adopted by many states prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration in return for, or as
an inducement to, certain referrals of patients, items or services. Provisions
of the Social Security Act impose significant penalties for false or improper
billings for services reimbursable by Medicare, Medicaid or other
federally-funded programs. In addition, the Stark amendments to the
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Social Security Act impose specific restrictions on physicians' referrals for
designated health services reimbursable by Medicare, Medicaid or other
federally-funded programs to entities with which the physicians have financial
relationships. The federal government has also recently extended its statutory
prohibitions to include the relationship between health care providers and any
health care benefit programs, including non-governmental health care programs
(such as HMOs, PPOs or standard indemnity insurance).
Violations of any of these laws may result in substantial civil or criminal
penalties, including large civil monetary penalties and, in the case of
violations of certain federal laws, exclusion from participation in the
Medicare, Medicaid or other federally-funded programs. Such exclusion and
penalties, if applied to the Company or the Regional Group Practices, would have
a material adverse effect on the Company.
The laws of many states prohibit business corporations, such as the
Company, from practicing medicine or exercising control over the medical
judgments or decisions of physicians and from engaging in certain financial
arrangements, such as splitting fees with physicians. These laws and their
interpretations vary from state to state and are enforced by both the courts and
regulatory authorities, each with broad discretion. Violations of these laws
could result in censure or the revocation of the license of affiliated
physicians, civil or criminal penalties, including large civil monetary
penalties, or other sanctions. In addition, a determination in any state that
AMP is engaged in the corporate practice of medicine or any unlawful
fee-splitting arrangement could render any Management Agreement between AMP and
a Regional Group Practice located in such state unenforceable or subject to
modification, which could have a material adverse effect on AMP.
Expansion of the Company's operations into certain jurisdictions may
require modification of the Company's form of relationship with its Regional
Group Practices, which could have a material adverse effect on the Company.
Furthermore, the Company's ability to expand into, or to continue to operate
within, certain jurisdictions may depend on the Company's ability to modify its
operational structure to conform to such jurisdictions' regulatory framework or
to obtain necessary approvals, licenses and permits. Any such limitation on the
Company's ability to expand could have a material adverse effect on the Company.
See "Business -- Government Regulations."
FUTURE HEALTH CARE REFORM. In addition to extensive existing government
health care regulation, there are numerous initiatives on the federal and state
levels for comprehensive reforms affecting the payment for and availability of
health care services. These initiatives include reductions in Medicare and
Medicaid payments, trends in adopting managed care for Medicare and Medicaid
patients, regulation of entities that provide managed care and additional
prohibitions on ownership by health care providers, directly or indirectly, of
facilities to which they refer patients. It is uncertain what legislative
proposals will be adopted in the future or what actions federal or state
legislators or third party payors may take in anticipation of or in response to
any health care reform proposals or legislation. Aspects of certain of these
health care proposals, if adopted, could have a material adverse effect on the
Company.
COMPETITION. The business of providing podiatric services is highly
competitive in each of the Company's markets. The Company believes that changes
in governmental and private reimbursement policies, among other factors, have
resulted in increased competition among providers of medical services to
patients. Each of the Regional Group Practices faces competition from other
podiatrists in the communities served, some of which have more established
practices in the market. There can be no assurance that the Regional Group
Practices will be able to compete effectively in the markets they serve. In
addition, there is significant competition for the affiliation with podiatric
practices and such competition may limit the availability of suitable practices
with which the Company may be able to affiliate. Generally, there are no
significant barriers to potential competitors entering the industry or pursuing
a business strategy similar to the Company's. Several companies with established
operating histories and greater resources than the Company, including physician
practice management companies and some hospitals, clinics and HMOs, are pursuing
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively with these competitors, that
additional competitors will not enter the market or that this competition will
not make it more difficult and costly to acquire the assets of, and provide
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management services to, podiatric practices on terms beneficial to the Company.
See "Business -- Competition."
NEED FOR ADDITIONAL FUNDS. The Company expects funds available to it from
the proceeds of the Offering, cash from operations and its expected credit line
to fund its operations for approximately twelve months, although this cannot be
assured. The Company has received from a major international financial
institution a commitment for a $30.0 million, three-year revolving credit
facility to help fund its working capital needs, capital expenditures and
practice affiliations, although there can be no assurance that amounts available
under the credit line will be adequate to meet the Company's needs for funds.
The failure of the Company to enter into the credit line or a similar credit
line could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's growth strategy will require
substantial capital. The Company intends to finance future affiliations with
cash, the issuance of debt or equity securities, or any combination thereof. In
the event that the Common Stock does not maintain a sufficient market value, or
potential affiliation candidates are unwilling to accept debt or equity
securities as partial consideration for their practices, the Company may be
required to use its cash resources, if available, to initiate and maintain its
affiliation program. As a result, the Company anticipates that it will, in the
future, seek to raise additional funds through debt financing or the issuance of
equity or debt securities. There can be no assurance that sufficient funds will
be available on terms acceptable to AMP, if at all. The inability to obtain such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, issuing shares of
Common Stock as consideration for (or in order to provide financing for) future
affiliations could result in significant dilution to existing stockholders. If
additional funds are raised through the incurrence of debt, the Company may
become subject to restrictions on its operations and finances, including the
ability to pay dividends on its capital stock. These conditions may have an
adverse effect on, among other things, the Company's ability to pursue its
affiliation strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Strategy -- Growth Strategy."
LIABILITY AND INSURANCE RISKS ASSOCIATED WITH PODIATRY
PRACTICES. Providing health care services involves potential claims of medical
malpractice and similar claims. The Company does not, itself, engage in the
practice of medicine or have responsibility for compliance with regulatory
requirements directly applicable to physicians and requires affiliated
physicians performing medical services to maintain medical malpractice
insurance. Nonetheless, malpractice claims may be asserted against the Company
if services or procedures performed at one of the Affiliated Practices are
alleged to have resulted in injury or other adverse effects. Although the
Company has obtained liability insurance that will be effective concurrent with
the closing of the Offering that it believes will be adequate as to both risk
and amounts, successful malpractice claims could exceed the limits of the
Company's insurance and could have a material adverse effect on the Company's
business, financial condition or operating results. Moreover, a malpractice
claim asserted against the Company could be costly to defend, could consume
management resources and could adversely affect the Company's reputation and
business, regardless of the merit or eventual outcome of the claim. In addition,
there can be no assurance that the Company will be able to obtain insurance on
commercially reasonable terms in the future or that any insurance will provide
adequate coverage against potential claims. AMP requires each Regional Group
Practice and Affiliated Practice to obtain and maintain professional liability
insurance. This insurance is expected to provide insurance coverage, subject to
policy limits, if the Company is held liable as a co-defendant in a lawsuit for
professional malpractice. In addition, the Company is indemnified by the
Regional Group Practices for liabilities resulting from the Regional Group
Practices' providing medical services.
NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Company's Common Stock. There can be no assurance that a public
market for the Common Stock will develop or continue after the Offering. The
Company has filed an application for the Common Stock to be approved for
quotation on the Nasdaq National Market, however, there can be no assurance
that, following the Offering, a regular trading market for the Common Stock will
develop or be sustained. The initial public offering price has been determined
by negotiation among the Company and the Underwriters and may bear no
relationship to the market price of the Common Stock after this Offering. See
"Underwriting."
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If a public market for the Company's Common Stock develops, from time to
time, there may be significant volatility in the market price of the Common
Stock. Quarterly operating results of the Company, deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the health care industry or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have altered the market prices
for many companies'securities and that 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 of
companies in health care and related industries and may similarly affect the
price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. The market price of the Common Stock of
the Company could be adversely affected by the sale of substantial amounts of
the Common Stock in the public market following the Offering. After giving
effect to the sale of the shares of Common Stock offered hereby, the Company
will have shares of Common Stock issued and outstanding. Of these
shares, shares ( shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock sold in the Offering
will be freely tradable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except for any shares exchanged by
"affiliates" of the Company as that term is defined under the Securities Act.
None of the remaining shares were acquired in a transaction
registered under the Securities Act. Such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration. Of these shares, shares will be eligible for sale
pursuant to Rule 144 promulgated under the Securities Act in and the
balance of these shares will be eligible for sale at various times from
through . See "Shares Eligible For Future Sale."
In addition, AMP, its officers and directors and certain other stockholders
of the Company have agreed that they will not offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to any additional shares of Common Stock or securities
convertible or exchangeable or exercisable for any shares of Common Stock,
without the prior written consent of the Representative (as defined herein) for
a period of 180 days after the date of this Prospectus (the "lock-up period"),
except (i) subsequent sales of Common Stock offered in the Offering, (ii)
issuances of unregistered Common Stock by the Company in connection with
affiliation with additional practices, DPMs and ancillary providers (although
persons receiving such shares would be subject to such restrictions for the
remainder of the lock-up period) or (iii) issuances of Common Stock by the
Company pursuant to the exercise of employee stock options outstanding on the
date of this Prospectus.
The holders of certain shares of Common Stock outstanding on the date of
this Prospectus have certain registration rights with respect to such shares and
additional shares that may be issued to such persons upon exercise of options
(subject to certain limitations on the number of shares such holders are
entitled to have registered under any registration statement), although the
holders of at least of these shares have agreed to refrain from
selling their shares during the lock-up period. Pursuant to certain registration
rights agreements with the DPMs (the "Registration Rights Agreements"), the
Company has granted certain registration rights to the DPMs permitting them to
include their shares of the Company's Common Stock on a registration statement
filed by the Company within one year of the date of such agreements. See
"Description of Capital Stock." AMP also intends to register an additional
shares of Common Stock reserved for issuance under the Company's
1997 Incentive and Non-Qualified Stock Option Plan as soon as practicable
thereafter. See "Management" and "Underwriting." In addition, the Company
will register additional shares of Common Stock under a shelf
registration, which, when combined with the Company's cash resources, will be
used to fund the Company's planned practice affiliation program. These shares
generally will be freely tradable upon issuance to persons not deemed to be
affiliates of the Company, unless the Company contractually restricts the sale
or other transfer of such shares. Initially, the Company will issue such shares
subject to a lock-up period of up to 180 days from the date of this Prospectus.
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SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATED PRACTICES AND
AFFILIATES. Approximately $16.0 million of the net proceeds of this Offering
will be used to pay the cash portion of the price of the Transactions.
Approximately $300,000 of the net proceeds of the Offering will be used to pay
the accrued salary of Jack N. McCrary. In addition, approximately $5.2 million
of the net proceeds from the Offering will be used to repay indebtedness and
interest assumed by the Company in connection with the Transactions, including
the reimbursement by AMP of certain expenses and debt incurred by Ankle & Foot
Centers of America, LLC ("AFC") to finance organizational costs and working
capital. See "Use of Proceeds" and "Certain Transactions."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the completion
of the Offering, officers, directors and employees of the Company and investors
in AFC (which financed the Company's initial organizational costs and working
capital) will beneficially own 100% of the outstanding shares of the Class B
Common Stock and the owners of the initial Affiliated Practices will
beneficially own approximately % of the outstanding shares of the Company's
Common Stock. Although, following the Offering, no arrangements or
understandings among such persons with respect to the voting of the shares of
Common Stock beneficially owned by such persons will remain in effect, such
persons may nevertheless effectively be able to control the affairs of the
Company. See "Principal Stockholders."
ANTI-TAKEOVER PROVISIONS. Certain provisions of Delaware law, the
Company's Amended and Restated Certificate of Incorporation and the Company's
Amended and Restated Bylaws, including the terms of conversion of the Class B
Common Stock, could delay or impede the removal of incumbent directors and could
make it more difficult for a third party to acquire, or could discourage a third
party from attempting to acquire, control of the Company. These provisions could
limit the price that investors might be willing to pay in the future for shares
of Common Stock. In addition, shares of preferred stock may be issued by AMP's
Board of Directors without stockholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. Under certain circumstances, the Company may
issue Series A Junior Participating Preferred Stock which may have an
anti-takeover effect. The Company has no other current plans to issue any shares
of preferred stock. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their shares of Common Stock in the amount of
$ per share (after giving effect to underwriting discounts and
commissions and estimated Offering expenses). See "Dilution." If the Company
issues Common Stock in the future, including shares that may be issued in
connection with future practice affiliations, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of the Company's Common Stock.
NO INTENT TO PAY DIVIDENDS. The Company has never paid or declared any
cash dividends and does not anticipate paying any cash dividends after
completion of the Offering and the Transactions. In addition, the Company has
entered into a commitment for a credit facility that will restrict the Company's
ability to pay dividends. See "Dividend Policy "and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock in the
Offering assuming an initial public offering price of $ per share (after
deducting the underwriting discount and estimated Offering expenses), are
estimated to be approximately $ ($ if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use the net proceeds from the Offering as follows:
(i) approximately $17.4 million is expected to be used to consummate the
Transactions, $1.5 million of which will be placed in escrow in connection with
the AnestheCare Acquisition, (ii) approximately $5.3 million is expected to be
paid to AFC, which prior to the Offering owned 56.3% of the Company's
outstanding voting securities, to repay certain indebtedness and interest of
AFC, $500,000 of which bears interest at 18% per annum and matures on the fifth
day following the initial public offering and the remainder of which bears no
interest and has no maturity date (including the reimbursement by the Company of
expenses, debt and interest incurred by AFC to finance the Company's
organizational and affiliation costs and initial working capital), (iii)
approximately $2.7 million is expected to be used to pay certain deferred
expenses, (iv) approximately $1.0 million is expected to be used to complete the
purchase of the Company's management information system, and (v) the balance is
expected to be used for general corporate purposes, including, among other
things, making short-term loans of up to $950,000 aggregate principal amount to
DPM owners of Affiliated Practices as discussed herein and executing the
Company's business plan set forth herein. See "Business -- Practice
Affilations," "-- Services and Operations -- Management Information Systems,"
"-- Operative Agreements -- Physician Engagement Agreements" and "Certain
Transactions -- Organization of the Company." Pending such uses, the net
proceeds will be invested in United States government securities and in
short-term, interest-bearing investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As mentioned above, the Company may use up to $950,000 of the net proceeds
of the Offering to advance funds to the Regional Group Practices to make
short-term loans to their DPMs. Pursuant to the Physician Engagement Agreements,
an owner DPM may elect to receive an advance on his or her first monthly draw in
the form of a loan from the Regional Group Practice. Loans will be offered to
DPMs to provide short-term liquidity to such DPMs in the initial stages of the
Company's operations. Loans will be limited to an amount equal to (i) the
difference between 90% of the average monthly compensation of such DPM in the
year prior to the Offering and the current period's level of distributions from
the practice for the first three months after the Offering and (ii) the
difference between 80% of the average monthly compensation of such DPM in the
year prior to the Offering and the current period's level of distribution for
the second three months after the Offering. Loans, if drawn, will be repayable
over two years plus interest at an annual rate equal to the prime rate, and
installments will be withheld from the DPMs monthly draw. Management will not be
able to determine to whom loans will be made until after the Transfers have been
completed, DPMs begin receiving distributions from the Regional Group Practices
and DPMs decide whether or not to enter into such loans. Management has not
evaluated the DPMs' ability to repay these obligations, if they arise, but
believes the DPMs' financial status after the completion of the Offering and the
expected aggregate amount of such loans will prevent the loan program from
having a materially adverse effect on the Company.
Although the estimates set forth above represent the Company's best
estimate of the intended use of proceeds from the Offering, the timing and
amount of funds required for specific uses by the Company cannot be precisely
determined. The use of proceeds from the Offering is subject to change based on
competitive conditions, unanticipated costs of expansion and unexpected
requirements in developing and operating the Company's business. The rate of the
Company's progress in developing its business, the availability of alternate
methods of financing and other factors will affect the allocation and timing of
the Company's use of proceeds from the Offering.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends after completion
of the Offering and the Transactions. In addition, the Company has entered into
a commitment for a credit facility that will restrict the Company's ability to
pay dividends. The Company currently intends to retain any future earnings for
use in its business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997,
after giving effect to the Transactions as if they had occurred on that date,
would have been $ , or $ per share. Pro forma net tangible book
value per share represents the amount of pro forma total tangible assets of the
Company less pro forma total liabilities divided by the number of shares of
Common Stock and Class B Common Stock outstanding. After giving effect to the
sale by the Company of the shares of Common Stock offered hereby
(after deducting the underwriting discounts and commissions and estimated
Offering expenses payable by the Company) and the application of the net
proceeds therefrom as discussed under "Use of Proceeds," the pro forma as
adjusted net tangible book value of the Company as of September 30, 1997 would
have been approximately , or $ per share. This represents an
immediate increase in adjusted pro forma net tangible book value of
approximately $ per share to existing stockholders and an immediate dilution
of approximately $ per share to new investors purchasing Common Stock in this
Offering. The following table illustrates this per share dilution:
Assumed initial public offering price
per share............................. $
Pro forma net tangible book value
per share as of September 30,
1997............................. $
Increase per share attributable to
new investors....................
---------
Pro forma as adjusted net tangible book
value per share after the Offering....
---------
Dilution per share to new investors of
Common Stock.......................... $
=========
The following table sets forth on a pro forma basis, giving effect to (i)
the Transactions as of September 30, 1997, (ii) the number of shares of Common
Stock held by existing stockholders, the total consideration given for such
shares and the average price per share paid or invested in the Company for such
shares, and (iii) the number of shares of Common Stock to be purchased from the
Company, the total consideration for such shares and the average price per share
to be paid by new investors purchasing such shares in the Offering before
deducting underwriting discounts and commissions and estimated Offering expenses
payable to the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- --------- ------- ---------
Existing stockholders(1).. % $ % $
New investors.............
--------- ------- --------- -------
Total(2)............. 100% $ 100%
========= ======= ========= =======
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Company (after giving effect to the
Transactions) before the Offering, adjusted to reflect the payment of $
in cash as partial consideration in connection with the
Transactions. See "Use of Proceeds" and "Capitalization."
(2) Represents the par value of outstanding Common Stock and additional paid in
capital immediately after giving effect to the Transactions. See the
Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus. Does not include shares of Common Stock issuable upon
the exercise of options for the purchase of Common Stock pursuant to the
Company's stock option plans.
17
<PAGE>
CAPITALIZATION
The following table sets forth the short-term obligations, long-term debt
and the total capitalization of the Company (i) as of September 30, 1997, (ii)
on a pro forma basis to reflect the Transactions, and (iii) on a pro forma as
adjusted basis to reflect the Transactions, the Stock Split, the Share
Conversion, the sale by the Company of shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Financial Statements and Notes thereto and the Unaudited Pro Forma
Combined Balance Sheet appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(1)(2)
---------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt.... $ -- $ 656 $
Due to stockholder................... 2,426 2,426
Distribution liability(3)............ -- 10,041
Acquisition liability(4)............. -- 5,900
---------- ------------ -----------------
Total short-term
obligations................ $ 2,426 $ 19,023 $
========== ============ =================
Long-term debt, less current
portion............................ $ -- $ -- $
---------- ------------ -----------------
Stockholders' deficit:
Common stock, $.01 par value,
1,000,000 shares authorized,
20,000 shares issued and
outstanding..................... -- 2
Preferred Stock, $.001 par value;
shares authorized; no
shares issued and outstanding,
pro forma or pro forma as
adjusted........................ -- --
Class A Common Stock, $.001 par
value; shares
authorized(5); shares
issued and outstanding, pro
forma or pro forma as
adjusted(6)..................... -- --
Class B Common Stock, $.001 par
value; shares
authorized(5); shares
issued and outstanding, pro
forma or pro forma as
adjusted(6)..................... -- --
Additional paid-in capital......... -- --
Accumulated deficit................ (1,911) (8,308)
---------- ------------ -----------------
Total stockholders'
deficit.................... (1,911) (8,306)
---------- ------------ -----------------
Total capitalization................. $ (1,911) $ (8,306) $
========== ============ =================
</TABLE>
- ------------
(1) See Unaudited Pro Forma Combined Balance Sheet and the notes thereto
included elsewhere in this Prospectus for a discussion of the assumptions
made and adjustments applied in preparation of this information.
(2) Gives effect to the Stock Split, the Share Conversion and the sale of
million shares of Common Stock offered by the Company at
an assumed initial public offering price of $ per share and the
application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(3) Represents the cash distribution to promoters in connection with the
Transfers, including the liability attributed to monetary assets acquired of
$4.7 million.
(4) Includes the $4.5 million payable in connection with the AnestheCare
Acquisition and $1.4 million payable in connection with the Kramer Transfer.
(5) Reflects an amendment to the Company's Certificate of Incorporation filed
subsequent to September 30, 1997 to increase the authorized capital stock,
revise the par value to $.001 per share, and to designate classes of common
stock.
(6) Does not include shares of Common Stock issuable upon the exercise
of outstanding options for the purchase of Common Stock pursuant to the
Company's stock option plans.
18
<PAGE>
SELECTED FINANCIAL DATA
THE FOLLOWING INFORMATION IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE
COMPANY INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS INDICATED, THIS
INFORMATION DOES NOT REFLECT THE EFFECTS OF THE TRANSACTIONS OR THE OFFERING.
FOR CERTAIN INFORMATION CONCERNING THE TRANSACTIONS, SEE NOTE 4 OF NOTES TO
FINANCIAL STATEMENTS OF THE COMPANY AND UNAUDITED PRO FORMA COMBINED BALANCE
SHEET AND THE NOTES THERETO.
PERIOD FROM FOR THE NINE
AUGUST 9, 1996 TO MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ ------------------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $ -- $ --
Expenses............................. 514,141 1,397,178
------------------ ------------------
Net loss............................. $ (514,141) $(1,397,178)
================== ==================
SEPTEMBER 30, 1997
HISTORICAL AS ADJUSTED(2)
------------------ ------------------
(UNAUDITED)
Cash and cash equivalents............ $ -- $
Working capital deficit(3)........... (2,120,333)
Total assets(4)...................... 2,026,316
Long-term debt....................... --
Stockholders' deficit................ (1,911,119)
- ------------
(1) The Company has conducted no significant on-going, non-developmental
business operations to date and will not conduct significant business
operations until the affiliation of the Company with the initial Affiliated
Practices and the Offering are completed. Pursuant to the Reimbursement
Agreement, the Company will reimburse the affiliation-related expenses
incurred by AFC since May 1996, including AFC's payroll, travel and
entertainment, office equipment and audit expenses. AFC currently holds
shares of Class B Common Stock which management plans to
distribute to AFC members upon consummation of the Offering.
(2) As adjusted gives effect to the Transactions, the sale of million
shares of Common Stock offered by the Company, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
(3) The historical balance includes $2.4 million due to AFC which will be repaid
upon consummation of the Offering.
(4) The Company will record the non-monetary assets transferred to the Company
in connection with the Transfers at the historical cost basis of the
transferors.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY FORECASTS, AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE
HISTORICAL RESULTS SET FORTH IN THIS DISCUSSION AND ANALYSIS ARE NOT INDICATIVE
OF TRENDS WITH RESPECT TO ANY ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE
OF THE COMPANY. THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company's business operations since its incorporation in August 1996
have consisted solely of arranging the Transactions and preparing to implement
its related business plan described herein. At the time of the anticipated
initial Affiliated Practice affiliations, the predecessors of the initial
Affiliated Practices will have been separate businesses engaged in podiatric
care. In connection with the Transactions, the Company will receive certain
operating assets or receivables and stock and assume certain liabilities of the
Affiliated Practices and AnestheCare and enter into long-term management
agreements with the Regional Group Practices. Pursuant to the Management
Agreements, the Company will provide, among other things, facilities,
management, administrative and development services to the Regional Group
Practices and employ non-physician personnel, in each case in exchange for
management fees, the Company's principal anticipated source of revenues.
Management fees will be paid monthly to the Company by each Regional Group
Practice based upon the Regional Group Practice's adjusted patient revenues (the
Regional Group Practice's billings less contractual adjustments, including
adjustments for special third-party payor and private pay arrangements, and
adjustments for bad debts). The Company will be responsible for collecting the
billings of the Regional Group Practices. The Company will retain a service fee
ranging from 9% to 25% of the Regional Group Practice adjusted patient revenues
and an amount equal to the expenses of the Regional Group Practice advanced by
AMP pursuant to the Management Agreements. The service fee may be adjusted
quarterly (without a floor or ceiling on the adjustment) by the Joint Planning
Committee of the Regional Group Practice (composed of Company and Affiliated
Practice representatives) upon the request of either party to the Management
Agreement in order to reflect the fair value of the management services
provided, based upon the nature and volume of services required, the risks
assumed by the Company and the total revenues of the Regional Group Practice.
Any adjustments to the service fee percentage would be made on a prospective
basis. Accordingly, the Company will maintain a net revenue interest and not a
net profits interest. The compensation of each DPM in each Regional Group
Practice will be determined solely by the Joint Planning Committee of the
Regional Group Practice and will not include any guaranteed component. The
amount of the management service fees paid by the Regional Group Practices to
AMP and the compensation of each Regional Group Practice's DPMs will be directly
affected by the amount of patient revenue generated by each Regional Group
Practice.
The Company will also generally be entitled to a fee of approximately 70%
of the adjusted ancillary revenues, net of related ancillary expenses, of each
Regional Group Practice. Ancillary revenues will be generated from services
provided by the Regional Group Practice to its patients that are ancillary to
DPM podiatric care (such as orthopedics, ambulatory care, physical therapy and
the like). In connection with the AnestheCare Acquisition, the Company will
retain the existing financial and fee arrangements of AnestheCare with its
clients (other than the Regional Group Practices). After the AnestheCare
Acquisition, services provided by AnestheCare to the Regional Group Practices
will be delivered on a discounted basis, and AMP will receive a fee of
approximately 70% of AnestheCare's adjusted ancillary revenues net of related
ancillary expenses. See "Business -- Operative Agreements -- Management
Agreements" for a complete description of other material terms of the
Management Agreements.
The expenses expected to be incurred by AMP in fulfilling its obligations
under the Management Agreements will be the salaries, wages and benefits of
personnel (other than DPM owners and certain employed DPMs), supplies, expenses
involved in administering the clinical practices of the Regional Group
20
<PAGE>
Practices and general and administrative expenses, as well as depreciation,
amortization and interest incurred in the acquisition of assets by the Company
in connection with the Transactions. The Company will seek to reduce these
operating expenses through purchase discounts, economies of scale,
standardization of best practices, and other operating efficiencies. In addition
to operating expenses, the Company has incurred and will continue to incur
expenses on behalf of the Regional Group Practices, such as the management
information systems. AMP will also incur personnel, rental and other typical
expenses in connection with its corporate management, which will provide
management, administrative, marketing, development, acquisition and other
services to the Regional Group Practices.
The Company may in the future negotiate on behalf of Regional Group
Practices and others capitated, episode-of-care and shared risk fee arrangements
with third-party payors. These arrangements could result in patient care in
which the Regional Group Practices' costs of delivering care exceed the amounts
reimbursed by the applicable third-party payor. The Company intends to help the
Regional Group Practices manage these risks by establishing loss limits with the
third-party payors who are party to these arrangements and helping the Regional
Group Practices anticipate with reasonable accuracy the course of care and
related costs for specific conditions and diseases covered by the arrangements
with third-party payors.
RESULTS OF OPERATIONS
The Company has not conducted on-going, non-developmental business
operations and will not until the Transactions and the Offering are complete.
Consequently, AMP has generated no revenues. For an historical presentation of
the results of operations of the Affiliated Practices and AnestheCare, see Note
4 of the Notes to the Company's Financial Statements and the Financial
Statements of Pyramid Anesthesiology Group, Inc., respectively, appearing
elsewhere in this Prospectus.
The Company's principal stockholder, AFC, incurred a loss for the period
from the date of its organization in 1996 through September 30, 1997 of
approximately $1.9 million, reflecting principally salaries of AFC personnel and
office expenses since its inception. The Company has agreed to reimburse AFC for
these expenses upon completion of the Offering.
LIQUIDITY AND CAPITAL RESOURCES
AFC, on the Company's behalf, has financed the Company's operations to date
from the proceeds of AFC's private placements of debt and equity. To date, AFC
has received net proceeds from private placements of debt and equity in an
aggregate amount of approximately $3.5 million. AMP has agreed to assume AFC's
obligations under such debt at and after the Offering and the existing common
stock, without class, will be converted into Class B Common Stock.
The Company intends to fund its future operations from the proceeds of the
Offering, cash generated from operations, monies drawn under the revolving
credit facility discussed below and, if necessary, the proceeds of future public
or private financings. The Company intends to use the proceeds of the Offering
to consummate the Transactions, repay indebtedness of the Company and AFC, pay
certain deferred expenses, complete the purchase of the Company's management
information system and fund general corporate operations. In addition, the
Company may advance funds from the Offering to the Regional Group Practices in
order for them to make loans to the owner DPMs. See "Use of Proceeds."
If the Transactions had occurred on September 30, 1997, the Company would
have had a pro forma working capital deficit of approximately $15.1 million,
including the accrual of $15.9 million for cash consideration payable in the
Transactions.
In connection with certain of the Transactions, the Company will record
aggregate federal and state deferred tax liabilities of approximately $966,000.
These liabilities generally will become payable over an approximate three-year
period commencing on the date of the consummation of such Transfers.
AMP anticipates that its capital expenditures during 1998 will relate
primarily to affiliations with additional Affiliated Practices, if any,
development of the ancillary services network and expenditures related to
expansion and purchase of equipment for the Affiliated Practices. The Company
anticipates that funding for these expenditures will be derived from the
proceeds of the Offering, funds borrowed under the Company's anticipated credit
facility and cash flow from operations. Management believes that these sources
will be sufficient to fund the Company's capital needs for a period of
approximately twelve months
21
<PAGE>
following completion of the Offering. Thereafter, if necessary, the Company will
seek to raise additional funds for capital expenditures through borrowings or
the issuance of debt or equity securities. There can be no assurance that
sufficient funds will be available from sources other than the Offering on terms
acceptable to the Company, if at all.
The Company has received a commitment for a $30.0 million three-year
revolving credit facility with a major international financial institution which
is intended to be available to assist in funding the Company's working capital
needs, capital expenditures and anticipated future affiliations. The credit
facility will contain customary affirmative and negative covenants (including
prohibitions on the payment of dividends and capital expenditures) and events of
default customary to transactions of this type. The credit facility will bear
interest at a rate equal to the London Inter-Bank Offered Rate, or, at the
Company's option, at such financial institution's Base Rate plus a margin based
on the ratio of the Company's senior debt to earnings before interest, taxes,
depreciation and amortization. There can be no assurance that the Company will
ultimately close on the credit facility. In addition, the Company is,
concurrently with the Offering, registering additional shares of
Common Stock under a shelf registration, which, when combined with the Company's
cash resources, will be used to fund the Company's planned practice affiliation
program.
The success of AMP is directly dependent upon, among other things, the
ability of AMP to obtain funds by providing services to Regional Group
Practices. If funds from this principal source are unavailable or insufficient,
the Company will need to obtain financing from other sources, such as the
issuance of additional debt or equity securities or borrowings. There can be no
assurance that those alternative sources would be available, available on
favorable terms or sufficient to meet the Company's capital requirements.
ACCOUNTING
Of the 46 Transfers of the initial Affiliated Practices, 45 will be
accounted for by the Company under SEC Staff Accounting Bulletin No. 48 ("SAB
48"), "Transfers of Non-Monetary Assets by Promoters or Shareholders," so
that the non-monetary assets and liabilities of these initial Affiliated
Practices will be received by the Company at the transferor's historical cost
basis for accounting purposes. The AnestheCare Acquisition and the Kramer
Transfer transactions which are made following the SAB 48 transactions and
initial public offering will not be accounted for under SAB 48. Instead, these
and all future individual practice affiliations will be accounted for as
purchases at fair market value and are expected to result in purchase prices in
excess of net assets acquired (goodwill) which will require subsequent noncash
amortization charges in the Company's statements of operations. Monetary assets
and liabilities, of the initial Affiliated Practices including cash, billed and
unbilled receivables and credit balances, payables and certain miscellaneous
accruals will either be acquired by AMP at their fair market value or retained
by the Affiliated Practices, as agreed among the parties.
The aggregate consideration to be paid by the Company in the Transfers is
approximately $34.5 million, consisting of approximately $22.4 million payable
in shares of Common Stock at the initial public offering price attributed to the
net non-monetary assets, approximately $5.3 million in cash and $656,000 of
assumed indebtedness attributed to the net non-monetary assets of the SAB 48
Transfers, $4.7 million in cash attributed to the net monetary assets of the SAB
48 Transfers, and $1.4 million in cash attributed to the Kramer Transfer. Of the
total consideration attributed to the non-monetary assets for each SAB 48
transfer, the Affiliated Practices could elect to receive up to 25% in cash and
the balance in shares of Common Stock. The net non-monetary assets and
liabilities of these Affiliated Practices will carry over at their historical
costs to AMP. The net non-monetary assets to be transferred include billed and
unbilled receivables, supplies inventory, other receivables, prepaid expenses,
net equipment and certain other current and noncurrent assets. The liabilities
to be transferred include credit balances of accounts receivable, certain
miscellaneous accruals and debt assumed. The cash of approximately $6.0 million
paid to the Affiliated Practices for the non-monetary assets will be recorded as
a dividend by the Company. Consideration in the AnestheCare Acquisition will
consist of approximately $4.5 million in cash. Additional consideration of up to
$1.5 million in cash and a number of Common Shares equal to $500,000 valued at
the initial public offering price will be held in escrow and may be paid to the
owners of AnestheCare pending AnestheCare's achievement of certain performance
targets over the three-year period beginning January 1, 1998.
22
<PAGE>
BUSINESS
THE COMPANY
AMP was founded in August 1996 to provide practice management services and
comprehensive foot care delivery systems to podiatric practices throughout the
United States. AMP will generate revenue by providing to the Affiliated
Practices professional management, marketing, expertise, equipment and
facilities often unavailable to podiatrists with small practices. The initial 46
Affiliated Practices consist of 66 doctors of podiatric medicine ("DPMs")
operating 89 offices located in 7 states serving 57 cities. The Company intends
to grow rapidly by affiliating with additional podiatric practices and by making
available to the Affiliated Practices services that are ancillary and directly
related to the Affiliated Practices' existing podiatric care.
The Company has entered into definitive agreements to transfer cash and
Common Stock and assume certain liabilities in exchange for stock or certain
operating assets and receivables of the Affiliated Practices simultaneous with
and as a condition to the closing of the Offering. The DPMs will join Regional
Group Practices organized by geographic location and will enter into physician
engagement agreements with the Regional Group Practices. AMP will enter into a
long-term management agreement with each Regional Group Practice under which AMP
will receive fees for its services. The Company will own the operating assets of
the Affiliated Practices, hire the non-physician employees and otherwise assume
the management of each practice. The initial Affiliated Practices were selected
based upon their location, size, historical profitability and growth and
reputation for high quality care. Management believes that the initial
Affiliated Practices are leading podiatric practices in their respective markets
and that, following the Transactions, AMP will be the largest provider of
comprehensive podiatric practice management services in the United States.
A key element of the Company's strategy is to provide ancillary services
and facilities to the Affiliated Practices. These ancillary services and
facilities are expected to include, among other things, ambulatory surgical
centers, anesthesiology, pathology, radiology, MRIs, EKGs, laboratory work,
pharmacy, physical history and exams, physical therapy, orthotics, pain
management, home care, diabetic wound care, specialty shoes and other retail
products. The Company intends to make available some or all of these ancillary
services on a regional basis. The Affiliated Practices in each region will
primarily or exclusively use AMP's ancillary services, enabling the Company to
control the cost, quality and other important aspects of these services.
Pursuant to this strategy, AMP has entered into a definitive agreement to
purchase certain assets of AnestheCare, an anesthesiology management services
organization currently servicing 15 locations in metropolitan Atlanta, Georgia.
AnestheCare provides billing and management services to anesthesiologists and
other providers of health-care related services to local hospitals and others.
PENDING TRANSFERS
The Company plans to use shares subject to its shelf registration statement
to be filed with the Commission relating to the separate offering of up to
4,000,000 shares of Common Stock (the "Shelf Registration") to acquire certain
operating assets of, or the stock of entities holding certain operating assets
of, additional podiatric practices and enter into management services agreements
with these entities. The Company has entered into negotiations with eight
podiatric practices (collectively, the "Pending Transfers"). The aggregate
consideration to be paid by the Company with respect to the Pending Transfers,
if consummated, will be approximately $3.0 million. Unlike the initial
Affiliated Practices which will be accounted for in accordance with SAB 48, the
Pending Transfers will be accounted for as asset acquisitions at fair market
value and will result in subsequent noncash amortization charges for intangible
assets in the Company's statements of operations. Each of the Pending Transfers
is subject to, among other conditions, execution of definitive agreements, the
completion of the Offering, the effectiveness of the Shelf Registration and
satisfactory due diligence review of each practice by the Company.
23
<PAGE>
THE PODIATRIC INDUSTRY
Podiatry is the practice of medicine whereby DPMs provide preventative,
diagnostic, surgical and other foot care to patients. Podiatric care ranges from
relatively simple procedures, such as treating foot infections, to complex
surgeries, such as reconstructing the bones in the foot. According to the
American Podiatric Medical Association ("APMA"), 39% of all foot care is
provided by DPMs compared to 13% by orthopedic physicians, 37% by other
physicians and 11% by physical therapists and others. Today, there are
approximately 10,700 active DPMs throughout the United States handling 55
million patient visits per year. In 1995, active DPMs averaged 92 patient visits
per week and 80 bone surgeries for the year.
After finishing school at a College of Podiatric Medicine, DPMs are
required to pass rigorous state board examinations and complete at least one
year of residency before they are licensed to practice. Each state has somewhat
different requirements for a DPM to become licensed although there is
reciprocity among many states. Most states also require continuing educational
programs for regular license renewal. In addition, DPMs may become Board
Certified by one of several national podiatric certification boards. Generally,
in order to become Board Certified a DPM must have completed three years of
practice and pass oral and written examinations. Many health maintenance
organizations require the DPMs in their provider network to be Board Certified.
According to the APMA, 99% of DPMs graduated from one of seven Colleges of
Podiatric Medicine, 87% completed residency programs, and 53% are Board
Certified. All of the owner DPMs at the Affiliated Practices have completed
residency programs and are licensed, approximately 94% are Board Certified and
100% are Board Eligible (that is, having passed the Board's written exam and are
awaiting the Board's oral examination).
According to the APMA, billing receipts of all DPMs in the United States
increased to approximately $2.3 billion in 1995 from approximately $1.3 billion
in 1987, a compound annual growth rate of 7.7%. The Company believes that the
historical growth in DPM revenues is due to a number of factors including the
following:
o AGING POPULATION. The Bureau of Census forecasts that the resident
population of the United States will increase between 1997 and 2010 by an
average annual rate of 0.8%. However, the number of persons age 65 and over
will increase by an average annual rate of 1.1% over the same period.
People age 65 and over experience foot problems at approximately twice the
rate of persons under the age of 65, and based on Medicare program studies,
older persons utilize DPMs at a higher rate than the remainder of the
population.
o INCREASING MANAGED CARE. As recently as 1988, only an approximate 25% of
all privately insured individuals were covered by managed care. By 1996,
over three-quarters of active employees in the private sector were enrolled
in some type of managed care arrangement. The Company believes that primary
care physicians are more likely to refer footcare patients covered by
managed care to DPMs, as a result of the lower reimbursement rates
anticipated for footcare under managed care programs relative to footcare
covered on a fee-for-service basis.
o INCREASED MEDICARE ENROLLMENT. Managed care enrollment in Medicare has
doubled in the last three years and is growing at an annual rate of
approximately 30%. Enrollees are generally older than the average
population, and consequently, incur a higher incidence of foot problems. In
addition, the Company believes that enrollees are more likely to visit a
podiatrist than non-insured individuals.
The podiatric industry in the United States is highly fragmented, dominated
by solo and small group practices. According to the APMA, 69% of the
approximately 14,000 total DPMs in the United States are sole practitioners with
the majority of the remaining DPMs in small or medium-sized practices, generally
consisting of two to four DPMs. In addition, there is an oversupply of podiatric
service providers in the United States that could exceed demand by as much as
27% in 2010. Finally, as with other areas of health care, there is a pronounced
trend toward managed care in the podiatric industry.
The Company believes that due to (i) the highly fragmented structure of the
podiatric industry, (ii) the growing surplus of DPMs, and (iii) the trend toward
managed care, the industry is ripe for a provider of comprehensive podiatric
practice management services such as AMP. The Company intends to pool the
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resources of, and provide professional management to, some of the nation's
leading podiatrists in order to allow them to compete more effectively in the
current and anticipated podiatric industry environment. Management expects its
operating and growth strategies to attract third party payors, provide a strong
incentive for DPMs to affiliate with the Company, and allow practices affiliated
with the Company to be more successful than their primarily small practice
competitors in an environment of increased competition and over-supply.
OPERATING STRATEGY
The Company's objective is to be the nation's leading provider of
management services and comprehensive foot care delivery systems to podiatric
practices. To achieve this objective, the Company will employ the following
operating strategies:
ENHANCING QUALITY OF DPM PATIENT CARE. Management believes that the
services and support it will provide the Affiliated Practices will positively
impact DPM patient care. The Company, through its Affiliated DPMs and its
Medical Policy Board is developing uniform standards of care for the Affiliated
Practices to ensure quality control and provide the opportunity to implement the
most current and effective podiatric treatments and techniques. The Company
believes that one of its most valuable practice management services will be its
ability to identify practice-level strategies that have proven successful for
individual Affiliated Practices and share these best practices with other
Affiliated Practices. The quality of patient care is also expected to improve as
a result of (i) treatment protocols and other important information being made
available to each Affiliated Practice by the Company's sophisticated management
information system, (ii) the peer review that will result from being affiliated
with other podiatrists, the Company's Medical Advisory Board and the respective
Boards of the Regional Group Practices, (iii) more time being made available to
DPMs for patient care rather than administrative duties, and (iv) the continuity
of care, including early disease detection and treatment, that will be afforded
by the Affiliated Practices and the Company's ancillary services.
ACHIEVING OPERATIONAL EFFICIENCIES. The Company intends to implement a
variety of operating procedures and systems to improve the productivity and
profitability of each Affiliated Practice. The Company is developing and
implementing a centralized management information system, uniform inventory
control procedures and national group purchasing contracts. In addition, the
Company is installing a patient billing and collections system that is expected
to improve collections as a result of its ease of use, billing frequency and
standardized procedures. Management also believes that physical improvements in
design to certain Affiliated Practices' facilities should result in an increase
in the volume of patients seen and an increase in employee and DPM productivity.
DEVELOPING REGIONAL GROUP PRACTICE STRUCTURE. AMP will use the Regional
Group Practices as an important mechanism to pool the Affiliated Practices'
resources and implement its other strategies. The Regional Group Practices, and
in particular the Boards thereof, will (i) collect from and disseminate to its
Affiliated Practice members best practices and standards of care, (ii) provide
the mechanism for peer review and quality control of the Affiliated Practices,
(iii) develop regional marketing and advertising programs, (iv) identify,
recruit, and integrate additional practice affiliations and ancillary services
acquisitions, and (v) coordinate the sharing of specialists' resources in each
region.
PROVIDING EFFECTIVE MARKETING. The Company intends to develop and
implement aggressive and innovative marketing and advertising plans to augment
each Affiliated Practice's existing referral and other marketing efforts.
Management believes that the podiatric industry has not taken advantage of the
gains that can be achieved through strategic direct and target marketing. In
particular, AMP plans to (i) target market to specific underserved market
segments, (ii) market and advertise in a manner designed to attract walk-in
patients for whom the DPMs would be the primary care provider for foot care,
(iii) market directly to payors in the managed care system, and (iv) develop and
market to payors disease-specific treatment programs for the early detection of
certain types of foot problems.
IMPLEMENTING COMPREHENSIVE FOOT CARE DELIVERY SYSTEMS. The Company plans
to make available ancillary care providers and their resources to work with DPMs
in individual practices within each Regional
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Group Practice. By making these specialists and resources available to each
Regional Group Practice, the Company plans to create an integrated,
comprehensive system of podiatric services that management believes will exceed
the capabilities of most traditional podiatric practices operating on their own.
The Company expects that making available ancillary services and facilities,
including, among others, ambulatory surgical centers, anesthesiology, pathology,
radiology, MRIs, EKGs, laboratory work, pharmacy, physical history and exams,
physical therapy, orthotics, pain management, home care, diabetic wound care,
specialty shoes and other retail products, to its Affiliated Practices will
promote better patient care and provide patients with one-stop foot care
services.
GROWTH STRATEGY
Management believes the growth of the initial Affiliated Practices and the
development of new Affiliated Practices are key components of the future success
of the Company. Key elements of the Company's growth strategy include:
GROWING AFFILIATED PRACTICES. The Company will assist Affiliated Practices
in expansion through regionally-focused marketing and advertising and
improvements in operating efficiencies. The Company believes that such an
approach will increase the Affiliated Practices' market share and revenues. The
Company also intends to make available capital for practice expansion through
market research, site selection, office design and marketing.
DEVELOPING ANCILLARY PROVIDER NETWORK. The Company intends to augment its
growth by adding a network of providers of ancillary products and services that
will complement the services provided by the Affiliated Practices. The Company
believes that, by acquiring or contracting with providers of ancillary services
on behalf of the Regional Group Practices, the Company will create a new
approach to the delivery of podiatric services and provide a menu of services
that is more comprehensive than that traditionally offered by individual
podiatric practices.
AFFILIATING WITH NEW PRACTICES. A core business strategy of the Company is
to affiliate with additional podiatric practices. Management believes that an
ample supply of candidates for podiatric practice affiliations exist among the
approximately 10,700 active podiatrists in the United States. The Company plans
to select additional practice affiliations from this pool based upon each
practice's location, size, historical profitability and growth, and reputation
for high quality care. Management believes that affiliation will be an
attractive option for many of these podiatrists because the Company intends to
(i) provide capital to open and integrate new offices into existing Affiliated
Practices, (ii) identify and recruit qualified DPMs for the Affiliated
Practices, (iii) design and offer business and operational, financial and
clinical systems for each Affiliated Practice, (iv) hire the necessary
administrative and non-physician personnel for each new Affiliated Practice, (v)
implement effective marketing and advertising strategies designed to help
increase each Affiliated Practice's market share and the number of new patients,
and (vi) reduce the time Affiliated Practices spend on administrative duties,
allowing them to focus on delivering quality patient care.
PRACTICE AFFILIATIONS
The Company has entered into definitive agreements, to be consummated
simultaneously with the closing of this Offering, to obtain certain operating
assets and receivables of or the stock of certain entities holding the assets of
the initial Affiliated Practices, which include 66 DPMs operating 89 offices
located in 7 states serving 57 cities. Management believes that the Affiliated
Practices are leading practices in their markets. The Affiliated Practices were
selected based upon a variety of factors, including location, size, historical
profitability and growth and reputation for high quality care among local
consumers of podiatric services and within the podiatric services industry.
Management intends to capitalize on the reputations and relationships of the
Affiliated Practices and their DPMs to assist the Company in affiliating with
additional podiatric practices.
The aggregate consideration that will be paid by the Company to acquire the
operating assets, receivables or stock of the initial Affiliated Practices
consists of approximately (i) $11.5 million in cash (of which $4.8 million
represents payment for accounts receivable) and (ii) $22.4 million payable in
shares of Common Stock at the initial public offering price. The purchase prices
for the initial Affiliated Practices
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were determined by the practice's gross revenue, growth potential, quality of
patients, service delivery and depth of presence in its local market. The
Company will also assume certain indebtedness of the initial Affiliated
Practices totaling approximately $656,000. For a more detailed discussion of
amounts to be paid to and indebtedness assumed of each of the initial Affiliated
Practices, see "Certain Transactions."
Upon consummation of the Transfers, the Company will provide management
services to the following Regional Group Practices:
<TABLE>
<CAPTION>
REGIONAL NUMBER OF NUMBER OF NUMBER OF
GROUP PRACTICE MARKET STATE PRACTICES PODIATRISTS OFFICES
- ------------------------------------- -------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Atlanta.............................. Atlanta Georgia 2 5 7
Houston.............................. Houston Texas 16 22 33
Maryland............................. Hagerstown Maryland 4 8 3
Pennsylvania* -- -- 3
West Virginia* -- -- 1
Miami................................ Miami Florida 8 10 11
Middle Georgia....................... Macon Georgia 1 2 5
North Texas.......................... Amarillo Texas 5 7 8
Dallas Texas 4 4 3
Fort Worth Texas 1 1 1
South Texas.......................... San Antonio Texas 3 4 8
Brownsville Texas 1 1 1
St. Louis............................ St. Louis Missouri 1 2 5
-- -- --
Total........................... 46 66 89
== == ==
</TABLE>
- ------------
* One of the Affiliated Practices in Maryland has 3 offices in Pennsylvania and
another has an office in West Virginia.
The Company has also entered into a definitive agreement to acquire certain
assets of AnestheCare for approximately $4.5 million in cash. Additional
consideration of up to $1.5 million in cash and $500,000 payable in shares of
Common Stock valued at the initial public offering price will be held in escrow
and may be paid to the owners of AnestheCare pending AnestheCare's achievement
of certain performance targets over a three-year period beginning January 1,
1998. AnestheCare provides billing and management services to providers of
health care-related services to local hospitals and others.
SERVICES AND OPERATIONS
MANAGEMENT SERVICES
Simultaneous with the Offering, each Affiliated Practice will join a
Regional Group Practice which will, in turn, enter into a long-term Management
Agreement with the Company. Under the Management Agreement, the Company will
employ the Affiliated Practice's non-physician personnel, assume and enter into
leases for their facilities and provide services such as practice management,
information systems, marketing and negotiation of payor contracts.
The Company believes that its integrated care delivery network will give
the Regional Group Practices the ability to, among other things, reduce
overhead, engage in regional contracting with managed care payors and expand
service offerings. Pursuant to the Management Agreements, the Company will
assist the Regional Group Practices in strategic planning, preparation of
operating budgets and capital project analysis. The Company intends to
coordinate group purchasing of supplies, inventory and insurance for the
practices. In addition, the Company will assist the Regional Group Practices in
physician recruitment by introducing physician candidates to the Regional Group
Practices and advising the Regional Group Practices in structuring employment
arrangements.
The Company also will provide or arrange for a variety of additional
services relating to the day-to-day non-medical operations of the practices,
including (i) management and monitoring each practice's patient billings,
invoicing and accounts receivable collection by payor type, (ii) accounting,
payroll, legal services and records, and (iii) cash management and centralized
disbursements. These services are designed to reduce the amount of time
physicians must spend on administrative duties, thereby enabling the physicians
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to dedicate more of their efforts to the delivery of health care. The Company's
anticipated capital resources and assistance in budgeting and capital project
analysis are designed to assist the Regional Group Practices in establishing
facilities to provide ancillary footcare services.
As a result of the Transfers, the Company will employ the Affiliated
Practices' non-physician personnel. These non-physician personnel, along with
additional personnel at the Company's headquarters, will manage the day-to-day
non-medical operations of each of the Regional Group Practices by, among other
things, providing secretarial, bookkeeping, scheduling and other routine
services. Under the Management Agreements, the Company will provide facilities
and equipment to the Regional Group Practices, and, to this end, the Company
intends to enter into new lease agreements or assume existing lease agreements
for the facilities and assets utilized by each of the Regional Group Practices.
REGIONAL GROUP PRACTICES
At the closing of the Transactions, the DPM owners of Affiliated Practices
in a geographic area will become members of a Regional Group Practice. Each
Regional Group Practice will be a professional limited liability company
composed only of physician members who also enter into Physician Engagement
Agreements with the Regional Group Practice. Each Regional Group Practice will
be under one provider number for Medicare/Medicaid purposes. The Regional Group
Practices serve two principal purposes. First, they are designed to allow the
Company and the Affiliated Practices to work together in compliance with the
"group practice" exemption under the Stark amendments to the Social Security
Act. Second, the Regional Group Practice structure is an important mechanism
that allows the Company to achieve its business plan, as the Regional Group
Practices act as focal points for best practices, peer review, regional
marketing, practice expansions and additions, and resource exchanges.
Within the Regional Group Practices, individual DPMs will retain the
integrity of their practice revenues and expenses within that Regional Group
Practice. In addition, Regional Group Practices will separately determine
certain budget and personnel matters and each will have its own board of
managers elected by a majority of its members. Members will be subject to
certain standards for admission and may also be expelled in certain
circumstances. The member interests in the Regional Group Practice will be
subject to restrictions on transferability. The DPMs are subject to certain
restrictions on their ability to compete with the Regional Group Practices and
must pay certain liquidated damages upon their breach and/or termination of
their Physician Engagement Agreement. See "-- Operative Agreements -- Physician
Engagement Agreements."
The Company will enter into a 40-year Management Agreement with each
Regional Group Practice and, together, will establish a Joint Planning Committee
to develop long-term strategic objectives and management policies for the
operation of the Regional Group Practice and to facilitate communication and
interaction.
MANAGEMENT INFORMATION SYSTEMS
A key element in AMP's business strategy is implementing and using
sophisticated management information systems. The Company has developed a
comprehensive information systems plan that integrates a financial information
system (Lawson Software) and a physician practice management system (Medic
Vision). Both systems will be operating at the Company's corporate office in
Houston at the time of the Offering. The Company's hardware platform will
consist of two IBM RS 6000 minicomputers, running the financial and practice
management software. If one system fails, the other is expected to be used for
both software applications. Complete hardware and software deployment of the
systems to the Company's Affiliated Practices is expected to be completed within
approximately 90 days after the Offering.
Billing and collections for the Regional Group Practices' services,
including financial accounting, accounts payable, other cash disbursements and
cash management will be performed centrally at the Company's headquarters in
Houston. The Affiliated Practices will be networked to a central site for
billing, collections, and scheduling, assuring continuous communication, through
dedicated communication lines, among the Affiliated Practices and the Company.
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The Affiliated Practices will have real time data access in order to
analyze on-going operations. Monthly financial data will also be available
through the network for each Affiliated Practice. In addition, the Company
intends to develop a data repository that will consolidate operational,
clinical, financial and outcomes data that will be used to develop pricing
strategies and to better report to and negotiate with managed care payors.
MANAGED CARE
The Company believes that podiatry, like many other medical specialties,
has been slow to achieve the integration and consolidation needed for survival
in the era of managed care. The rise of managed care and its emphasis on cost
containment and risk sharing has placed podiatry's practitioners and small to
medium-size physician groups at a significant disadvantage. These practices
typically lack the capital to expand, develop or acquire information systems and
purchase new technologies, which often improve quality of care, reduce costs and
increase profitability. These individual practices also tend to lack the cost
accounting and quality management systems necessary to allow physicians to enter
into sophisticated risk-sharing contracts with private and third-party payors.
Additionally, small to medium-size practices often do not have formal ties with
other providers, nor do they have the ability to offer a variety of medical
services, thus reducing their competitive position relative to larger provider
organizations. These smaller practices often have higher operating costs because
overhead must be spread over a relatively small revenue base and have minimal
purchasing power compared with suppliers.
A significant and increasing portion of the net revenues of podiatric
practices are expected to be derived from managed care payors. Although rates
paid by managed care payors are generally lower than commercial rates, managed
care payors provide access to large patient volumes. AMP intends to assist the
Affiliated Practices to compete effectively in the managed care framework and to
take advantage of the managed care payors' large patient volumes. To this end,
the Company plans to (i) perform analyses of the Regional Group Practices'
markets to develop managed care contracting strategies, (ii) meet with principal
payors in each market to enhance relationships between the Regional Group
Practices and the payors, (iii) negotiate attractive arrangements with managed
care payors leveraging the Affiliated Practices' combined size, and (iv) market
to managed care payors by emphasizing the Company's disease-specific treatment
programs, treatment protocols, ancillary services and information-sharing
capabilities.
GOVERNANCE
The Company's current governance structure promotes physician participation
in the management of the Company. Four physicians or medical experts will serve
on the Company's Board of Directors. In addition, each Regional Group Practice
will have a Joint Planning Committee whose membership will include an equal
number of representatives from each of the Regional Group Practices and the
Company. The Joint Planning Committee will have responsibilities that include
developing long-term strategic objectives, developing practice expansion and
payor contracting guidelines, promoting practice efficiencies, recommending
significant capital expenditures and facilitating communication and information
exchange between the Company and each of the Regional Group Practices.
Concurrent with the Offering, the Company will create a Medical Policy
Board that will identify and communicate the best medical practices and
protocols. This Medical Policy Board, which will consist primarily of physicians
from Regional Group Practices, will receive managerial and information systems
and administrative support from the Company and develop patient outcome
statistics. The Medical Policy Board will initially consist of Dr. Stanley R.
Kalish D.P.M., F.A.C.F.S., Chairman, Dr. Lawrence B. Harkless D.P.M., Vice
Chairman, Dr. Bernard J. Hersh, D.P.M., Vice Chairman, and Dr. Robert G.
Frykberg, D.P.M., M.P.H., Vice Chairman. See "Management -- Medical Policy
Board."
The Company will not exercise any responsibility on behalf of affiliated
physicians that could be construed as affecting the practice of medicine.
Accordingly, the Company believes that its operations do not violate applicable
state laws relating to the corporate practice of medicine. Such laws and legal
doctrines have been subjected to only limited judicial and regulatory
interpretation and there can be no assurance that, if challenged, the Company
would be considered in compliance with all such laws and doctrines. A
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<PAGE>
determination in any state that the Company is engaged in the corporate practice
of medicine could render any Management Agreement between the Company and a
Regional Group Practice located in such state unenforceable or subject to
modification in a manner adverse to the Company.
OPERATIVE AGREEMENTS
PURCHASE AGREEMENTS
The Purchase Agreements provide that the Company will acquire, and each DPM
will transfer to AMP, certain operating assets and receivables or stock of each
of the Affiliated Practices and AnestheCare, as the case may be. If the
conditions to closing in the Purchase Agreements are satisfied, the Company's
affiliations with the Affiliated Practices and the acquisition of AnestheCare
are expected to be consummated simultaneously with the closing of the Offering.
SAB 48 TRANSACTIONS
The Purchase Agreements with respect to the initial Affiliated Practices
accounted for under SAB 48 have the terms set forth below.
CONSIDERATION. The consideration to be paid by the Company for each of
these initial Affiliated Practices is being determined by arms-length
negotiations between the Company and a representative of each Affiliated
Practice. The aggregate consideration to be paid by the Company for these
initial Affiliated Practices is approximately $33.1 million, including the
assumption of $656,000 in indebtedness. The consideration is based upon the
Affiliated Practice's gross revenue, growth potential, quality of patients and
service delivery and depth of presence in its local market.
The consideration to be paid for the initial Affiliated Practices will be
paid by a combination of cash, Common Stock of the Company and the assumption of
certain debt.
COVENANTS. Each DPM agrees under their relevant Purchase Agreement that,
for a period of five years, he or she will not compete with the business of the
Affiliated Practice within 20 miles of any location of the Affiliated Practice's
Regional Group Practice at which the DPM has practiced podiatric medicine in the
prior year. Each DPM also will agree that during this time period, he or she
will not induce or attempt to induce any employee of the Regional Group Practice
or any of its affiliates to terminate his or her employment with the Regional
Practice Group. Additionally, the parties to the Purchase Agreement agree not to
disclose each other's confidential information.
INDEMNIFICATION. Under the Purchase Agreements, each DPM (to the extent of
their proportionate interest in the Affiliated Practice) and each Affiliated
Practice will be obligated to indemnify the Company and its subsidiaries for (i)
a breach of any representation, warranty or covenant of the Affiliated Practice
or any owner, (ii) any violation (or alleged violation) by the DPMs, the
Affiliated Practice or past or present affiliates of state or federal laws
governing healthcare fraud and abuse (including, but not limited to, fraud and
abuse in the Medicare and Medicaid programs) occurring on or before the Closing
or any overpayment or obligation (or alleged overpayment or obligation) arising
out of or resulting from claims submitted to any third party payor (including
the Medicare and Medicaid programs) on or before the Closing, or (iii) any
liability under any federal or state securities law or regulation arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to any DPM, the Affiliated Practice (including its subsidiaries)
or their Regional Group Practice and provided to the Company or its counsel by
the Affiliated Practice or its DPMs.
The Company will be obligated under the Purchase Agreements to indemnify
DPMs and the Affiliated Practices for (i) a breach by the Company of any of its
representations, warranties or covenants in the Purchase Agreement and (ii) any
liability under any federal or state securities law or regulation arising out of
or based upon an untrue statement or alleged untrue statement of a material fact
relative to the Company contained in this Prospectus, any preliminary
prospectus, the Registration Statement or any amendment or supplement arising
out of or based upon any omission or alleged omission to state a material fact
necessary to make the statements not misleading.
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ACCOUNTING TREATMENT. As a result of the transactions contemplated by the
Purchase Agreements, the historical balance sheet information of the Affiliated
Practices will be combined on an historical cost basis in accordance with
generally accepted accounting principles as if the Affiliated Practices had
always been members of the same group. Cash payments attributed to non-monetary
assets made to DPMs of Affiliated Practices under the Purchase Agreements will
be accounted for as a cash dividend. The monetary assets will be acquired at
their fair market value which is expected to be approximately $4.7 million.
CONDITIONS TO CONSUMMATION. The Company's obligation to consummate the
Closing under the Purchase Agreements is subject to a variety of conditions,
including, but not limited to, the following: (i) the formation of the Regional
Group Practice; (ii) the execution by the Regional Group Practice of a
management services agreement; (iii) the delivery of documents of conveyance;
(iv) the acquisition by the Company of all licenses, consents and permits, and
the provision of all notices, necessary for the Company and the Affiliated
Practices to continue their operations; (v) the absence of any injunction or
other proceeding to prohibit the Closing; and (vi) the satisfactory completion
by the Company of its due diligence investigation of the Affiliated Practices
through the Closing.
CONDUCT OF BUSINESS PENDING CLOSING. Pursuant to each Purchase Agreement,
each Affiliated Practice and its DPMs will agree that, until the Closing, the
Affiliated Practice will operate its business only in the usual, regular and
ordinary course, consistent with past practices, and will restrict certain
activities except with the prior written consent of the Company.
TERMINATION. Each Purchase Agreement and the transactions contemplated
thereby may be terminated prior to the Closing by the DPM or the Company if the
acquisition has not been consummated due to the failure of the Offering made
hereby.
RESALES. The Company's Common Stock to be delivered to DPMs under the
Purchase Agreements will not be registered under the Securities Act or any state
securities act and will be offered and sold in reliance upon exemptions from the
registration requirements of the Securities Act and such laws. Thus, Common
Stock issued pursuant to the Purchase Agreements will not be readily
transferable immediately. See "Shares Eligible for Future Sale."
Pursuant to each Purchase Agreement, each DPM receiving Common Stock has
agreed not to sell or otherwise dispose of any Common Stock during a 180-day
period after the Closing without the prior written consent of the underwriters
of the Offering made hereby.
NON-SAB 48 TRANSACTIONS
The Purchase Agreement with respect to the AnestheCare Acquisition and the
Kramer Transfer are substantially similar to the Purchase Agreements with
respect to the Affiliated Practices, except for the differences noted below.
ANESTHECARE AGREEMENT
The aggregate consideration to be paid for AnestheCare's assets is $4.5
million in cash. Additional consideration of up to $1.5 million in cash and
$500,000 payable in shares of Common Stock valued at the initial public offering
price will be held in escrow and may be paid to the owners of AnestheCare
pending AnestheCare's achievement of certain performance targets over a
three-year period beginning January 1, 1998. Pursuant to employment agreements
with each of Roger Bigham and David LaGuardia (each of whom owns 50% of
AnestheCare), in the event of the termination of the employment of Mr. Bigham or
Mr. LaGuardia by the Company without "Cause" or by such person for "Good
Reason" his options will vest and he will be entitled to receive from such
escrow an amount equal to the greater of (i) his base salary and an annual
target bonus payable over the remainder of his contract term, or (ii) two times
his annual salary plus an annual target bonus. In addition, such person would be
entitled to receive a lump sum payment equal to the total amount of any excise
taxes to which such person may become subject under Section 4999 of the Internal
Revenue Code.
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KRAMER AGREEMENT
The aggregate consideration to be paid for Dr. Kramer's stock in the Kramer
Transfer is $1,404,000, all of which will be paid in cash. In addition, unlike
other Affiliated Practice Transfers, AMP will have no on-going relationship with
Dr. Kramer, including no post-closing Management Agreement or Physician
Engagement Agreement.
MANAGEMENT AGREEMENTS
The following summary of the Management Agreements is a general summary of
the form of Management Agreement. The Company expects to enter into similar
agreements with the other Affiliated Practices. The terms of the individual
Management Agreements into which the Company may enter in the future may vary
from the description below as a result of negotiations with individual practices
and the requirements of local regulations.
Pursuant to the Management Agreements, the Company, among other things,
will (i) act as the exclusive manager and administrator of non-physician
services relating to the operation of the Regional Group Practices, subject to
matters for which the Regional Group Practices maintain responsibility or which
are referred to the board of managers of the Regional Group Practices, (ii) bill
patients, insurance companies and other third party payors and collect, on
behalf of the Regional Group Practices, the fees for professional medical and
other services rendered, including goods and supplies sold by the Regional Group
Practices, (iii) provide or arrange for, as necessary, clerical, accounting,
purchasing, payroll, legal, bookkeeping and computer services and personnel,
information management, preparation of certain tax returns, printing, postage
and duplication services and medical transcribing services, (iv) maintain
custody of substantially all files and records relating to the operation of the
Regional Group Practices and supervise preparation of patient medical records
(medical records of the Regional Group Practices are confidential and remain the
property of the Regional Group Practices), (v) provide and maintain facilities
for the Regional Group Practices, and provide the Regional Group Practices with
the use of equipment, furniture, fixtures, furnishings and other personal
property, (vi) prepare, in consultation with the Joint Planning Committee and
the Regional Group Practices, all annual and capital operating budgets, (vii)
order and purchase inventory and supplies as reasonably requested by the
Regional Group Practices, (viii) implement, in consultation with the Joint
Planning Committee and the Regional Group Practices, national and local public
relations or advertising programs, (ix) employ or otherwise retain all necessary
management, administrative, clerical, secretarial, bookkeeping, accounting,
payroll, billing and collections, and other personnel, (x) provide financial and
business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other similar
providers and payors, (xi) assist each Regional Group Practice in fulfilling its
obligations to its patients to maintain a high quality of medical and
professional services, and (xii) provide such consulting and other advisory
services as requested by each Regional Group Practice in all areas of the
respective Regional Group Practice's business functions, including, without
limitation, financial planning, acquisition and expansion strategies,
development of long-term business objectives and other related matters. The
Company expects that most employees of the Affiliated Practices will be retained
after the consummation of this Offering.
Under the Management Agreements, the Regional Group Practices will retain
the responsibility for, among other things, (i) hiring, compensating,
supervising, training, evaluating and terminating its physician employees and
certain other medical professionals, (ii) ensuring that physicians have the
required licenses, credentials, approvals and other certifications needed to
perform their duties, (iii) complying with certain federal and state laws and
regulations applicable to the practice of medicine and (iv) matters involving
its corporate governance, employees and similar internal matters, including but
not limited to preparation and the contents of reports to regulatory authorities
and distribution of professional fee income. In addition, the Regional Group
Practices will maintain exclusive control of all aspects of the practice of
medicine and the delivery of medical services.
The Management Agreement provides for the establishment of a Joint Planning
Committee which will consist of three members designated by the Company and
three members designated by the respective
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Regional Group Practice. The Joint Planning Committee will be responsible for
developing long-term strategic planning objectives and management policies for
the overall operation of each Regional Group Practice and will have the
authority to (i) develop and assist each Regional Group Practice in implementing
both long-term strategic objectives and short-term operating plans, (ii) prepare
proposals and make recommendations to the Board of Directors of AMP regarding
significant capital expenditures, contractual arrangements, capital improvement
and expansion projects on behalf of each Regional Group Practice, (iii) with
assistance of the Company, prepare the annual capital and operating budgets of
each Regional Group Practice, (iv) consider and make recommendations regarding
grievances pertaining to matters not specifically addressed in the Management
Ageeement if such matters are referred to it by each Regional Group Practice or
the Company, (v) make recommendations to each Regional Group Practice regarding
the performance, number and type of physicians required for the efficient
operation of each Regional Group Practice, and (vi) make decisions and
recommendations regarding the business plan of each Regional Group Practice.
Management fees will be paid monthly to the Company by each Regional Group
Practice based upon the Regional Group Practice's adjusted patient revenues (the
Regional Group Practice's billings less contractual adjustments, including
adjustments for special third-party payor and private pay arrangements, and
adjustments for bad debts). The Company will be responsible for collecting the
billings of the Regional Group Practices. The Company will retain a service fee
ranging from 9% to 25% (with an initial average of approximately 18%) of the
Regional Group Practice adjusted patient revenues and an amount equal to the
expenses of the Regional Group Practice incurred by AMP pursuant to the
Management Agreements. The service fee may be adjusted (without a floor or
ceiling on the adjustment) by the Joint Planning Committee of the Regional Group
Practice (composed of Company and Affiliated Practice representatives) upon the
request of either party to the Management Agreement in order to reflect the fair
value of the management services provided, based upon the nature and volume of
services required, the risks assumed by the Company and the total revenues of
the Regional Group Practice. The amount of the management service fees paid by
the Regional Group Practices to AMP will be directly affected by the amount of
patient revenue generated by each Regional Group Practice.
The Company will also generally be entitled to a fee of approximately 70%
of the adjusted ancillary revenues, net of related ancillary expenses, of each
Regional Group Practice. Ancillary revenues will be generated from services
provided by the Regional Practice Group to its patients that are ancillary to
DPM podiatric care (such as orthopedics, ambulatory care, physical therapy and
the like). In connection with the AnestheCare Acquisition, the Company will
retain the existing financial and fee arrangements of AnestheCare with its
clients (other than the Regional Group Practices). After the AnestheCare
Acquisition, services provided by AnestheCare to the Regional Group Practices
will be delivered on a discounted basis, and AMP will receive a fee of
approximately 70% of AnestheCare's adjusted ancillary revenues net of related
ancillary expenses.
The Management Agreements will have initial terms of 40 years, with
automatic extensions (unless specified notice is given) of additional ten-year
terms. The Management Agreements may be terminated by either party if the other
party (i) files a petition in bankruptcy or other similar events occur or (ii)
defaults on the performance of a material duty or obligation, which default
continues for a specified term after notice, and, in the case of the Regional
Group Practice, has also been approved by 80% of the equity holders of the
Regional Group Practice. In addition, the Company may terminate the agreement if
the Regional Group Practice or any physician (i) engages in conduct or is
formally accused of conduct that would subject his or her license to practice
medicine to be revoked or (ii) is otherwise disciplined by any licensing,
regulatory or professional entity or institution, if the result of any event
described in clause (i) or (ii) reasonably would be expected to materially
adversely affect the Regional Group Practice.
During the term of the Management Agreement and for a period of one year
thereafter, the Regional Group Practices agree not to compete with the Company
in providing services similar to those provided by the Company or by any
Regional Group Practice anywhere generally within 20 miles of any location at
which any physician of the Regional Group Practice has practiced medicine in the
last year. Each Regional
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Group Practice also agrees that any and all confidential and proprietary
information acquired by the Regional Group Practice during the term of the
Management Agreement is the property of the Company and agrees to hold in
strictest confidence such confidential and proprietary information. In addition,
the Physician Engagement Agreement makes the Company a third party beneficiary
of the Physician Engagement Agreement including covenants not to compete with
and not to divulge confidential and properietary information of the Company and
the Regional Group Practice and liquidated damages provisions therein. The
Physician Engagement Agreements generally require the Regional Group Practices
to pursue enforcement of these provisions or to assign to the Company the right
to pursue enforcement. Furthermore, the Company may require the Group Practice
to pay liquidated damages owed by a departing physician before those damages are
collected by the Regional Group Practice.
The Regional Group Practices will be responsible for obtaining professional
liability and worker's compensation insurance for the physicians and other
medical employees of the Regional Group Practices, as well as general liability
umbrella coverage. The Company is responsible for obtaining professional
liability and worker's compensation insurance for employees of the Company and
arranging for general liability and property insurance for the Regional Group
Practices.
The Management Agreements contain indemnification provisions pursuant to
which the Company will indemnify the Regional Group Practices for damages
resulting from negligent acts or omissions by the Company and/or its
stockholders, employees and/or subcontractors (other than the Regional Group
Practice and its employees). In addition, the Regional Group Practices will
indemnify the Company for any damages resulting from any negligent act or
omissions by the Regional Group Practice and/or shareholders, employees and/or
subcontractors (other than the Company or its employees) of the Regional Group
Practices, resulting from claims arising from the performance of medical
services or other intentional or negligent acts or omissions to act. The Company
also agrees to indemnify the Regional Group Practices in connection with its
failure to perform its obligations under the Management Agreement.
PHYSICIAN ENGAGEMENT AGREEMENTS
In addition to becoming a member of a Regional Group Practice, each DPM
will enter into a Physician Engagement Agreement with that Regional Group
Practice. Pursuant to the Physician Engagement Agreements, the Regional Group
Practices will engage the DPMs to provide certain medical services to patients
at the Group Practices offices. During the term of engagement, the DPM will
practice medicine only as a participant in the Regional Group Practice, will
practice medicine on a full-time basis at the Regional Group Practice offices
and will perform such other duties as are reasonably assigned to and accepted by
the DPM including, among other things (i) providing "on duty" and "on call"
services on an equal rotating basis with other physician members of the Regional
Group Practice, (ii) keeping and maintaining on a timely basis appropriate
records relating to all professional services rendered and attending to all
billing reports, claims and correspondence required in connection with services
rendered, and (iii) complying with reasonable and necessary policies and
procedures adopted by the Regional Group Practice. In addition, the DPM will
continue to be licensed to practice medicine, will be or will become Board
certified, will participate in continuing medical education programs and
seminars, and will obtain and maintain an American Podiatric Medical Association
C.M.E. certificate, or its equivalent. The DPM will also take any action
reasonably required to obtain key man life insurance covering the DPM and naming
the Regional Group Practice and/or its management services provider as exclusive
beneficiaries.
Each Physician Engagement Agreement has an initial term of five years
(unless terminated as set forth below) and is automatically renewed for
successive two year-period unless terminated in accordance the agreement terms
(the "Term"). Termination occurs upon (i) the death of the DPM, (ii) the
disability of the DPM, or (iii) at the Regional Group Practice's option for
"cause," which term includes (a) the failure of the DPM to perform the duties
required in a reasonably satisfactory manner, (b) material dishonesty, fraud or
gross negligence by the DPM, (c) the conviction of the DPM of a felony or other
crime involving moral turpitude, (d) violation of the non-competition or
non-disclosure provisions of the Physician Engagement Agreement, (e) unlawful
use or other misuse of drugs or alcohol by the DPM, (f) failure by the DPM to
maintain DPM's license to practice, (g) failure to obtain and/or maintain Board
certification in podiatric
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medicine by an acceptable certifying organization within two years, or (h) the
termination, cancellation or revocation of the medical malpractice insurance due
to an act or omission by the DPM.
For a period beginning at the beginning of the Term and ending one year
after the end of the Term, the DPM may not, without consent of the Regional
Group Practice own an entity engaged in a business the same as or substantially
similar to the business of a Regional Group Practice or in a business that
competes in any manner with the business of the Regional Group Practice and that
is generally located or intended to be located within a radius of 20 miles of
the offices of the Regional Group Practice at which the DPM has practiced
podiatry in the last year. In addition, the DPM may not, during the same period,
disclose or use any confidential material relating to any aspect of the business
of the Regional Group Practice or any information regarding business methods,
policies, procedures, techniques or trade secrets of the Regional Group
Practice, its affiliates or entities in which the Regional Group Practices have
an interest. The DPM may not act for any person or entity which employs or
contracts with any person or entity employed by or an agent or consultant to the
Regional Group Practice. Finally, in the event that the DPM terminates the
Physician Engagement Agreement, the DPM must pay liquidated damages in an amount
approximately equal to the twelve months of the Affiliated Practice expenses
attributable to the DPM and agreed to by the Company at the time the Purchase
Agreement was executed.
In addition, the Company has agreed to make available to each DPM owner, a
loan in an amount equal to the difference between 90% of the prior year's level
of distributions and the current period's level of distributions from the
practice for the first three months and the difference between 80% of the prior
year's level of distribution and the current period's level of distribution for
the second three months following the Offering. The loan, if drawn, is repayable
over two years and bears a market rate of interest.
COMPETITION
The Company competes with many other entities to affiliate with podiatric
practices. Several companies that have established operating histories and
greater resources than the Company are pursuing the acquisition of the assets of
general and specialty practices and the management of such practices. Physician
practice management companies and some hospitals, clinics and HMOs engage in
activities similar to the activities of the Company. There can be no assurance
that the Company will be able to compete effectively with these competitors,
that additional competitors will not enter the market or that this competition
will not make it more difficult to affiliate with, and to enter into agreements
to provide management services to, practices on terms beneficial to the Company.
Regional Group Practices will compete with other local podiatric care
service providers, as well as some managed care organizations. The Company
believes that changes in government and private reimbursement policies and other
factors have resulted in increased competition for consumers of medical
services. The Company believes that the cost, accessibility and quality of
services provided are the principal factors that affect competition. There can
be no assurance that the Regional Group Practices will be able to compete
effectively in the markets that they serve. The inability of the Regional Group
Practices to compete effectively would materially adversely affect the Company.
Further, the Regional Group Practices compete with other providers for
managed care podiatric care contracts. The Company believes that trends toward
managed care have resulted in increased competition for these contracts. Other
practices and management service organizations may have more experience than the
Regional Group Practices and the Company in obtaining these contracts. There can
be no assurance that the Company or the Regional Group Practices will be able to
successfully acquire sufficient managed care contracts to compete effectively in
the markets they serve. The inability of the Regional Group Practices to compete
effectively for these contracts could materially adversely affect the Company.
GOVERNMENT REGULATION
The delivery of health care services has become one of the most highly
regulated of professional and business endeavors in the United States. Both the
federal government and the individual state governments are responsible for
overseeing the activities of individuals and businesses engaged in the delivery
of health
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care services. Federal law and regulations are based primarily upon the Medicare
program and the Medicaid program, each of which is financed, at least in part,
with federal funds. State jurisdiction is based upon the state's interest in
regulating the quality of health care in the state, regardless of the source of
payment.
The Company believes its operations will be in material compliance with
applicable laws; however, the Company has not received or applied for a ruling
from any federal or state judicial or regulatory authority to this effect, and
many aspects of the Company's business operations have not been the subject of
state or federal regulatory interpretation.
FEDERAL LAW
The federal health care laws apply in any case in which a Regional Group
Practice is providing an item or service that is reimbursable under Medicare or
Medicaid or other federal health care programs or in which the Company is
claiming reimbursement from Medicare, Medicaid other federal health care
programs or, in some instances, other third party payors on behalf of physicians
with whom the Company has a Management Agreement. The principal federal laws
include those that prohibit the filing of false or improper claims, those that
prohibit unlawful inducements for the referral of business reimbursable under
Medicare or Medicaid or other federal healthcare programs and those that
prohibit the provision of certain services by (a) a provider to a patient if the
patient was referred by a physician with which the provider has certain types of
financial relationships or (b) a provider who is excluded from Medicare,
Medicaid or other federal health care programs.
FALSE AND OTHER IMPROPER CLAIMS. The federal government is authorized to
impose criminal, civil and administrative penalties and/or exclusions on any
health care provider and its officers, directors, and in certain limited
circumstances, its owners that files a false claim or a pattern of claims based
on a code that the provider has reason to know will result in greater payments
than appropriate, claims for items or services not medically necessary, or for
the offer, solicitation, payment or receipt of anything of value (direct or
indirect, overt or covert, in cash or in kind), that is intended to induce the
referral of federal health care program patients or the ordering of items or
services reimbursable under those programs or the recommendation of, or the
arranging for, the provision of items or services reimbursable under Medicare
and Medicaid. Civil monetary penalties can also be imposed if a person
"arranges or contracts" with a person excluded from a federally funded health
care program, if they knew or should have known such person was excluded for
reimbursement from Medicare or Medicaid. Criminal penalties are also available
in the case of claims filed with private insurers if the government can show
that the claims constitute mail fraud, wire fraud, health care fraud, theft, or
embezzlement in connection with health care or false statements relating to
healthcare matters. While the criminal statutes are generally reserved for
instances evincing an obviously fraudulent intent, the criminal and
administrative penalty statutes are being applied by the government in an
increasingly broad range of circumstances. The government has taken the
position, for example, that a pattern of claiming reimbursement for unnecessary
services violates these statutes if the claimant should have known that the
services were unnecessary. The government has also taken the position that
claiming reimbursement for services that are substandard is a violation of these
statutes if the claimant should have known that the care was substandard. The
government, in cases of suspected fraud, can freeze the assets of a health care
provider and in the case of a federal health care offense can order the
forfeiture of assets that constitute or are derived from proceeds traceable to
the offense.
The Company believes that its billing activities on behalf of the Regional
Group Practices will be in material compliance with these laws, but there can be
no assurance that the Company's activities will not be challenged or scrutinized
by government authorities. A determination that the Company had violated these
laws could have a material adverse effect on the Company.
ANTI-KICKBACK LAW. A federal law commonly known as the "Anti-Kickback
Law" prohibits the offer, solicitation, payment or receipt of anything of value
(direct or indirect, overt or covert, in cash or in kind), that is intended to
induce the referral of federal health care program patients or the ordering of
items or services reimbursable under those programs. The law also prohibits
remuneration that is intended to induce the recommendation of, or the arranging
for, the provision of items or services reimbursable under
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Medicare and Medicaid. The law has been broadly interpreted by a number of
courts to prohibit remuneration that is offered or paid for otherwise legitimate
purposes if the circumstances show that one purpose of the arrangement is to
induce referrals. Even bona fide investment interests in a health care provider
may be questioned under the Anti-Kickback Law if the government concludes that
the opportunity to invest was offered as an inducement for referrals. The
penalties for violations of this law include criminal sanctions and exclusion
from the federal health care program.
In part to address concerns regarding the implementation of the
Anti-Kickback Law, the federal government in 1991 published regulations that
provide exceptions or "safe harbors" for certain transactions that will not be
deemed to violate the Anti-Kickback Law. Among the safe harbors included in the
regulations were provisions relating to the sale of physician practices,
management and personal services agreements and employee relationships.
Subsequently, regulations were published offering safe harbor protection to
additional activities, including referrals within group practices consisting of
active investors. Proposed amendments clarifying the existing safe harbor
regulations were published in 1994. If any of the proposed regulations are
ultimately adopted, they would result in substantive changes to existing
regulations. The failure of an activity to qualify under a safe harbor
provision, while potentially leading to greater regulatory scrutiny, does not
render the activity illegal.
There are several aspects of the Company's relationships with physicians to
which the Anti-Kickback Law may be relevant. In some instances, for example, the
government may construe some of the marketing and managed care contracting
activities of the Company as arranging for the referral of patients to the
physicians with whom the Company has a Management Agreement.
Although neither the investments in the Company by physicians nor the
Management Agreements between the Company and the Regional Group Practices
qualify for protection under the safe harbor regulations, the Company does not
believe that these activities fall within the type of activities the Anti-
Kickback Law was intended to prohibit. A determination that the Company had
violated the Anti-Kickback Law would have a material adverse effect on the
Company.
The Civil Monetary Penalties law also prohibits offering remuneration
prohibited under the anti-kickback laws and offering remuneration to an
individual eligible for Medicare or Medicaid benefits to induce that person to
order or receive any reimbursable item or service from a particular person.
Violations of the Civil Monetary Penalties law can result in the imposition of
significant civil penalties.
STARK SELF-REFERRAL LAW. The Stark Self-Referral Law (the "Stark Law")
prohibits a physician from referring a patient to a health care provider for
certain designated health services reimbursable by Medicare or Medicaid if the
physician has a financial relationship with that provider, including an
investment interest, a loan or debt relationship or a compensation relationship.
In addition to the conduct directly prohibited by the law, the statute also
prohibits schemes that are designed to obtain referrals indirectly that cannot
be made directly. The penalties for violating the law include (i) a refund of
any Medicare or Medicaid payments for services that resulted from an unlawful
referral, (ii) civil fines, and (iii) exclusion from the Medicare and Medicaid
programs.
The Company does not currently provide any designated health service under
the Stark Law. However, because the Company will provide management services
related to those designated health services provided by physicians affiliated
with the Regional Group Practices, there can be no assurance that the Company
will not be deemed the provider for those services for purposes of the Stark Law
and, accordingly, the recipient of referrals from physicians affiliated with the
Regional Group Practices. In that event, such referrals will be permissible only
if (i) the financial arrangements under the Management Agreements with the
Regional Group Practices meet certain exceptions in the Stark Law and (ii) the
ownership of stock in the Company by the referring physicians meets certain
investment exceptions under the Stark Law. The Company believes that the
financial arrangements under the Management Agreements qualify for applicable
exceptions under the Stark Law. However, there can be no assurance that a review
by courts or regulatory authorities would not result in a contrary
determination. In addition, the Company will not meet the Stark Law exception
related to investment interest until the Company's stockholders' equity exceeds
$75 million.
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STATE LAW
STATE ANTI-KICKBACK LAWS. Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Based on court and administrative
interpretation of federal anti-kickback laws, the Company believes that these
laws prohibit payments to referral sources where a purpose for payment is for
the referral. However, the laws in most states regarding kickbacks have been
subjected to limited judicial and regulatory interpretation. Therefore, no
assurances can be given that the Company's activities will be found to be in
compliance. Noncompliance with these laws could have an adverse effect upon the
Company and subject it and physicians affiliated with the Regional Group
Practices to penalties and sanctions.
STATE SELF-REFERRAL LAWS. A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions. Some states, for example, only prohibit referrals when the
physician's financial relationship with a health care provider is based upon an
investment interest. Other state laws apply only to a limited number of
designated health services. Some states do not prohibit referrals but require
only that a patient be informed of the financial relationship before the
referral is made. The Company believes that its operations are in material
compliance with the self-referral law of the states in which the Regional Group
Practices are located.
FEE-SPLITTING LAWS. Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any splitting of a physician's fees, regardless of
whether the other party is a referral source. In most states, it is not
considered to be fee-splitting when the payment made by the physician is
reasonable reimbursement for services rendered on the physician's behalf.
The Company will be reimbursed by physicians on whose behalf the Company
provides management services. The compensation provisions of the Management
Agreements have been designed to comply with applicable state laws relating to
fee-splitting. There can be no certainty, however, that if challenged, the
Company and its Regional Group Practices will be found to be in compliance with
each state's fee-splitting laws. A determination in any state that the Company
is engaged in any unlawful fee-splitting arrangement could render any service
Management Agreement between the Company and a Regional Group Practice located
in such state unenforceable or subject to modification in a manner adverse to
the Company.
CORPORATE PRACTICE OF MEDICINE. Most states prohibit corporations from
engaging in the practice of medicine. Many of these state doctrines prohibit a
business corporation from employing a physician. States differ, however, with
respect to the extent to which a licensed physician can affiliate with corporate
entities for the delivery of medical services. Some states interpret the
"practice of medicine" broadly to include activities of corporations such as
the Company that can have an indirect impact on the practice of medicine, even
where the physician rendering the medical services is not an employee of the
corporation and the corporation exercises no discretion with respect to the
diagnosis or treatment of a particular patient.
INSURANCE LAWS. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, there can
be no assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations.
EMPLOYEES AND AFFILIATED PERSONS
Upon the consummation of the Offering, the Company expects to employ about
175 staff personnel of the initial Affiliated Practices and 25 people at the
corporate headquarters in Houston, Texas. AMP intends to provide benefits, to
include health, life, disability and 401(k) components, to the employees of the
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Regional Group Practices and to make available, at the Regional Group Practices'
own expense, to the approximately 66 DPMs similar benefits. The Company intends
to outsource the personnel administration function as well as the benefits
component to a Professional Employer Organization and is currently in the
process of evaluating and selecting a provider. The Company feels this will
enable it to more efficiently manage human resource risks, implement the
management of a geographically diversified workforce more quickly, offer a more
comprehensive benefits packages, and realize overall cost efficiencies. As the
Company grows, it will continually reevaluate this decision, and may eventually
decide to hire additional employees to perform these functions. The Company
believes that its relationship with its employees is good. None of the Company's
employees have entered into a collective bargaining agreement.
LEGAL PROCEEDINGS AND INSURANCE
The Company is not party to any litigation. However, if the Regional Group
Practices become subject to litigation involving medical malpractice or any
other claims, the Company may become involved. The Company has acquired medical
malpractice insurance that will be effective upon consummation of the Offering.
See "Risk Factors -- Liability and Insurance Risks Associated with Podiatry
Practices." In addition, in connection with the purchase of the stock of
certain Affiliated Practices, the Company will assume certain liabilities of
such practices.
PROPERTIES
The Company leases approximately 7,544 square feet of office space at its
headquarters in Houston, Texas. In addition, in connection with the
Transactions, the Company will enter into leases for the facilities utilized by
the initial Affiliated Practices and AnestheCare, and will purchase certain real
estate from Dr. Kramer in Decatur, Georgia, as part of the Kramer Transfer.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The authorized number of directors on the Company's Board will be seven.
Immediately prior to the closing of the Offering, the Board will be divided into
three classes, as nearly equal in number as possible, with the initial term of
office of Class I directors to expire at the first annual meeting of
stockholders, the initial term of office of Class II directors to expire at the
second annual meeting of stockholders and the initial term of office of Class
III directors to expire at the third annual meeting of stockholders, each class
of directors to hold office until their successors have been duly elected and
qualified. The Class III Directors will be Mr. McCrary, Mr. Bertsch and Dr.
Kalish. The Class II Directors will be Dr. Hartley and Mr. Bace. The Class I
Directors will be Dr. Huge and another DPM to be elected by the holders of Class
B Common Stock.
The table below sets forth information with respect to those individuals
who are currently expected to serve as directors and executive officers of the
Company immediately following the Closing.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C>
Jack N. McCrary......................... 60 Chairman of the Board of Directors, President and Chief
Executive Officer
Wayne A. Bertsch........................ 55 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Randy E. Johnson........................ 42 Senior Vice President -- Regional Operations Officer
Kenneth Arrowood........................ 58 Vice President -- Development
Roger Bigham............................ 45 Vice President of the Company and Chief Operating Officer of
AnestheCare
Joseph D. Grau.......................... 42 Vice President -- Regional Operations Officer
David LaGuardia......................... 37 Vice President -- Ancillary Support Services
Cecil R. Pickens........................ 33 Vice President and Chief Accounting Officer
John S. Bace, CFA....................... 65 Director
Dr. S.F. "Charley" Hartley, D.P.M.,
F.A.C.F.S............................. 53 Director
Dr. Donald S. Huge, M.D................. 67 Director
Dr. Stanley R. Kalish, D.P.M.,
F.A.C.F.S............................. 51 Director and Chairman, Medical Policy Board
</TABLE>
JACK N. MCCRARY has been Chairman, President and Chief Executive Officer of
the Company since March 1996 and is a founder and organizer of the Company. Mr.
McCrary has been active in the executive management of entities involved in the
U.S. health care industry since 1970. Most recently, beginning in April 1984 he
co-founded five Houston, Texas medical facilities and has served as Vice
Chairman of Doctors Hospital Airline since April 1984, Vice Chairman and
President of Doctors Hospital East Loop since February 1987, Vice Chairman and
President of Kingwood Plaza Hospital since May 1990, Vice Chairman and President
of Plaza Rehabilitation Hospital at Kingwood since July 1991 and Vice Chairman
and President of Kingwood Medical Plaza since May 1990. Since 1995, these
organizations have been in the process of winding down/selling their operations
to Columbia/HCA. Prior to this, Mr. McCrary was with Lifemark Corporation as its
Chief Financial Officer, which included corporate development responsibilities.
During his years at Lifemark, Mr. McCrary served in the capacities of Director,
Member of the Executive Committee, Member of the Finance Committee and President
of two of Lifemark's operating subsidiaries. Mr. McCrary has also been
responsible for developing 13 lithotripter centers, while serving as the
founding President of URO-Tech Corporation and has served as President of
Medi-Magnetics, Inc., a medical device company. Mr. McCrary also has served as
the Chairman of the Board of Trustees of the Texas A&M Research Foundation since
November 1989. Mr. McCrary received a B.S. in Mechanical Engineering from Texas
A&M University in 1959 and an M.B.A. from Harvard Graduate School of Business
Administration in 1965 and completed the Executive Advanced Management Program
at the University of Texas in 1968.
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WAYNE A. BERTSCH has been Senior Vice President, Chief Financial Officer
and Treasurer since October 1997. Mr. Bertsch was previously Vice
President -- Regional Operations Officer of the Company from August 1996 to
August 1997. From September 1995 to August 1996, Mr. Bertsch served as Business
Manager of Hermann Hospital Home Health, an agency based in a large,
not-for-profit, university-affiliated medical center. Mr. Bertsch was associated
with Medical Innovations, Inc. as a Director of its Hospital Home Care Division
from January 1993 to August 1995. He also served as Vice President-Finance for
Preferred Homecare, Inc. and a related entity, Preferred Pharmacy, Inc., from
April 1991 to December 1992. Mr. Bertsch has been active in the U.S. health care
industry in various capacities since 1970, including 14 years with Lifemark
Corporation where he had increasing roles of responsibility in the financial and
operational performance of Lifemark. He has been responsible for cash management
billing and collection of professional and management fees, and audited
financial and operational reporting, for partnerships and corporations. Mr.
Bertsch received a B.A. in Economics and Business Administration in 1965, a B.S.
in Accounting in 1966 from Rice University and is a Certified Public Accountant.
RANDY E. JOHNSON has been Senior Vice President-Regional Operations Officer
for the Regional Group Practices of Atlanta, Houston, Miami and South Texas
since October 1997 and was Vice President -- Regional Operations Officer of AMP
from August 1996 to August 1997. From February 1991 to August 1996, Mr. Johnson
held various senior operating management positions with Mid-America Health Care
Group and some of its affiliated hospital organizations, including serving as
the organizing and founding Administrator at Kingwood Plaza Rehabilitation
Hospital. He has held various senior management positions over entities involved
in the U.S. health care market since September 1979. Mr. Johnson received an
B.B.A. in Finance from the University of Texas in 1979 and an M.S. in Health
Service Administration from the University of Houston at Clear Lake in 1981.
KENNETH R. ARROWOOD joined the Company as Vice President-Development on
September 9, 1997. Prior to that he had been a consultant for the Company since
April 1997. Before joining the Company, Mr. Arrowood served for two years as the
Chief Executive Officer & Founder of Management Service Organization, Inc., a
physician practice management company. Prior to Management Services
Organization, Inc., Mr. Arrowood has served as the Chief Executive Officer &
Founder of Provider Management Services, Inc., an orthopedic, imaging and
physical therapy practice management company since 1989. Prior to 1989, Mr.
Arrowood served as the Chief Executive Officer & Founder for The Gains Group,
Inc., a physician recruiting and turn-key medical practice installation
consultant for hospitals from 1988 to 1989, and as Chief Executive Officer &
Founder for the Allenwood Group, Inc., a national executive recruitment and
Human Resource consulting firm from 1979 to 1986.
ROGER BIGHAM will serve as the Company's Vice President and as the Chief
Operating Officer of AnestheCare, Inc., which will become a wholly-owned
subsidiary of the Company upon its acquisition by the Company in connection with
the Offering. Mr. Bigham has been the President and CEO of Pyramid
Anesthesiology Group, Inc. and AnestheCare (collectively "AnestheCare") since
1984. In addition to serving as a certified registered nurse anesthetist, Mr.
Bigham has served as a clinical instructor at Mission Memorial Hospital from
1977-1982, and as a head of the Anesthetist Department for Humana Hospitals from
1984-1987. Mr. Bigham earned his Registered Nurse Associate Degree from Pima
College in Tucson, Arizona and in 1982 his B.S. in Nurse Anesthesiology at
Warren Wilson College in Swannanoa, North Carolina. Mr. Bigham is an active
member in the Anesthesia Administrators Assembly, the Ambulatory Surgery
Society, the Financial Management Society, the Healthcare Financial Management
Association, the American College of Healthcare Executives, and the American
Association of Nurse Anesthetists.
JOSEPH D. GRAU has served as the Vice President -- Regional Operations
Officer for the Regional Group Practices of North Texas, St. Louis, and Maryland
since October 1997. From February 1994 to the time of his joining the Company,
Mr. Grau was President, Southwest Region for Physician Management Group, Inc.
("Physician Management"). At Physician Management, Mr. Grau was responsible
for analyzing, evaluating, and providing creative solutions in connection with
this provision of practice management consultative services to numerous medical
practices. From March 1989 to January 1994, Mr. Grau served as Vice President of
Nix Healthcare System, a multi-facility hospital management company. From April
1987
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to February 1989, Mr. Grau served as the Administrator of Willis-Knighton South
Hospital, prior to which Mr. Grau served from July 1985 to March 1987 as the
Executive Director of Riverside Community Hospital and Byrd Memorial Hospital
both hospitals being owned by American Medical International, Inc. From March
1984 to July 1985, Mr. Grau was the Administrator of Littlefield Medical Center.
Mr. Grau has been involved in healthcare since 1978. Mr. Grau received his B.A.
in accounting in 1976 and his M.B.A. in 1979, both from Auburn University.
DAVID LAGUARDIA will join the Company upon the Offering as its Vice
President--Ancillary Support Services. In 1984, Mr. LaGuardia co-founded
AnestheCare, and has served as its Vice President and Chief Financial Officer
since its inception. In 1987, Mr. LaGuardia co-formed Professional Therapy
Service Incorporated, now Georgia Rehabilitation Corporation, Inc. and has
served as its President and Chairman since then. Mr. LaGuardia is a board
certified registered nurse anesthetist, having received his nurse anesthetist
certificate from Montgomery School of Anesthesia in Philadelphia in 1980 and his
board certification in 1983.
CECIL R. PICKENS has been the Company's Vice President and Chief Accounting
Officer since October 1997. From November 1995 to February 1997, Mr. Pickens
served as the Corporate Controller for American Ophthalmic, Inc., a physician
practice management company specializing in ophthalmology. Mr. Pickens'
responsibilities at American Ophthalmic included internal and external financial
reporting, budgeting and analysis, and the establishment of accounting policies
and procedures. Prior to American Ophthalmic, from May 1992 to October 1995, Mr.
Pickens was with OccuSystems, Inc., a physician practice management company,
specializing in occupational medicine, where he held the positions of Director
of Managed Care Information and Corporate Controller. From July 1986 to February
1992, Mr. Pickens was employed by KPMG Peat Marwick in various accounting
capacities resulting in his becoming an Audit Manager in 1991. Mr. Pickens
graduated from the University of Texas at Austin with a B.B.A. in accounting in
May 1986 and is a Certified Public Accountant.
JOHN S. BACE, CFA, has agreed to serve as a Director of the Company upon
consummation of the Offering. Mr. Bace has been a private investor since October
1994 and currently serves in the capacity of Chairman or Trustee of several
charitable trusts and foundations. Since 1994, Mr. Bace has taught at the
University of Texas Graduate School of Business. From 1976 until October 1994,
Mr. Bace served as Executive Vice President, Principal, and Director of Eagle
Management and Trust Company, an investment management firm with assets in
excess of $1 billion. Mr. Bace received his Masters of Business Administration
in 1959 from the University of Texas where he has for the last three years
served as Investment Counselor to the MBA Investment Fund, University of Texas
in Austin. Mr. Bace has been a member of the Association of Investment
Management and Research since 1970, and since 1974 has been a member of the
Institute of Chartered Financial Analysts.
DR. S.F. "CHARLEY" HARTLEY, D.P.M., F.A.C.F.S. has agreed to become a
Director of the Company upon consummation of the Offering and has been a
practicing podiatrist in S.F. Hartley, D.P.M., P.C. since 1979. Dr. Hartley has
been a member of the Harris County Podiatry Association since 1979, having
served as its President in 1983-1984, has been a member of the Texas Podiatry
Medical Association since 1979, having served as its President in 1992-1993, has
been a member of the American Podiatry Medical Association since 1979, has
served as a Delegate of the American Podiatry Medical Association House of
Delegates since 1993 and, since 1987, has been a member of the Academy of
Podiatric Sports Medicine. Dr. Hartley graduated from the University of Houston
with a B.S. in Biology and from the Illinois College of Podiatric Medicine with
a Doctor of Podiatric Medicine. Dr. Hartley is Board Certified by the American
Board of Podiatric Surgery.
DR. DONALD S. HUGE, M.D. has agreed to serve on the Board of Directors of
AMP upon consummation of the Offering. Dr. Huge has served as the National
Medical Director and Vice President of Chapman Schewe, Inc., a benefit
consulting firm since March 1997. From July 1995 to February 1997, he served as
the Medical Director for HMO Texas, where he was responsible for medical
management, utilization, concurrent review and case management, quality
assurance and quality improvement. Dr. Huge served as Senior Medical Director
for Sanus/NYL Care from June 1993 to June 1995, and from March 1992 to May
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1995 he worked with MetLife/United where he served as both Network Director and
Medical Director. Prior to assuming his various medical directorship positions,
Dr. Huge was a practicing physician for 23 years. Dr. Huge has been a member of
the American College of Medical Quality since 1992 and served as its President
from 1994 to 1996. Dr. Huge has served on the Board of Trustees of Park Plaza
Hospital, and the Visiting Nurses Association, and has served on the utilization
committees of Park Plaza Hospital, Hermann Hospital and Diagnostic Center
Hospital. Dr. Huge received his B.A. degree in 1953 from Southern Methodist
University, Dallas, Texas, and his Medical Degree from Baylor College of
Medicine, Houston, Texas, in 1957.
DR. STANLEY R. KALISH, D.P.M., F.A.C.F.S. has agreed to become a Director
of the Company and the Chairman of the Medical Policy Board upon consummation of
the Offering. Dr. Kalish has been a practicing podiatrist in Atlanta Foot & Leg
Clinic, P.A. since 1974, is an accomplished author and lecturer and has designed
several surgical instruments. Dr. Kalish has been an active member and Diplomat
of the American Board of Podiatric Surgery since 1976, has been a Fellow of the
American College of Foot Surgery (F.A.C.F.S.) since 1976, has been a member of
the American College of Podiatrics and since 1980 has been a Fellow of the
American College of Podiatric Dermatology. Dr. Kalish graduated in 1967 with a
B.A. in Biology from Adelphi University and received his Doctor of Podiatric
Medicine in 1971 from the New York College of Podiatric Medicine.
MEDICAL POLICY BOARD
Concurrently with the Offering, the Company will create a Medical Policy
Board to identify and communicate the best medical practices and protocol. The
initial Medical Policy Board will consist of the following three members:
NAME AGE POSITION
- ---------------------------------------- --- ---------------
Dr. Stanley R. Kalish, D.P.M.,
F.A.C.F.S............................. 51 Chairman
Dr. Lawrence B. Harkless, D.P.M......... 46 Vice Chairman
Dr. Bernard J. Hersh, D.P.M............. 62 Vice Chairman
Dr. Robert G. Frykberg, D.P.M.,
M.P.H................................. 46 Vice Chairman
DR. STANLEY R. KALISH, D.P.M., F.A.C.F.S. See "Management -- Directors and
Executive Officers."
DR. LAWRENCE B. HARKLESS, D.P.M. will serve as a Vice Chairman on the
Medical Policy Board upon consummation of the Offering. Since September 1993,
Dr. Harkless has been a Professor in the Department of Orthopaedics and a
Director of the Podiatry Residency Training Program (the "UT Program") at the
University of Texas Health Science Center at San Antonio. From September 1987
until September 1993 he was a Clinical Professor and Director of the UT Program.
Dr. Harkless received his B.S. from California College of Podiatric Medicine in
San Francisco, California in 1973 and his D.P.M. from the same institution in
1975.
DR. BERNARD J. HERSH, D.P.M. has agreed to serve as a Vice Chairman of the
Medical Policy Board upon consummation of the Offering. Dr. Hersh was National
President of the American Association of Hospital Podiatrists and has been
involved in the American Academy of Podiatric Sports Medicine and the Texas
Podiatric Medical Association, among other professional associations. Since
1959, Dr. Hersh has been in private practice in Bernard J. Hersh, D.P.M., a sole
proprietorship. Dr. Hersh received his D.P.M. in 1959 from Temple University
College of Podiatric Medicine.
DR. ROBERT G. FRYKBERG, D.P.M., M.P.H. will serve as a Vice Chairman of the
Medical Policy Board upon consummation of the Offering. Since 1978, Dr. Frykberg
has been in private practice at Boston Foot Care Group. Since 1996, he has been
a Clinical Instructor in Surgery at Harvard Medical School. Dr. Frykberg
received his B.S. in Zoology from the University of Rhode Island in 1973, his
D.P.M. from the California College of Podiatric Medicine in 1976 and his M.P.H.
from Harvard University in 1994.
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BOARD OF DIRECTORS, MEDICAL POLICY BOARD AND COMMITTEES
DIRECTOR COMPENSATION
Following the closing of the Offering, it is anticipated that non-employee
directors of the Company will receive a fee of $2,000 for each meeting of the
Board attended in person and $500 for each Board meeting attended
telephonically. For each committee meeting not held in conjunction with a Board
meeting, each non-employee director will receive a fee of $1,000 for each such
meeting attended in person. All directors will be reimbursed for expenses
incurred in the performance of their duties. Each non-employee director will
receive a non-qualified option to purchase shares of Common Stock
exercisable at the Offering price, upon being elected a director.
MEDICAL POLICY BOARD
Following the closing of the Offering, it is anticipated that those serving
in the capacity of Chairman or Vice Chairman of the Medical Policy Board will
receive a fee of $2,000 for each Medical Policy Board meeting attended in person
and $500 for each Medical Policy Board meeting attended telephonically. All
members of the Medical Policy Board will be reimbursed for expenses incurred in
the performance of their duties. Each member of the Medical Policy Board will
receive a non-qualified option to purchase shares of Common Stock
exercisable at the Offering price, upon joining the Medical Policy Board.
EXECUTIVE COMMITTEE
Under the Company's Articles and Bylaws, the Board may by resolution
appoint from its membership, annually, an executive committee of two or more
directors, which shall include the Chief Executive Officer and the Chief
Financial Officer of the Company. The Board may designate in such resolution one
or more directors as alternate members of the Executive Committee, who may
replace any absent or disqualified member at any meeting of the committee. The
Executive Committee, during the intervals between meetings of the Board, will
have authority and power to act on behalf of the Board as provided in the
Bylaws. After the Offering, the initial members of the Executive Committee are
expected to be Messrs. McCrary and Bertsch.
OTHER COMMITTEES
The Board may, by resolution adopted by a majority of the authorized number
of directors, designate one or more other committees, each consisting of two or
more directors, to serve at the pleasure of the Board. The Board may designate
one or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. Any such committee shall have
authority to act in the manner and to the extent provided in the resolution of
the Board and may have all the authority of the Board, except with respect to
the limitations as set forth in the Bylaws.
Following the Closing, the Board is expected to have the following
committees, in addition to the Executive Committee, and the following respective
initial members (i) the Audit Committee (Mr. Bace and Dr. Huge), (ii) the
Finance and Strategic Planning Committee (Messrs. McCrary, Bertsch and one
Independent Director) and (iii) the Compensation Committee (Mr. McCrary, Mr.
Bace and Dr. Huge).
EXECUTIVE COMPENSATION
AMP has not conducted and will not conduct on-going non-developmental
business activities until the initial Affiliated Practice affiliations and the
Offering are complete. Until the Offering, AFC has paid the salaries of persons
who are executive officers and employees of AMP. Prior to the Offering, Jack N.
McCrary, Chairman, Chief Executive Officer and President of AMP, accrued salary
of $150,000 for the fiscal year ended December 31, 1996. Such salary was
incurred by AFC in connection with the affiliations and will be assumed by AMP
under the Reimbursement Agreement. Mr. McCrary's accrued salary will be paid
with a portion of the proceeds of the Offering and, in addition, Mr. McCrary has
received 52,500 membership interests of AFC. Other than Mr. McCrary, there have
been no executive officers who have earned $100,000 in any single completed
fiscal year since the Company's inception.
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The Company has entered into employment agreements with Mr. McCrary, Wayne
A. Bertsch, Randy E. Johnson, Roger Bigham and David LaGuardia pursuant to which
these officers will be paid annual salaries of $300,000, $180,000, $180,000,
$150,000 and $150,000, respectively.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
The Company has adopted the 1997 Incentive and Non-Qualified Stock Option
Plan (the "1997 Plan") to provide incentives to attract and retain directors,
officers, advisors, consultants and key employees. After the Offering, the 1997
Plan will be administered by the Company's Board of Directors or a committee
composed of members of the board (the "Plan Administrator"). Officers,
directors, employees of the Company, consultants and advisors to the Company are
eligible to receive awards under the 1997 Plan, at the Plan Administrator's
discretion.
Awards available under the 1997 Plan include: (i) Common Stock purchase
options; (ii) stock appreciation rights; (iii) restricted stock; (iv) deferred
stock; (v) performance shares and (vi) other stock-based awards. The Company has
reserved up to 8% of the shares of its Common Stock for granting of awards under
the 1997 Plan. Under the terms of the 1997 Plan, the Plan Administrator retains
discretion, subject to plan limits, to modify the terms of outstanding awards
and to reprice awards.
The Company has granted options to purchase shares of Common Stock equal to
3.34% of the shares of Common Stock to be outstanding after consummation of the
Offering at a purchase price equal to the initial public offering price.
Pursuant to their Employment Agreements (as defined below), the Company has
granted options to Messrs. McCrary, Bertsch, and Johnson under the 1997 Plan,
representing the right to purchase 1.0%, 0.5%, and 0.5% of the shares of Common
Stock, respectively.
PERFORMANCE BONUS PLAN
The Board has adopted the American Medical Providers, Inc. Executive
Officer Performance Bonus Plan (the "Performance Bonus Plan") covering
eligible officers of the Company. The Performance Bonus Plan will be
administered by the Compensation Committee, which each year, beginning on
January 1, 1998 will select the officers of the Company who will be eligible to
receive awards under the Performance Bonus Plan. Upon achievement by the Company
of certain targeted operating results or other performance goals, such as
operating income, pre-tax income or earnings per share, the Company will pay
performance bonuses, the aggregate amounts of which will be determined annually
based upon an objective formula. The Employment Agreements (as defined below)
provide for the payment of certain minimum bonuses upon the achievement of
targeted performance criteria under the Performance Bonus Plan. See
" -- Employment Agreements."
EMPLOYMENT AGREEMENTS
In connection with the Offering, Messrs. McCrary, Bertsch, Johnson, Bigham
and LaGuardia's employment agreements with AFC will be terminated and replaced
with new employment agreements (the "Employment Agreements") with the Company
described below.
These officers' Employment Agreements will provide that they will serve in
the following capacities: Mr. McCrary as President, Chief Executive Officer,
Chairman of the Board and Chairman of the Executive Committee; Mr. Bertsch as
Senior Vice President, Chief Financial Officer and a Director and, for as long
as he is a Director, a member of the Executive Committee; Mr. Johnson as Sr.
Vice President -- Regional Operations Officer; Mr. Bigham as Vice President of
the Company and Chief Operating Officer of AnestheCare, Inc.; and Mr. LaGuardia
as Vice President -- Ancillary Support Services.
The Employment Agreement of Mr. McCrary will have an initial term of five
years, and each of the Employment Agreements of Messrs. Bertsch, Johnson, Bigham
and LaGuardia will have an initial term of three years. The Employment Agreement
of Mr. McCrary will be renewed automatically upon expiration of its initial term
and any subsequent five year term, unless the Company or Mr. McCrary gives 12
months prior notice that such Agreement will not be renewed. Upon expiration of
their initial terms, each of the
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Employment Agreements of Messrs. Bertsch, Johnson, Bigham and LaGuardia will be
renewed automatically one time only for two additional years, unless the Company
or any of Messrs. Bertsch, Johnson, Bigham and LaGuardia as applicable, gives 12
months prior notice that such Agreement will not be renewed.
Under the Employment Agreements, each officer will be entitled to receive a
base salary and an annual bonus and will be entitled to participate in the stock
option plans of the Company that are generally available to executives of the
Company. The initial base salaries for Messrs. McCrary, Bertsch, Johnson, Bigham
and LaGuardia under their respective Employment Agreements are $300,000,
$180,000, $180,000, $150,000 and $150,000, respectively. The total number of
shares of Common Stock of the Company that will be permitted to be distributed
under the 1997 Plan will be up to 8% of the total number of shares of Common
Stock to be outstanding after consummation of the Offering. Of this total,
pursuant to the Employment Agreements, the Company has granted to Messrs.
McCrary, Bertsch and Johnson options under the 1997 Plan to purchase 1.0%, 0.5%
and 0.5% of the shares of Common Stock, respectively.
Each of Messrs. McCrary, Bertsch, Johnson, Bigham and LaGuardia is
prohibited from competing with the Company while employed by the Company. In
certain circumstances, each of Messrs. McCrary, Bertsch, Johnson, Bigham and
LaGuardia will be prohibited from competing for two years following termination
of his Employment Agreement during the initial term of his Employment Agreement
and for one year following termination during successive terms.
The Employment Agreement of Mr. McCrary cannot be terminated by the Company
without the prior approval of two-thirds of the Board. If Mr. McCrary is
terminated by the Company without "Cause" or resigns for "Good Reason" (each
as defined in his Employment Agreement), his outstanding options will
immediately vest and become exercisable and he will be entitled to receive a
lump sum payment equal to the greater of (i) his current base salary and annual
target bonus payable over the remainder of his contract term or (ii) 3.0 times
his current annual salary plus annual target bonus. If Messrs. Bertsch, Johnson,
Bigham or LaGuardia is terminated by the Company without "Cause" or by such
officer for "Good Reason" (each as defined in their respective Employment
Agreement), his respective outstanding options will immediately vest and become
exercisable and he will be entitled to receive a lump sum payment equal to the
greater of (i) his current base salary and annual target bonus payable over the
remainder of his contract term or (ii) two times his current annual salary plus
annual target bonus.
Upon termination of the employment of any of Messrs. McCrary, Bertsch,
Johnson, Bigham or LaGuardia by the Company without "Cause" or by such officer
for "Good Reason," such officer would be entitled to receive a lump sum
payment equal to the total amount of any excise taxes to which such officer may
become subject under Section 4999 of the Internal Revenue Code.
CERTAIN TRANSACTIONS
AFFILIATED PRACTICES
The consideration paid by the Company for the initial Affiliated Practices
is based upon the practices' gross revenue, growth potential, quality of
patients, location and service delivery and depth of presence in its local
market. All of the Transfers of the initial Affiliated Practices, except for the
Kramer Transfer, will be accounted for by the Company under SAB 48, such that
the non-monetary assets and liabilities of these initial Affiliated Practices
will be received by the Company at the transferor's historical cost basis for
accounting purposes. Monetary assets and liabilities, including billed and
unbilled receivables and credit balances, payables and certain miscellaneous
accruals will either be acquired by AMP at their fair market value or retained
by the Affiliated Practices, as agreed among the parties. The AnestheCare
Acquisition and the Kramer Transfer and all future practice affiliations will
not be accounted for under SAB 48. Instead these practice affiliations will be
accounted for as purchases at fair market value and are expected to result in
purchase prices in excess of net assets acquired (goodwill). The following table
provides certain information concerning the Transfers:
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CONSIDERATION TO BE RECEIVED
---------------------------------------------
CASH CASH PAID
VALUE OF NUMBER OF AND DEBT
AFFILIATED PRACTICES(1) SHARES SHARES ASSUMED(2)
- -------------------------------- ----------- --------- -------------
Louis M. Antahades, D.P.M....... $ 41,324 $ 10,331
Stephan Bard, D.P.M............. 122,919 53,572
Douglas M. Beek, D.P.M.......... 299,735 141,716
David L. Blumfield, D.P.M....... 1,003,493 443,347
William B. Bradbury, D.P.M...... 602,645 265,039
Karen E. Brooks, D.P.M.......... 336,862 154,140
David K. Cantor, D.P.M.......... 375,946 173,981
Armida P. deBelvill, D.P.M...... 80,652 20,163
Peter R. DeFrank, D.P.M......... 206,115 93,200
Salvatore DeFrank, D.P.M........ 405,786 165,882
Kenrick J. Dennis, D.P.M........ 217,978 108,444
Stephen R. Densen, D.P.M........ 161,800 81,252
Laurence I. Dorman, D.P.M....... 145,102 72,277
Alan I. Ettinger, D.P.M......... 172,956 77,174
Gerald I. Falke, D.P.M.......... 724,420 306,806
Thomas S. Garrison, D.P.M....... 413,185 185,588
Norman W. Goldman, D.P.M........ 328,354 151,636
Anthony Halinski, D.P.M......... 982,655 395,183
Todd Harrison, D.P.M............ 482,946 204,537
S.F. Hartley, D.P.M............. 675,226 311,343
Dale S. Herman, D.P.M........... 309,197 150,429
Bernard J. Hersh, D.P.M......... 501,275 224,125
Richard Hochman, D.P.M.......... 98,095 52,906
Stanley R. Kalish, D.P.M........ 945,261 443,888
Michael W. Kendall, D.P.M....... 551,148 351,094
Kirk Koepsel, D.P.M............. 413,185 185,588
Jerald N. Kramer, D.P.M......... -- 1,404,000
Paul D. Leon, D.P.M............. 250,558 106,806
Gregory L. Mangum, D.P.M........ 770,725 340,695
Bruce Miller, D.P.M............. 912,301 382,662
James E. Miller, D.P.M.......... 93,260 53,940
Michael Mineo, D.P.M............ 1,003,493 443,347
Robert J. Morris, D.P.M......... 121,539 120,385
Steven A. Moskowitz, D.P.M...... 964,944 416,917
Jeffrey R. Murray, D.P.M........ 519,187 267,882
Sherman Nagler, D.P.M........... 805,276 346,207
Robert G. Parker, D.P.M......... 804,522 407,790
Steven P. Richman, D.P.M........ 481,189 219,001
Donald E. Robinson, D.P.M....... 275,064 143,108
Mark R. Sands, D.P.M............ 822,300 367,588
Charles P. Sanicola, D.P.M...... 278,863 136,204
Jerry S. Silverman, D.P.M....... 394,267 206,422
Donald C. Stran, D.P.M.......... 760,575 330,922
Barry M. Tuvel, D.P.M........... 471,119 211,706
George R. Vito, D.P.M........... 1,734,362 1,278,121
Richard A. Weissman, D.P.M...... 299,735 141,716
----------- --------- -------------
Total...................... $22,361,539 $12,149,060
=========== ========= =============
- ------------
(1) The DPMs who own the initial Affiliated Practices are considered
"promoters" for purposes of the Commission's rules and regulations.
(2) Includes $656,000 of debt assumed from the Affiliated Practices. Total Cash
and Debt Assumed includes consideration attributed to $4.7 million of
monetary assets acquired. Under SAB 48 the cash portion of the purchase
price attributed to the non-monetary assets of $6.0 million will be treated
as a cash dividend to the DPM owners of the Affiliated Practices.
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DISTRIBUTION OF CLASS B COMMON STOCK TO CERTAIN PROMOTERS
Certain of the owner DPMs (the "Promoter Owners") from whom the Company
is acquiring assets or stock in connection with the Transfers own membership
interests of AFC directly or indirectly through other entities. Following the
consummation of the Offering, AFC is expected to distribute shares of Class B
Common Stock it currently holds to its members including such Promoter Owners.
Prior to the consummation of the stock split, the maximum number of shares of
Class B Common Stock distributable to the Promoter Owners totaled 3,342 shares.
In addition, such Promoter Owners have the option of exchanging one-seventh of
such shares of Class B Common Stock distributable to them for one-half of the
amount loaned to AFC by such Promoter Owners in connection with their initial
investment. The following lists the number of shares distributable to each of
the Promoter Owners or their related entities and the total amount each promoter
or entity loaned to AFC:
DISTRIBUTABLE SHARES
OF LOAN
PROMOTER OR ENTITY CLASS B COMMON STOCK AMOUNT
- ------------------------------------- --------------------- -------
Stanley R. Kalish, D.P.M............. 659 95,000
S. F. Hartley, D.P.M................. 475 47,500
Sherman Nagler, D.P.M................ 184 47,500
Robert G. Parker, D.P.M.............. 368 95,000
Steven P. Richman, D.P.M............. 184 47,500
Jerry S. Silverman, D.P.M............ 184 47,500
Texas Podiatry Group-Houston (1)..... 368 95,000
George R. Vito, D.P.M................ 184 47,500
Bellaire Surgicare, IPA(2)........... 368 95,000
Bay Area Podiatry(3)................. 276 71,250
Thomas S. Garrison, D.P.M............ 92 23,750
- ------------
(1) Drs. Dennis Garrison, Hartley, Koepsel and Parker are among the principals
of Texas Podiatry Group-Houston and are owner DPMs involved in the
Transfers.
(2) Drs. Blumfield, Bradbury Mangun, Bruce Miller, Mineo, Moskowitz and Parker
are among the principals of Bellaire Surgicare, IPA and are owner DPMs
involved in the Transfers.
(3) Drs. Garrison and Koepsel are among the principals of Bay Area Podiatry
Association and are owner DPMs involved in the Transfers.
MANAGEMENT AND DIRECTOR PARTICIPATION IN BRIDGE FINANCING
During January 1998, AFC intends to complete a financing of $1,500,000,
representing $1,425,000 in non-interest bearing loans and $75,000 representing
15 membership interests in AFC to fund certain expenses on behalf of AMP, in
connection with the Offering. The financing provides for the loans to be repaid
by AFC from funds it will receive from the Offering. Additionally, at the
investor's option prior to the Offering, AFC is required to repurchase each of
the 15 membership units in AFC in exchange for either (i) $71,667 in cash or
(ii) $71,667 worth of Common Stock offered in the Offering valued at the initial
public offering price. Upon the closing of the Offering, AMP will assume this
obligation of AFC in satisfaction of amounts due to AFC.
Certain members of management and directors have participated in this
financing by loaning funds to AFC and making such equity investments. The
following lists the officer or director making such investment in AFC, the
equity investment made, the amount of the loan to be repaid, and the additional
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<PAGE>
amount of cash (or cash value of the shares of Common Stock) to be received by
such persons upon the repurchase by AFC of the membership units:
EQUITY LOAN EQUITY
OFFICER/DIRECTOR INVESTMENT AMOUNT REDEMPTION
- ------------------------------------- ----------- ------- -----------
Jack N. McCrary...................... $ 5,000 $95,000 $71,667
Wayne A. Bertsch(1).................. 5,000 95,000 71,667
John S. Bace, CFA.................... 5,000 95,000 71,667
- ------------
(1) Of this investment, 20% was invested by Mr. Bertsch directly and the
remaining 80% was invested by persons or entities related to Mr. Bertsch,
with respect to which Mr. Bertsch expressly disclaims any beneficial
ownership.
REIMBURSEMENT OF AFC EXPENSES BY THE COMPANY
Pursuant to the Reimbursement Agreement between AFC and the Company, the
Company has agreed to reimburse AFC approximately $5.3 million relating to AMP's
organizational costs and working capital in connection with the Transfers and
the Offering. AFC owns, prior to the Offering, 56.3% of the outstanding voting
securities of the Company. These amounts will be paid out of the proceeds of the
Offering. See "Use of Proceeds."
ACQUISITION OF PRACTICES OF MEMBERS OF BOARD AND OFFICERS
The Company is acquiring the assets and stock of the practices of Dr. S.F.
Hartley, D.P.M. and Dr. Stanley Kalish, D.P.M., each of whom will become a
member of the Company's Board of Directors upon consummation of the Offering.
Dr. Kalish is also the Chairman of the Company's Medical Policy Board. In
addition, David LaGuardia and Roger Bigham, both of whom are executive officers
of AMP, each own 50% of AnestheCare. Pursuant to the AnestheCare Acquisition,
Messrs. LaGuardia and Bigham will each receive (i) $2.25 million in cash and
(ii) additional consideration of up to $750,000 in cash and $250,000 payable in
shares of Common Stock (valued at the initial public offering price), which will
be held in escrow and may be paid to each pending AnestheCare's achievement of
certain performance targets over a three-year period beginning January 1, 1998,
in exchange for the assets of AnestheCare. The AnestheCare Acquisition will not
be accounted for under SAB No. 48. Instead, this affiliation will be accounted
for as a purchase at fair market value, as agreed among the parties.
CERTAIN LEASE ARRANGEMENTS
The Company currently occupies corporate offices consisting of 7,544 square
feet of office space located at 3555 Timmons Lane, Houston, Texas. The original
lease for such space between Mid-America Hospitals, Inc., ("Mid-America") and
M & J Wilkow, Ltd., as prime landlord (subsequently assigned to Timmons Texas,
Ltd. ("Landlord")), was originally dated November 14, 1988, was amended by
Amendment of Lease dated May 10, 1994, and a Second Amendment of Lease dated
February 22, 1995, (collectively the Prime Lease, the Amendment of Lease and the
Second Amendment of Lease being referred to as the "Lease"). Pursuant to an
Assignments of Lease entered into on December 17, 1997 by and between
Mid-America. as Assignor, Landlord AFC and the Company as Assignees, Mid-America
assigned its rights to lease such corporate offices to AFC as of December 1,
1997 and AFC agreed to assign its rights to the lease to the Company upon the
closing of the Offering. Jack N. McCrary, the Company's Chairman, President and
Chief Executive Officer, founded and served as Vice Chairman and President of
Mid-America. The Lease currently expires March 31, 2000, and requires a monthly
base rental of $7,060.
DEFERRED SALARY PAYMENT FOR JACK N. MCCRARY
Mr. McCrary has served as the Director, President and Chief Executive
Officer of AFC and as such has managed and supervised the organizational efforts
of AFC. Mr. McCrary has agreed to accept deferred compensation of $300,000
payable upon successful completion of the Offering. In exchange for Mr. McCrary
agreeing to defer his compensation earned prior to the Offering, Mr. McCrary has
received 52,500 membership interests of AFC's outstanding and issued membership
interests.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 15, 1997
regarding the beneficial ownership of the Company's Common Stock and Class B
Common Stock and as adjusted to reflect the sale of the shares offered pursuant
to this Prospectus, by (i) each person known to the Company to own beneficially
more than 5% of the Company's Common Stock and Class B Common Stock, (ii) each
Named Executive Officer of the Company, (iii) each director of the Company, and
(iv) all directors, nominees and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
CLASS B COMMON STOCK
SHARES OF COMMON STOCK BENEFICIALLY
CLASS B BENEFICIALLY OWNED SHARES OF OWNED
COMMON STOCK ----------------------- COMMON STOCK --------------------
BENEFICIALLY PRIOR TO AFTER BENEFICIALLY PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED(1)(2) OFFERING(2) OFFERING OWNED OFFERING OFFERING
- ---------------------------------------- ------------ ----------- -------- ------------ -------- --------
<S> <C> <C>
Ankle & Foot Centers of America,
LLC(3)................................ 11,250 56.3%
John S. Bace, CFA(4).................... 368 1.8
Wayne A. Bertsch........................ 647 3.2
Dr. S. F. Hartley, D.P.M.,
F.A.C.F.S.(5)......................... 475 2.4
Donald S. Huge, M.D.(6)................. 0 *
Randy Johnson........................... 573 2.9
Dr. Stanley Kalish, D.P.M.,
F.A.C.F.S.(7)......................... 659 3.3
Jack N. McCrary......................... 7,895 39.5
All Directors and Executive Officers as
a Group............................... 11,739 58.7
</TABLE>
- ------------
* Less than one percent.
(1) The shares of Class B Common Stock listed as beneficially owned by each
stockholder assumes the consummation of the Share Conversion pursuant to
which the shares of AMP's existing common stock, without class, will be
converted into shares of Class B Common Stock. Unless otherwise indicated,
each of the individual stockholders listed above has, through the Offering
date, granted all of his or her voting power with respect to the shares of
Common Stock or Class B Common Stock beneficially owned by such stockholder
to Jack N. McCrary. Shares of Common Stock subject to options exercisable
within 60 days, of which there are none, would be deemed outstanding for
purposes of computing the percentage of ownership of the holder. The address
of all persons listed except for Mr. Bace, and Drs. Hartley, Huge and Kalish
is 3555 Timmons Lane, Suite 1550, Houston, Texas 77027.
(2) The shares of Class B Common Stock listed as beneficially owned by each
stockholder assumes the distribution of AMP shares held by AFC to its
respective members in accordance with the member ownership percentages. The
following table lists the appropriate number of shares and percent of Class
B Common Stock of the Company, prior to the Stock Split, distributable by
AFC to the named Principal Stockholders.
SHARES OF PERCENT OF
CLASS B CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
John S. Bace, CFA.................... 368 1.8%
Wayne A. Bertsch..................... 92 0.5%
Dr. S.F. Hartley, D.P.M.,
F.A.C.F.S............................ 475 2.4%
Donald S. Huge, M.D.................. -- --
Randy Johnson........................ 18 0.1%
Dr. Stanley Kalish, D.P.M.,
F.A.C.F.S............................ 659 3.3%
Jack N. McCrary...................... 1,395 7.0%
All Directors and Executive Officers
as a Group......................... 3,929 19.6%
(3) Messrs. Bace, Bertsch, Johnson and McCrary and Drs. Hartley and Kalish are
investors in and owners of AFC and will be entitled to distribution of the
Company's Class B Common Stock held by AFC in proportion to their ownership
of membership interests. See footnote number 2 above.
(4) The business address of Mr. Bace is 3730 Del Monte, Houston, Texas 77019.
(5) The business address of Dr. Hartley is 112 W. Pasadena Blvd., Deer Park,
Texas 77536. Dr. Hartley is an owner DPM of one of the Affiliated Practices
and will, upon consummation of the transactions, receive Common Stock having
an equivalent value of $ valued at the Offering price.
(6) Dr. Huge's business address is 1177 W. Loop South, Suite 700, Houston, Texas
77027.
(7) Dr. Kalish's business address is 6911 Tara Blvd., Jonesboro, GA 30236. Dr.
Kalish is an owner DPM of one of the Affiliated Practices and will receive
Common Stock having an equivalent value of $945,261 valued at the Offering
price.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has authorized shares of Class A Common Stock, $.001
par value per share ("Common Stock"), shares of Class B Common Stock,
par value $.001 per share ("Class B Common Stock") and shares of
preferred stock, $.001 par value per share. As of December , 1997, 20,000
shares of Common Stock were issued and outstanding and held of record by
stockholders. No shares of Class B Common Stock or Preferred Stock were
outstanding.
COMMON STOCK AND CLASS B COMMON STOCK
Upon consummation of the Offering, holders of the Class B Common Stock will
have the ability to elect as a class one member of the Board of Directors and
the holders of the Common Stock will have the ability to elect as a class all
other members of the Board of Directors. The Common Stock and Class B Common
Stock possess ordinary voting rights and vote together as a single class in
respect of all other corporate matters, and, in connection therewith, holders of
shares of Common Stock are entitled to one vote per share and holders of shares
of Class B Common Stock are entitled to of a vote per share. The Common
Stock and Class B Common Stock afford no cumulative voting rights, and the
holders of a majority of the shares voting for the election of directors can
elect all the directors if they choose to do so. Except for the conversion
rights of the Class B Common Stock described below, the Common Stock and Class B
Common Stock carry no preemptive rights, are not convertible, redeemable,
assessable or entitled to the benefits of any sinking fund. The holders of
Common Stock and Class B Common Stock are entitled to dividends in such amounts
and at such times as may be declared by the Board of Directors out of funds
legally available therefor. The Company intends that, after completion of the
Offering, all future dividends, if any, declared on, or distributions with
respect to, its shares of Common Stock and Class B Common Stock will be paid on
a pro rata basis to the holders of such shares. See "Dividend Policy" for
information regarding the Company's dividend policy.
Directors may be removed, with or without cause, by the holders of the
class or classes of stock that elected them. Directors may be removed by the
Board of Directors only for cause. Vacancies in a directorship may be filled by
the vote of the class or classes of shares that had previously filled that
vacancy, or by the remaining directors or director elected by such class or
classes; however, if there are no such directors, the vacancy may be filled by
the other directors.
Each share of Class B Common Stock will automatically convert into shares
of Common Stock (i) in the event of a disposition of such share of Class B
Common Stock by the holder thereof (excluding dispositions to such holder's
affiliates), (ii) in the event any person not affiliated with the Company
acquires beneficial ownership of 15% or more of the outstanding shares of
capital stock of the Company, (iii) in the event any person not affiliated with
the Company offers to acquire 15% or more of the outstanding shares of capital
stock of the Company, (iv) in the event the holder of such shares elects to so
convert at any time after the second anniversary of the date of this Prospectus,
(v) on the fifth anniversary of the date of this Prospectus or (vi) in the event
the holders of a majority of the outstanding shares of Common Stock approve such
conversion. In addition, the Company may elect to convert any outstanding shares
of Class B stock into shares of Common Stock in the event 80% or more of the
outstanding shares of Class B Common Stock as of the date of this Prospectus
have previously been converted into shares of Common Stock.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to provide for the issuance of shares of Preferred Stock as a
class without series or in one or more series, to establish the number of shares
in each class or series and to fix the designation, powers, preferences and
rights of each such class or series and the qualifications, limitations or
restrictions thereof. Because the Board of Directors has the power to establish
the preferences and rights of each class or series of Preferred Stock, the Board
of Directors may afford the holders of any class or series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock or the Class B Common Stock. The issuance of Preferred
Stock could have the effect of delaying or preventing a change in control of the
Company. As of the date of this Prospectus, the Company has not issued any
Preferred Stock but the Board has authorized the issuance of the Series A Junior
Participating Preferred Stock of the Company (the
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<PAGE>
"Series A Preferred Stock"). See--"Certain Anti-Takeover and Other Provisions
of Delaware Law and the Company's Certificate of Incorporation and Bylaws."
Other than the foregoing, there are no plans, agreements or understandings for
the issuance of any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
On , 1997, the Company declared a dividend
distribution of rights (each, a "Right") to purchase a certain number of units
(determined by a formula described herein) at a price of $ , subject to
adjustment (the "Exercise Price"). Each unit is equal to one one-hundredth of
a share of a newly authorized Series A Preferred Stock. One Right will be
distributed per share of Common Stock and Class B Common Stock of the Company
held of record on , 1997 (the "Record Date").
Rights will also be distributed in connection with the future issuance of shares
of Common Stock and Class B Common Stock. The description and terms of the
Rights are set forth in a Stockholder Protection Agreement (the "Agreement")
between the Company and , as rights agent (the
"Rights Agent").
Until the Separation Time (as defined below), the Rights are not
exercisable and certificates for the Rights will not be sent to stockholders.
Subject to certain exceptions described in the Agreement, the Rights will
separate from the Common Stock and the Class B Common Stock, separate
certificates evidencing the Rights (the "Rights Certificates") will be issued
and the Rights will become exercisable 10 business days (the "Separation
Time") following the date on which a person (including its affiliates and
associates) (i) acquires, (ii) obtains the right to acquire or (iii) announces
or commences a tender or exchange offer to acquire beneficial ownership of 15%
or more (or in the case of certain institutional investors, more than 20% of the
outstanding Common Stock (such person thereby becoming an "Acquiring
Person")).
Following the Separation Time, holders of the Rights (the "Rights
Holders") (other than Rights beneficially owned by the Acquiring Person or its
affiliates or associates, which will thereafter be void) will be entitled to
receive upon exercise and payment of the Exercise Price that number of units of
Series A Preferred Stock which equals the result obtained by dividing the
Exercise Price by 50% of the Market Price (as defined in the Agreement) per
share of Common Stock and Class B Common Stock at the Separation Time (subject
to adjustment, if applicable). Each unit of Series A Preferred Stock will be
entitled to one vote on all matters on which share of Common Stock and Class B
Common Stock may vote.
If, after the Separation Time, (i) the Company were to be acquired in a
merger or other business combination transaction in which the Company was not
the surviving corporation nor in which the Company's outstanding Common Stock
were changed or exchanged for cash, stock or assets of another person or (ii)
50% or more of the Company's consolidated assets or earning power were to be
sold (other than in transactions in the ordinary course of business), then
proper provision would be made so that each Rights Holder who has not
theretofore exercised his Rights (other than Rights beneficially owned by the
Acquiring Person or its affiliates or associates, which will thereafter be void)
will thereafter have the right to receive, upon exercise, a number of shares of
common stock of the acquiring entity having a value equal to two times the
Exercise Price.
Each share of Series A Preferred Stock for which Rights had been exercised
prior to a business combination or other transaction of the type referred to in
clause (i) in the immediately preceding paragraph would be entitled to receive
upon consummation thereof 100 times the consideration (cash, securities or other
property, or a combination thereof) that one share of Common Stock would
receive. At any time on or prior to the earlier of (i) the Separation Time or
(ii) the Expiration Date of the Rights, the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
Immediately upon the action of the Board of Directors authorizing redemption of
the Rights, the right to exercise the Rights will terminate and the only right
of the Rights Holders will be to receive the Redemption Price.
At any time following the Separation Time but before the Expiration Date,
the Company may, at its option, exchange all or any portion of the Rights for
shares of Common Stock at an exchange ratio which
52
<PAGE>
equals the Exercise Price divided by the Market Price per share of Common Stock.
The Company, however, may not effect such an exchange if an Acquiring Person
become the owner of 50% or more of the then outstanding Common Stock.
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL"). Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior to the proposed business
combination, has owned 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation provides that liability of
directors of the Company is eliminated to the fullest extent permitted under the
DGCL. As a result, no director of the Company will be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for any willful or negligent payment of an unlawful dividend, stock
purchase or redemption; or (iv) for any transaction from which the director
derived an improper personal benefit. The Company's Bylaws generally provide
that the Company shall indemnify its directors, employees and other agents to
the fullest extent provided by Delaware law.
In addition, the Company's Certificate of Incorporation requires the vote
of 75% of the Board of Directors to effect certain actions, including a sale of
substantially all of the assets of the Company, certain mergers and
combinations, and the acquisition of securities representing a majority of the
voting power of the Company. The "supermajority" voting rights could have the
effect of making it more difficult for a third party to acquire, or discouraging
a third party from seeking to acquire, control of the Company.
The Bylaws of the Company provide that stockholders must follow an advance
notification procedure for certain stockholder nominations of candidates for the
Board of Directors and for certain other stockholder business to be conducted at
an annual meeting. These provisions could, under certain circumstances, operate
to delay, defer or prevent a change in control of the Company. The Transfer
Agent and Registrar for the Common Stock is .
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. After giving effect to the sale of the shares of
Common Stock offered hereby, the Company will have shares of Common
Stock issued and outstanding. Of these shares, the shares (
shares if the Underwriters' over-allotment option is exercised in full) of
Common Stock sold in the Offering will be freely tradable without restriction
under the Securities Act, except for any shares purchased by affiliates of the
Company. None of the remaining shares were acquired in a transaction
registered under the Securities Act. Such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration. Of these shares, shares will be eligible for sale
pursuant to Rule 144 in and the balance of these
shares will be eligible for sale at various times from
through .
In general, under Rule 144 as currently in effect, a person who has (or
persons whose shares are aggregated who have) beneficially owned "restricted"
shares for at least one year, including an "affiliate" of the Company, as that
term is defined in the Securities Act, is entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions and the availability of current
public information about the Company. A person who is not an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell such
shares without regard to the volume limitations, manner of sale provisions or
notice or other requirements of Rule 144.
In addition, the Company, its officers and directors and certain other
stockholders of the Company have agreed that they will not offer, contract to
sell, announce their intention to sell, pledge or otherwise dispose of, directly
or indirectly, or file with the Commission a registration statement under the
Securities Act relating to any additional shares of Common Stock or securities
convertible or exchangeable or exercisable for any shares of Common Stock
without the prior written consent of the Representative for a period of days
after the date of this Prospectus (the "lock-up period"), except (i)
subsequent sales of Common Stock offered in the Offering, (ii) issuances of
unregistered Common Stock by the Company in connection with affiliation with
practices, physicians and ancillary providers (although persons receiving such
shares would be subject to such restrictions for the remainder of the lock-up
period) or (iii) issuances of Common Stock by the Company pursuant to the
exercise of employee stock options outstanding on the date of this Prospectus.
Pursuant to an agreement with the Company, the holders of all shares of
Common Stock outstanding on the date of this prospectus have certain
registration rights with respect to such shares and additional shares that may
be issued to such persons upon exercise of options (subject to certain
limitations on the number of shares such holders are entitled to have registered
under any registration statement), although the holders of at least
of these shares have agreed to refrain from
selling their shares during the lock-up period. Pursuant to the Registration
Rights Agreements, the Company has granted certain registration rights to the
DPMs permitting them to include their shares of Common Stock on a registration
statement filed by the Company within one year of the date of such agreements.
The Company intends to register an additional
shares of Common Stock reserved for issuance under the 1997 Plan as soon as
practicable after expiration of the lock-up period. In addition, the Company
will register additional shares of Common Stock under a shelf
registration, which, when combined with the Company's cash resources, will be
used to fund the Company's planned practice affiliation program. These shares
generally will be freely tradable upon issuance to persons not deemed to be
affiliates of the Company, unless the Company contractually restricts the sale
or other transfer of such shares. Initially, the Company will issue such shares
subject to a lock-up period of up to 180 days from the date of this Prospectus.
See "Underwriting."
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<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed with the Company,
subject to the terms and conditions of the Underwriting Agreement, to purchase
the respective number of shares of Common Stock set forth opposite their names
below:
UNDERWRITER NUMBER OF SHARES
- ------------------------------------- -----------------
A.G. Edwards & Sons, Inc.............
J.C. Bradford & Co...................
-----------------
Total.........................
=================
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock offered hereby, if any of such shares are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters and
such dealers may reallow a discount of not in excess of $.10 per share to
certain other dealers. The public offering price and the concession and discount
to dealers may be changed by the Underwriters after the Offering.
The Offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.
The Company has granted the Underwriters an option, expiring at the close
of business on the 45th day subsequent to the date of the Underwriting
Agreement, to purchase up to additional shares of Common Stock at the
public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely to
cover over-allotments, if any, in the sale of the shares. To the extent the
Underwriters exercise such option, each of them will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
the option shares as the number of shares set forth opposite each Underwriter's
name in the preceding table bears to , and the Company will
be obligated to sell such shares to the Underwriters.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company, all Directors and Executive Officers of the Company and all
holders of more than 5.0% of the Common Stock prior to the Offering other than
have agreed that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire, Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of A.G. Edwards &
Sons, Inc. other than the exercise of options previously granted under the
Company's director and employee benefit plans and agreements. See "Shares
Eligible for Future Sale."
The Underwriters have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
In connection with this Offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in
55
<PAGE>
the Common Stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Exchange Act. Underwriters and other participants in the
distribution of the Common Stock generally are prohibited during a specified
time period (the "qualifying period"), determined in light of the timing of
the Offering, from bidding for or purchasing the Common Stock or a related
security except to the extent permitted under the applicable rules of Regulation
M. Rule 103 allows, among other things, an Underwriter or member of the selling
group (if any) for the Common Stock to effect "passive market making"
transactions on the Nasdaq National Market in the Common Stock during the
qualifying period at a price that does not exceed the highest independent bid
for that security at the time of the transaction. Such a passive market maker
must not display a bid for the subject security at a price in excess of the
highest independent bid, and generally must lower its bid if all independent
bids are lowered. Moreover, the passive market maker's net purchases of such
security on each day of the qualifying period shall not exceed 30.0% of its
average daily trading volume during a reference period preceding the
distribution.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in the Common Stock for their own account. To cover over-allotments or
to stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of the Common Stock in the open market. The Underwriters may
also impose a penalty bid whereby they may reclaim selling concessions allowed
to an underwriter or dealer for distributing the Common Stock in the Offering,
if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short position, in stabilization transaction or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of the
Common Stock in market making transactions. These activities may stabilize or
maintain the market price of the Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time. See "Principal
Stockholders."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Baker & Hostetler LLP. A partner of Baker & Hostetler LLP holds
shares of Class B Common Stock and one of counsel attorney at Baker &
Hostetler LLP holds shares of Class B Common Stock. Certain legal matters
in connection with the Offering made hereby will be passed upon for the
Underwriters by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The financial statements of American Medical Providers, Inc., and Pyramid
Anesthesiology Group, Inc. appearing in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of such firm as experts in giving
said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act (the "Registration Statement") with respect to
the shares of Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, including the exhibits and schedules
thereto. For further information with respect to the Company and the shares of
Common Stock, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Commission's Regional Offices at Seven World Trade Center, Suite 1300,
New York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
56
<PAGE>
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Registration Statement and
certain other filings made with the Commission through its Electronic Data
Gathering Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AMERICAN MEDICAL PROVIDERS, INC.
Report of Independent Public
Accountants....................... F-2
Balance Sheets..................... F-3
Statements of Operations........... F-4
Statements of Stockholders'
Deficit........................... F-5
Statements of Cash Flows........... F-6
Notes to Financial Statements...... F-7
PYRAMID ANESTHESIOLOGY GROUP, INC.
Report of Independent Public
Accountants....................... F-17
Balance Sheets..................... F-18
Statements of Operations........... F-19
Statements of Stockholders'
Equity............................ F-20
Statements of Cash Flows........... F-21
Notes to Financial Statements...... F-22
UNAUDITED PRO FORMA COMBINED BALANCE
SHEET
Unaudited Pro Forma Combined
Balance Sheet..................... F-26
Notes to Unaudited Pro Forma
Combined Balance Sheet............ F-27
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Medical Providers, Inc.:
We have audited the accompanying balance sheet of American Medical
Providers, Inc., a development-stage enterprise and a Delaware corporation (the
"Company"), as of December 31, 1996, and the related statement of operations,
stockholders' deficit and cash flows for the period from inception (August 9,
1996) to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Medical Providers,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for the period from inception (August 9, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 16, 1997
F-2
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ -- $ --
Deferred issuance costs......... 404,622 1,791,902
Other current assets............ 12,092 25,200
------------ -------------
Total current assets....... 416,714 1,817,102
EQUIPMENT, at cost................... 116,648 234,314
Less - Accumulated
depreciation................... (5,258) (25,100)
------------ -------------
Equipment, net............. 111,390 209,214
------------ -------------
Total assets............... $ 528,104 $ 2,026,316
============ =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable................ $ 262,806 $ 1,208,533
Accrued salaries................ 166,970 303,210
Due to stockholder.............. 612,269 2,425,692
------------ -------------
Total current
liabilities............ 1,042,045 3,937,435
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value;
1,000,000 shares authorized,
20,000 shares issued and
outstanding.................... 200 200
Deficit accumulated during the
development stage.............. (514,141) (1,911,319)
------------ -------------
Total stockholders'
deficit................ (513,941) (1,911,119)
------------ -------------
Total liabilities and
stockholders'
deficit................ $ 528,104 $ 2,026,316
============ =============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM INCEPTION
(AUGUST 9, NINE MONTHS
1996) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
--------------- -------------
(UNAUDITED)
REVENUES............................. $ -- $ --
EXPENSES:
Salaries, wages and benefits.... 401,318 755,769
General and administrative...... 112,823 641,409
--------------- -------------
Total expenses........ 514,141 1,397,178
--------------- -------------
LOSS BEFORE INCOME TAXES............. (514,141) (1,397,178)
INCOME TAX BENEFIT................... -- --
--------------- -------------
NET LOSS............................. $(514,141) $ (1,397,178)
=============== =============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE
--------------- DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT STAGE DEFICIT
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
INITIAL CAPITALIZATION AUGUST 9, 1996
(Inception)........................ 20,000 $ 200 $ -- $ 200
Net loss........................ -- -- (514,141) (514,141)
------ ------ ----------- -------------
BALANCE AT DECEMBER 31, 1996......... 20,000 200 (514,141) (513,941)
Net loss (Unaudited)............ -- -- (1,397,178) (1,397,178)
------ ------ ----------- -------------
BALANCE AT SEPTEMBER 30, 1997
(Unaudited)........................ 20,000 $ 200 $(1,911,319) $ (1,911,119)
====== ====== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD
FROM INCEPTION
(AUGUST 9, NINE MONTHS
1996) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- -------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (514,141) $ (1,397,178)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Depreciation.................... 5,258 19,842
Changes in assets and
liabilities --
Deferred issuance costs....... (404,622) (1,387,280)
Other current assets.......... (11,892) (13,108)
Accounts payable.............. 262,806 945,727
Accrued salaries.............. 166,970 136,240
-------------- -------------
Net cash used in
operating
activities......... (495,621) (1,695,757)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment............. (116,648) (117,666)
-------------- -------------
Net cash used in
investing
activities......... (116,648) (117,666)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from stockholder.......... 612,269 1,813,423
-------------- -------------
Net cash provided by
financing
activities......... 612,269 1,813,423
-------------- -------------
NET CHANGE IN CASH................... -- --
CASH, beginning of period............ -- --
-------------- -------------
CASH, end of period.................. $ -- $ --
============== =============
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
American Medical Providers, Inc. (the "Company" or "AMP") was founded
in August 1996 to provide physician practice management services and
comprehensive foot care delivery systems to podiatric practices throughout the
United States. Simultaneously with, and as a condition to the closing of an
initial public offering (the "Offering"), 46 separate podiatric practices will
transfer (the "Transfers") either certain of their operating assets and
accounts receivable or stock to the Company in exchange for cash, shares of
class A common stock (the "Common Stock") and the assumption of certain
indebtedness (these practices, including the practice relating to the Kramer
Transfer discussed below, collectively referred to as the "Affiliated
Practices"). The Company will own the operating assets and receivables of the
Affiliated Practices, hire their non-physician employees and otherwise assume
the management of each practice. The doctors of podiatric medicine ("DPMs")
will join regional group practices organized by geographic location (the
"Regional Group Practices"). The Company will enter into a long-term
management agreement with each Regional Group Practice under which AMP will
receive fees for its services. At the time of the Offering, AMP will acquire in
a purchase accounting transaction Pyramid Anesthesiology Group, Inc.
("AnestheCare") (the "AnestheCare Acquisition"), an anesthesiology
management services organization. The Company will also acquire the stock of one
of the Affiliated Practices in a transaction to be accounted for as a purchase
(the "Kramer Transfer"). The Transfers, the AnestheCare Acquisition and the
Kramer Transfer are collectively referred to as the "Transactions."
The Company has had no on-going, non-developmental business operations to
date, and the financial statements have been prepared on the basis that the
proposed Transactions will occur, although no assurance can be made that the
proposed Transactions will be completed or that the Company will be successful
in completing planned future acquisitions. The Company intends to expand by
affiliating with additional podiatric practices throughout the United States. In
order to expand, the Company will need additional capital in the form of debt or
equity financing. There can be no assurance that such capital will be available.
Ankle & Foot Centers of America, LLC ("AFC") was formed to fund the
organization and development of AMP through the date of the Offering. Thus, for
purposes of these financial statements, costs and expenses incurred by AFC are
treated as transactions of AMP. Upon the Offering's consummation, AMP will
reimburse AFC for all costs and expenses that AFC has incurred to the Offering
date and will assume all liabilities of AFC with respect to AMP. Accordingly,
all amounts actually incurred by AFC on behalf of AMP with respect to such
costs, expenses and liabilities are reflected in these financial statements of
AMP as amounts due to stockholder.
During August 1996, the Company authorized for issuance 1,000,000 shares of
AMP Common Stock, $.01 par value, and approved the issuance of 20,000 shares of
AMP Common Stock, of which 16,500 were issued to AFC and 3,500 to a founder of
AFC who is also a member of AFC management. AFC management plans to distribute
the AMP shares held by AFC to AFC members and to certain members of AFC
management as determined by AFC. In addition, management plans to distribute the
amounts payable to AFC by AMP at closing. As of December 31, 1996 and September
30, 1997, 5,250 shares of the AMP Common Stock received by AFC had been issued
to members of AFC management and consultants.
Certain of the Promoter DPMs (defined below) have made investments in AFC
either individually or participate in organizations which have invested in AFC.
Consequently, it is anticipated that certain of these Promoters will be
distributed shares of AMP as a result of their ownership in AFC. In addition,
certain Promoter DPMs who are also directors of AMP will participate in the
directors stock option plan. See "Distribution of Class B Common Stock to
Certain Promoters" included on page 48 of this Registration Statement for
further discussion.
THE TRANSACTIONS
All of the Transfers of the initial Affiliated Practices (together with
AMP, "the Promoters"), except for the Kramer Transfer, will be accounted for
by the Company under Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 48, "Transfers of Non-Monetary Assets by Promoters or
F-7
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Shareholders," such that the non-monetary assets and liabilities of these
initial Affiliated Practices will be received by the Company at the transferor's
historical cost basis for accounting purposes. The AnestheCare Acquisition, in
which the Company will acquire assets of an anesthesiology management services
organization located in Georgia, and the Kramer Transfer, in which the Company
will acquire the stock of Dr. Kramer's podiatric practice in Georgia, will not
be accounted for under SAB 48. Instead, these and all future individual practice
affiliations will be accounted for as purchases at fair market value and are
expected to result in purchase prices in excess of net assets acquired
(goodwill) which will require subsequent annual noncash amortization charges in
the Company's statements of operations. Monetary assets and liabilities,
including billed and unbilled receivables and credit balances, payables and
certain miscellaneous accruals will either be acquired by AMP at their fair
market value or retained by the Affiliated Practices, as agreed among the
parties.
In connection with the Transfers, AMP will acquire certain operating
assets, accounts receivable or the stock of entities holding the non-monetary
assets of the 46 separate Affiliated Practices in exchange for a combination of
cash, shares of Common Stock and assumed liabilities, and will enter into
long-term management agreements with the Regional Group Practices. The aggregate
consideration to be paid by the Company in the Transfers is approximately $34.5
million, consisting of approximately $22.4 million payable in shares of Common
Stock at the initial public offering price attributed to the net non-monetary
assets, approximately $5.3 million in cash and $656,000 of assumed indebtedness
attributed to the net non-monetary assets of the SAB 48 Transfers, $4.7 million
in cash attributed to the net monetary assets of the SAB 48 Transfers, and $1.4
million in cash attributed to the Kramer Transfer. Of the total consideration
attributed to the non-monetary assets for each SAB 48 transaction, the
Affiliated Practices could elect to receive up to 25% in cash and the balance in
shares of Common Stock based on the initial offering price. The non-monetary
assets and liabilities of these Affiliated Practices will carry over at their
historical costs to AMP. The number of shares to be issued is contingent upon
the Offering price and will not be determined until the Offering date. The
assets to be transferred include cash, billed and unbilled receivables, supplies
inventory, other receivables, prepaid expenses, net equipment and certain other
current and noncurrent assets. The liabilities to be transferred include credit
balances of accounts receivable, certain miscellaneous accruals and debt
assumed. Consideration in the AnestheCare Acquisition will consist of
approximately $4.5 million in cash. Additional consideration of up to $1.5
million in cash and a number of shares of Common Stock equal to $500,000 valued
at the initial offering price, may be paid to the owners of AnestheCare pending
AnestheCare's achievement of certain performance targets over a three-year
period beginning January 1, 1998. Cash and liabilities assumed totaling
approximately $6.0 million paid to the Affiliated Practices for the non-monetary
assets will be recorded as a dividend by the Company.
The Company's methodology for valuing the non-monetary assets in the
Transfers was primarily based upon a multiple of the projected earnings
contribution to AMP utilizing adjusted historical financial information of the
respective Affiliated Practices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEFERRED ISSUANCE COSTS
The Company has incurred certain costs including legal, accounting and
other professional services associated with the Transactions and the Offering.
These costs have been deferred pending the consummation of the Transactions and
the Offering.
REVENUE RECOGNITION
Revenues from managing the practices and ancillary operations will be
recognized on a monthly basis as the services are provided. The revenue of AMP
will consist of the sum of the management fees and such amounts equal to the
operating expenses of the podiatric practice assumed by AMP under the management
agreements and owned ancillary operations. In general, the management agreements
provide for the payment of fees to the Company based on a negotiated percentage
of the adjusted patient revenue of the podiatric practice and ancillary
operations. Adjusted patient revenue is net patient revenue, as determined under
generally accepted accounting principles, including adjustments for contractual
allowances and other
F-8
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discounts, plus an adjustment for uncollectible accounts. Expenses not required
to be paid by AMP pursuant to the agreements primarily consist of certain
professional expenses of the podiatrist.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
Since inception, the Company has incurred losses and is dependent upon the
consummation of the Transactions and the Offering to generate future income.
Accordingly, a full valuation allowance has been provided on tax benefits
generated during the development stage.
STOCK OPTIONS
The Company anticipates accounting for the issuance of options to employees
in accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Options issued to employees at an
exercise price at or above fair value at the date of grant would require no
compensation expense to be recorded under APB Opinion No. 25. In addition,
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation"(SFAS 123) will require pro forma disclosure
reflecting the effect of recording the employee stock options under SFAS 123
which would require compensation expense based upon the fair value of the equity
instrument granted over the expected vesting period. Options issued to
non-employees will be accounted for under SFAS No. 123. Options issued to
non-employees require compensation expense to be recorded for the fair value of
the equity instrument granted over the expected vesting period.
EARNINGS PER SHARE
Earnings per share has been excluded from the financial statements because
the Company has limited historical operations and does not have a significant
operating history. Accordingly, earnings per share is less meaningful.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
INTERIM UNAUDITED FINANCIAL INFORMATION
The interim financial statements as of and for the nine months ended
September 30, 1997 are unaudited and certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, they include all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the unaudited
financial statements for this interim period have been included. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of interim periods are not necessarily indicative
of the results to be obtained for a full year.
ACCOUNTING PRONOUNCEMENTS
In November 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board issued EITF Consensus 97-2 regarding various
accounting matters relating to the physician practice management industry. This
pronouncement, which was along expected guidelines published during the
deliberation period, did not negatively impact the planned transaction or the
proposed accounting for the transactions and future accounting for AMP. The
pronouncement clarifies that stock options issued to non-employees of the
Company, such as the DPM's in the Regional Group Practices, do not qualify for
F-9
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employee stock option accounting. Thus any such options issued to non employee
DPM's will be charged to the income statement. As expected, further affiliations
with podiatric practices will need to be accounted for as a contractual
relationship with the excess of purchase price paid over net assets acquired
being assigned to an intangible asset and amortized over future periods.
3. COMMITMENTS AND CONTINGENCIES
The Company will be subject to certain government regulations at the
federal and state levels. In compliance with certain regulatory requirements,
the Company will not control the practice of podiatry. There can be no assurance
that the legality of any long-term management services agreements that will be
entered into will not be successfully challenged. There also can be no assurance
that the laws and regulations of states in which the Company will maintain
operations will not change or be interpreted in the future to restrict or
further restrict the Company's relationship with podiatrists.
Podiatrists may be subject to legal liability suits while under management
or physician engagement agreements with the Company. The Company will not
control or employ the podiatrists; however, the Company intends to acquire
certain liability insurance.
4. TRANSACTIONS WITH AFFILIATED PRACTICES
As discussed in Note 1, the Company plans to complete the Transfers through
a series of stock and asset exchanges, the acquisition of certain monetary
assets and assumption of certain liabilities of the Affiliated Practices
concurrently with an initial public offering of shares of its Common Stock.
AGREEMENTS WITH AFFILIATED PRACTICES AND REGIONAL GROUP PRACTICES
The Company is party to management agreements with each Regional Group
Practice. The owners of the Affiliated Practices, except Dr. Kramer, will enter
into five-year DPM engagement agreements with the Regional Group Practices.
Additionally, the non-owner employee podiatrists at the Affiliated Practices
will enter into employment and noncompete agreements with the Regional Group
Practices.
MANAGEMENT AGREEMENTS
The following summary of the management agreements is a general summary of
the form of the management agreements. The Company expects to enter into similar
agreements with other affiliated practices. The terms of the individual
management agreements into which the Company may enter in the future may vary
from the description below as a result of negotiations with individual practices
and the requirements of local laws and regulations.
Pursuant to the management agreements, the Company, among other things,
will (a) act as the exclusive manager and administrator of non-physician
services related to the operation of the Regional Group Practices, subject to
matters for which the Regional Group Practices maintain responsibility or which
are referred to the board of managers of the Regional Group Practices, (b) bill
patients, insurance companies and other third-party payors and collect, on
behalf of the Regional Group Practices, the fees for professional medical and
other services rendered (as allowed by local regulations), including goods and
supplies sold by the Regional Group Practices, (c) provide or arrange for, as
necessary, clerical, accounting, purchasing, payroll, legal, bookkeeping and
computer services and personnel, information management, preparation of certain
tax returns, printing, postage and duplication services and medical transcribing
services, (d) supervise and maintain custody of substantially all files and
records (medical records of the Regional Group Practices remain the property of
the Regional Group Practices), (e) provide facilities for the Regional Group
Practices, (f) prepare, in consultation with the policy boards and the Regional
Group Practices, all annual and capital operating budgets, (g) order and
purchase inventory and supplies as reasonably requested by the Regional Group
Practices, (h) implement, in consultation with the policy boards and the
Regional Group Practices, national and local public relations or advertising
programs, and (i) provide financial and business assistance in the negotiation,
establishment, supervision and maintenance of contracts and relationships with
managed-care and other similar providers and payors. Most of the services
described above are expected to be provided by employees previously employed by
the Affiliated Practices.
F-10
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Under the management agreements, the Regional Group Practices will retain
the responsibility for, among other things, (a) hiring and compensating
physician employees and certain other medical professionals, (b) ensuring that
physicians have the required licenses, credentials, approvals and other
certifications needed to perform their duties and (c) complying with certain
federal and state laws and regulations applicable to the practice of podiatric
medicine and (d) matters involving its corporate governance, employees and
similar internal matters, including but not limited to preparation and the
contents of reports to regulatory authorities and distribution of professional
fee income. In addition, the Regional Group Practices will maintain exclusive
control of all aspects of the practice of medicine and the delivery of medical
services.
Under the management agreements, the Company will earn fees from the
Regional Group Practices on a monthly basis. The Company will be entitled to
retain a service fee equal to the Regional Group Practice expenses and ancillary
expenses plus approximately 9% to 25% of the Regional Group Practice adjusted
patient revenues, subject to quarterly adjustment to reflect the fair value of
the management services provided considering the nature and volume of services
required and risks assumed by the Company. Adjustments to reflect the fair value
of the management services may occur for a variety of reasons including
unexpected variations in revenues or expenses of the Regional Group Practice.
Any adjustments to the service fee percentage would be made on a prospective
basis. Accordingly, the Company will maintain a net revenue interest and not a
net profits interest. In addition, the Company will generally be entitled to a
fee of approximately 70% of the ancillary revenues, net of certain operating
expenses, of the Regional Group Practice.
The management agreements between the Company and the Regional Group
Practices will have initial terms of 40 years, with automatic extensions (unless
specified notice is given) of additional 10-year terms. The management
agreements may be terminated by either party if the other party (a) files a
petition in bankruptcy or other similar events occur or (b) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice and, in the case of the Regional Group Practice, has
also been approved by 80% of the equity holders of the Regional Group Practice.
In addition, the Company may terminate the agreement if the Regional Group
Practice or any DPM (a) engages in conduct or is formally accused of conduct
that would subject his or her license to practice medicine to be revoked or (b)
is otherwise disciplined by any licensing, regulatory or professional entity or
institution, if the result of any event described in clause (a) or (b)
reasonably would be expected to materially adversely affect the group practice.
During the term of the management agreement and for a period of one year
thereafter, the Regional Group Practices agree not to compete with the Company
in providing services similar to those provided by the Company or by any
Regional Group Practice anywhere within 20 miles of any location at which any
DPM of the Regional Group Practice has practiced medicine in the last year. In
addition, the initial management agreement makes the Company a third-party
beneficiary of the physician engagement agreement including the noncompetition
and liquidated damages provisions therein. The management agreements generally
require the Regional Group Practices to pursue enforcement of these provisions
or to assign to the Company the right to pursue enforcement. Furthermore, the
Company may require the Regional Group Practice to pay liquidated damages owed
by a departing DPM before those damages are collected by the Regional Group
Practice.
The Regional Group Practices will be responsible for obtaining professional
liability and workers' compensation insurance for the DPMs and other medical
employees of the Regional Group Practices, as well as general liability umbrella
coverage. The Company is responsible for obtaining professional liability and
workers' compensation insurance for employees of the Company and arranging for
general liability and property insurance for the Regional Group Practices.
The management agreements will contain indemnification provisions pursuant
to which the Company will indemnify the Regional Group Practices for damages
resulting from negligent acts or omissions by the Company or its agents,
employees or stockholders. In addition, the Regional Group Practices indemnify
the
F-11
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company for any damages resulting from any negligent act or omission by any
affiliated DPM, agent or employee of the Regional Group Practices, other than
damages resulting from claims arising from the performance or nonperformance of
medical services.
PHYSICIAN ENGAGEMENT AGREEMENTS
In addition to becoming a member of a Regional Group Practice, each
affiliated DPM will enter into an engagement agreement with that Regional Group
Practice (the "Physician Engagement Agreement").
The Physician Engagement Agreements are for a period of five years with
successive two-year renewal periods thereafter. DPMs entering into Physician
Engagement Agreements agree to practice podiatric medicine on a full-time basis
for the Regional Group Practice in return for a percentage of the earnings
before taxes of and certain ancillary revenues related to that Regional Group
Practice. A Physician Engagement Agreement terminates (a) upon the death of the
DPM, (b) upon the DPM's "disability" or (c) at the Regional Group Practice's
option, for "cause," as defined in the Physician Engagement Agreement. If the
Physician Engagement Agreement terminates, other than at the normal expiration
of its term or as a result of a violation by the Regional Group Practice, the
DPM agrees to pay an amount of liquidated damages to the Regional Group Practice
approximately equal to the twelve months of the Affiliated Practice expenses
attributable to that DPM and agreed to by the Company at the time the Purchase
Agreement was executed. Furthermore, during the term of the Physician Engagement
Agreement and for a period of one year commencing upon expiration or termination
of the agreement, the DPM will not compete with the Regional Group Practice
within a radius of 20 miles of the offices at which that DPM practiced podiatry
in the last year.
The management fees earned by the Company will be in accordance with a
standard management agreement which calls for a calculation of the monthly
management fee based primarily on the total revenues earned by the Regional
Group Practices. There are adjustments to the management fees designed to both
provide incentives for the DPMs to provide efficient patient treatment and to
increase the number of patients treated, as well as to ensure that the DPMs
retain a minimum amount for payment of their compensation from their respective
Regional Group Practice on a monthly basis. The Company believes the fees to be
generated by these formulas will be reflective of the fair market value of the
services provided and will be comparable to the fees earned by other management
companies in the respective jurisdictions where these arrangements will exist.
For illustrative purposes, the management fee model outlined above has been
applied to the historical financial information of the Affiliated Practices
included on the following pages. In addition, the fee will include an amount
approximately equal to the expenses of the Regional Group Practice and other
ancillary service expenses. Applying the management fee agreements to the
historical results of the Affiliated Practices, the total unaudited management
fee revenues for the year ended December 31, 1996 would have been:
(UNAUDITED)
--------------
Affiliated Practice and ancillary
service management fees............... $ 3,031,502
Affiliated Practice and ancillary
service expenses...................... 14,826,220
--------------
Total unaudited management fee
revenues................... $ 17,857,722
==============
In addition, unaudited earnings of AMP attributed to AnestheCare would
approximate that of the historical income from operations of AnestheCare of $1.1
million for the year ended December 31, 1996.
The above unaudited management fee data is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have been achieved if the Transactions had been consummated as of January
1, 1996, nor is it necessarily indicative of the future operating results of the
Company.
F-12
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
HISTORICAL INFORMATION OF AFFILIATED PRACTICES
The combined historical financial information of the Affiliated Practices
presented herein is not related to the financial position or results of
operations of AMP. This information is presented solely for the purpose of
providing disclosures to potential investors regarding the group of entities
with which AMP will be contracting to provide future services due to the
significant relationships between AMP and the Affiliated Practices. The
Affiliated Practices' financial information is presented on a combined
historical basis due to the fact that their service and engagement agreements
with the Company will be effective on the completion of the Offering. The
Affiliated Practices were not operated under common control or management during
the fiscal year ended December 31, 1996, or during the nine months ended
September 30, 1997.
COMBINED ADJUSTED REVENUES
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
1996 1997
------------ -----------
(UNAUDITED)
Affiliated Practices' net patient
revenues........................... $ 21,238,392 $15,847,767
Ancillary service revenues of
Affiliated Practices............... 2,486,220 1,716,494
AnestheCare.......................... 1,867,646 1,662,522
------------ -----------
Total combined adjusted
revenues................ $ 25,592,258 $19,226,783
============ ===========
OPERATING EXPENSES
Subsequent to the Transfers, substantially all of the operating expenses of
the Affiliated Practices will be the responsibility of AMP through the Regional
Group Practices to be formed. The Company shall be responsible for the payment
of all operating expenses incurred by the Regional Group Practice as required to
operate a podiatric office. These expenses will include the following:
a. Salaries, benefits, payroll taxes, workers' compensation, health
insurance and other benefit plans, and other direct expenses of all
employees of the Regional Group Practices, excluding those costs
associated with AMP and any other classification of employee which AMP
is prohibited from employing by law.
b. Direct costs of all employees or consultants that provide services to
each Regional Group Practice.
c. Office supplies as permitted by law.
d. Lease or rent payments as permitted by law, depreciation, principal and
other debt service, utilities, telephone and maintenance expenses for
practice facilities.
e. Property taxes on AMP assets located at Regional Group Practice
offices.
f. Property, casualty, liability and malpractice insurance premiums.
g. Recruiting expenses.
h. Interest on advances to Regional Group Practice bank accounts.
i. Advertising and other marketing expenses attributable to the promotion
of Regional Group Practice offices.
All of the above expenses will be incurred by AMP and be paid directly to
the third-party provider of the goods or services indicated.
The Regional Group Practices will assume responsibility for the payment of
any and all direct employment expenses, including benefits, for any DPM or other
employee that AMP is prohibited by law from employing. In addition, the Regional
Group Practices will retain responsibility for the payment of continuing
education expenses, seminars, professional licenses, professional membership
dues and all other expenses of any DPM.
F-13
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The combined historical expenses of the Affiliated Practices, ancillary
services of the Affiliated Practices and AnestheCare for the year ended December
31, 1996, and the nine months ended September 30, 1997, were as follows:
COMBINED DETAIL OF EXPENSES
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Salaries, wages and benefits of
employees, excluding the DPMs...... $ 4,188,504 $ 3,049,196
Supplies............................. 1,552,930 1,184,584
Rent................................. 1,728,239 1,210,081
Advertising and marketing............ 520,945 388,983
General and administrative........... 7,006,604 5,919,435
Depreciation and amortization on
acquired assets.................... 592,823 314,873
------------ -------------
Total expenses............. $ 15,590,045 $ 12,067,152
============ =============
The DPM's received $6,535,071 and $4,425,287 as compensation expense
leaving $3,873,967 and $3,105,621 as distributable earnings during the year
ended December 31, 1996 and the nine months ended September 30, 1997
(unaudited), respectively.
The above presentation of the combined expenses of the Affiliated
Practices, ancillary services of the Affiliated Practices and AnestheCare is
presented solely for the purpose of providing disclosure to potential investors
regarding the group of entities with which AMP will be contracting to provide
future services. All of the historical expenses incurred (as noted above) will
not be assumed by AMP and are not necessarily indicative of the expenses to be
incurred by the Company in the future.
RECEIVABLES OF AFFILIATED PRACTICES
The following table presents the combined uncollected patient receivables
of the Affiliated Practices and AnestheCare affiliate receivables, net of
allowance for bad debts and contractual allowances.
COMBINED NET RECEIVABLES
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ --------------
(UNAUDITED)
Patient receivables, net of
contractual and bad debt allowances
of $4,356,060 and $4,390,398,
respectively....................... $4,117,057 $3,883,231
AnestheCare affiliate receivables.... 386,970 216,412
------------ --------------
$4,504,027 $4,099,643
============ ==============
5. SUBSEQUENT EVENTS (UNAUDITED)
As of December 29, 1997, 1,000,000 shares of Common Stock were authorized,
20,000 shares of Common Stock were issued and outstanding.
In connection with the Offering, it is anticipated that existing shares of
the Company's Common Stock will be converted into shares of Class B Common
Stock. In addition, it is anticipated that following such conversion and prior
to the closing of the Offering, the Company will effect a stock split of the
Company's Class B Common Stock.
Upon consummation of the Offering, holders of the Class B Common Stock will
have the ability to elect as a class one member of the Board of Directors and
the holders of the Common Stock will have the ability to elect as a class all
other members of the Board of Directors. The Common Stock and Class B Common
Stock possess ordinary voting rights and vote together as a single class in
respect of all other corporate matters, and, in connection therewith, holders of
shares of Common Stock are entitled to one vote per share and holders of shares
of Class B Common Stock are entitled to ________ of a vote per share. The
F-14
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock and Class B Common Stock afford no cumulative voting rights, and
the holders of a majority of the shares voting for the election of directors can
elect all the directors if they choose to do so. Except for the conversion
rights of the Class B Common Stock described below, the Common Stock and Class B
Common Stock carry no preemptive rights, are not convertible, redeemable,
assessable or entitled to the benefits of any sinking fund. The holders of
Common Stock and Class B Common Stock are entitled to dividends in such amounts
and at such times as may be declared by the Board of Directors out of funds
legally available therefore.
Each share of Class B Common Stock will automatically convert into shares
of Common Stock (i) in the event of a disposition of such share of Class B
Common Stock by the holder thereof (excluding dispositions to such holder's
affiliates), (ii) in the event any person not affiliated with the Company
acquires beneficial ownership of 15% or more of the outstanding shares of
capital stock of the Company, (iii) in the event any person not affiliated with
the Company offers to acquire 15% or more of the outstanding shares of capital
stock of the Company, (iv) in the event the holder of such shares elects to so
convert at any time after the second anniversary of the date of this Prospectus,
(v) on the fifth anniversary of the date of this Prospectus or (vi) in the event
the holders of a majority of the outstanding shares of Common Stock approve such
conversion. In addition, the Company may elect to convert any outstanding shares
of Class B stock into shares of Common Stock in the event 80% or more of the
outstanding shares of Class B Common Stock as of the date of this Prospectus
have previously been converted into shares of Common Stock.
The Board of Directors is authorized, without further action by the
stockholders, to provide for the issuance of shares of Preferred Stock as a
class without series or in one or more series, to establish the number of shares
in each class or series and to fix the designation, powers, preferences and
rights of each such class or series and the qualifications, limitations or
restrictions thereof. Because the Board of Directors has the power to establish
the preferences and rights of each class or series of Preferred Stock, the Board
of Directors may afford the holders of any class or series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock or the Class B Common Stock. The issuance of Preferred
Stock could have the effect of delaying or preventing a change in control of the
Company. To date, the Company has not issued any Preferred Stock but the Board
has authorized the issuance of the Series A Junior Participating Preferred Stock
of the Company.
Subsequent to September 30, 1997, the Company adopted the 1997 Incentive
and Non-Qualified Stock Option Plan (the "1997 Plan") to provide incentives to
attract and retain directors, officers, advisors, consultants and key employees.
Officers, directors, employees of the Company, consultants and advisors to the
Company are eligible to receive awards under the 1997 Plan, at the Plan
Administrator's discretion. Awards available under the 1997 Plan include: (i)
common stock purchase options; (ii) stock appreciation rights; (iii) restricted
stock; (iv) deferred stock; (v) performance shares and (vi) other stock based
awards. The Company has reserved up to 8% of the shares of its Common Stock for
granting of awards under the 1997 Plan. Under the terms of the 1997 Plan, the
Plan Administrator retains discretion, subject to plan limits, to modify the
terms of outstanding awards and to reprice awards. Subsequent to September 30,
1997, options to purchase 3.34% of the shares of Common Stock were granted, and
options to purchase 0.37% of the shares of Common Stock were authorized, but not
granted, all at an exercise price equal to the initial public offering price.
The Company anticipates granting options to purchase additional shares of Common
Stock to employees of AMP and the Regional Group Practices, prior to or
contemporaneous with the closing of the Offering, at a purchase price equal to
the initial public offering price.
During September 1997, AFC entered into a loan and security agreement which
resulted in borrowings of $500,000 from a third party. The borrowings bear
interest at an annual rate of 18%, payable quarterly, and are due March 31, 1998
or the fifth day following the date of the initial public offering of AMP.
Proceeds under the loan are being used by AFC to fund certain expenses on behalf
of AMP in conjunction with AMP's proposed initial public offering. Upon the
closing of the Offering, AMP will assume this obligation of AFC in satisfaction
of amounts due to AFC. The agreement provides for, at the lenders' option
exercised by notice prior to the initial public offering pricing, the conversion
of any or all of the outstanding
F-15
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal and accrued interest on the loan into shares of AMP Common Stock
offered in the Offering valued at the initial public offering price.
During January 1998, AFC intends to complete a financing of $1,500,000,
representing $1,425,000 in non-interest bearing loans and $75,000 representing
15 membership interests in AFC to fund certain expenses on behalf of AMP, in
conjunction with AMP's proposed initial public offering. The financing provides
for the loans to be repaid by AFC from funds it will receive from AMP's initial
public offering. Additionally, at the investor's option prior to the Offering,
AFC is required to repurchase each of the 15 membership units in AFC in exchange
for either (i) $71,667 in cash or (ii) $71,667 worth of AMP Common Stock offered
in the Offering valued at the initial public offering price. Upon the closing of
the Offering, AMP will assume this obligation of AFC in satisfaction of amounts
due to AFC.
The Company has received from a major international financial institution a
commitment for a $30.0 million, three-year revolving credit facility that is
expected to be available to help fund the Company's working capital needs,
capital expenditures and anticipated future affiliations. The credit facility is
expected to contain customary affirmative and negative covenants (including
proscriptions on the payment of dividends and capital expenditures.) The credit
facility is expected to bear interest at either the London Inter-Bank Offered
Rate or, at the Company's option, the lender's base rate, plus a margin based on
the ratio of the Company's senior debt to earnings before interest, taxes,
depreciation and amortization. There can be no assurance that the Company will
ultimately close on the credit facility.
The Board of Directors is authorized without further action by the
stockholders to provide for the issuance of shares of Preferred Stock as a class
without series or in one or more series, to establish the number of shares in
each class or series and to fix the designation, powers, preferences, powers and
rights, of each such class or series and the qualifications, limitations or
restrictions thereof. The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of the Company.
In the first quarter of 1998, AMP intends to complete its initial public
offering of its Common Stock and intends to simultaneously exchange cash and
shares of its Common Stock for certain assets and liabilities of the founding
practices upon consummation of the Offering. An investment in shares of Common
Stock offered by this prospectus involves a high degree of risk, including,
among others, limited operating history of the Company and combined practices,
dependence on operative agreements, dependence on Regional Group Practices,
implementation of information systems, dependence upon key personnel, growth
strategy, managed care, future health care reform, competition and the need for
additional funds. For a more thorough discussion of risk factors, see "Risk
Factors" included elsewhere in this prospectus.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pyramid Anesthesiology Group, Inc.:
We have audited the accompanying balance sheets of Pyramid Anesthesiology
Group, Inc. (the "Company" or "AnestheCare"), a Georgia S Corporation, as of
December 31, 1995 and 1996, and September 30, 1997, and the related statements
of operations, stockholders' equity and cash flows for the years ended December
31, 1995 and 1996, and the nine months ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pyramid Anesthesiology
Group, Inc., as of December 31, 1995 and 1996, and September 30, 1997, and the
results of its operations and its cash flows for the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 15, 1997
F-17
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
BALANCE SHEETS
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- --------------
ASSETS
CURRENT ASSETS:
Cash............................ $ 5 $ 42,464 $ 36,947
Accounts receivable............. 31,970 -- --
Accounts receivable from
affiliates.................... 550,525 386,970 216,412
Other current assets............ 3,980 1,183 --
---------- ---------- --------------
Total current assets....... 586,480 430,617 253,359
---------- ---------- --------------
EQUIPMENT, at cost
Computers and equipment......... 88,960 132,029 151,867
Furniture and fixtures.......... 97,575 115,860 115,860
---------- ---------- --------------
186,535 247,889 267,727
Less-Accumulated depreciation... (26,373) (86,775) (118,440)
---------- ---------- --------------
160,162 161,114 149,287
---------- ---------- --------------
OTHER ASSETS:
Investment...................... 18,000 7,200 7,200
---------- ---------- --------------
$ 764,642 $ 598,931 $ 409,846
========== ========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 13,726 $ 20,904 $ 58,390
Due to affiliates............... 250,770 260,504 30,984
Accrued expenses................ 15,122 41,543 55,931
Note payable to related party... 26,438 74,776 59,484
---------- ---------- --------------
Total current
liabilities............. 306,056 397,727 204,789
---------- ---------- --------------
STOCKHOLDERS' EQUITY:
Common stock.................... 2,000 2,000 2,000
Retained earnings............... 456,586 199,204 203,057
---------- ---------- --------------
Total stockholders'
equity.................. 458,586 201,204 205,057
---------- ---------- --------------
$ 764,642 $ 598,931 $ 409,846
========== ========== ==============
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ ------------
REVENUES............................. $ 1,009,017 $ 1,867,646 $ 1,662,522
OPERATING EXPENSES................... 495,960 763,825 705,765
------------ ------------ ------------
Income from operations..... 513,057 1,103,821 956,757
------------ ------------ ------------
OTHER INCOME:
Interest income................. 3,851 1,719 1,540
Gain on sale of investment to
affiliate..................... -- 196,875 --
Other........................... 16,558 11,203 50,253
------------ ------------ ------------
Total other income......... 20,409 209,797 51,793
------------ ------------ ------------
NET INCOME........................... $ 533,466 $ 1,313,618 $ 1,008,550
============ ============ ============
PRO FORMA DATA (unaudited):
Historical Net Income........... $ 533,466 $ 1,313,618 $ 1,008,550
Pro Forma Income Taxes.......... 213,386 525,447 403,420
------------ ------------ ------------
Pro Forma Net Income....... $ 320,080 $ 788,171 $ 605,130
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- ------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 2,000 $ 2,000 $ 45,341 $ 47,341
Stockholder distributions....... -- -- (122,221) (122,221)
Net income...................... -- -- 533,466 533,466
------- ------- ----------- --------------
BALANCE, December 31, 1995........... 2,000 2,000 456,586 458,586
Stockholder distributions....... -- -- (1,571,000) (1,571,000)
Net income...................... -- -- 1,313,618 1,313,618
------- ------- ----------- --------------
BALANCE, December 31, 1996........... 2,000 2,000 199,204 201,204
Stockholder distributions....... -- -- (1,004,697) (1,004,697)
Net income...................... -- -- 1,008,550 1,008,550
------- ------- ----------- --------------
BALANCE, September 30, 1997.......... 2,000 $ 2,000 $ 203,057 $ 205,057
======= ======= =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
1995 1996 1997
------------ -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 533,466 $ 1,313,618 $ 1,008,550
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation.................... 26,373 60,402 31,664
Gain on sale of investments..... -- (196,875) --
Changes in assets and
liabilities --
Accounts receivable........... 3,030 31,970 --
Accounts receivable from
affiliates................. 926,388 163,555 170,550
Other current assets.......... (3,980) 2,797 1,183
Accounts payable.............. (13,486) 7,178 37,486
Due to affiliates............. (1,186,590) 9,734 (229,520)
Accrued expenses.............. 15,122 26,421 14,388
------------ -------------- --------------
Net cash provided by operating
activities.................... 300,323 1,418,800 1,034,301
------------ -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment....................... (186,535) (61,354) (19,829)
Purchase of investment............. (18,000) -- --
Proceeds from sale of investment... -- 207,675 --
------------ -------------- --------------
Net cash provided by (used in)
investing activities.......... (204,535) 146,321 (19,829)
------------ -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders...... (122,221) (1,571,000) (1,004,697)
Note payable to related party...... 26,438 48,338 (15,292)
------------ -------------- --------------
Net cash used in financing
activities.................... (95,783) (1,522,662) (1,019,989)
------------ -------------- --------------
NET INCREASE (DECREASE) IN CASH...... 5 42,459 (5,517)
CASH, beginning of period............ -- 5 42,464
------------ -------------- --------------
CASH, end of period.................. $ 5 $ 42,464 $ 36,947
============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pyramid Anesthesiology Group, Inc. (the "Company"), a Georgia S
Corporation, was incorporated on February 1, 1993, for the purpose of providing
billing and management services for entities that provide health care-related
services for local hospitals and to members of the community. The Company began
generating revenues from its primary operations in March 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
INVESTMENT
The Company maintains an ownership interest in a partnership. Since the
Company's ownership does not represent a significant influence, the investment
is accounted for under the cost method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, receivables and accounts payable approximates
fair value due to the short maturity of these instruments.
PROPERTY AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets.
Those lives are as follows:
Computers and equipment.............. 5 years
Furniture and fixtures............... 7 years
Maintenance and repairs are charged to expense as incurred whereas major
renewals and betterments are capitalized. When items of property or equipment
are sold or retired, the related cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in income.
REVENUE RECOGNITION
The Company earns revenues under various cost-sharing agreements which are
based upon a percentage of revenues of the customer. Accordingly, the Company
recognizes revenues under the cost-sharing agreements based upon the accrual
basis revenues of the respective customer.
Additionally, the Company earns revenues from SCNA for providing consulting
services as the service is provided (see Note 2).
The Company also earns revenues through the provision of management and
billing services (see Note 2). The Company's management agreements primarily
provide that revenues are earned based upon a percentage of cash collected by
the respective business. Accordingly, the Company recognizes management fee
revenues as cash is collected by the customer.
INCOME TAXES
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation for tax purposes. In lieu of
corporation income taxes, the stockholders of an S Corporation
F-22
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provisions or liability for income taxes has been included in the
financial statements.
The Company's S-Corporation status will terminate effective with the
acquisition by AMP further discussed in Note 4. The deferred taxes estimated
upon conversion to C-Corporation status are not expected to be material. The
unaudited pro forma data presents the incremental provision for income taxes as
if the Company had been subject to federal and state income taxes, assuming a
blended rate of 40%.
SIGNIFICANT CONCENTRATIONS
Substantially all of the Company's revenue is from services performed
through affiliates of the Company (see Note 2). The Company's parent has signed
a professional services agreement with one hospital which expires September 30,
1999, with continuing one-year renewal options thereafter. Approximately 32% and
47% of the Company's revenues were from services associated with this contract
during the years ended December 31, 1995 and 1996, respectively. Effective
January 1, 1997, the Company restructured the professional services agreements.
The Company began processing the billing of patients directly at this time for
affiliates of the Company (as described in Note 2) and the revenues generated
associated with this contract were intermingled with the revenues from
affiliates of the Company.
2. RELATED-PARTY TRANSACTIONS
The Company provides services to a group of affiliated companies (the
"Affiliates"). As of December 31, 1995 and 1996, and September 30, 1997 the
Affiliates with some common owners are Georgia Rehabilitation Center ("GRC"),
Southern Crescent Nurse Anesthesia, LLC, ("SCNA") and Cell Saver, Inc.
Southern Crescent Anesthesiology, Inc. ("SCA"), is also an affiliate but is
not under common control.
The Company earns 7 to 10 percent of all revenues collected on behalf of
the Affiliates. In addition, revenues from services provided to three hospitals
are earned through affiliates of the Company, primarily through a professional
services agreement between the parent company, AnestheCare, Inc. (the
"Parent"), and one hospital. Accounts receivable from these affiliated
entities as of December 31, 1995 and 1996, and September 30, 1997, were
$550,525, $386,970, and $216,412, respectively. Revenues from these affiliated
entities for the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1997 under these collections agreements were $1,006,035,
$1,632,125, and $500,626, respectively. Based upon contractual arrangements
between the Company and the Affiliates through December 31, 1996, certain
general and administrative costs which benefit all the entities are shared
amongst all entities. The contractual arrangements provided that these
indentified costs, primarily payroll costs of certain personnel, would be
allocated evenly among Pyramid, GRC, SCNA and SCA. Expenses allocated to the
Affiliates for the years ended December 31, 1995 and 1996, were $57,500 and
$230,728, respectively. As of December 31, 1996, one of the Affiliates had
prepaid $17,166 of these expenses, which is shown as due to affiliates in the
accompanying financial statements. Management believes that the methods used to
allocate these expenses are reasonable. Effective January 1, 1997, the
agreements with Affiliates were restructured and the Company now earns 6 to 12
percent of revenues of the Affiliates as a charge for general and administrative
costs. Revenues earned under this cost-sharing agreement were $825,507 for the
nine months ended September 30, 1997.
In January of 1996, the Company sold its 60% interest in Peachtree
Lithotripsy to an affiliate, SCA, for approximately $208,000 resulting in a gain
on the sale of approximately $197,000.
During 1997, two owners of the Company, who were previously member owners
in SCNA, withdrew their membership from SCNA. Additionally, the Company entered
into an agreement whereby it would act as consultant on behalf of SCNA. Included
in 1997 revenues are $274,075 of consulting revenues related to these
agreements. Effective January 1, 1997, the terms of this agreement specified
that the consulting fee would be $25,000 per month, plus 15% of SCNA's taxable
income, as defined.
F-23
<PAGE>
PYRAMID ANESTHESIOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
The Company rents office space from one of the Affiliates for $5,166 per
month through August 2005. Rent expense for 1996 was $61,992. The Company
additionally leases a light truck and an office copier.
Future minimum payments under these leases are as follows:
Year ending September 30 --
1998............................ $ 74,647
1999............................ 75,024
2000............................ 72,444
2001............................ 69,261
2002............................ 62,532
Thereafter...................... 177,264
----------
$ 531,172
==========
The Company has a defined contribution 401(k) plan. Eligible employees can
contribute up to 15 percent of their compensation, and the Company may make a
discretionary matching contribution. For 1996, the Company contributed $8,625.
No matching contributions have been approved for 1997.
4. SUBSEQUENT EVENTS
In October 1997, the Company entered into an agreement with American
Medical Providers, Inc. ("AMP"), pursuant to which AMP or a designated
subsidiary will acquire substantially all of the assets and operations of the
Company. The scope of the ongoing operations of the Company will be
significantly reduced as a result of the sale.
F-24
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Simultaneously with and as a condition to the closing of the initial public
offering (the "Offering"), American Medical Providers, Inc. (the "Company"
or "AMP") will acquire certain operating assets and accounts receivable or
stock of 46 separate podiatric practices (these practices, including the
practice acquired in the Kramer Transfer (defined below), the "Affiliated
Practices") (the "Transfers") in exchange for cash, shares of class A common
stock, $.01 par value per share (the "Common Stock") and the assumption of
certain indebtedness. The aggregate consideration to be paid by the Company to
the initial Affiliated Practices is approximately 34.5 million including the
Kramer Transfer. AMP will also acquire through a transaction to be accounted for
as a purchase, certain assets of Pyramid Anesthesiology Group, Inc. (the
"AnestheCare Acquisition"), an anesthesiology management services organization
("AnestheCare" for consideration of approximately $4.5 million in cash.
Additional consideration of up to $1.5 million in cash and $500,000 payable in
shares of Common Stock at the initial public offering price may be paid in the
AnestheCare Acquisition pending AnestheCare's achievement of certain performance
targets over a three-year period beginning January 1, 1998. In addition, AMP
will acquire the stock of the podiatric practice of Dr. Jerald N. Kramer ("Dr.
Kramer"), one of the affiliated practices (the "Kramer Transfer", and
together with the Transfers and the AnestheCare Acquisition, "the
Transactions"). Dr. Kramer will receive cash of $1.4 million in exchange for
assets acquired by the Company, but Dr. Kramer will not enter into a management
services agreement or a physician engagement agreement with a Regional Group
Practice. The Transfers, except for the Kramer Transfer, will be accounted for
pursuant to Staff Accounting Bulletin No. 48, "Transfers of Non-monetary Assets
by Promoters and Shareholders" ("SAB No. 48"). As a result, these
transactions will result in the carryover basis of non-monetary assets of the
Affiliated Practices.
The following unaudited pro forma combined balance sheet gives effect to
the Transactions and the Offering, and is based upon the historical financial
statements of AMP, the Affiliated Practices as a group, and AnestheCare.
The unaudited pro forma combined balance sheet gives effect as if such
events had occurred on September 30, 1997. The unaudited pro forma combined
balance sheet should be read in conjunction with other financial information,
including the financial statements of AMP included elsewhere in this Prospectus.
The Company will not employ podiatrists or control the practice of
podiatry. As the Company will not be acquiring the future patient revenues
earned by the Affiliated Practices, the Transfers are not deemed to be business
combinations. In accordance with SAB No. 48, the Transfers will be accounted for
at the historical cost basis with the shares of common stock to be issued in
those transactions being valued at the historical cost of the net non-monetary
assets acquired.
The unaudited pro forma combined balance sheet is presented for
illustrative purposes only and is not necessarily indicative of the financial
position that would have been achieved if the Transactions and Offering had been
consummated on the date indicated, nor is it necessarily indicative of the
future operating results of the Company. The pro forma adjustments are based
upon estimates, available information and certain assumptions and may be revised
as additional information becomes available.
F-25
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN COMBINED PRO POST
MEDICAL AFFILIATED PRO FORMA FORMA OFFERING
PROVIDERS, INC. PRACTICES ANESTHECARE ADJUSTMENTS COMBINED ADJUSTMENTS
--------------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $-- $ 1,091 $ 37 $ (912)(1) $ 37
(179)(3)
Patient receivables, net............ -- 4,160 -- -- 4,160
Affiliate receivables............... -- -- 217 -- 217
Deferred issuance costs............. 1,792 -- -- -- 1,792
Other current assets................ 25 334 -- (131)(1) 228
--------------- -------- ----------- ----------- -------- -----------
Total current assets............ 1,817 5,585 254 (1,222) 6,434
Equipment, net...................... 209 1,154 149 500(3) 2,012
Other assets........................ -- 389 7 (389)(1) 7
Goodwill............................ -- -- -- 4,090(2) 4,741
651(3)
--------------- -------- ----------- ----------- -------- -----------
Total assets.................... $ 2,026 $ 7,128 $ 410 $ 3,630 $13,194 $
=============== ======== =========== =========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and other current
liabilities....................... $ 1,511 $ 1,310 $ 205 $ (1,305)(1) $ 1,511
(205)(2)
(5)(3)
Due to stockholders................. 2,426 -- -- -- 2,426
Payable to Affiliated Practices..... -- -- -- 10,041(1) 10,041
Payable to AnestheCare.............. -- -- -- 4,500(2) 4,500
Payable to Kramer................... -- -- -- 1,400(3) 1,400
Deferred income taxes............... -- -- -- 966(4) 966
Current portion of long-term debt... -- 896 -- (240)(1) 656
--------------- -------- ----------- ----------- -------- -----------
Total current liabilities....... 3,937 2,206 205 15,152 21,500
--------------- -------- ----------- ----------- -------- -----------
Long-term debt, less current
portion........................... -- 1,116 -- (1,116)(1) --
--------------- -------- ----------- ----------- -------- -----------
Total liabilities............... 3,937 3,322 205 14,036 21,500
--------------- -------- ----------- ----------- -------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
American Medical Providers, Inc.
Class A Common Stock............ -- -- -- 2(1) 2
Class B Common Stock............ -- -- -- -- --
Accumulated deficit............. (1,911) -- -- (5,256)(1) (8,308)
(175)(3)
(966)(4)
Additional paid-in capital...... -- -- -- -- --
AnestheCare
Common Stock.................... -- -- 2 (2)(2) --
Retained earnings............... -- -- 203 (203)(2) --
Affiliated Practices' combined
equity............................ -- 3,806 -- (3,558)(1) --
(248)(3)
--------------- -------- ----------- ----------- -------- -----------
Total stockholders' equity
(deficit)..................... (1,911) 3,806 205 (10,406) (8,306)
--------------- -------- ----------- ----------- -------- -----------
Total liablities and
stockholders' equity.......... $ 2,026 $ 7,128 $ 410 $ 3,630 $13,194 $
=============== ======== =========== =========== ======== ===========
</TABLE>
PRO FORMA
AS ADJUSTED
-----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $
Patient receivables, net............
Affiliate receivables...............
Deferred issuance costs.............
Other current assets................
-----------
Total current assets............
Equipment, net......................
Other assets........................
Goodwill............................
-----------
Total assets.................... $
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and other current
liabilities....................... $
Due to stockholders.................
Payable to Affiliated Practices.....
Payable to AnestheCare..............
Payable to Kramer...................
Deferred income taxes...............
Current portion of long-term debt...
-----------
Total current liabilities.......
-----------
Long-term debt, less current
portion...........................
-----------
Total liabilities...............
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
American Medical Providers, Inc.
Class A Common Stock............
Class B Common Stock............
Accumulated deficit.............
Additional paid-in capital......
AnestheCare
Common Stock....................
Retained earnings...............
Affiliated Practices' combined
equity............................
-----------
Total stockholders' equity
(deficit).....................
-----------
Total liablities and
stockholders' equity.......... $
===========
The accompanying notes to the unaudited pro forma combined balance sheet
are an integral part of this financial statement.
F-26
<PAGE>
AMERICAN MEDICAL PROVIDERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following is a summary of the adjustments reflected in the unaudited
combined pro forma balance sheet:
(1) Reflects the issuance of shares of Common Stock of the
Company and cash of approximately $10.0 million in exchange for
certain operating assets and accounts receivable or stock and
assumption of certain liabilities of the Affiliated Practices. Assets
not acquired include cash, prepaid assets, and other non current
assets. Liabilities not assumed include accounts payable, accrued
liabilities, and a portion of long-term debt. The Affiliated Practices
will receive up to twenty five percent of the consideration in cash
and the remainder in Common Stock.
(2)_ Reflects the issuance of shares of Common Stock of the Company and
cash of approximately $6.0 million in connection with the AnestheCare
Acquisition. All assets of AnestheCare have been acquired and the
owners assumed the liabilities, thus eliminating any liabilities
acquired.
(3)_ Reflects the issuance of cash in exchange for stock and property in
the Kramer Transfer.
(4) Reflects the deferred income tax liability attributable to the
temporary differences between financial reporting and income tax bases
of assets and liabilities currently being acquired by AMP through the
Transactions.
F-27
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 16
Dividend Policy......................... 16
Dilution................................ 17
Capitalization.......................... 18
Selected Financial Data................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
Business................................ 23
Management.............................. 40
Certain Transactions.................... 46
Principal Stockholders.................. 50
Description of Capital Stock............ 51
Shares Eligible for Future Sale......... 54
Underwriting............................ 55
Legal Matters........................... 56
Experts................................. 56
Additional Information.................. 56
Index to Financial Statements........... F-1
UNTIL , 1998 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 ON SUBSCRIPTIONS.
SHARES
AMERICAN MEDICAL
PROVIDERS, INC.
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
A.G. EDWARDS & SONS, INC.
J.C. BRADFORD & CO.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company
(other than underwriting compensation expected to be incurred) in connection
with the offering described in this Registration Statement. All amounts are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
Securities and Exchange Commission
registration fee...................... $ 9,091
NASD filing fee.........................
Nasdaq National Market listing fee...... *
Blue sky fees and expenses.............. *
Printing and engraving fees and
expenses.............................. *
Legal fees and expenses................. *
Accounting fees and expenses............ *
Transfer agent and registrar fees and
expenses.............................. *
Premiums for D&O insurance.............. *
----------
Miscellaneous expenses.................. *
----------
Total.............................. $
==========
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
The General Corporation Law of the State of Delaware (the "DGCL")
provides for indemnification by a corporation of costs incurred by directors,
employees and agents in connection with an action, suit or proceeding brought by
reason of their position as a director, employee or agent. The person being
indemnified must have acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation. The DGCL
provides that a corporation may advance payment of expenses. The DGCL further
provides that the indemnification and advancement of expenses provisions of the
DGCL will not be deemed exclusive of any other rights to which these
indemnifications or advancements of expenses may be entitled under bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action under official capacity and as to action in another capacity when
holding such office.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the DGCL. This
section was enacted in June 1986 and allows a Delaware corporation to include in
its certificate of incorporation a provision that eliminates and limits certain
personal liability of a director for monetary damages for certain breaches of
the director' s fiduciary duty of care, provided that any such provision does
not (in the words of the statute) do any of the following:
"eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of this
Title [dealing with willful or negligent violation of the statutory
provision concerning dividends and stock purchases and redemptions], or
(iv) for any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability
of a director for any act or omission occurring prior to the date when such
provision becomes effective . . . ."
II-1
<PAGE>
CERTIFICATE OF INCORPORATION
The Amended Restated Certificate of Incorporation of the Company provides
that the liability of directors of the Company shall be eliminated to the
fullest extent permissible under the DGCL. If the DGCL is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Amended and Restated Certificate of Incorporation by the
stockholders of the Company shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director of the Company
existing at the time of such repeal or modification.
BYLAWS
The Bylaws of the Company generally provide that the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action by reason of the fact that he or she is
or was a director, officer, employee or agent, of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), actually and
reasonably incurred by him or her in connection with such action if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the Corporation; provided, however, that the
Company is only required to indemnify persons serving as directors, officers,
employees or agents of the Company for the expenses incurred in a proceeding if
such person is a party to and is successful, on the merits or otherwise, in such
proceeding. The Bylaws further provide that, in the event of any threatened, or
pending action, suit or proceeding in which any of the persons referred to above
is a party or is involved and that may give rise to a right of indemnification
under the Bylaws, following written request by such person, the Company will
promptly pay to such person amounts to cover expenses reasonably incurred by
such person in such proceeding in advance of its final disposition upon the
receipt by the Company of an undertaking executed by or on behalf of such person
providing that such person will repay the advance if it is ultimately determined
that such person is not entitled to be indemnified by the Company as provided in
the Bylaws.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
INSURANCE
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
The Company issued the shares of its existing common stock, without class,
par value $.01 per share as follows:
HOLDER NUMBER OF SHARES(1) DATE
- -------------------- -------------------- --------
Jack N. McCrary..... 3,500 8/22/96
Jack N. McCrary..... 3,000 8/22/96
Ankle and Foot
Centers of
America, LLC...... 11,250 8/22/96
Kevin C. Graham..... 20 8/22/96
Wayne A. Bertsch.... 552.5 10/14/96
Wayne A. Bertsch.... 2.5 6/16/97
Randy Johnson....... 552.5 10/14/96
Randy Johnson....... 2.5 6/16/97
Cherie J. Partain... 10 10/14/96
Cherie J. Partain... 15 6/16/97
Robert C. Joyner.... 320 6/16/97
Robert C. Joyner.... 235 9/09/97
Amanda Walker....... 5 6/16/97
Gary Hubschman...... 200 6/16/97
Karen Boyle......... 15 6/16/97
Kenneth Arrowood.... 100 9/09/97
Cecil Pickens....... 50 10/14/97
Joseph Grau......... 50 10/14/97
Robert C. Joyner, as
Escrow Agent...... 120 9/9/97
- ------------
(1) The Company received $200.00 in connection with the issuance of its original
20,000 shares to AFC and Jack McCrary. All other shares of the Company's
existing common stock were issued for par value.
On December , 1997 the Company converted each share of such common stock
into one share of the Company's Class B Common Stock, par value $.001 per share.
The foregoing securities were issued pursuant to the exemption from
registration under Section 4(2) of the Act since no public offering was involved
and the securities were acquired for investment and not with a view to
distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1+ -- Form of Amended and Restated Certificate of Incorporation of American Medical Providers,
Inc. (the "Company")
3.2+ -- Form of Amended and Restated Bylaws of the Company
5.1* -- Opinion of Baker & Hostetler, LLP regarding legality of securities being registered
10.1+ -- Form of 1997 Incentive and Non-Qualified Stock Option Plan of the Company
10.2 -- Employment Agreement between the Company and Jack N. McCrary
10.3 -- Employment Agreement between the Company and Wayne A. Bertsch
10.4 -- Employment Agreement between the Company and Randy E. Johnson
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.5 -- Form of Management Services Agreement by and among the Company and each Regional Group
Practice
10.6+ -- Form of Physician Employment Agreement by and between each non-practice owner DPM and the
Regional Group Practice
10.7+ -- Form of Physician Engagement Agreement by and between each DPM practice owner and the
Regional Group Practice
10.8+ -- Form of Stock Purchase Agreement among the Company and certain DPM practice owners
10.9+ -- Form of Business Purchase Agreement among the Company and certain DPM practice owners
10.10+ -- Asset Purchase Agreement dated October 31, 1997 among the Company and Pyramid
Anesthesiology Group, Inc.
10.11+ -- Form of Registration Rights Agreement between the Company and each DPM practice owner
10.12* -- Form of Stockholder Protection Agreement dated as of , 1997 between the
Company and , as Rights Agent.
10.13 -- Form of Reimbursement and Assumption Agreement dated as of December , 1997 between the
Company and Ankle & Foot Centers of America, L.L.C.
23.1 -- Consent of Arthur Andersen LLP
23.2* -- Consent of Baker & Hostetler, LLP (contained in Exhibit 5.1)
24.1+ -- Power of Attorney (contained on the signature page II-4 of this Registration Statement)
27.1 -- Financial Data Schedule
99.1 -- Consent of Stanley R. Kalish, D.P.M. to serve on the Company's Board of Directors
99.2 -- Consent of John S. Bace to serve on the Company's Board of Directors
99.3 -- Consent of S.F. Hartley, D.P.M. to serve on the Company's Board of Directors
99.4 -- Consent of Donald S. Huge, M.D. to serve on the Company's Board of Directors
</TABLE>
- ------------
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 14, or otherwise, the registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a
II-4
<PAGE>
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
American Medical Providers, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on December 31, 1997.
AMERICAN MEDICAL PROVIDERS, INC.
By: /s/ JACK N. McCRARY
JACK N. MCCRARY
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/JACK N. McCRARY Chairman, President, Chief December 31, 1997
JACK N. MCCRARY Executive Officer and Director
(Principal Executive Officer)
/s/WAYNE A. BERTSCH Senior Vice President, Chief December 31, 1997
WAYNE A. BERTSCH Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/CECIL R. PICKENS Vice President and Chief December 31, 1997
CECIL R. PICKENS Accounting Officer (Principal
Accounting Officer)
II-6
EXHIBIT 10.2
ANKLE & FOOT CENTERS OF AMERICA, L.L.C.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 17, 1997 between Ankle & Foot Centers of
America, L.L.C. a Delaware limited liability corporation (the "Company"), and
Jack N. McCrary, (the "Executive"), and joined into for the purposes
hereinafter stated by American Medical Providers, Inc., a Delaware Corporation
("AMP").
In consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of either of the following to occur: (a) the closing
of the proposed Initial Public Offering ("IPO") of American Medical Providers,
Inc., (formerly Podiatric Newco, Inc., ("AMP"), or (b) the sale or merger by
AMP of substantially all of the assets of AMP or by the Company's shareholders
of a controlling interest in AMP's stock, other than in connection with the IPO,
this Employment Agreement (the "Agreement") shall be assumed by "AMP")
and/or such company into which AMP is merged or by whom AMP is otherwise
acquired. Upon either of the events in (a) or (b) above, this Employment
Agreement shall supersede that certain letter agreement regarding employment
between the Company and Executive, dated as of N/A (the "Prior Agreement"),
and the Prior Agreement shall thereupon automatically terminate without further
obligation by either Executive or the Company. Upon AMP's assumption of this
Agreement, all references to the Company herein shall thereafter refer to AMP.
2. TERM OF EMPLOYMENT: DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the S-1
registration filed by "AMP" in connection with its IPO (or in the event of a
sale or merger ("Sale or Merger") of the Company, as defined in the definitive
agreement associated therewith) the employment of the Executive shall be
governed by the terms and conditions set forth in the Prior Agreement. The term
of this Agreement (the "Term"), and Executive's employment with the Company
hereunder, shall commence at the Effective Time and, unless earlier terminated
in accordance with the terms hereof, shall continue until the fifth anniversary
of the Effective Time (such initial term of the Agreement referred to as the
"Initial Term"); PROVIDED, HOWEVER, that the Term shall automatically be
renewed for successive, additional five year periods at the end of the Initial
Term and each renewal term thereafter, unless either the Company or the
Executive provides at least one year's notice to the other of its intention not
to renew the Term; and PROVIDED, FURTHER, that if the "IPO", Sale, or Merger,
is terminated in accordance with its terms prior to the Effective Time or the
"IPO," the Sale or Merger is abandoned or otherwise does not close, (x) this
Agreement shall automatically terminate without further obligation by either
party hereto, (y) the terms and conditions set forth in this Agreement shall not
apply and (z) the employment of the Executive shall continue to be governed by
the terms and conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the President, and
Chief Executive Officer of the Company, and serve as Chairman of the Company's
Executive Committee, reporting to the Board of Directors of the Company, serving
the Board of Directors of the Company (the "Board") with the traditional
duties, responsibilities and authority of such office companies similar in size
to the Company including the duties authorized as is set forth on Exhibit B
attached hereto. Executive shall during the term hereof serve as a member of the
Board of Directors and will serve as its Chairman. The Executive agrees that he
shall perform his duties hereunder faithfully and to the best of his abilities
and in furtherance of the business of the Company and its subsidiaries and shall
devote substantially all of his business time, energy and attention to the
business of the Company and its subsidiaries. Notwithstanding the above, the
Company acknowledges and agrees that Executive will be permitted to devote a
reasonable amount of business time, energy, and attention to pursuit of
activities on behalf of the entities described on Exhibit 2, attached hereto and
pursue other business and personal endeavors that do not reasonably interfere
with his duties under this Agreement.
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3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the executive
an initial annual base salary, (the "Base Salary") as set forth on Exhibit A,
payable in accordance with the Company's normal payroll practices or as the
Company and the Executive may otherwise agree. The Base Salary shall be reviewed
by the Company annually and shall be subject to discretionary increase by the
Company from time to time, but shall not be decreased from the rate in effect at
any time and from time to time during the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate
in the Company's Executive Officer Performance Bonus Plan or any similar or
successor annual bonus plan of the Company, (the "Performance Bonus Plan") and
to receive an annual performance bonus upon the achievement of one or more
annual performance goals, (the "Performance Goals") in accordance with the
terms of the Performance Bonus Plan; PROVIDED, that Executive's annual target
bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not
be less than 75% of the Base Salary in effect at the time the Performance Goals
for such plan year are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate
in any long-term incentive compensation and/or stock option plans maintained
from time to time by the Company. In addition, pursuant to prior action of the
Stock Option Committee of the Board, Executive has previously been granted an
option, (the "Market Option") to purchase One Hundred Thousand (100,000)
shares of the Company common stock, 001 par value, (the "Common Stock") at an
exercise price equal to the price to the public in connection with AMP's IPO,
with a term of 10 years from the date of grant. The Market Option will vest
twenty-five (25%) per annum on each of the first through fourth anniversaries of
the Effective Time; PROVIDED, that the Market Option will not become exercisable
in whole or in part in the event the Market Option is terminated in accordance
with its terms prior to the Effective Time or if the IPO, Sale or Merger is
abandoned or otherwise does not close; and PROVIDED, FURTHER, that the Market
Option shall be subject to the terms of the American Medical Providers, Inc.,
1997 Stock Incentive Plan and the stock option agreement to be entered into in
connection with the grant of the Market Option.
(d) BENEFITS. PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit plans
and programs generally available to the executive officers of the Company and
such additional benefits as the Board may from time to time provide. In
addition, Executive shall be entitled to receive the personal benefits described
on Exhibit A hereto. Executive shall be entitled to reimbursement for business
expenses, including travel and entertainment; PROVIDED, that such reimbursement
shall be limited to reasonable and necessary expenses incurred by Executive in
connection with the performance of duties on behalf of the Company subject to:
(i) timely submission of a properly executed Company expense report form
accompanied by appropriate supporting documentation, and (ii) compliance with
Company policies and procedures governing business expense reimbursement and
reporting based upon principles and guidelines established by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee of the Board.
(e) RETIREMENT BENEFITS. The Executive shall be entitled to participate
in any Supplemental Executive Retirement Plan or any similar or successor plan,
(the "SERP") and in any tax qualified and any other supplemental pension plans
should such plans be generally available to the executive officers of the
Company.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of the amounts required under Section 5, the Executive's
employment with the Company may be terminated, (a) by the Company for Cause, (as
defined herein) or without Cause, (b) by the Executive for or without Good
Reason (as defined herein), (c) by reason of the Executive's death or
Disability, (as defined herein) or (d) by the mutual written consent of the
parties hereto. For purposes of this Agreement:
(i) "Cause" means; (A) conviction of, plea of guilty, or voluntary
settlement of embezzlement, theft, or fraud involving the Company; (B)
actions which have had or will likely have a material
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adverse financial effect on the Company as a whole for an extended period
of time, where appropriate evidence exists that such actions are directly
attributable to them; (i) gross management negligence or repeated
ineptitude of the Executive and/or; (ii) deliberate refusal of the
Executive to follow the instructions or directions of the Board; (C)
conviction of or a plea of guilty or NOLO CONTENDERE to a felony, other
than a felony involving a moving violation; (D) violation of the
non-compete or confidentiality provisions of this Agreement, PROVIDED that
no such violation will be deemed to have occurred if, within 30 days
following receipt by Executive of a notice from the Board identifying the
violation, the Executive, (i) cures the violation, and (ii) establishes
that the violation was unintentional and not reasonably likely to result in
harm to the Company, in each case to the reasonable satisfaction of the
Board; (E) material incapacitation or repeated absence from work due to
reckless and self-abusive behavior or conduct, such as alcoholism and/or
drug abuse, which renders Executive incapable of performing his duties;
PROVIDED, that physical or mental disability due to injury or disease shall
not be grounds for termination for Cause; (F) gross insubordination or
persistent refusal to follow reasonable instructions; or (G) inability to
perform the duties of the Executive's office or consistent failure to
perform in accordance with reasonable expectations due to incompetence, or
due to repeated and unexcused absence from work having a material adverse
effect on the Company provided that mere failure to achieve performance
targets or expectations (including without limitation, those set forth in
the Performance Bonus Plan) shall not in and of itself constitute Cause
hereunder.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED. that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute separate ground for termination for Cause.
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180)
continuous days or more within any period of 12 consecutive months as a
result of the Executive's incapacity due to mental or physical illness;
PROVIDED, that during any period prior to the termination of Executive's
employment by reason of Disability in which Executive is absent from the
full-time performance of his duties with the Company due to Disability, the
Company shall continue to pay Executive his Base Salary at the rate in
effect at the commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary or
Annual Target Bonus in effect from time to time; (B) a material
reduction in the aggregate level of participation in and/or compensation
and benefit opportunities under all other compensation and employee
benefit plans in which Executive is entitled to participate from time to
time; PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, any
SERP and the benefits described in Exhibit (A)) with respect to
similarly situated executives of the Company shall not constitute Good
Reason hereunder; (C) a reduction in the Executive's titles, duties or
authority with the Company; (D) notification by the Company of its
intention to renew this Agreement pursuant to the provisions of Section
2; (E) the termination of the Executive's employment by the executive
for any reason within 12 months following a Change in Control (as
defined herein); (F) relocation of the Company's Corporate offices by
more than 25 miles from its present location at 3555 Timmons Lane,
Houston, Texas 77027; (G) failure of Executive to be elected to the
Board of Directors of the Company or to be elected its Chairman; (H)
encroachment by the Board on the Executives right to manage the Company
as set forth on Exhibit B; or (1) a change in who Executives reports to
occurs.
(iv) "Change in Control," means the occurrence of any one of the
following events:
(A) any "person", (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, (the "Exchange Act") and as used
in Sections 13(d)(3) and 14(d)(2) of the
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Exchange Act) becomes an Acquiring Person, (as such term is defined in
the Company's Shareholder Protection Rights Agreement to be adopted at
the Effective Time) or any person that is not bound by the Shareholder
Agreement of the Company to be entered into in connection with the
Merger, (the "Shareholder Agreement") becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 25% or more of the undiluted
total voting power of the Company's then outstanding securities eligible
to vote for the election of members of the Board, (the "Company Voting
Securities"); PROVIDED, HOWEVER, that no event described in the
immediately preceding clause shall be deemed to constitute a Change in
Control by virtue of any of the following: (i) an acquisition of Company
Voting Securities by the Company and/or one or more direct or indirect
majority-owned subsidiaries of the Company, (ii) an acquisition of
Company Voting Securities by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the Company,
(iii) an acquisition by any underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) any acquisition by
the Executive or any "group", (as such term is defined in Rule 3d-5
under the Exchange Act) of persons including the Executive; or
(B) Individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board, (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof;
PROVIDED, HOWEVER, that any person becoming a director subsequent to the
beginning of such twenty-four (24) month period, whose election, or
nomination for election, by the Company's shareholders was approved by
either, (i) the Board consistent with the terms of the Shareholder
Agreement, during the period the Shareholder Agreement is in effect, or
(ii) a vote of at least 60% of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
paragraph (B), considered as though such person were a member of the
Incumbent Board; PROVIDED, FURTHER, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors of any other
actual or threatened solicitation of proxies or consents by or on behalf
of any person other than the Board shall be deemed to be a member of the
Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company
or a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve, (i) a plan of
complete liquidation or dissolution of the Company, or (ii) an agreement
for the sale or disposition by the Company of all or substantially all
the Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability, (i) by the Company (other than for Cause), or
(ii) by the Executive for Good Reason, then the Company shall pay or provide to
the Executive, (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum of,
(i) the Executive's unpaid Base Salary through the Termination Date, (ii) any
accrued but unpaid annual bonus under the Performance Bonus Plan in respect of
the annual bonus period preceding the bonus period in which the Termination Date
occurs, (iii) any unpaid reimbursable business expenses properly incurred
through the Termination Date, and (iv) a bonus payment equal to the Executive's
Annual Target Bonus in the year of termination, multiplied by a fraction the
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numerator of which is the number of months in the bonus year of termination in
which the Executive has worked at least one day and the denominator of which is
12;
(2) within thirty (30) days following the Termination Date, a lump-sum
cash amount equal to the greater of; (A) the Executive's then Base Salary
payable over the remainder of the Term plus a bonus equal to the Executive's
Annual Target Bonus in the year of termination multiplied by a fraction the
numerator of which is the number of complete months remaining in the Term and
the denominator of which is 12, or (B) 3.0 times the sum of: (i) the Executive's
annual rate of Base Salary as of the Termination Date plus, (ii) the Annual
Target Bonus for the year in which the Termination Date occurs, (in each such
case, Executive's Base Salary and Annual Target Bonus being determined without
taking into account any reductions thereto constituting Good Reason).
(3) for a period terminating on the earlier of; (A) the commencement of
the provision of substantially equivalent benefits by a new employer; or (B) the
later of, (i) the last day of the Term, or (ii) twenty-four (24) months
following the Termination Date, the Company shall continue to keep in full force
and effect, (or otherwise provide) all policies of medical, accident, disability
and life insurance with respect to the Executive and his dependents with
substantially the same level of coverage, upon substantially the same terms and
otherwise substantially to the same extent as such policies shall have been in
effect immediately prior to the Termination Date, and, as applicable, the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the date of termination;
(4) for purposes of determining final average compensation, (or making any
similar calculation) and years of service, (for purposes of eligibility, vesting
and benefit accrual) under any tax-qualified of supplemental defined benefit
retirement plan, (including without limitation any SERP) Executive shall be
deemed to have remained employed by the Company hereunder until the end of the
Term and to have received his then current Base Salary and Annual Target Bonus
through the end of the Term; PROVIDED, that to the extent such benefits cannot
be accrued under and paid from any tax-qualified pension plan, such benefits
shall be accrued under and paid from any SERP or other supplemental plan.
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain exercisable
until the later of; (A) the date that is 24 months following the Termination
Date; and (B) the expiration of the stated term of such options; and
(b) If the employment of the Executive shall be terminated, (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by
the Executive without Good Reason, or (iv) by the mutual written consent of the
parties hereto, (each a "Non-qualifying Termination"), then the Company shall
pay to the Executive (or the Executive's beneficiary or estate) within thirty
(30) days following the Termination Date a lump-sum cash amount equal to the sum
of the Executive's unpaid Base Salary through the Termination Date plus any
bonus payments which have been earned or become payable, to the extent not
theretofore paid, plus any unpaid reimbursable business expenses properly
incurred through the Termination Date. In addition, Executive (or the
Executive's beneficiary or estate) shall have no less than ninety days following
the termination of his employment pursuant to a Non-qualifying Termination to
exercise any outstanding options to the extent vested and exercisable as of the
Termination Date. If the employment of the Executive shall be terminated, by
reason of the Executive's death or Disability, for a period terminating on the
earlier of; (A) the commencement of the provision of substantially equivalent
benefits by a new employer; or (B) the later of, (i) the last day of the Term,
or (ii) twenty-four (24) months following the Termination Date, the Company
shall continue to keep in full force and effect, (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to the
Executive and his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same extent as
such policies shall have been in effect immediately prior to the Termination
Date, and, as applicable, the Company and the Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the Termination Date;
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6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of the
Company or by any person whose actions result in a change in control of the
Company, (to the extent the Company approves of the arrangements pursuant to
which the payment by such person is made to the Executive) to or for the benefit
of the Executive, (whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise, but determined without
regard to any additional payments required under this Section 6), (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code, or any interest or penalties are incurred by the Executive with respect to
such excise tax, such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax") then the
Executive shall be entitled to receive an additional payment, (a "Gross-Up
Payment") in an amount such that, after payment by the Executive of all taxes,
(including any interest or penalties imposed with respect to such taxes)
including, without limitation, any income and employment taxes and Excise Tax,
imposed upon the Gross-Up Payment but before deduction for any federal, state or
local income or other tax upon the Payments, the Executive will retain a net
amount equal to the sum of, (i) the Payments, and (ii) an amount equal to the
product of any deductions, (or portions thereof) disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income for
federal income tax purposes and the highest applicable marginal rate of federal
income taxation for the calendar year in which the Gross-Up Payment is to be
made. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to, (1) pay applicable federal income taxes at the
highest applicable marginal rate of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be made,
(2) pay applicable state and local income taxes at the highest applicable
marginal rate of taxation, (including surcharges) for the calendar year in which
the Gross-Up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes, and (3) have otherwise allowable deductions for federal income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income.
(b) Subject to the provisions of Section 6(a), all determinations required
to be made under this Section 6, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination shall be made by the public
accounting firm that is retained by the Company as of the date immediately prior
to the change in control, (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15) business days of the receipt of notice from the Company or the Executive
that there has been a Payment, or such earlier time as is requested by the
Company, (collectively, the "Determination"). In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the change in control, the Executive may appoint another nationally
recognized public accounting firm reasonably acceptable to the Company to make
the determinations required hereunder, (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All reasonable fees and expenses
of the Accounting Firm shall be borne solely by the Company and, subject to
applicable law and obligation to the Company's stockholders, the Company shall
enter into any agreement reasonably requested by the Accounting Firm that is
generally recognized as standard in connection with the performance of the
services hereunder. The Gross-Up Payment under this Section 6 with respect to
any Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return should not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment") or Gross-Up
Payments are made by the Company which should not have been made,
("Overpayment") consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any additional Excise Tax, the Accounting Firm shall
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determine the amount of the Underpayment that has occurred and any such
Underpayment, (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of the Executive. In the event the amount of the Gross-Up Payment
exceeds the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment, (together with interest at the rate provided in
Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or
for the benefit of the Company. The Executive shall cooperate, to the extent his
reasonable expenses in connection therewith are reimbursed by the Company, with
any reasonable requests by the Company in connection with any contests or
disputes with the Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive, (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS: BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement or
any rights or obligations hereunder; PROVIDED, that in the event of the merger,
consolidation, transfer or sale of substantially all of the assets of the
Company with or to any other individual or entity, this Agreement shall, subject
to the provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder, all references
herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts remain payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to such person or persons appointed in writing by the
Executive to receive such amounts or, if no person is so appointed, to the
Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES: NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder shall
be settled by final, binding arbitration, conducted before a panel of three (3)
arbitrators in Texas in accordance with the rules of the American Arbitration
Association then in effect. Judgment on the arbitration award may be entered in
any court having jurisdiction. The Company shall bear the expenses of such
arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall advance and reimburse the Executive, on a current
basis, all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute; PROVIDED, that the Executive agrees to
return any advanced or reimbursed expenses to the extent the arbitrators, (or
the court, in the case of a dispute described in Section 10 or 11) determine
that the Company has prevailed as to the material issues raised in determination
of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations hereunder
shall not be affected by any setoff, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, and such amounts shall not be
reduced whether or not the Executive obtains other employment.
10. NON-COMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all
heathcare-related interests, investments, or business activities, whether as
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever. The
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Executive shall notify the Board, in writing, of any changes in or additions to
such interests, activities or investments permitted in accordance with terms of
this Agreement, within 15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of the
Independent Directors, the Executive may not engage in any of the following
actions during the period that is; (A) prior to the Executive's termination of
employment with the Company; (B) within two years following the termination of
his employment with the Company during the Initial Term is such termination is
by the Company for Cause or by the Executive other than for Good Reason; and (C)
within one year following his termination of employment during the Term but
after the Initial Term of such termination is by the Company for Cause or by the
Executive other than Good Reason.
(i) own, either directly or indirectly, any interest in any business that
competes with the "Primary Business" in which the Company or any subsidiary or
affiliate is engaged, within a radius of 20 miles from any site, facility, or
location which is owned, managed or operated by or affiliated with the Company
or any of its subsidiaries and affiliates, including Podiatric Physician
practices of any kind. For purposes of this Agreement, "Primary Business"
shall mean the delivery of Podiatric healthcare services in markets where the
Company or its subsidiaries own, operate or manage Physician Practices or
Ambulatory Surgery Centers. These Podiatric healthcare services can include but
are not limited to; (A) individual Podiatric Physician Practices and/or
Podiatric physician-based organizations such as primary care and specialty
clinics, Podiatric Physician-hospital organizations ("PMOs") or medical
service organizations ("MSOs"), or Podiatric Physician medical groups; and (B)
ambulatory programs such as home health care, ambulatory surgery, occupational
and sports medicine centers, and other diagnostic, rehabilitative and treatment
services for Podiatric patients. Some of these services, sites and facilities
may be located in satellite areas for the purpose of extending the Physician
Practice's geographic service area and to serve as access points and/or referral
sources for either the local delivery system or the Physician Practice's
geographic service area and to serve as access points and/or referral sources
for either the local delivery system or the Physician Practice's. The Board may
modify, from time to time, the definition of Primary Business to include any
additional Podiatric business or service in which the Company may engage during
the Term or to exclude any business or service in which the Company ceases to
engage. The definition of "Primary Business" may also be modified to include
any Podiatric business or service into which, as of the Termination Date, the
Company definitively intends to expand, regardless of whether such expansion
actually occurs after the Executive's termination. For purposes of the preceding
sentence, the date on which a modification of the definition of "Primary
Business" shall be effective shall be the date on which the Executive is
provided written notice of such modification, (the "Notice Date") PROVIDED,
HOWEVER, that no such modification as to which notice is provided on or after
the Termination Date shall be effective against the Executive; and PROVIDED,
FURTHER, that no such modification shall be effective with respect to any
interests, investments or business activities engaged in by Executive prior to
the Notice Date of such modification and properly disclosed prior to such Notice
Date pursuant to Section 10(a);
(ii) participate or serve, either directly or indirectly, whether as a
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever in any business or service activity that competes with the Primary
Business;
(iii) directly or indirectly, solicit or recruit any individual employed
by the Company, its subsidiaries or affiliates for the purpose of being employed
by him or by any competitor of the Company on whose behalf he is acting as an
agent, representative or employee, or convey any confidential information or
trade secrets regarding other employees of the Company, its subsidiaries or
affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence customers
of the Company or any of its subsidiaries or affiliates to direct their business
to any competitor of the Company; PROVIDED, HOWEVER, that neither, (i) the
"beneficial ownership" by Executive, either individually or as a member of a
"group," as such terms are used in Rule 13d under the Exchange Act, as a
passive investment, of not more than five percent (5%) of the voting stock of
any publicly held corporation, nor (ii) the beneficial ownership by
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Executive of any interest described in the first sentence of Section 10(a) and
properly and timely disclosed in accordance with the terms therewith, shall
alone constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to compete with the Company or
any subsidiary or affiliate in violation of this Agreement and that the Company
would by reason of such competition be entitled to preliminary or injunctive
relief in a court of appropriate jurisdiction, and Executive further consents
and stipulates to the entry of such preliminary or injunctive relief in such a
court prohibiting Executive from competing with the Company or any subsidiary or
affiliate in violation of this Agreement upon an appropriate finding by such
court that Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if this Section 10 or any portion thereof shall be adjudicated to be invalid or
unenforceable whether because of the duration and scope of the covenants set
forth herein or otherwise, the length and scope of the restrictions set forth in
this Section 10 shall be reduced to the extent necessary so that this covenant
may be enforced to the fullest extent possible under applicable law.
11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. The Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable periods described in Section 10(b) or until such
information shall have become public other than by the Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to
members of the public seeking such information and that was learned by the
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including, (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records, (including computer records) of the documents
containing such Confidential Information. The Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information, (and all copies thereof)
furnished by the Company, its subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
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12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon; (A) transmitter's confirmation of
a receipt of a facsimile transmission; (B) confirmed delivery by a standard
overnight carrier; or (C) the expiration of five business days after the day
when mailed by certified or registered mail, postage prepaid, addressed as
follows, (or at such other address as the parties hereto shall specify by like
notice);
If to Executive: Jack N. McCrary
3555 Timmons Lane, Suite 1550
Houston, TX 77027
If to Company: American Medical Providers, Inc.
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
Attention: Chief Executive Officer
13. AMENDMENT WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A hereto set forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW: VENUE: VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day of December, 1997.
Ankle and Foot Centers of America,
LLC.
By: /s/WAYNE A. BERTSCH
Name: Wayne A. Bertsch
Title:
Executive: /s/JACK N. McCRARY
Joined into for the purpose hereabove stated by American Medical Providers,
Inc., this day of December, 1997.
By: /s/WAYNE A. BERTSCH
Name: Wayne A. Bertsch
Title:
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EXHIBIT A
COMPENSATION AND LEAVE POLICIES
BASE COMPENSATION
Commencing with the Initial Public Offering (the "IPO") Date (the "IPO
Date") of AMP, (or the Sale Merger of AMP's Shares other than the IPO ("Sale
or Merger Date"), Executive shall be paid by the Company a base salary of not
less than Three Hundred Thousand Dollars, ($300,000.00) per annum. In the event
that AMP successfully completes its IPO or there is a Sale or Merger, (other
than the IPO) AFCA will pay to Executive the sum of $300,000 for services
rendered prior to the IPO Date, (or the Sale or Merger Date, if appropriate) and
AMP will reimburse AFCE therefor as part of the IPO or Sale or Merger.
INVENTIVE COMPENSATION
Executive shall participate in the Company's Executive Officers Performance
Plan with his annual "Target Bonus" not being less than 75% of his Base
Salary.
LEAVE-VACATION AND HOLIDAYS
Executive shall be entitled to leave of six (6) weeks per annum, to be
taken in accordance with Employer's regular vacation policies. Executive shall
be entitled to at least nine (9) paid holidays per annum in accordance with
Employer regular paid holidays policies.
BENEFITS
Health Insurance including major medical for personal, family and
dependents at no cost to Executive.
Life Insurance equivalent to four times Executive salary.
Disability insurance equivalent to 60% of Base Salary upon permanent
disability.
OTHER PAYMENTS:
Executive shall be reimbursed up to $5,000 for the cost of an annual health
examination.
Executive shall receive a minimum of $1,000 per month as an automobile
allowance.
Executive shall be reimbursed up to $300.00 per month for membership dues.
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EXHIBIT B
AMERICAN MEDICAL PROVIDERS, INC
("PARENT")
SUMMARY OF TERMS OF
EMPLOYMENT AGREEMENTS
(SUBJECT TO NEGOTIATIONS WITH
NAMED EXECUTIVES)
MANAGEMENT DUTIES AND AUTHORITY: Mr. McCrary shall serve as a member of
and Chairman of the Parent Board of Directors, as President and chief Executive
Officer of Parent, ("CEO") and Chairman of the Executive Committee of the
Parent Board, ("Chairman").
EXCLUSIVE AUTHORITIES: In his capacity as CEO, Mr. McCrary shall, subject
to the oversight of the Parent Board, have exclusive authority and
responsibility for managing the day to day operations of Parent and its
subsidiaries, including the exclusive right to authorize Parent to engage in the
following actions:
1. relocation of the corporate offices of Parent;
2. any transaction involving capital expenditures up to $5 million
provided there is cash on hand at the Parent for such expenditure;
3. the determination of the compensation of and employment and
corporate policies applicable to employees of Parent and its subsidiaries
to the extent that such determination is consistent with a budget that has
been approved by the Parent Board and implementation of the corporate
budget and controlling corporate expenses;
4. approval of the selection of the senior lender participants and
agent bank in any corporate financing; and
5. presentation of proposals of the executive officers of Parent to
the Parent Board or any Committee thereof.
RESTRICTIONS ON MANAGEMENT AUTHORITY: Mr. McCrary shall not be permitted
to use any of his authority as CEO and Chairman to cause Parent to engage any of
the following activities without first obtaining the consent of the Parent
Board:
-- issuing debt obligations of Parent, except with respect to
acquisitions of physician's practices, and provided that the total
consideration in debt, cash, and stock is less that $10.0 million dollars.
-- issuing any equity securities of Parent, except with respect to
acquisitions of physicians practices, and provided that the total
consideration in debt, cash, and stock is less than $10.0 million dollars;
-- materially changing Parent's business strategy;
-- amending Parent's corporate charter or bylaws;
-- entering into a transaction, (other than an acquisition of a
business) involving the expenditure by Parent of more than $5 million, ($10
million in the case of construction and renovation projects or real estate
acquisitions);
-- approving Parent's annual operating and capital budget; or
-- making an acquisition of any business involving an expenditure by
Parent of more than $10 million.
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In addition, Mr. McCrary shall not be permitted, (other than in his
capacity as Chairman Executive Committee) to cause Parent to engage in the
following activities without the approval of the Parent Board or the Executive
Committee;
-- entering into transactions over the course of a fiscal year
involving expenditures by Parent of more than $20 million, except with
respect to acquisitions of physician practices or related ancillary
businesses;
-- making any acquisition involving an expenditure by Parent of more
than $10.0 million;
-- materially changing Parent's business strategy; or
-- determining the compensation, (including long-term incentive
compensation) of or employment policies specifically applicable to the
executive officers of Parent.
RESIDUAL MANAGEMENT AUTHORITY: Any other duties, authority and
responsibilities that are not explicitly reserved for the Parent Board or the
Executive Committee shall be reserved for Mr. McCrary.
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EXHIBIT 10.3
ANKLE & FOOT CENTERS OF AMERICA, L.L.C.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 17, 1997 between Ankle & Foot Centers of
America, L.L.C. a Delaware limited liability corporation (the "Company"), and
Wayne A. Bertsch, (the "Executive"), and joined into for the purposes
hereinafter stated by American Medical Providers, Inc., a Delaware Corporation
("AMP").
In consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of either of the following to occur: (a) the closing
of the proposed Initial Public Offering ("IPO") of American Medical Providers,
Inc., (formerly Podiatric Newco, Inc., ("AMP"), or (b) the sale or merger by
AMP of substantially all of the assets of AMP or by the Company's shareholders
of a controlling interest in AMP's stock, other than in connection with the IPO,
this Employment Agreement (the "Agreement") shall be assumed by "AMP")
and/or such company into which AMP is merged or by whom AMP is otherwise
acquired. Upon either of the events in (a) or (b) above, this Employment
Agreement shall supersede that certain letter agreement regarding employment
between the Company and Executive, dated as of August 12, 1996 (the "Prior
Agreement"), and the Prior Agreement shall thereupon automatically terminate
without further obligation by either Executive or the Company. Upon AMP's
assumption of this Agreement, all references to the Company herein shall
thereafter refer to AMP.
2. TERM OF EMPLOYMENT: DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the S-1
registration filed by "AMP" in connection with its IPO (or in the event of a
sale or merger ("Sale or Merger") of the Company, as defined in the definitive
agreement associated therewith) the employment of the Executive shall be
governed by the terms and conditions set forth in the Prior Agreement. The term
of this Agreement (the "Term"), and Executive's employment with the Company
hereunder, shall commence at the Effective Time and, unless earlier terminated
in accordance with the terms hereof, shall continue until the third anniversary
of the Effective Time (such initial term of the Agreement referred to as the
"Initial Term"); PROVIDED, HOWEVER, that the Term shall automatically be
renewed for successive, additional three year periods at the end of the Initial
Term and each renewal term thereafter, unless either the Company or the
Executive provides at least one year's notice to the other of its intention not
to renew the Term; and PROVIDED, FURTHER, that if the "IPO", Sale, or Merger,
is terminated in accordance with its terms prior to the Effective Time or the
"IPO," the Sale or Merger is abandoned or otherwise does not close, (x) this
Agreement shall automatically terminate without further obligation by either
party hereto, (y) the terms and conditions set forth in this Agreement shall not
apply and (z) the employment of the Executive shall continue to be governed by
the terms and conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the Senior Vice
President, and Chief Financial Officer of the Company, and serve as member of
the Company's Executive Committee, reporting to the President and Chief
Executive Officer of the Company with the traditional duties, responsibilities
and authority of such office in companies similar in size to the Company.
Executive shall during the term hereof serve as a member of the Board of
Directors. The Executive agrees that he shall perform his duties hereunder
faithfully and to the best of his abilities and in furtherance of the business
of the Company and its subsidiaries and shall devote substantially all of his
business time, energy and attention to the business of the Company and its
subsidiaries.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the executive
an initial annual base salary, (the "Base Salary") as set forth on Exhibit A,
payable in accordance with the Company's normal payroll practices or as the
Company and the Executive may otherwise agree. The Base Salary shall be
<PAGE>
reviewed by the Company annually and shall be subject to discretionary increase
by the Company from time to time, but shall not be decreased from the rate in
effect at any time and from time to time during the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate
in the Company's Executive Officer Performance Bonus Plan or any similar or
successor annual bonus plan of the Company, (the "Performance Bonus Plan") and
to receive an annual performance bonus upon the achievement of one or more
annual performance goals, (the "Performance Goals") in accordance with the
terms of the Performance Bonus Plan; PROVIDED, that Executive's annual target
bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not
be less than 60% of the Base Salary in effect at the time the Performance Goals
for such plan year are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate
in any long-term incentive compensation and/or stock option plans maintained
from time to time by the Company. In addition, pursuant to prior action of the
Stock Option Committee of the Board, Executive has previously been granted an
option, (the "Market Option") to purchase Fifty Thousand (50,000) shares of
the Company common stock, 001 par value, (the "Common Stock") at an exercise
price equal to the price to the public in connection with AMP's IPO, with a term
of 10 years from the date of grant. The Market Option will vest twenty-five
(25%) per annum on each of the first through fourth anniversaries of the
Effective Time; PROVIDED, that the Market Option will not become exercisable in
whole or in part in the event the Market Option is terminated in accordance with
its terms prior to the Effective Time or if the IPO, Sale or Merger is abandoned
or otherwise does not close; and PROVIDED, FURTHER, that the Market Option shall
be subject to the terms of the American Medical Providers, Inc., 1997 Stock
Incentive Plan and the stock option agreement to be entered into in connection
with the grant of the Market Option.
(d) BENEFITS. PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit plans
and programs generally available to the executive officers of the Company and
such additional benefits as the Board may from time to time provide. In
addition, Executive shall be entitled to receive the personal benefits described
on Exhibit A hereto. Executive shall be entitled to reimbursement for business
expenses, including travel and entertainment; PROVIDED, that such reimbursement
shall be limited to reasonable and necessary expenses incurred by Executive in
connection with the performance of duties on behalf of the Company subject to:
(i) timely submission of a properly executed Company expense report form
accompanied by appropriate supporting documentation, and (ii) compliance with
Company policies and procedures governing business expense reimbursement and
reporting based upon principles and guidelines established by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee of the Board.
(e) RETIREMENT BENEFITS. The Executive shall be entitled to participate
in any Supplemental Executive Retirement Plan or any similar or successor plan,
(the "SERP") and in any tax qualified and any other supplemental pension plans
should such plans be generally available to the executive officers of the
Company.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of the amounts required under Section 5, the Executive's
employment with the Company may be terminated, (a) by the Company for Cause, (as
defined herein) or without Cause, (b) by the Executive for or without Good
Reason (as defined herein), (c) by reason of the Executive's death or
Disability, (as defined herein) or (d) by the mutual written consent of the
parties hereto. For purposes of this Agreement:
(i) "Cause" means; (A) conviction of, plea of guilty, or voluntary
settlement of embezzlement, theft, or fraud involving the Company; (B)
actions which have had or will likely have a material adverse financial
effect on the Company as a whole for an extended period of time, where
appropriate evidence exists that such actions are directly attributable to
the; (i) gross management negligence or repeated ineptitude of the
Executive and/or; (ii) deliberate refusal of the Executive to follow the
instructions or directions of the Board; (C) conviction of or a plea of
guilty or NOLO CONTENDERE to a felony, other than a felony involving a
moving violation; (D) violation of the non-compete or
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confidentiality provisions of this Agreement, PROVIDED that no such
violation will be deemed to have occurred if, within 30 days following
receipt by Executive of a notice from the Board identifying the violation,
the Executive, (i) cures the violation, and (ii) establishes that the
violation was unintentional and not reasonably likely to result in harm to
the Company, in each case to the reasonable satisfaction of the Board; (E)
material incapacitation or repeated absence from work due to reckless and
self-abusive behavior or conduct, such as alcoholism and/or drug abuse,
which renders Executive incapable of performing his duties; PROVIDED, that
physical or mental disability due to injury or disease shall not be grounds
for termination for Cause; (F) gross insubordination or persistent refusal
to follow reasonable instructions; or (G) inability to perform the duties
of the Executive's office or consistent failure to perform in accordance
with reasonable expectations due to incompetence, or due to repeated and
unexcused absence from work having a material adverse effect on the Company
provided that mere failure to achieve performance targets or expectations
(including without limitation, those set forth in the Performance Bonus
Plan) shall not in and of itself constitute Cause hereunder.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED. that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute separate ground for termination for Cause.
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180)
days or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at
the commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary or
Annual Target Bonus in effect from time to time; (B) a material
reduction in the aggregate level of participation in and/or compensation
and benefit opportunities under all other compensation and employee
benefit plans in which Executive is entitled to participate from time to
time; PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, any
SERP and the benefits described in Exhibit (A)) with respect to
similarly situated executives of the Company shall not constitute Good
Reason hereunder; (C) a reduction in the Executive's titles, duties or
authority with the Company; (D) notification by the Company of its
intention to renew this Agreement pursuant to the provisions of Section
2; (E) the termination of the Executive's employment by the executive
for any reason within 12 months following a Change in Control (as
defined herein); (F) relocation of the Company's Corporate offices by
more than 25 miles from its present location at 3555 Timmons Lane,
Houston, Texas 77027; (G) failure of Executive to be elected to the
Board of Directors of the Company; (H) a change in who Executive reports
to occurs or (I) the termination, for any reason, other than death or
disability of the Employment of Jack N. McCrary as President and Chief
Executive Officer.
(iv) "Change in Control," means the occurrence of any one of the
following events:
(A) any "person", (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, (the "Exchange Act") and as used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an
Acquiring Person, (as such term is defined in the Company's Shareholder
Protection Rights Agreement to be adopted at the Effective Time) or any
person that is not bound by the Shareholder Agreement of the Company to
be entered into in connection with the Merger, (the "Shareholder
Agreement") becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing
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25% or more of the undiluted total voting power of the Company's then
outstanding securities eligible to vote for the election of members of
the Board, (the "Company Voting Securities"); PROVIDED, HOWEVER, that
no event described in the immediately preceding clause shall be deemed
to constitute a Change in Control by virtue of any of the following: (i)
an acquisition of Company Voting Securities by the Company and/or one or
more direct or indirect majority-owned subsidiaries of the Company, (ii)
an acquisition of Company Voting Securities by any employee benefit plan
sponsored or maintained by the Company or any corporation controlled by
the Company, (iii) an acquisition by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) any
acquisition by the Executive or any "group", (as such term is defined
in Rule 3d-5 under the Exchange Act) of persons including the Executive;
or
(B) Individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board, (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof;
PROVIDED, HOWEVER, that any person becoming a director subsequent to the
beginning of such twenty-four (24) month period, whose election, or
nomination for election, by the Company's shareholders was approved by
either, (i) the Board consistent with the terms of the Shareholder
Agreement, during the period the Shareholder Agreement is in effect, or
(ii) a vote of at least 60% of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
paragraph (B), considered as though such person were a member of the
Incumbent Board; PROVIDED, FURTHER, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors of any other
actual or threatened solicitation of proxies or consents by or on behalf
of any person other than the Board shall be deemed to be a member of the
Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company
or a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve, (i) a plan of
complete liquidation or dissolution of the Company, or (ii) an agreement
for the sale or disposition by the Company of all or substantially all
the Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability, (i) by the Company (other than for Cause), or
(ii) by the Executive for Good Reason, then the Company shall pay or provide to
the Executive, (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum of,
(i) the Executive's unpaid Base Salary through the Termination Date, (ii) any
accrued but unpaid annual bonus under the Performance Bonus Plan in respect of
the annual bonus period preceding the bonus period in which the Termination Date
occurs, (iii) any unpaid reimbursable business expenses properly incurred
through the Termination Date, and (iv) a bonus payment equal to the Executive's
Annual Target Bonus in the year of termination, multiplied by a fraction the
numerator of which is the number of months in the bonus year of termination in
which the Executive has worked at least one day and the denominator of which is
12;
(2) within thirty (30) days following the Termination Date, a lump-sum
cash amount equal to the greater of; (A) the Executive's then Base Salary
payable over the remainder of the Term plus a bonus equal
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to the Executive's Annual Target Bonus in the year of termination multiplied by
a fraction the numerator of which is the number of complete months remaining in
the Term and the denominator of which is 12, or (B) 2.0 times the sum of: (i)
the Executive's annual rate of Base Salary as of the Termination Date plus, (ii)
the Annual Target Bonus for the year in which the Termination Date occurs, (in
each such case, Executive's Base Salary and Annual Target Bonus being determined
without taking into account any reductions thereto constituting Good Reason).
(3) for a period terminating on the earlier of; (A) the commencement of
the provision of substantially equivalent benefits by a new employer; or (B) the
later of, (i) the last day of the Term, or (ii) twenty-four (24) months
following the Termination Date, the Company shall continue to keep in full force
and effect, (or otherwise provide) all policies of medical, accident, disability
and life insurance with respect to the Executive and his dependents with
substantially the same level of coverage, upon substantially the same terms and
otherwise substantially to the same extent as such policies shall have been in
effect immediately prior to the Termination Date, and, as applicable, the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the date of termination;
(4) for purposes of determining final average compensation, (or making any
similar calculation) and years of service, (for purposes of eligibility, vesting
and benefit accrual) under any tax-qualified of supplemental defined benefit
retirement plan, (including without limitation any SERP) Executive shall be
deemed to have remained employed by the Company hereunder until the end of the
Term and to have received his then current Base Salary and Annual Target Bonus
through the end of the Term; PROVIDED, that to the extent such benefits cannot
be accrued under and paid from any tax-qualified pension plan, such benefits
shall be accrued under and paid from any SERP or other supplemental plan.
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain exercisable
until the later of; (A) the date that is 24 months following the Termination
Date; and (B) the expiration of the stated term of such options; and
(b) If the employment of the Executive shall be terminated, (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by
the Executive without Good Reason, or (iv) by the mutual written consent of the
parties hereto, (each a "Non-qualifying Termination"), then the Company shall
pay to the Executive (or the Executive's beneficiary or estate) within thirty
(30) days following the Termination Date a lump-sum cash amount equal to the sum
of the Executive's unpaid Base Salary through the Termination Date plus any
bonus payments which have been earned or become payable, to the extent not
theretofore paid, plus any unpaid reimbursable business expenses properly
incurred through the Termination Date. In addition, Executive (or the
Executive's beneficiary or estate) shall have no less than ninety days following
the termination of his employment pursuant to a Non-qualifying Termination to
exercise any outstanding options to the extent vested and exercisable as of the
Termination Date. If the employment of the Executive shall be terminated, by
reason of the Executive's death or Disability, for a period terminating on the
earlier of; (A) the commencement of the provision of substantially equivalent
benefits by a new employer; or (B) the later of, (i) the last day of the Term,
or (ii) twenty-four (24) months following the Termination Date, the Company
shall continue to keep in full force and effect, (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to the
Executive and his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same extent as
such policies shall have been in effect immediately prior to the Termination
Date, and, as applicable, the Company and the Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the Termination Date;
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Notwithstanding
anything in this Agreement to the contrary, in the event that any payment or
distribution by the Company, by any affiliate of the Company or by any person
whose actions result in a change in control of the Company, (to the extent the
Company approves of the arrangements pursuant to which the payment by such
person is made to the Executive) to or for the benefit of the Executive,
(whether paid or payable or distributed or distributable pursuant to the terms
of the Agreement or otherwise, but determined without regard to any additional
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payments required under this Section 6), (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax, such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax") then the Executive shall be entitled to
receive an additional payment, (a "Gross-Up Payment") in an amount such that,
after payment by the Executive of all taxes, (including any interest or
penalties imposed with respect to such taxes) including, without limitation, any
income and employment taxes and Excise Tax, imposed upon the Gross-Up Payment
but before deduction for any federal, state or local income or other tax upon
the Payments, the Executive will retain a net amount equal to the sum of, (i)
the Payments, and (ii) an amount equal to the product of any deductions, (or
portions thereof) disallowed because of the inclusion of the Gross-Up Payment in
the Executive's adjusted gross income for federal income tax purposes and the
highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-Up Payment is to be made. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to, (1) pay
applicable federal income taxes at the highest applicable marginal rate of
federal income taxation (including surcharges) for the calendar year in which
the Gross-Up Payment is to be made, (2) pay applicable state and local income
taxes at the highest applicable marginal rate of taxation, (including
surcharges) for the calendar year in which the Gross-Up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes, and (3) have otherwise allowable
deductions for federal income tax purposes at least equal to those disallowed
because of the inclusion of the Gross-Up Payment in the Executive's adjusted
gross income.
(b) Subject to the provisions of Section 6(a), all determinations required
to be made under this Section 6, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination shall be made by the public
accounting firm that is retained by the Company as of the date immediately prior
to the change in control, (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15) business days of the receipt of notice from the Company or the Executive
that there has been a Payment, or such earlier time as is requested by the
Company, (collectively, the "Determination"). In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the change in control, the Executive may appoint another nationally
recognized public accounting firm reasonably acceptable to the Company to make
the determinations required hereunder, (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All reasonable fees and expenses
of the Accounting Firm shall be borne solely by the Company and, subject to
applicable law and obligation to the Company's stockholders, the Company shall
enter into any agreement reasonably requested by the Accounting Firm that is
generally recognized as standard in connection with the performance of the
services hereunder. The Gross-Up Payment under this Section 6 with respect to
any Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return should not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment") or Gross-Up
Payments are made by the Company which should not have been made,
("Overpayment") consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any additional Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment,
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) shall be promptly paid by the Company to or for the benefit of the
Executive. In the event the amount of the Gross-Up Payment exceeds the amount
necessary to reimburse the Executive for his Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment, (together with interest at the rate provided in Section 1274(b)(2)
of the Code) shall be promptly paid by the Executive to or for the benefit of
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the Company. The Executive shall cooperate, to the extent his reasonable
expenses in connection therewith are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive, (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS: BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement or
any rights or obligations hereunder; PROVIDED, that in the event of the merger,
consolidation, transfer or sale of substantially all of the assets of the
Company with or to any other individual or entity, this Agreement shall, subject
to the provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder, all references
herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts remain payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to such person or persons appointed in writing by the
Executive to receive such amounts or, if no person is so appointed, to the
Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES: NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder shall
be settled by final, binding arbitration, conducted before a panel of three (3)
arbitrators in Texas in accordance with the rules of the American Arbitration
Association then in effect. Judgment on the arbitration award may be entered in
any court having jurisdiction. The Company shall bear the expenses of such
arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall advance and reimburse the Executive, on a current
basis, all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute; PROVIDED, that the Executive agrees to
return any advanced or reimbursed expenses to the extent the arbitrators, (or
the court, in the case of a dispute described in Section 10 or 11) determine
that the Company has prevailed as to the material issues raised in determination
of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations hereunder
shall not be affected by any setoff, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, and such amounts shall not be
reduced whether or not the Executive obtains other employment.
10. NON-COMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all
heathcare-related interests, investments, or business activities, whether as
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever. The Executive shall notify the Board, in writing, of any changes in
or additions to such interests, activities or investments permitted in
accordance with the terms of this Agreement, within 15 days of such change or
addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of the
Independent Directors, the Executive may not engage in any of the following
actions during the period that is; (A) prior to the Executive's termination of
employment with the Company; (B) within two years following the termination
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of his employment with the Company during the Initial Term if such termination
is by the Company for Cause or by the Executive other than for Good Reason; and
(C) within one year following his termination of employment during the Term but
after the Initial Term if such termination is by the Company for Cause or by the
Executive other than Good Reason.
(i) own, either directly or indirectly, any interest in any business that
competes with the "Primary Business" in which the Company or any subsidiary or
affiliate is engaged, within a radius of 20 miles from any site, facility, or
location which is owned, managed or operated by or affiliated with the Company
or any of its subsidiaries and affiliates, including Podiatric Physician
practices of any kind. For purposes of this Agreement, "Primary Business"
shall mean the delivery of Podiatric healthcare services in markets where the
Company or its subsidiaries own, operate or manage Physician Practices or
Ambulatory Surgery Centers. These Podiatric healthcare services can include but
are not limited to; (A) individual Podiatric Physician Practices and/or
Podiatric physician-based organizations such as primary care and specialty
clinics, Podiatric Physician-hospital organizations ("PMOs") or medical
service organizations ("MSOs"), or Podiatric Physician medical groups; and (B)
ambulatory programs such as home health care, ambulatory surgery, occupational
and sports medicine centers, and other diagnostic, rehabilitative and treatment
services for Podiatric patients. Some of these services, sites and facilities
may be located in satellite areas for the purpose of extending the Physician
Practice's geographic service area and to serve as access points and/or referral
sources for either the local delivery system or the Physician Practice's
geographic service area and to serve as access points and/or referral sources
for either the local delivery system or the Physician Practice's. The Board may
modify, from time to time, the definition of Primary Business to include any
additional Podiatric business or service in which the Company may engage during
the Term or to exclude any business or service in which the Company ceases to
engage. The definition of "Primary Business" may also be modified to include
any Podiatric business or service into which, as of the Termination Date, the
Company definitively intends to expand, regardless of whether such expansion
actually occurs after the Executive's termination. For purposes of the preceding
sentence, the date on which a modification of the definition of "Primary
Business" shall be effective shall be the date on which the Executive is
provided written notice of such modification, (the "Notice Date") PROVIDED,
HOWEVER, that no such modification as to which notice is provided on or after
the Termination Date shall be effective against the Executive; and PROVIDED,
FURTHER, that no such modification shall be effective with respect to any
interests, investments or business activities engaged in by Executive prior to
the Notice Date of such modification and properly disclosed prior to such Notice
Date pursuant to Section 10(a);
(ii) participate or serve, either directly or indirectly, whether as a
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever in any business or service activity that competes with the Primary
Business;
(iii) directly or indirectly, solicit or recruit any individual employed
by the Company, its subsidiaries or affiliates for the purpose of being employed
by him or by any competitor of the Company on whose behalf he is acting as an
agent, representative or employee, or convey any confidential information or
trade secrets regarding other employees of the Company, its subsidiaries or
affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence customers
of the Company or any of its subsidiaries or affiliates to direct their business
to any competitor of the Company; PROVIDED, HOWEVER, that neither, (i) the
"beneficial ownership" by Executive, either individually or as a member of a
"group," as such terms are used in Rule 13d under the Exchange Act, as a
passive investment, of not more than five percent (5%) of the voting stock of
any publicly held corporation, nor (ii) the beneficial ownership by Executive of
any interest described in the first sentence of Section 10(a) and properly and
timely disclosed in accordance with the terms therewith, shall alone constitute
a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to compete with the Company or
any subsidiary or affiliate in violation
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of this Agreement and that the Company would by reason of such competition be
entitled to preliminary or injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or injunctive relief in such a court prohibiting Executive from
competing with the Company or any subsidiary or affiliate in violation of this
Agreement upon an appropriate finding by such court that Executive has violated
this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if this Section 10 or any portion thereof shall be adjudicated to be invalid or
unenforceable whether because of the duration and scope of the covenants set
forth herein or otherwise, the length and scope of the restrictions set forth in
this Section 10 shall be reduced to the extent necessary so that this covenant
may be enforced to the fullest extent possible under applicable law.
11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. The Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable periods described in Section 10(b) or until such
information shall have become public other than by the Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to
members of the public seeking such information and that was learned by the
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including, (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records, (including computer records) of the documents
containing such Confidential Information. The Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information, (and all copies thereof)
furnished by the Company, its subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
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12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon; (A) transmitter's confirmation of
a receipt of a facsimile transmission; (B) confirmed delivery by a standard
overnight carrier; or (C) the expiration of five business days after the day
when mailed by certified or registered mail, postage prepaid, addressed as
follows, (or at such other address as the parties hereto shall specify by like
notice):
If to Executive: Wayne A. Bertsch
3555 Timmons Lane, Suite 1550
Houston, TX 77027
If to Company: Ankle and Foot Centers of America,
LLC.
or American Medical Providers, Inc.
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
Attention: Chief Executive Officer
13. AMENDMENT WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A hereto set forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW: VENUE: VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day of December, 1997.
Ankle and Foot Centers of America,
LLC.
By: /s/JACK N. McCRARY
Name: JACK N. McCRARY
Title:
Executive: /s/WAYNE A. BERTSCH
Wayne A. Bertsch
Joined into for the purpose hereabove stated by American Medical Providers,
Inc., this day of December, 1997.
By: /s/JACK N. McCRARY
Name: /s/JACK N. McCRARY
Title: Chairman, President and Chief Executive Officer
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EXHIBIT A
COMPENSATION AND LEAVE POLICIES
BASE COMPENSATION
Commencing with the Initial Public Offering (the "IPO") Date (the "IPO
Date") of AMP, (or the Sale Merger of AMP's Shares other than the IPO ("Sale
or Merger Date"), Executive shall be paid by the Company a base salary of not
less than One Hundred Eighty Thousand Dollars, ($180,000.00) per annum.
INCENTIVE COMPENSATION
Executive shall participate in the Company's Executive Officers Performance
Plan with his annual "Target Bonus" not being less than 60% of his Base
Salary.
LEAVE-VACATION AND HOLIDAYS
Executive shall be entitled to leave of four (4) weeks per annum, to be
taken in accordance with Employer's regular vacation policies. Executive shall
be entitled to at least nine (9) paid holidays per annum in accordance with
Employer regular paid holidays policies.
BENEFITS
Health Insurance including major medical for personal, family and
dependents at customary rates for family coverage.
Life Insurance equivalent to three times Executive salary.
Disability insurance equivalent to 60% of Base Salary upon permanent
disability.
OTHER PAYMENTS:
Executive shall receive a minimum of $800 per month as an automobile
allowance.
Executive shall be reimbursed up to $250.00 per month for membership dues.
Executive shall be reimbursed for expenses of "continuing education"
including such reasonable travel as is required in connection therewith.
12
EXHIBIT 10.4
ANKLE & FOOT CENTERS OF AMERICA, L.L.C.
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 17, 1997 between Ankle & Foot Centers of
America, L.L.C. a Delaware limited liability corporation (the "Company"), and
Randy E. Johnson, (the "Executive"), and joined into for the purposes
hereinafter stated by American Medical Providers, Inc., a Delaware Corporation
("AMP").
In consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company on the terms and conditions set
forth herein. In addition, the Executive and the Company hereby agree that
subject to and effective as of either of the following to occur: (a) the closing
of the proposed Initial Public Offering ("IPO") of American Medical Providers,
Inc., (formerly Podiatric Newco, Inc., ("AMP"), or (b) the sale or merger by
AMP of substantially all of the assets of AMP or by the Company's shareholders
of a controlling interest in AMP's stock, other than in connection with the IPO,
this Employment Agreement (the "Agreement") shall be assumed by "AMP")
and/or such company into which AMP is merged or by whom AMP is otherwise
acquired. Upon either of the events in (a) or (b) above, this Employment
Agreement shall supersede that certain letter agreement regarding employment
between the Company and Executive, dated as of August 5, 1996 (the "Prior
Agreement"), and the Prior Agreement shall thereupon automatically terminate
without further obligation by either Executive or the Company. Upon AMP's
assumption of this Agreement, all references to the Company herein shall
thereafter refer to AMP.
2. TERM OF EMPLOYMENT: DUTIES. From the period commencing on the date
hereof and ending immediately prior to the Effective Time (as defined in the S-1
registration filed by "AMP" in connection with its IPO (or in the event of a
sale or merger ("Sale or Merger") of the Company, as defined in the definitive
agreement associated therewith) the employment of the Executive shall be
governed by the terms and conditions set forth in the Prior Agreement. The term
of this Agreement (the "Term"), and Executive's employment with the Company
hereunder, shall commence at the Effective Time and, unless earlier terminated
in accordance with the terms hereof, shall continue until the third anniversary
of the Effective Time (such initial term of the Agreement referred to as the
"Initial Term"); PROVIDED, HOWEVER, that the Term shall automatically be
renewed for successive, additional three year periods at the end of the Initial
Term and each renewal term thereafter, unless either the Company or the
Executive provides at least one year's notice to the other of its intention not
to renew the Term; and PROVIDED, FURTHER, that if the "IPO", Sale, or Merger,
is terminated in accordance with its terms prior to the Effective Time or the
"IPO," the Sale or Merger is abandoned or otherwise does not close, (x) this
Agreement shall automatically terminate without further obligation by either
party hereto, (y) the terms and conditions set forth in this Agreement shall not
apply and (z) the employment of the Executive shall continue to be governed by
the terms and conditions set forth in the Prior Agreement.
During the Term, the Executive shall be employed as the Senior Vice
President, Regional Operations Officer of the Company, reporting to the
President and Chief Executive Officer of the Company, with the traditional
duties, responsibilities and authority of such office of companies similar in
size to the Company. The Executive agrees that he shall perform his duties
hereunder faithfully and to the best of his abilities and in furtherance of the
business of the Company and its subsidiaries and shall devote substantially all
of his business time, energy and attention to the business of the Company and
its subsidiaries.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Term, the Company shall pay to the Executive
an initial annual base salary, (the "Base Salary") as set forth on Exhibit A,
payable in accordance with the Company's normal payroll practices or as the
Company and the Executive may otherwise agree. The Base Salary shall be reviewed
by the Company annually and shall be subject to discretionary increase by the
Company from
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time to time, but shall not be decreased from the rate in effect at any time and
from time to time during the Term.
(b) ANNUAL PERFORMANCE BONUS. Executive shall be entitled to participate
in the Company's Executive Officer Performance Bonus Plan or any similar or
successor annual bonus plan of the Company, (the "Performance Bonus Plan") and
to receive an annual performance bonus upon the achievement of one or more
annual performance goals, (the "Performance Goals") in accordance with the
terms of the Performance Bonus Plan; PROVIDED, that Executive's annual target
bonus under the Performance Bonus Plan (the "Annual Target Bonus") shall not
be less than 60% of the Base Salary in effect at the time the Performance Goals
for such plan year are established.
(c) LONG-TERM INCENTIVE. The Executive shall be eligible to participate
in any long-term incentive compensation and/or stock option plans maintained
from time to time by the Company. In addition, pursuant to prior action of the
Stock Option Committee of the Board, Executive has previously been granted an
option, (the "Market Option") to purchase Fifty Thousand (50,000) shares of
the Company common stock, 001 par value, (the "Common Stock") at an exercise
price equal to the price to the public in connection with AMP's IPO, with a term
of 10 years from the date of grant. The Market Option will vest twenty-five
(25%) per annum on each of the first through fourth anniversaries of the
Effective Time; PROVIDED, that the Market Option will not become exercisable in
whole or in part in the event the Market Option is terminated in accordance with
its terms prior to the Effective Time or if the IPO, Sale or Merger is abandoned
or otherwise does not close; and PROVIDED, FURTHER, that the Market Option shall
be subject to the terms of the American Medical Providers, Inc., 1997 Stock
Incentive Plan and the stock option agreement to be entered into in connection
with the grant of the Market Option.
(d) BENEFITS. PERQUISITES AND EXPENSES. During the Term, the Executive
shall be eligible to participate in employee benefit and fringe benefit plans
and programs generally available to the executive officers of the Company and
such additional benefits as the Board may from time to time provide. In
addition, Executive shall be entitled to receive the personal benefits described
on Exhibit A hereto. Executive shall be entitled to reimbursement for business
expenses, including travel and entertainment; PROVIDED, that such reimbursement
shall be limited to reasonable and necessary expenses incurred by Executive in
connection with the performance of duties on behalf of the Company subject to:
(i) timely submission of a properly executed Company expense report form
accompanied by appropriate supporting documentation, and (ii) compliance with
Company policies and procedures governing business expense reimbursement and
reporting based upon principles and guidelines established by the Audit
Committee of the Board, including periodic audits by the Internal Audit
Department of the Company and/or the Audit Committee of the Board.
(e) RETIREMENT BENEFITS. The Executive shall be entitled to participate
in any Supplemental Executive Retirement Plan or any similar or successor plan,
(the "SERP") and in any tax qualified and any other supplemental pension plans
should such plans be generally available to the executive officers of the
Company.
4. TERMINATION OF EXECUTIVE. Prior to the expiration of the Term and
subject to the payment of any amounts required under Section 5, the Executive's
employment with the Company may be terminated, (a) by the Company for Cause, (as
defined herein) or without Cause, (b) by the Executive for or without Good
Reason (as defined herein), (c) by reason of the Executive's death or
Disability, (as defined herein) or (d) by the mutual written consent of the
parties hereto. For purposes of this Agreement:
(i) "Cause" means; (A) conviction of, plea of guilty, or voluntary
settlement of embezzlement, theft, or fraud involving the Company; (B)
actions which have had or will likely have a material adverse financial
effect on the Company as a whole for an extended period of time, where
appropriate evidence exists that such actions are directly attributable to
them; (i) gross management negligence or repeated ineptitude of the
Executive and/or; (ii) deliberate refusal of the Executive to follow the
instructions or directions of the Board; (C) conviction of or a plea of
guilty or NOLO CONTENDERE to a felony, other than a felony involving a
moving violation; (D) violation of the non-compete or confidentiality
provisions of this Agreement, PROVIDED that no such violation will be
deemed to have
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occurred if, within 30 days following receipt by Executive of a notice from
the Board identifying the violation, the Executive, (i) cures the
violation, and (ii) establishes that the violation was unintentional and
not reasonably likely to result in harm to the Company, in each case to the
reasonable satisfaction of the Board; (E) material incapacitation or
repeated absence from work due to reckless and self-abusive behavior or
conduct, such as alcoholism and/or drug abuse, which renders Executive
incapable of performing his duties; PROVIDED, that physical or mental
disability due to injury or disease shall not be grounds for termination
for Cause; (F) gross insubordination or persistent refusal to follow
reasonable instructions; or (G) inability to perform the duties of the
Executive's office or consistent failure to perform in accordance with
reasonable expectations due to incompetence, or due to repeated and
unexcused absence from work having a material adverse effect on the Company
provided that mere failure to achieve performance targets or expectations
(including without limitation, those set forth in the Performance Bonus
Plan) shall not in and of itself constitute Cause hereunder.
For purposes of this Agreement, the Board shall have 60 days to
terminate the Executive for Cause following the date on which the Board
discovers the existence of a specific set of facts that, in the aggregate,
then constitute Cause, after which period no Cause with respect to such
specific set of facts shall be deemed to exist; PROVIDED, that the
repetition or reoccurrence of the same or a similar set of facts shall
constitute separate ground for termination for Cause.
(ii) "Disability" means the Executive's absence from the full-time
performance of his duties with the Company for one hundred eighty (180)
days or more within any period of 12 consecutive months as a result of the
Executive's incapacity due to mental or physical illness; PROVIDED, that
during any period prior to the termination of Executive's employment by
reason of Disability in which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company
shall continue to pay Executive his Base Salary at the rate in effect at
the commencement of such period of Disability;
(iii) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(A) a reduction by the Company in the Executive's Base Salary or
Annual Target Bonus in effect from time to time; (B) a material
reduction in the aggregate level of participation in and/or compensation
and benefit opportunities under all other compensation and employee
benefit plans in which Executive is entitled to participate from time to
time; PROVIDED, HOWEVER, that changes affecting the participation in or
benefits under such plans (other than the Performance Bonus Plan, any
SERP and the benefits described in Exhibit (A)) with respect to
similarly situated executives of the Company shall not constitute Good
Reason hereunder; (C) a reduction in the Executive's titles, duties or
authority with the Company; (D) notification by the Company of its
intention not to renew this Agreement pursuant to the provisions of
Section 2; (E) the termination of the Executive's employment by the
executive for any reason within 12 months following a Change in Control
(as defined herein); (F) relocation of the Company's Corporate offices
by more than 25 miles from its present location at 3555 Timmons Lane,
Houston, Texas 77027; (G) a change in who Executive reports to occurs
or; (H) the termination, for any reason, other than death or disability
of the Employment of Jack N. McCrary as President and Chief Executive
Officer.
(iv) "Change in Control," means the occurrence of any one of the
following events:
(A) any "person", (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, (the "Exchange Act") and as used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes an
Acquiring Person, (as such term is defined in the Company's Shareholder
Protection Rights Agreement to be adopted at the Effective Time) or any
person that is not bound by the Shareholder Agreement of the Company to
be entered into in connection with the Merger, (the "Shareholder
Agreement") becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the undiluted total voting power of
the Company's then outstanding securities eligible to vote for the
election of members of the Board, (the "Company Voting Securities");
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PROVIDED, HOWEVER, that no event described in the immediately preceding
clause shall be deemed to constitute a Change in Control by virtue of
any of the following: (i) an acquisition of Company Voting Securities by
the Company and/or one or more direct or indirect majority-owned
subsidiaries of the Company, (ii) an acquisition of Company Voting
Securities by any employee benefit plan sponsored or maintained by the
Company or any corporation controlled by the Company, (iii) an
acquisition by any underwriter temporarily holding securities pursuant
to an offering of such securities, or (iv) any acquisition by the
Executive or any "group", (as such term is defined in Rule 3d-5 under
the Exchange Act) of persons including the Executive; or
(B) Individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board, (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof;
PROVIDED, HOWEVER, that any person becoming a director subsequent to the
beginning of such twenty-four (24) month period, whose election, or
nomination for election, by the Company's shareholders was approved by
either, (i) the Board consistent with the terms of the Shareholder
Agreement, during the period the Shareholder Agreement is in effect, or
(ii) a vote of at least 60% of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
paragraph (B), considered as though such person were a member of the
Incumbent Board; PROVIDED, FURTHER, that no individual initially elected
or nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors of any other
actual or threatened solicitation of proxies or consents by or on behalf
of any person other than the Board shall be deemed to be a member of the
Incumbent Board; or
(C) there is consummated a merger or consolidation of the Company
or a subsidiary thereof with or into any other corporation other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, represent immediately after such merger or consolidation at
least 60% of the combined voting power of the then outstanding voting
securities of either the Company or the other entity which survives such
merger or consolidation or any parent of such other entity; or
(D) the stockholders of the Company approve, (i) a plan of
complete liquidation or dissolution of the Company, or (ii) an agreement
for the sale or disposition by the Company of all or substantially all
the Company's assets.
5. PAYMENTS UPON TERMINATION OF EXECUTIVE.
(a) If the employment of the Executive shall be terminated other than by
reason of death or Disability, (i) by the Company (other than for Cause), or
(ii) by the Executive for Good Reason, then the Company shall pay or provide to
the Executive, (or the Executive's beneficiary or estate):
(1) within thirty (30) days following the date of such termination of
employment ("Termination Date"), a lump-sum cash amount equal to the sum of,
(i) the Executive's unpaid Base Salary through the Termination Date, (ii) any
accrued but unpaid annual bonus under the Performance Bonus Plan in respect of
the annual bonus period preceding the bonus period in which the Termination Date
occurs, (iii) any unpaid reimbursable business expenses properly incurred
through the Termination Date, and (iv) a bonus payment equal to the Executive's
Annual Target Bonus in the year of termination, multiplied by a fraction the
numerator of which is the number of months in the bonus year of termination in
which the Executive has worked at least one day and the denominator of which is
12;
(2) within thirty (30) days following the Termination Date, a lump-sum
cash amount equal to the greater of; (A) the Executive's then Base Salary
payable over the remainder of the Term plus a bonus equal to the Executive's
Annual Target Bonus in the year of termination multiplied by a fraction the
numerator of which is the number of complete months remaining in the Term and
the denominator of which is 12, or (B)
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2.0 times the sum of: (i) the Executive's annual rate of Base Salary as of the
Termination Date plus, (ii) the Annual Target Bonus for the year in which the
Termination Date occurs, (in each such case, Executive's Base Salary and Annual
Target Bonus being determined without taking into account any reductions thereto
constituting Good Reason).
(3) for a period terminating on the earlier of; (A) the commencement of
the provision of substantially equivalent benefits by a new employer; or (B) the
later of, (i) the last day of the Term, or (ii) twenty-four (24) months
following the Termination Date, the Company shall continue to keep in full force
and effect, (or otherwise provide) all policies of medical, accident, disability
and life insurance with respect to the Executive and his dependents with
substantially the same level of coverage, upon substantially the same terms and
otherwise substantially to the same extent as such policies shall have been in
effect immediately prior to the Termination Date, and, as applicable, the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the date of termination;
(4) for purposes of determining final average compensation, (or making any
similar calculation) and years of service, (for purposes of eligibility, vesting
and benefit accrual) under any tax-qualified or supplemental defined benefit
retirement plan, (including without limitation any SERP) Executive shall be
deemed to have remained employed by the Company hereunder until the end of the
Term and to have received his then current Base Salary and Annual Target Bonus
through the end of the Term; PROVIDED, that to the extent such benefits cannot
be accrued under and paid from any tax-qualified pension plan, such benefits
shall be accrued under and paid from any SERP or other supplemental plan.
(5) all options to purchase Common Stock held by the Executive shall
immediately become fully vested and exercisable and shall remain exercisable
until the later of; (A) the date that is 24 months following the Termination
Date; and (B) the expiration of the stated term of such options; and
(b) If the employment of the Executive shall be terminated, (i) by reason
of the Executive's death or Disability, (ii) by the Company for Cause, (iii) by
the Executive without Good Reason, or (iv) by the mutual written consent of the
parties hereto, (each a "Non-qualifying Termination"), then the Company shall
pay to the Executive (or the Executive's beneficiary or estate) within thirty
(30) days following the Termination Date a lump-sum cash amount equal to the sum
of the Executive's unpaid Base Salary through the Termination Date plus any
bonus payments which have been earned or become payable, to the extent not
theretofore paid, plus any unpaid reimbursable business expenses properly
incurred through the Termination Date. In addition, Executive (or the
Executive's beneficiary or estate) shall have no less than ninety days following
the termination of his employment pursuant to a Non-qualifying Termination to
exercise any outstanding options to the extent vested and exercisable as of the
Termination Date. If the employment of the Executive shall be terminated, by
reason of the Executive's death or Disability, for a period terminating on the
earlier of; (A) the commencement of the provision of substantially equivalent
benefits by a new employer; or (B) the later of, (i) the last day of the Term,
or (ii) twenty-four (24) months following the Termination Date, the Company
shall continue to keep in full force and effect, (or otherwise provide) all
policies of medical, accident, disability and life insurance with respect to the
Executive and his dependents with substantially the same level of coverage, upon
substantially the same terms and otherwise substantially to the same extent as
such policies shall have been in effect immediately prior to the Termination
Date, and, as applicable, the Company and the Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such costs
were shared immediately prior to the Termination Date;
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6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything in this Agreement to the contrary, in the
event that any payment or distribution by the Company, by any affiliate of the
Company or by any person whose actions result in a change in control of the
Company, (to the extent the Company approves of the arrangements pursuant to
which the payment by such person is made to the Executive) to or for the benefit
of the Executive, (whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise, but determined without
regard to any additional payments required under this Section 6), (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code, or any interest or penalties are incurred by the Executive with respect to
such excise tax, (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax") then
the Executive shall be entitled to receive an additional payment, (a "Gross-Up
Payment") in an amount such that, after payment by the Executive of all taxes,
(including any interest or penalties imposed with respect to such taxes)
including, without limitation, any income and employment taxes and Excise Tax,
imposed upon the Gross-Up Payment but before deduction for any federal, state or
local income or other tax upon the Payments, the Executive will retain a net
amount equal to the sum of, (i) the Payments, and (ii) an amount equal to the
product of any deductions, (or portions thereof) disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income for
federal income tax purposes and the highest applicable marginal rate of federal
income taxation for the calendar year in which the Gross-Up Payment is to be
made. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to, (1) pay applicable federal income taxes at the
highest applicable marginal rates of federal income taxation (including
surcharges) for the calendar year in which the Gross-Up Payment is to be made,
(2) pay applicable state and local income taxes at the highest applicable
marginal rate of taxation, (including surcharges) for the calendar year in which
the Gross-Up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes, and (3) have otherwise allowable deductions for federal income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income.
(b) Subject to the provisions of Section 6(a), all determinations required
to be made under this Section 6, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the public
accounting firm that is retained by the Company as of the date immediately prior
to the change in control, (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
(15) business days of the receipt of notice from the Company or the Executive
that there has been a Payment, or such earlier time as is requested by the
Company, (collectively, the "Determination"). In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the change in control, the Executive may appoint another nationally
recognized public accounting firm reasonably acceptable to the Company to make
the determinations required hereunder, (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All reasonable fees and expenses
of the Accounting Firm shall be borne solely by the Company and, subject to
applicable law and obligations to the Company's stockholders, the Company shall
enter into any agreement reasonably requested by the Accounting Firm that is
generally recognized as standard in connection with the performance of the
services hereunder. The Gross-Up Payment under this Section 6 with respect to
any Payment shall be made no later than thirty (30) days following the date of
such Payment. If the Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return should not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment") or Gross-Up
Payments are made by the Company which should not have been made,
("Overpayment") consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any additional Excise Tax, the Accounting Firm shall
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determine the amount of the Underpayment that has occurred and any such
Underpayment, (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of the Executive. In the event the amount of the Gross-Up Payment
exceeds the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment, (together with interest at the rate provided in
Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to or
for the benefit of the Company. The Executive shall cooperate, to the extent his
reasonable expenses in connection therewith are reimbursed by the Company, with
any reasonable requests by the Company in connection with any contests or
disputes with the Internal Revenue Service in connection with the Excise Tax.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from
any and all payments due to the Executive, (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or other law, the
Company is required to withhold therefrom.
8. SUCCESSORS: BINDING AGREEMENT.
(a) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other, assign, or transfer this Agreement or
any rights or obligations hereunder; PROVIDED, that in the event of the merger,
consolidation, transfer or sale of substantially all of the assets of the
Company with or to any other individual or entity, this Agreement shall, subject
to the provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder, all references
herein to the "Company" shall refer to such successor.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts remain payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to such person or persons appointed in writing by the
Executive to receive such amounts or, if no person is so appointed, to the
Executive's estate.
9. RESOLUTION OF DISPUTES; LEGAL FEES: NO MITIGATION.
(a) Except as provided in Sections 10 and 11, all disputes hereunder shall
be settled by final, binding arbitration, conducted before a panel of three (3)
arbitrators in Texas in accordance with the rules of the American Arbitration
Association then in effect. Judgment on the arbitration award may be entered in
any court having jurisdiction. The Company shall bear the expenses of such
arbitration.
(b) If any contest or dispute shall arise under this Agreement involving
termination of the Executive's employment with the Company or involving the
failure or refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall advance and reimburse the Executive, on a current
basis, all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute; PROVIDED, that the Executive agrees to
return any advanced or reimbursed expenses to the extent the arbitrators, (or
the court, in the case of a dispute described in Section 10 or 11) determine
that the Company has prevailed as to the material issues raised in determination
of the dispute.
(c) The Company's obligation to make any payments provided for in this
Agreement to the Executive and otherwise to perform its obligations hereunder
shall not be affected by any setoff, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, and such amounts shall not be
reduced whether or not the Executive obtains other employment.
10. NON-COMPETITION.
(a) DISCLOSURE. The Executive has disclosed to the Board, in writing, all
heathcare-related interests, investments, or business activities, whether as
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever. The
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Executive shall notify the Board, in writing, of any changes in or additions to
such interests, activities or investments permitted in accordance with terms of
this Agreement, within 15 days of such change or addition.
(b) PROHIBITED ACTIVITY. Without the written consent of a majority of the
Independent Directors, the Executive may not engage in any of the following
actions during the period that is; (A) prior to the Executive's termination of
employment with the Company; (B) within two years following the termination of
his employment with the Company during the Initial Term if such termination is
by the Company for Cause or by the Executive other than for Good Reason; and (C)
within one year following his termination of employment during the Term but
after the Initial Term if such termination is by the Company for Cause or by the
Executive other than Good Reason.
(i) own, either directly or indirectly, any interest in any business that
competes with the "Primary Business" in which the Company or any subsidiary or
affiliate is engaged, within a radius of 20 miles from any site, facility, or
location which is owned, managed or operated by or affiliated with the Company
or any of its subsidiaries and affiliates, including Podiatric Physician
practices of any kind. For purposes of this Agreement, "Primary Business"
shall mean the delivery of Podiatric healthcare services in markets where the
Company or its subsidiaries own, operate or manage Physician Practices or
Ambulatory Surgery Centers. These Podiatric healthcare services can include but
are not limited to; (A) individual Podiatric Physician Practices and/or
Podiatric physician-based organizations such as primary care and specialty
clinics, Podiatric Physician-hospital organizations ("PMOs") or medical
service organizations ("MSOs"), or Podiatric Physician medical groups; and (B)
ambulatory programs such as home health care, ambulatory surgery, occupational
and sports medicine centers, and other diagnostic, rehabilitative and treatment
services for Podiatric patients. Some of these services, sites and facilities
may be located in satellite areas for the purpose of extending the Physician
Practice's geographic service area and to serve as access points and/or referral
sources for either the local delivery system or the Physician Practice's
geographic service area and to serve as access points and/or referral sources
for either the local delivery system or the Physician Practice's. The Board may
modify, from time to time, the definition of Primary Business to include any
additional Podiatric business or service activity in which the Company may
engage during the Term or to exclude any business or service in which the
Company ceases to engage. The definition of "Primary Business" may also be
modified to include any Podiatric business or service into which, as of the
Termination Date, the Company definitively intends to expand, regardless of
whether such expansion actually occurs after the Executive's termination. For
purposes of the preceding sentence, the date on which a modification of the
definition of "Primary Business" shall be effective shall be the date on which
the Executive is provided written notice of such modification, (the "Notice
Date") PROVIDED, HOWEVER, that no such modification as to which notice is
provided on or after the Termination Date shall be effective against the
Executive; and PROVIDED, FURTHER, that no such modification shall be effective
with respect to any interests, investments or business activities engaged in by
Executive prior to the Notice Date of such modification and properly disclosed
prior to such Notice Date pursuant to Section 10(a);
(ii) participate or serve, either directly or indirectly, whether as a
proprietor, stockholder, partner, co-venturer, director, officer, employee,
independent contractor, agent, consultant, or in any other capacity or manner
whatsoever in any business or service activity that competes with the Primary
Business;
(iii) directly or indirectly, solicit or recruit any individual employed
by the Company, its subsidiaries or affiliates for the purpose of being employed
by him or by any competitor of the Company on whose behalf he is acting as an
agent, representative or employee, or convey any confidential information or
trade secrets regarding other employees of the Company, its subsidiaries or
affiliates to any other person; or
(iv) directly or indirectly, influence or attempt to influence customers
of the Company or any of its subsidiaries or affiliates to direct their business
to any competitor of the Company; PROVIDED, HOWEVER, that neither, (i) the
"beneficial ownership" by Executive, either individually or as a member of a
"group," as such terms are used in Rule 13d under the Exchange Act, as a
passive investment, of not more than five percent (5%) of the voting stock of
any publicly held corporation, nor (ii) the beneficial ownership by
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Executive of any interest described in the first sentence of Section 10(a) and
properly and timely disclosed in accordance with the terms therewith, shall
alone constitute a violation of this Agreement.
In the event that the Executive engages in the conduct proscribed by this
Section 10, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to compete with the Company or
any subsidiary or affiliate in violation of this Agreement and that the Company
would by reason of such competition be entitled to preliminary or injunctive
relief in a court of appropriate jurisdiction, and Executive further consents
and stipulates to the entry of such preliminary or injunctive relief in such a
court prohibiting Executive from competing with the Company or any subsidiary or
affiliate in violation of this Agreement upon an appropriate finding by such
court that Executive has violated this Section 10.
(c) UNENFORCEABLE PROVISIONS. It is the desire and the intent of the
parties that the provisions of this Section 10 shall be enforceable to the
fullest extent permissible under applicable law and public policy. Accordingly,
if this Section 10 or any portion thereof shall be adjudicated to be invalid or
unenforceable whether because of the duration and scope of the covenants set
forth herein or otherwise, the length and scope of the restrictions set forth in
this Section 10 shall be reduced to the extent necessary so that this covenant
may be enforced to the fullest extent possible under applicable law.
11. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the Company
and/or its subsidiaries, he has occupied and will continue to occupy a position
of trust and confidence. The Executive shall not, except as may be required to
perform his duties hereunder or as required by applicable law, until the
expiration of the applicable periods described in Section 10(b) or until such
information shall have become public other than by the Executive's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not publicly disclosed by the Company or otherwise generally available to
members of the public seeking such information and that was learned by the
Executive in the course of his employment by the Company, its subsidiaries and
affiliates, including, (without limitation) any proprietary knowledge, trade
secrets, data, formulae, information and client and customer lists and all
papers, resumes, and records, (including computer records) of the documents
containing such Confidential Information. The Executive acknowledges that such
Confidential Information is specialized, unique in nature and of great value to
the Company, its subsidiaries and affiliates, and that such information gives
the Company, its subsidiaries and affiliates a competitive advantage. The
Executive agrees to deliver or return to the Company, at the Company's request
at any time or upon termination or expiration of his employment or as soon
thereafter as possible, all documents, computer tapes and disks, records, lists,
data, drawings, prints, notes and written information, (and all copies thereof)
furnished by the Company, its subsidiaries or affiliates or prepared by the
Executive during the term of his employment by the Company, its subsidiaries and
affiliates.
In the event that the Executive engages in any conduct proscribed by this
Section 11, the Executive agrees to repay any lump-sum severance amount received
pursuant to Section 5 of this Agreement, and all outstanding stock options held
by the Executive shall expire as of the date of the Executive's commencement of
such proscribed conduct. It is further expressly agreed that the Company will or
would suffer irreparable injury if Executive were to disclose or threaten to
disclose Confidential Information regarding the Company or any subsidiary or
affiliate in violation of this Agreement or otherwise fail to comply with the
provisions of this Section 11, and that the Company would, by reason of such
disclosure or threatened disclosure or other failure to comply, be entitled to
preliminary or permanent injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
preliminary or permanent injunctive relief in such a court prohibiting Executive
from disclosing Confidential Information in violation of this Agreement or
otherwise requiring Executive to comply with the provisions of this Section 11
upon an appropriate finding by such court that Executive has violated this
Section 11.
9
<PAGE>
12. NOTICE. For the purposes of this Agreement, any notices, demands and
all other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given upon; (A) transmitter's confirmation of
a receipt of a facsimile transmission; (B) confirmed delivery by a standard
overnight carrier; or (C) the expiration of five business days after the day
when mailed by certified or registered mail, postage prepaid, addressed as
follows, (or at such other address as the parties hereto shall specify by like
notice);
If to Executive: Randy E. Johnson
3555 Timmons Lane, Suite 1550
Houston, TX 77027
If to Company: Ankle and Foot Centers of America,
LLC
or American Medical Providers, Inc.
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
Attention: Chief Executive Officer
13. AMENDMENT WAIVER. No provisions of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in a written document signed by the Executive and such officer of the
Company, as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
14. ENTIRE AGREEMENT. This Agreement and Exhibit A hereto set forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
15. GOVERNING LAW: VENUE: VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Texas without regard to the
principle of conflicts of laws and, at the election of the Executive, the venue
of any dispute arising under this Agreement shall be Texas. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
16. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day of December, 1997.
Ankle and Foot Centers of America,
LLC.
By: /s/JACK N. McCRARY
Name: Jack N. McCrary
Title:
Executive: /s/RANDY E. JOHNSON
Randy E. Johnson
Joined into for the purpose here above stated by American Medical
Providers, Inc., this day of December, 1997.
By: /s/JACK N. McCRARY
Name: Jack N. McCrary
Title:
11
<PAGE>
EXHIBIT A
COMPENSATION AND LEAVE POLICIES
BASE COMPENSATION
Commencing with the Initial Public Offering (the "IPO") Date (the "IPO
Date") of AMP, (or the Sale Merger of AMP's Shares other than the IPO ("Sale
or Merger Date"), Executive shall be paid by the Company a base salary of not
less than One Hundred Eighty Thousand Dollars, ($180,000.00) per annum.
INVENTIVE COMPENSATION
Executive shall participate in the Company's Executive Officers Performance
Plan with his annual "Target Bonus" not being less than 60% of his Base
Salary.
LEAVE-VACATION AND HOLIDAYS
Executive shall be entitled to leave of four (4) weeks per annum, to be
taken in accordance with Employer's regular vacation policies. Executive shall
be entitled to at least nine (9) paid holidays per annum in accordance with
Employer regular paid holidays policies.
BENEFITS
Health Insurance including major medical for personal, at no cost to
Executive family and dependents at customary rates for family coverage.
Life Insurance equivalent to three times Executive salary.
Disability insurance equivalent to 60% of Base salary upon permanent
disability.
OTHER PAYMENTS:
Executive shall be reimbursed up to $1,000 for the cost of an annual
physical.
Executive shall receive a minimum of $800 per month as an automobile
allowance.
Executive shall be reimbursed up to $250.00 per month for membership dues.
Executive shall be reimbursed for expenses of "continuing education"
including such reasonable travel, as is required in connection therewith.
12
EXHIBIT 10.5
FORM OF
MANAGEMENT SERVICES AGREEMENT
Dated as of the ____________ day of ___________, 1997
by and between
AMERICAN MEDICAL PROVIDERS, INC.
and
---------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 Definitions....................................................... 1
Section 1.1 Definitions............................................... 1
ARTICLE 2 Relationship of the Parties....................................... 8
ARTICLE 3 Services to be Provided by Administrator.......................... 9
Section 3.1 Overall Function.......................................... 9
Section 3.2 General Administrative Services........................... 9
Section 3.3 Facilities................................................ 11
(a) Premises..................................................... 11
(b) Personal Property............................................ 12
(c) Expenses..................................................... 12
(d) Disposition.................................................. 12
Section 3.4 Acquisition and Assistance................................ 12
Section 3.5 Financial Planning and Budgeting.......................... 12
Section 3.6 Inventory and Supplies.................................... 13
Section 3.7 Marketing, Advertising and Public Relations............... 13
Section 3.8 Personnel................................................. 13
Section 3.9 Provider and Payor Relationships.......................... 14
Section 3.10 Quality Assurance......................................... 14
Section 3.11 Other Consulting and Advisory Services.................... 14
Section 3.12 Events Excusing Performance............................... 14
ARTICLE 4 Obligations of the Group Practice................................. 15
Section 4.1 Employment of Physician Employees; Distributions to
Physicians Stockholders.................................. 15
Section 4.2 Professional Services..................................... 15
Section 4.3 Medical Practices......................................... 15
Section 4.4 Group Practice's Internal Matters......................... 16
Section 4.5 Group Practice Board Meetings............................. 16
Section 4.6 Name...................................................... 16
Section 4.7 Compliance with Laws...................................... 16
Section 4.8 Ancillary Operations...................................... 17
Section 4.9 Premises and Personal Property............................ 17
Section 4.10 Group Practice Employee Benefit Plans..................... 18
ARTICLE 5 Joint Planning Board.............................................. 19
(i)
<PAGE>
ARTICLE 6 Restrictive Covenants and Liquidated Damages...................... 20
Section 6.1 Restrictive Covenants of the Group Practice............... 20
(a) Noncompetition............................................... 20
(b) Acknowledgment of Proprietary Interest....................... 21
(c) Covenant Not-to-Divulge Confidential and Proprietary
Information................................................. 21
(d) Return of Materials to Administrator......................... 21
(e) Return of Materials to the Group Practice.................... 21
Section 6.2 Restrictive Covenants and Liquidated Damages Provisions... 22
Section 6.3 Enforcement of Physician Agreements....................... 22
(a) Enforceability of Liquidated Damages Provisions.............. 22
(b) Enforcement of Restrictive Covenants and Other Provisions.... 23
Section 6.4 Remedies.................................................. 23
ARTICLE 7 Financial and Security Arrangements............................... 24
Section 7.1 Service Fees.............................................. 24
(a) Management of Professional Services.......................... 24
Section 7.2 Payments.................................................. 24
Section 7.3 Repayment................................................. 24
Section 7.4 Security Agreement........................................ 24
Section 7.5 Performance Incentive/Reduction........................... 25
ARTICLE 8 Records........................................................... 25
ARTICLE 9 Insurance and Indemnity........................................... 26
Section 9.1 Insurance to be Maintained by the Group Practice.......... 26
Section 9.2 Insurance to be Maintained by Administrator............... 26
Section 9.3 Continuing Liability Insurance Coverage................... 26
Section 9.4 Additional Insured........................................ 26
Section 9.5 Indemnification........................................... 26
Section 9.6 Guaranty.................................................. 27
ARTICLE 10 Term and Termination............................................. 27
Section 10.1 Term of Agreement......................................... 27
Section 10.2 Extended Term............................................. 27
Section 10.3 Termination by the Group Practice......................... 27
Section 10.4 Termination by Administrator.............................. 28
Section 10.5 Effective Date of Termination............................. 28
Section 10.6 Effect Upon Termination................................... 28
ARTICLE 11 General Provisions............................................... 29
Section 11.1 Assignment................................................ 29
Section 11.2 Amendments................................................ 29
Section 11.3 Waiver of Provisions...................................... 29
Section 11.4 Additional Documents...................................... 30
(ii)
<PAGE>
Section 11.5 Attorneys' Fees........................................... 30
Section 11.6 Contract Modifications for Prospective Legal Events....... 30
Section 11.7 Parties In Interest; No Third Party Beneficiaries......... 30
Section 11.8 Entire Agreement.......................................... 30
Section 11.9 Severability.............................................. 30
Section 11.10 Governing Law............................................. 31
Section 11.11 No Waiver; Remedies Cumulative............................ 31
Section 11.12 Arbitration and Mediation................................. 31
(a) Mediation.................................................... 31
(b) Binding Arbitration.......................................... 32
Section 11.13 Communications............................................ 33
Section 11.14 Captions.................................................. 33
Section 11.15 Gender and Number......................................... 33
Section 11.16 Reference to Agreement.................................... 33
Section 11.17 Notice.................................................... 33
Section 11.18 Counterparts.............................................. 34
Section 11.19 Defined Terms............................................. 34
(iii)
<PAGE>
FORM OF
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement"), dated as of
_________________, 1997, is by and among American Medical Providers, Inc., a
Delaware corporation, ("AMP"), and its affiliates (collectively,
"Administrator") and ______________________ a [STATE] PROFESSIONAL LIMITED
LIABILITY COMPANY (the "Group Practice").
WITNESSETH:
WHEREAS, the Group Practice will conduct a podiatric medical practice in
the ____________________ area and will provide professional podiatric care and
products to the general public; and
WHEREAS, Administrator is in the business of owning certain assets of
medical practices and providing consulting, administrative, and other support
services to and furnishing medical practices with the necessary facilities,
equipment, non-physician personnel, supplies and non-physician support staff
services; and
WHEREAS, the Group Practice desires to obtain the services of
Administrator in performing functions so as to permit the Group Practice to
devote its efforts on a concentrated and continuous basis to the rendering of
medical services to its patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE 1
Definitions
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following definitions shall apply:
(a) "ACCOUNTING CENTER" shall mean the separate accounting centers
within the Group Practice established for a subgroup of the Group Practice,
consisting of a single or multiple Physicians in accordance with the Physician
Engagement Agreements.
(b) "ACQUISITIONS" shall mean the acquisition transactions described in
the Acquisition Agreements.
1
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(c) "ACQUISITION AGREEMENTS" shall mean the Business Purchase Agreement,
the Physician Employment Agreement, and the Physician Engagement Agreement of
even date herewith by and between Administrator and (1) the Group Practice, (2)
the Physician Stockholders, (3) the Physician Employees and/or (4) the
predecessor employers of Physician Stockholders.
(d) "ACQUISITION CONSIDERATION" shall mean the AMP Common Stock and
other consideration furnished pursuant to the Acquisition Agreements by AMP in
connection with the Acquisition.
(e) "ACQUISITION EFFECTIVE DATE" shall mean the date the Acquisition is
effective pursuant to the terms of the Acquisition Agreements.
(f) "ADJUSTMENTS" shall mean any adjustments for uncollectible accounts,
discounts, Medicare and Medicaid disallowances, workers' compensation ,
employee/dependent health care benefit programs, professional courtesies and
other activities to the extent they do not generate a collectible fee or offset
a fee previously recorded.
(g) "ADMINISTRATOR EXPENSE" shall mean, pursuant to GAAP applied on a
consistent basis for each Accounting Center of the Group Practice:
(i) Any corporate overhead charges of Administrator and other
items incurred by Administrator that are not incurred specifically for
the purpose of providing services to the Group Practice or are not
directly attributable to the Group Practice as reasonably determined by
Administrator, including, without limitation, salaries and benefits of
executive officers of Administrator, except as otherwise provided for in
the definition of Group Practice Expenses;
(ii) Any amortization of any intangible asset resulting from the
Acquisition;
(iii) Any depreciation attributable to increases in the book
value of tangible depreciable assets resulting from the Acquisition;
(iv) Any legal and accounting expenses incurred by Administrator
in connection with the Acquisition;
(v) All taxes of Administrator, including but not limited to
state and federal income taxes and franchise taxes; but excluding state
and federal employee taxes related to employees who provide services for
the Group Practice, property taxes on assets used by the Group Practice
and other taxes specifically included in Group Practice Expenses.
(vi) Any expenses, whether for premiums or otherwise, related to
disability or life insurance for any Physician where the beneficiary
thereof is Administrator.
(vii) Any other expenses specifically included in "Administrator
Expenses" in this Agreement.
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(h) "AFFILIATE" with respect to any person shall mean a person that
directly or indirectly through one or more intermediaries controls, or is
controlled by or is under common control with, such person. Neither
Administrator nor the Group Practice is deemed to be an Affiliate of the other.
(i) "AMP COMMON STOCK" shall mean the common stock, par value $0.01 per
share, of AMP.
(j) "AMP GROUP" shall mean Administrator and its Affiliates and all
professional associations or corporations or other entities for which
Administrator, AMP, or their Affiliates provide management services.
(k) "ANCILLARY EMPLOYEES" shall mean those individuals who are employed
by or otherwise under contract or associated with Administrator to provide
services in the ancillary areas of the Group Practice's practice.
(l) "ANCILLARY EXPENSES" shall mean, pursuant to GAAP applied on a
consistent basis for each Accounting Center of the Group Practice, all operating
and non-operating expenses of Administrator incurred in the operation of
Ancillary Services on behalf of the Group Practice pursuant to this Agreement,
and all operating and non-operating expenses of the Group Practice incurred by
the Group Practice in the operation of Ancillary Services on behalf of the Group
Practice, including, without limitation, all expenses normally included within
the definition of Group Practice Expenses and specifically including all costs
associated with Ancillary Employees.
(m) "ANCILLARY REVENUE" for any month shall mean, all fees and income of
each Accounting Center of the Group Practice that, pursuant to GAAP applied on a
consistent basis, should be recorded each month (net of adjustments) by or on
behalf of the Group Practice from the provision of Ancillary Services to the
patients of the Group Practice.
(n) "ANCILLARY SERVICES" shall mean any and all services, products or
other fee generating activities provided to the patients of the Group Practice
and not resulting from direct professional medical services or incident to such
professional medical services by Physician Stockholders, Physician Employees or
Physician Extender Employees of the Group Practice.
(o) "ANNUAL CONTRIBUTION" shall mean for any given calendar year an
amount equal to the aggregate Group Practice Revenues for such calendar year
less the aggregate Group Practice Expenses for such year.
(p) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(q) "CONFIDENTIAL AND PROPRIETARY INFORMATION" shall have the meaning
set forth in Section 6.
3
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(r) "CURRENT PHYSICIAN RESTRICTIVE COVENANTS" shall have the meaning set
forth in Section 6.2.
(s) "DESIGNATED HEALTH SERVICES" shall have the meaning assigned to such
term in Stark.
(t) "DISPUTE" shall have the meaning set forth in Section 11.12.
(u) "ERISA" shall have the meaning set forth in Section 4.10(c).
(v) "EXCLUDED GROUP PRACTICE EXPENSES" shall mean, pursuant to GAAP
applied on a consistent basis, for each Accounting Center of the Group Practice:
(i) any salaries or other distributions made to Physicians,
whether for professional fee income or otherwise, and any expenses
related thereto, including payroll and other taxes associated therewith;
(ii) any federal, state or other income taxes applicable to the
Group Practice;
(iii) any expenses, whether for premiums or otherwise, related
to disability or life insurance for any Physician where the beneficiary
thereof has been named by the Physician,
(iv) all costs, expenses and liabilities incurred by the Group
Practice or Administrator for professional liability insurance,
(v) any expenses described in any Physician Employment Agreement
for a Physician Employee,
(vi) any expenses described in any Physician Engagement
Agreement for a Physician Stockholder,
(vii) expenses related to professional meetings, seminars and
dues and professional licensing fees related to the business of the
Group Practice;
(viii) any contributions to any Group Practice Plan for the
benefit of any Physician, and
(ix) any other expenses specifically included in "Excluded Group
Practice Expenses" in this Agreement.
(w) "FUTURE PHYSICIAN RESTRICTIVE COVENANTS" shall have the meaning set
forth in Section 6.2.
(x) "GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and the Securities
and Exchange Commission or in such other statements by such other entity
4
<PAGE>
or other practices and procedures as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination. For purposes of this Agreement, GAAP shall be applied on
an accrual basis.
(y) "GROUP PRACTICE" shall include the Group Practice as defined in the
first paragraph of this Agreement and all Accounting Centers, satellite
locations and related businesses of such Group Practice.
(z) "GROUP PRACTICE EXPENSES" shall mean, pursuant to GAAP applied on a
consistent basis, for each Accounting Center of the Group Practice, all
operating and non-operating expenses of Administrator incurred specifically for
and directly attributable to the operation of the Group Practice pursuant to
this Agreement, and all operating and non-operating expenses of the Group
Practice incurred by the Group Practice in the operation of the Group Practice,
including, without limitation:
(i) Salaries, benefits and other direct costs of all employees
of Administrator who perform services for the Group Practice (other than
Group Practice Physician Employees), including, without limitation,
federal and state employee taxes and costs of workers' compensation.
(ii) Direct costs of all employees or consultants of
Administrator engaged to provide services at or in connection with the
Group Practice or who actually provide services at or in connection with
the Group Practice for improved performance, such as quality assurance,
materials management, purchasing, charge and coding analysis, physician
recruitment and business office consultant; provided, however, only the
portion of expenses related to such employee or consultant, without
mark-up, that is allocable to work performed at or for the benefit of
the Group Practice shall be included in Group Practice Expenses.
(iii) The obligations of Administrator, including capital costs,
depreciation and amortization, leases or subleases for assets which are
leased or utilized for the benefit of the Group Practice, including,
without limitation, any subleases between any Affiliates included in
Administrator, provided that the rent payable under such subleases shall
not exceed the rent payable by such Affiliate.
(iv) Personal and intangible property taxes assessed against
Administrator's or its Affiliate's assets which are leases or utilized
for the benefit of the Group Practice, commencing on the date of this
Agreement.
(v) Interest expense on indebtedness (1) assumed by
Administrator as a result of the Acquisition or (2) funds expended by
Administrator (a) to finance or refinance obligations assumed by
Administrator at the time of the Acquisition and/or (b) in connection
with making advances and capital available to the Group Practice and in
providing other services pursuant to this Agreement.
5
<PAGE>
(vi) Any provider tax assessed against the Group Practice by the
State and any sales and use taxes assessed against the Group Practice
related to Group Practice operations or assessed against Administrator
related to services provided hereunder.
(vii) All expenses specifically included in "Group Practice
Expenses" in this Agreement.
(viii) All expenses, whether for premiums or otherwise, related
to life insurance for any Group Practice Physician Stockholder where the
beneficiary thereof is the Group Practice.
(ix) Other expenses incurred by Administrator in providing
services for the direct benefit of the Group Practice and in carrying
out its obligations under this Agreement.
Provided, however, that, notwithstanding anything contained herein,
Administrator Expenses, Ancillary Expenses and Excluded Group Practice Expenses
shall not be included in Group Practice Expenses.
(aa) "GROUP PRACTICE FUNDS" shall indicate for the relevant period an
amount equal to Group Practice Revenues less than the sum of Group Practice
Expenses and the Service Fees, for each Accounting Center of the Group Practice.
(ab) "GROUP PRACTICE PLAN" shall have the meaning set forth in Section
4.10(a).
(ac) "GROUP PRACTICE REVENUES" for any month shall mean all fees and
income of each Accounting Center of the Group Practice that, pursuant to GAAP
applied on a consistent basis, should be recorded each month (net of
Adjustments) by or on behalf of the Group Practice, including, without
limitation, the fees generated as a result of professional medical services
furnished to patients by Physician Employees, including Physician Extender
Employees, and other fees or income generated in their capacity as
professionals, whether rendered in an inpatient or outpatient setting,
including, but not limited to, medical director fees or technical fees from
medical ancillary services and consulting fees, but shall not include (i) any
income or revenue received by any Group Practice Physician Employee individually
from the activities listed in Schedule A to the applicable Physician Employment
Agreement or Physician Engagement Agreement, (ii) liquidated damages received by
the Group Practice or the Administrator pursuant to Section 6.2 or 6.3, or (iii)
Ancillary Group Practice Revenues as defined herein.
(ad) "IRS" shall mean the Internal Revenue Service.
(ae) "JOINT PLANNING BOARD" shall mean a six (6) member joint board
established pursuant to Article 5.
(af) "LD CAUSES OF ACTION" shall have the meaning set forth in Section
6.3(a).
(ag) "LIQUIDATED DAMAGES" shall have the meaning set forth in Section
6.3(a).
6
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(ah) "LIQUIDATED DAMAGES PROVISIONS" shall have the meaning set forth in
Section 6.2.
(ai) "MANAGED CARE CONTRACTS" shall have the meaning set forth in
Section 3.9.
(aj) "MANAGED CARE PAYORS" shall have the meaning set forth in Section
3.9.
(ak) "MEDICAL WASTE" includes, but is not limited to, (i) pathological
waste, (ii) blood, (iii) sharps, (iv) wastes from surgery or autopsy, (v)
dialysis waste, including contaminated disposable equipment and supplies, (vi)
cultures and stocks of infectious agents and associated biological agents, (vii)
contaminated animals, (viii) isolation wastes, (ix) contaminated equipment, (x)
laboratory waste, (xi) any substance, pollutants material or contaminants listed
or regulated under any Medical Waste Law, and (xii) other biological Waste and
discarded materials contaminated with or exposed to blood, excretion, or
secretions from human beings or animals.
(al) "MEDICAL WASTE LAWS" shall mean the following, including
regulations promulgated and orders issued thereunder, all as may be amended from
time to time: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA ss.ss. 2501 ET SEQ., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA ss.ss.1401 ET SEQ.,
(iv) The Occupational Safety and Health Act, 29 USCA ss.ss.651 ET M., (v) the
United States Department of Health and Human Services, National Institute for
Occupational Safety and Health, Infectious Waste Disposal Guidelines,
Publication No. 88-119, and (vi) any other federal, state, regional, county,
municipal or other local laws, regulations and ordinances insofar as they
purport to control Medical Waste, or impose requirements relating to Medical
Waste.
(am) "PAYMENT DATE" shall have the meaning set forth in Section 7.3.
(an) "PERSONAL PROPERTY" shall have the meaning set forth in Section
3.3(b).
(ao) "PHYSICIAN" shall mean all Physician Stockholders and Physician
Employees, as defined below.
(ap) "PHYSICIAN EMPLOYMENT AGREEMENT" shall mean the employment
agreement entered into between the Group Practice and Physician Employees,
whether on the date hereof or on any date hereafter during the term of this
Agreement and any extension thereof.
(aq) "PHYSICIAN EMPLOYEES" shall mean those individuals who are
physicians employed by the Group Practice under a Physician Employment
Agreement, or who are otherwise under contract or associated with the Group
Practice to provide professional medical services to patients of the Group
Practice except those individuals employed under a Physician Engagement
Agreement.
(ar) "PHYSICIAN ENGAGEMENT AGREEMENT" shall mean the engagement
agreement entered into between the Group Practice and Physician Stockholders,
whether on the date hereof or on any date hereafter during the term of this
Agreement and any extensions thereof.
7
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(as) "PHYSICIAN EXTENDER EMPLOYEES" shall mean those individuals who are
employed by or otherwise under contract or associated with Administrator as
nurse anesthetists, physicians assistants, nurse practitioners or similar
positions, or any position that generates a professional charge, but shall not
include Ancillary Employees.
(at) "PHYSICIAN STOCKHOLDER" shall mean those individuals engaged by the
Group Practice under a Physician Engagement Agreement.
(au) "PLANS" shall have the meaning set forth in Section 4.10(a).
(av) "PREMISES" shall mean the premises provided to the Group Practice
pursuant to Section 3.3.
(aw) "RESTRICTIVE COVENANTS" shall mean the Current Physician
Restrictive Covenants and the Future Physician Restrictive Covenants.
(ax) "SERVICE FEE" shall have the meaning set forth in Section 7. 1 (b).
(ay) "STARK" shall mean the anti-selfreferral provisions for certain
health services found in 42 U.S.C. ss. 1395nn and all rules and regulations
promulgated thereunder, as such may be amended or revised from time to time.
(az) "STATE" shall mean the State of ___________________.
(ba) "TAX RETURNS" shall include all federal, state, local, franchise,
property and other tax returns.
(bb) "TERMINATION DATE" shall have the meaning set forth in Section
10.5.
(bc) "TERMINATION NOTICE" shall have the meaning set forth in Section
10.5(a).
ARTICLE 2
Relationship of the Parties
The Group Practice and Administrator intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, agency or employment relationship between the
parties. Administrator and the Group Practice agree that the Group Practice
shall retain the exclusive authority to direct the medical, professional, and
ethical aspects of its medical practice. Administrator shall neither exercise
control over nor interfere with the physician-patient relationships of the Group
Practice, which shall be maintained strictly between the physicians of the Group
Practice and their patients. The parties hereby agree that the benefits to the
Group Practice hereunder do not require, are not payment for and are not in any
way contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by Administrator or any of its
Affiliates to any of
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the Group Practice's patients in any ancillary service controlled, managed or
operated by Administrator.
ARTICLE 3
Services to be Provided by Administrator
SECTION 3.1 OVERALL FUNCTION. Administrator shall provide or arrange for
the services set forth in this Article 3 and the costs, fees, expenses and other
disbursements incurred by Administrator in connection therewith shall be
included in Group Practice Expenses, except to the extent such costs, fees or
expenses are Excluded Group Practice Expenses, Administrator Expenses or
Ancillary Expenses. Administrator is authorized to perform its services
hereunder as is necessary or appropriate for the efficient operation of the
Group Practice, including, without limitation, performance of some of the
business office functions at locations other than the Group Practice. The Group
Practice will not act in a manner which would prevent Administrator from
performing its duties hereunder and will provide such information and assistance
to Administrator as is reasonably required by Administrator to perform its
services hereunder. Administrator shall use its best efforts to cause its
employees, to comply with all applicable federal, state and local laws, rules
and regulations in its provision of services hereunder.
SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
(a) The Group Practice hereby engages Administrator to serve as its
exclusive manager and administrator of non-physician services relating to the
operation of the Group Practice, subject to matters reserved for the Group
Practice or referred to the Joint Planning Board as herein contemplated, and
Administrator shall have all necessary authority to perform such services. The
Group Practice agrees that the purpose and intent of this Agreement is to
relieve the Physician Employees to the maximum extent possible of the
administrative, accounting, purchasing, non-physician personnel and other
business aspects of its practice. Administrator agrees that only the Group
Practice and Physician Employees, will perform the medical functions of its
practice. Administrator shall have no authority, directly or indirectly, to
perform or supervise, and shall not perform or supervise, any medical function.
Administrator may, however, advise the Group Practice as to the relationship
between its performance of medical functions and overall administrative and
business functions of its practice to the extent permitted by applicable law.
(b) Administrator shall, in the name of and on behalf of the Group
Practice, bill patients, insurance companies and other third-party payors and
collect the professional fees for medical services rendered by the Group
Practice in the Group Practice, for services performed outside the Group
Practice for its hospitalized patients, and for other professional and Group
Practice services and products. The Group Practice hereby appoints Administrator
for the term of this Agreement to be its true and lawful attorney-in-fact, for
the following purposes: (i) to bill patients, insurance companies and other
third-party payors in the Group Practice's name and on
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its behalf, (ii) to collect accounts receivable resulting from such billing in
the Group Practice's name and on its behalf, (iii) to receive payments on behalf
of the Group Practice from insurance companies, prepayments received from health
care plans, Medicare, Medicaid and all other third party payors; (iv) to take
possession of and endorse in the name of the Group Practice (and/or in the name
of an individual physician), such payments intended for the purpose of payment
of a physician's bill related to the Group Practice, and notes, checks, money
orders, insurance payments and other instruments received in payment of accounts
receivable; and (v) to initiate the institution of legal proceedings in the name
of the Group Practice or a Physician Employee to collect any accounts and monies
owed to the Group Practice or the Physician Employee, to enforce the rights of
the Group Practice or the Physician Employee as creditor under any contract or
in connection with the rendering of any service, and to contest adjustments and
denials by governmental agencies (or their fiscal intermediaries) as third-party
payors. All monies shall be accounted for by Administrator as being distinctly
attributable to the Group Practice. The Group Practice may perform the functions
or exercise the rights set forth in this Section 3.2(b) only with the consent of
Administrator. The Group Practice shall execute a Power of Attorney in form and
substance acceptable to the parties hereto in connection with the rights and
powers granted to Administrator pursuant to this Section 3.2(b). The Group
Practice shall cooperate with and at the request of Administrator shall provide
reasonable assistance to Administrator regarding the functions set forth herein.
In the performance of the services described in the Section 3.2(b),
Administrator shall use commercially reasonable efforts to collect such
professional fees and still comply with all applicable managed care contracts
and all applicable laws, rules and regulations.
(c) Administrator shall supply to the Group Practice the ordinary,
necessary or appropriate services for the efficient operation of the Group
Practice, including without limitation, necessary clerical, accounting,
purchasing, payroll, legal, bookkeeping and computer services, information
management, preparation of Tax Returns, printing, postage and duplication
services and medical transcribing services; provided, however, that the Group
Practice may elect to prepare its own Tax Returns, in which case, the cost of
preparing such Tax Returns in excess of $1,500 per annum shall be included in
Excluded Group Practice Expenses. Administrator shall prepare monthly unaudited
financial statements for the Group Practice containing a balance sheet, income
statement and cash flow statement, which shall be delivered to the Group
Practice as soon as practicable, but not later than thirty (30) days after the
end of each calendar month. The Group Practice may elect, no more than annually,
to have an audit conducted with respect to such financial statements, in which
case the cost of such audit shall be included in Excluded Group Practice
Expenses.
(d) Administrator shall maintain all files and records relating to the
operation of the Group Practice, including, but not limited to, accounting,
billing, collection and customary financial records and patient files. The
management of all files and records shall comply with all applicable federal,
state and local statutes and regulations, and all files and records shall be
located so that they are readily accessible for patient care, consistent with
ordinary records management practices. The Group Practice shall supervise the
preparation of, and direct the contents of, patient medical records, all of
which shall remain confidential. All original patient
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records contributed to the Group Practice by the Group Practice Physician
Stockholders shall be and remain the property of the Group Practice and all
original patient records created after the Acquisition Effective Date by the
Group Practice shall be and remain the property of the Group Practice. At such
time as this Agreement expires or terminates, (i) Administrator will provide the
Group Practice with the original patient records that it owns, if any (or true
and complete copies thereof, if Administrator shall be prevented by any
applicable laws, regulations or accreditation policies from providing the Group
Practice with the original records), of all continuing patients of the Group
Practice, but subject to applicable laws, regulations and accreditation
policies, Administrator shall be permitted to retain true and complete copies of
such records (and shall retain the original records if, for any of the foregoing
reasons, it is prevented from providing them to the Group Practice), and (ii)
subject to applicable laws, regulations and accreditation policies, the Group
Practice will, if requested by Administrator, provide Administrator with true
and complete copies of the original patient records that it owns. Administrator
hereby agrees to preserve the confidentiality of such patient medical records
and to use the information in such records only for the limited purposes
necessary to perform management services, and, within the limits of its
responsibilities hereunder, to ensure that provision is made for appropriate
care for patients of the Group Practice.
(e) Administrator shall take such action in the name of and on behalf of
the Group Practice to collect fees and pay in a timely manner all Group Practice
Expenses, except as otherwise agreed among Administrator and the Group Practice.
(f) Administrator shall, upon the terms and at the times as mutually
agreed by Administrator and the Group Practice (but in no event less frequently
than monthly), distribute the Group Practice Funds to the Group Practice
Accounting Centers, with appropriate adjustments made to reflect any Group
Practice Expenses paid by the Administrator and not reimbursed by Group Practice
or Group Practice Revenues collected or received by the Group Practice and not
remitted to Administrator.
SECTION 3.3 FACILITIES.
(a) PREMISES. Administrator shall make available to the Group Practice
the Premises that are described in Schedule 3.3 attached hereto and such other
real property acquired (with the consent of the Group Practice) and improvements
made by Administrator for the use of the Group Practice hereunder; provided,
that in the event Administrator's rights to use any such Premises shall
terminate, Administrator shall use its best efforts to provide other suitable
Premises to be used by the Group Practice, which Premises shall be approved by
the Group Practice, such approval not to be unreasonably withheld. Administrator
shall obtain for the Group Practice all utilities reasonably required in
connection with the use of the Premises and shall provide for the proper
cleanliness of the Premises, including normal janitorial services and refuse
disposal. Administrator shall maintain the Premises and make all necessary
repairs thereto.
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(b) PERSONAL PROPERTY. Administrator shall provide the Group Practice
with the use of the equipment, furniture, fixtures, furnishings and other
personal property acquired by Administrator in the Acquisitions, together with
such other equipment, furniture, fixtures, furnishings and other personal
property acquired by Administrator for the use of Group Practice pursuant to the
terms hereof (collectively, the "Personal Property"). Administrator shall
maintain the Personal Property and make necessary repairs thereto.
(c) EXPENSES. All costs, fees, expenses and other disbursements incurred
by Administrator or the Group Practice in connection with the Premises and the
Personal Property, including, without limitation, all costs of repairs,
maintenance and improvements, utility expenses (i.e., telephone, electric, gas
and water), janitorial services, refuse disposal, real or personal property
lease cost payments and expenses, interest, principal and other debt service or
refinancing payments and expenses, depreciation, taxes and casualty, liability
and other insurance, shall be included in Group Practice Expenses, provided that
the lesser of depreciation or principal payments for the same assets shall not
both be included in Group Practice Expenses.
(d) DISPOSITION. Nothing herein shall be construed as precluding
Administrator from selling, leasing or otherwise disposing of all or any part of
its real property, improvements, Personal Property, tradenames, trademarks and
other intangible property; provided that any such disposition shall not
eliminate or diminish Administrator's obligations hereunder.
SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made
by the Group Practice to employ additional physicians or acquire physician
groups or practices and if requested by the Group Practice, Administrator may,
in its sole discretion, assist the Group Practice in the identification and
selection of physicians or physician groups or practices that may be beneficial
in providing the services and products of the Group Practice. In the event that
a decision is made by the Group Practice to pursue the employment of selected
physicians or the acquisition of a particular physician group or practice,
Administrator may, in its sole discretion, if requested by the Group Practice,
provide recruiting, consulting, negotiating and other services and may provide
for legal, accounting and other professional advisor services in connection with
such transaction. Nothing contained herein shall be construed to require
Administrator to provide any capital, funds or other assistance to the Group
Practice in connection with the employment of physicians or acquisition of
physician groups or practices by the Group Practice.
SECTION 3.5 FINANCIAL PLANNING AND BUDGETING.
(a) Subject to the terms contained herein, Administrator will make funds
available for capital expenditures and improvements by Administrator on behalf
of the Group Practice. Requests for expenditures and improvement projects shall
be prepared by the Joint Planning Board in consultation with the Group Practice
and Administrator. All requests for capital expenditures and improvements at the
Group Practice in excess of $5,000 individually and $20,000 in the aggregate for
any calendar year must be approved by the Board of Directors of Administrator.
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(b) Administrator shall consult with the Group Practice and the Joint
Planning Board, in the preparation of all annual capital and operating budgets.
Combined annual budgets for the Group Practice shall be subject to the review,
amendment and approval or disapproval of the Board of Directors of Administrator
(or a committee designated by such Board of Directors) and the Group Practice.
In the event Administrator and the Group Practice can not reach agreement on
such budgets, the next previously agreed to budgets shall remain in effect with
an adjustment to all items not to exceed three percent (3%).
SECTION 3.6 INVENTORY AND SUPPLIES. Administrator shall order and
purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are requested by the Group Practice and which the
Group Practice shall reasonably determine to be necessary in the operation of
the Group Practice. Supplies and inventory to be used directly in patient care
and providing medical services shall be of the type and quality specified by the
Group Practice. Such inventory, supplies and other materials shall be included
in Group Practice Expenses at their cost to Administrator, as the case may be.
SECTION 3.7 MARKETING, ADVERTISING AND PUBLIC RELATIONS. In consultation
with the Joint Planning Board and the Group Practice, Administrator shall
implement (and design where requested) any appropriate local marketing, public
relations or advertising program on behalf of the Group Practice, with
appropriate emphasis on public awareness of the availability of services at the
Group Practice. Prior to publication or distribution of marketing or public
relations material or information, Administrator shall submit such material to
the Group Practice for its review and approval, which approval shall not be
unreasonably withheld. However, if Administrator does not receive a response
from Group Practice regarding a submission of material within ten (10) days of
such submission, Administrator may continue as if it had received approval from
Group Practice. Administrator shall also design and implement all national or
other non-local public relations or advertising programs on behalf of the Group
Practice, the cost of which shall be included in Administrator Expenses, except
to the extent such national programs are reasonably designed to replace or
supplement the marketing benefits derived from local marketing, public relations
or advertising programs, in which case, such costs will be included in Group
Practice Expenses. The parties hereto agree that all public relations and
advertising programs shall be conducted in compliance with applicable standards
of medical ethics, laws and regulations.
SECTION 3.8 PERSONNEL. Except as specifically provided in Section 5(b)
of this Agreement, Administrator shall employ or otherwise retain and shall be
responsible for selecting, hiring, training, supervising, and terminating, all
management, administrative, clerical, secretarial, bookkeeping, accounting,
payroll, billing and collection and other personnel as Administrator deems
reasonably necessary and appropriate for Administrator's performance of its
duties and obligations under this Agreement. Consistent with reasonably prudent
personnel management policies, Administrator shall seek and consider the advice,
input, and requests of the Group Practice in regard to personnel matters.
Administrator shall have sole responsibility for determining the salaries and
providing such fringe benefits, and for withholding, as required by law, any
sums for income tax, unemployment insurance, social security, or any other
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withholding required by applicable law or governmental requirement.
Notwithstanding the foregoing, it is clearly understood that Physicians shall
exercise control over all actions taken by personnel with regard to the
rendering of medical services to the same extent Physicians would exercise such
control if such personnel were directly employed by Physician.
SECTION 3.9 PROVIDER AND PAYOR RELATIONSHIPS. Administrator shall
provide financial and business assistance to the Group Practice in the
negotiation, establishment, supervision and maintenance of contracts and
relationships (collectively, the "Managed Care Contracts") with all managed
care, institutional health care providers and payors, health maintenance
organizations, preferred provider organizations, exclusive provider
organizations, Medicare, Medicaid and other similar persons (collectively,
"Managed Care Payors"). Approval, disapproval, termination or amendment of any
contract or relationship with such Managed Care Payors and the Group Practice
shall be the responsibility of the Group Practice and the Joint Planning Board;
provided, however, that should a contract or relationship between any Managed
Care Payor and the Group Practice involve or affect a contract or relationship
between a Managed Care Payor and Administrator or a person or entity serviced or
managed by Administrator and a consensus among such affected Affiliates and
serviced entities cannot be reached regarding the contract or relationship, then
the ultimate decision as to the approval, disapproval, termination or amendment
of the contract or the relationship between such Affiliates and other affected
or involved serviced clinics and such Managed Care Payor, and such decision
involving the Group Practice and such Managed Care Payor, shall be made by the
Board of Directors of AMP.
SECTION 3.10 QUALITY ASSURANCE. Subject to Article 2, Administrator
shall assist the Group Practice in fulfilling its obligations to its patients to
maintain a high quality of medical and professional services. Any expenses that
are related to the overall maintenance of Administrator's quality assurance
program shall be included in Administrator Expenses; provided, however, that any
expenses related to such program that are incurred for services provided for the
direct benefit of the Group Practice shall be included in Group Practice
Expenses.
SECTION 3.11 OTHER CONSULTING AND ADVISORY SERVICES. Administrator will
provide such consulting and other advisory services as requested by the Group
Practice in all areas of the Group Practice's business functions, including,
without limitation, financial planning, acquisition and expansion strategies,
development of long-term business objectives and other related matters.
SECTION 3.12 EVENTS EXCUSING PERFORMANCE. In the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies or other events
over which Administrator has no control, Administrator shall not be liable to
the Group Practice for failure to perform any of the material services required
hereunder and the Group Practice shall not have the right to terminate this
Agreement pursuant to Section 10.3(b), for so long as such events continue and
for a reasonable period of time thereafter; provided, however, that if such
events continue and Administrator is not able to perform any of the services
required hereunder for a period of 180 consecutive days
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or more, either Administrator or Group Practice may terminate this Agreement by
written notice to the other.
ARTICLE 4
Obligations of the Group Practice
SECTION 4.1 EMPLOYMENT OF PHYSICIAN EMPLOYEES; DISTRIBUTIONS TO
PHYSICIANS STOCKHOLDERS. The Group Practice shall have complete control of and
responsibility for the hiring, compensation, supervision, training, evaluation
and termination of its Physician Employees, although Administrator and/or the
Joint Planning Board shall consult with the Group Practice with respect to such
matters. The Group Practice shall conduct an appropriate and reasonable due
diligence review in connection with the hiring of any physician or the
acquisition of any physician group or practice and shall compensate such
Physician Employees in amounts not to exceed amounts which are reasonable and
customary for physicians of comparable skills and experience in the community
where the Group Practice is located. Although Administrator may provide payroll
and other related services to the Group Practice, the Group Practice shall be
solely responsible for the payment of Physician Employees' salaries and wages,
payroll taxes and all other taxes now or hereafter applicable to their
employment. Physician Stockholders shall receive distributions in accordance
with their Physician Engagement Agreement. Neither the Group Practice nor its
Physicians shall have any claim under this Agreement or otherwise against
Administrator for workers' compensation, unemployment compensation or Social
Security benefits, all of which shall be the sole responsibility of the Group
Practice. The Group Practice shall only employ or contract with licensed
physicians or other persons meeting applicable credentialing guidelines
established by the Group Practice and approved by the Joint Planning Board. The
Group Practice shall cooperate in the obtaining and retaining of professional
liability insurance by ensuring that all its Physicians and its employees who
may have malpractice exposure or liability, are insurable and by participating
in an ongoing risk management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Group Practice shall provide
professional services to patients in compliance at all times with ethical
standards, laws, rules and regulations applicable to the operations of the Group
Practice and the Physicians. The Group Practice shall ensure that each Physician
has all required licenses, credentials, approvals or other certifications to
perform his or her duties and services for the Group Practice. In the event that
any disciplinary actions or medical malpractice actions are initiated against
any Physician, the Group Practice shall inform Administrator within 24 hours of
such action and the underlying facts and circumstances. The Group Practice shall
carry out a program to monitor the quality of medical care practiced at the
Group Practice. The Group Practice shall employ such Physicians as is necessary
to provide efficient medical care to patients of the Group Practice.
SECTION 4.3 MEDICAL PRACTICES. The Group Practice shall use and occupy
the Premises exclusively for the practice of medicine and for providing other
related services and products. Unless otherwise approved in writing by
Administrator, which approval shall not be
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unreasonably withheld, it is expressly acknowledged by the parties hereto that
the medical practice or practices conducted by the Group Practice shall be
conducted solely by Physicians associated with the Group Practice, and, except
as set forth on Schedule 4.3, no other physician or medical practitioners shall
be permitted to use or occupy the Group Practice. The Group Practice shall be
solely and exclusively in control of all aspects of the practice of medicine and
the delivery of medical services at the Group Practice's Premises and at such
outpatient surgery center, acute care hospitals and other facilities as the
Group Practice may deem appropriate from time to time. The rendition of all
medical professional services, including, but not limited to, diagnosis,
treatment, surgery, therapy, the prescription of medicine and drugs, and the
supervision and preparation of medical reports shall be the sole responsibility
of the Group Practice. Administrator shall have no authority whatsoever with
respect to the establishment of fees or charges for the rendition of such
services. From time to time, the Group Practice in its discretion will adopt and
implement fee schedules for non-prepaid patients which shall be reasonable in
relation to fees generally being obtained in the same or similar market areas
and for all re-billings and recovery items on prepaid Managed Care Contracts
which are authorized and permitted by such contracts, a copy of which and each
amendment thereto shall be provided to Administrator for review no later than
thirty (30) days prior to the proposed effective date thereof.
SECTION 4.4 GROUP PRACTICE'S INTERNAL MATTERS. The Group Practice shall
be responsible for matters involving its corporate governance, employees and
similar internal matters, including, but not limited to, preparation and the
contents of such reports to regulatory authorities governing the Group Practice
as the Group Practice is required by law to provide, distribution of
professional fee income among the Group Practice Physician Stockholders, which
will be included in Excluded Group Practice Expenses; PROVIDED, HOWEVER, that
such compensation shall be consistent with the Physician Engagement Agreements
and Physician Employment Agreements for each Physician. The costs incurred in
connection with the foregoing matters shall be Group Practice Expenses.
SECTION 4.5 GROUP PRACTICE BOARD MEETINGS. Administrator shall have the
right to have a non-voting attendee at all meetings of the Members and the Board
of Managers of the Group Practice, and shall be entitled to reasonable notice of
every such meeting as afforded Members and the Board of Managers.
SECTION 4.6 NAME. Administrator agrees that the Group Practice shall be
entitled to use on a non-exclusive and nontransferable basis at no cost for the
term of this Agreement such of the tradenames, service marks and trade marks of
Administrator at no cost as may be necessary or appropriate in the performance
of the Group Practice's services and obligations hereunder; provided, however,
that the Group Practice enter into such Tradename, Service Mark and Trade Mark
Agreements as Administrator may require.
SECTION 4.7 COMPLIANCE WITH LAWS. The Group Practice shall, and shall
use its best efforts to cause the Physicians to comply with all applicable
federal, state and local laws, rules, regulations and restrictions in the
conduct of the Group Practice's business. Without limiting
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the generality of the foregoing, the Group Practice shall comply, and shall use
its best efforts to cause each Physician Employee to comply with all Medical
Waste Laws applicable to the operation of the Group Practice in the generation,
transportation, treatment, storage, disposal or other handling of Medical Waste
(to the extent that the Group Practice or the Physician Employees engage in such
activities), and the Group Practice shall not, and shall use its best efforts to
forbid any Physician to:
(a) enter into any contract, lease, agreement or arrangement, including,
but not limited to, any joint venture or consulting agreement, to provide
services, lease space, lease equipment or engage in any other venture or
activity with any physician, hospital, pharmacy, home health agency or other
person or entity which is in a position to make or influence referrals to, or
otherwise generate business for the Group Practice, if such transaction is in
violation of any applicable law, rule or regulation;
(b) knowingly and wilfully make or cause to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(c) fail to disclose knowledge by a claimant of the occurrence of any
event affecting the initial or continued right to any benefit or payment on its
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment;
(d) knowingly and willfully pay, solicit or receive any remuneration
(including any kickback, bribe or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offer to pay or receive such remuneration (i) in
return for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole
or in part by Medicare or Medicaid, or (ii) in return for purchasing, leasing,
or ordering, or arranging for or recommending purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be made in whole or
in part by Medicare or Medicaid; and
(e) refer a patient for Designated Health Services to, or provide
Designated Health Services to a patient upon a referral from, an entity or
person with which the physician or an immediate family member has a financial
relationship, other than as permitted by exceptions set forth in Stark.
SECTION 4.8 ANCILLARY OPERATIONS. The Group Practice shall not acquire,
establish or commence the operation of any satellite location, medical office,
ambulatory surgery center, health maintenance organization, preferred provider
organization, exclusive provider organization or similar entity or organization
established or operated by the Group Practice after the date hereof without the
prior written consent of Administrator.
SECTION 4.9 PREMISES AND PERSONAL PROPERTY. The Group Practice shall use
its best efforts to prevent damage, excessive wear and tear, and malfunction or
other breakdown of the Premises and Personal Property or any part thereof by the
Physician Employees. The Group Practice shall promptly inform Administrator in
writing of any and all necessary replacements,
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repairs or maintenance to any of the Premises or Personal Property and any
failures of equipment of which it becomes aware. The Group Practice shall comply
with all of the covenants and provisions set forth in any leases or subleases
for the Premises entered into or assumed by Administrator.
SECTION 4.10 GROUP PRACTICE EMPLOYEE BENEFIT PLANS
(a) Effective on the Acquisition Effective Date, the Group Practice
shall amend the tax-qualified retirement plan(s) described on Schedule 4.10(c)
(the "Group Practice Plan") to provide that employees of the Administrator who
are classified as "leased employees" (as defined in Code Section 414(n)) of the
Group Practice shall be treated as Group Practice employees for purposes of
eligibility and participation in the Group Practice Plan. Not less often than
annually, the Group Practice and the Administrator shall agree upon and identify
in writing those individuals to be classified as leased employees of the Group
Practice (the "designated leased employees"). The Group Practice and the
Administrator shall establish mutually agreeable procedures with respect to the
participation of designated leased employees in the Group Practice Plan. Such
procedures shall be designed to avoid the tax disqualifications of the Group
Practice Plan, similar plans of clinics similarly situated, and any similar plan
sponsored or maintained by the Administrator from time to time (collectively,
the "Plans").
(b) If the Joint Planning Board determines that the relationship between
the Administrator and the Group Practice (and other clinics similarly situated)
constitutes an "affiliated service group" (as defined in Code Section 414(m)),
the Administrator and the Group Practice shall take such actions as may be
necessary to avoid the tax disqualification of the Plans. Such actions may
include the amendment, freeze, termination or merger of the Group Practice Plan.
(c) The Plans described on Schedule 4.10(c) attached hereto are approved
by Administrator. The Group Practice shall not enter into any new "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Security Act
("ERISA") without the express written consent of Administrator. The Group
Practice shall not offer any retirement benefits or make any material retirement
payments other than under the Group Practice Plan to any Group Practice
Physician Employee without the express written consent of Administrator. Except
as otherwise required by law, the Group Practice shall not materially amend,
freeze, terminate or merge the Group Practice Plan without the express written
consent of Administrator. In the event of either of the foregoing, the
Administrator's consent shall not be withheld if such action would not
jeopardize the qualification of any of the Plans. The Group Practice agrees to
make such changes to the Group Practice Plan, including the freezing,
termination, or merger of the Group Practice Plan, as may be approved by the
Joint Planning Board and the Administrator, but only if such changes are
necessary to prevent the disqualification of any of the Plans.
(d) Expenses incurred in connection with the Group Practice Plan or
other Group Practice employee benefit plans, including without limitation the
compensation of counsel, accountants, corporate trustees, and other agents shall
be allocated amongst covered employees and treated as Group Practice Expense,
Ancillary Expense or Excluded Clinic Expense, as applicable.
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(e) The employee benefit plan contribution and administration expenses
for the Physician Employees shall be included in the Group Practice's operating
budget. The Group Practice and the Administrator shall not make employee benefit
plan contributions or payments to the Group Practice for their respective
employees in excess of such budgeted amounts unless required by law or the terms
of the Group Practice Plan. The Administrator shall make contributions or
payments with respect to the Group Practice Plan or other Group Practice
employee benefit plans; (1) as a Group Practice Expense, on behalf of designated
leased employees, and other eligible Group Practice employees; (2) as an
Excluded Group Practice Expense on behalf of Physician Employees; and (3) as an
Ancillary Expense on behalf of all employees designated as performing Ancillary
Services. In the event the Group Practice Plan or other Group Practice employee
benefit is terminated, the Administrator shall be responsible, as a Group
Practice Expense, for any funding liabilities related to designated leased
employees, or other eligible Group Practice employees, excluding any liability
for Physician Stockholder or Physician Employee.
(f) The Administrator shall have the sole and exclusive authority to
adopt, amend, or terminate any employee benefit plan for the benefit of its
employees, regardless of whether such employees are designated leased employees,
unless such actions would require the amendment, freeze or termination of the
Group Practice Plan to avoid disqualification of the Group Practice Plan, in
which case any such action would be subject to the express prior written consent
of the Joint Planning Board. The Administrator shall have the sole and exclusive
authority to appoint the trustee, custodian and administrator of any such plan.
(g) From and after the Acquisition Effective Date, the Group Practice's
employees and designated leased employees shall receive credit for prior service
with the Group Practice's predecessor for vesting and eligibility purposes under
the Group Practice Plan, but only to the extent such service was actually
recognized under the Group Practice Plan immediately prior to the Acquisition
Effective Date.
(h) In the event that any "employee welfare benefit plan" ( as defined
in ERISA Section 3(l)) maintained or sponsored by the Group Practice must be
amended, terminated, modified, or changed as a result of the Group Practice and
Administrator being deemed to be a part of an affiliated service group, the
Joint Planning Board will replace such plan or plans with a plan or plans that
provides those benefits approved by the Joint Planning Board. It shall be the
goal of the Joint Planning Board in such event to provide substantially similar
or comparable benefits if the same can be provided at a substantially similar
cost to the replaced plan.
ARTICLE 5
Joint Planning Board
(a) The parties hereto shall establish a Joint Planning Board which
shall be responsible for developing long-term strategic planning objectives and
management policies for the overall
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operation of the Group Practice and shall facilitate communication and
interaction between Administrator and the Group Practice. The Joint Planning
Board shall consist of six (6) members. Administrator shall designate, in its
sole discretion, three (3) members of the Joint Planning Board. The Group
Practice shall designate, in its sole discretion, three (3) members of the Joint
Planning Board. Actions of the Joint Planning Board must be approved by 2/3rds
of Administrator-designated members AND 2/3rds of Group Practice-designated
members.
(b) The Joint Planning Board shall, in addition to the responsibilities
set forth elsewhere in this Agreement, have the authority to (i) develop and
assist the Group Practice in implementing both long-term strategic objectives
and short-term operating plans, (ii) prepare proposals and make recommendations
to the Board of Directors of AMP regarding significant capital expenditures,
contractual arrangements, capital improvement and expansion projects on behalf
of the Group Practice, (iii) with assistance of Administrator, prepare the
annual capital and operating budgets of the Group Practice, (iv) consider and
make recommendations regarding grievances pertaining to matters not specifically
addressed in this Agreement if such matters are referred to it by the Group
Practice or Administrator, (v) make recommendations to the Group Practice
regarding the performance, number and type of physicians required for the
efficient operation of the Group Practice, and (vi) make decisions and
recommendations regarding the Group Practice Plan. Subject to Sections 3.4 and
4.1, decisions regarding the hiring or firing of physicians shall be made solely
by the Group Practice.
ARTICLE 6
Restrictive Covenants and Liquidated Damages
The parties recognize that the services provided by Administrator
hereunder shall be feasible only if the Group Practice operates an active
medical practice to which the physicians associated with the Group Practice
devote their full business time and attention. Accordingly, the parties hereto
agree as follows:
SECTION 6.1 RESTRICTIVE COVENANTS OF THE GROUP PRACTICE
(a) NONCOMPETITION. During the term of this Agreement and for a period
of one year thereafter, the Group Practice shall not, without the prior written
consent of Administrator, (i) establish, operate or provide physician services
at any medical office, clinic or other health care facility providing services
similar to those provided by the Group Practice, or (ii) engage or participate
in any business which engages in competition with the business conducted by AMP
Group, in either case, anywhere within twenty (20) miles of any location at
which any Physician of the Group Practice has practiced medicine in the last
year. This provision shall not apply to any Physician who leaves the Group
Practice because of death, disability, full-time retirement, termination without
cause or by law. This provision shall not apply to the Group Practice in the
event this Agreement is terminated under Section 10.3, below.
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(b) ACKNOWLEDGMENT OF PROPRIETARY INTEREST. The Group Practice
recognizes the proprietary interest of Administrator in any Confidential and
Proprietary Information (as hereinafter defined). The Group Practice
acknowledges and agrees that any and all Confidential and Proprietary
Information communications, learned of, developed or otherwise acquired by the
Group Practice during the term of this Agreement shall be the property of
Administrator. The Group Practice further acknowledges and understands that its
disclosure of any Confidential and Proprietary Information will result in
irreparable injury and damage to Administrator. As used herein, "Confidential
and Proprietary Information" means all trade secrets and other confidential
and/or proprietary information of Administrator, including information derived
from reports, investigations, research, work in progress, codes, marketing and
sales programs, financial projections, cost summaries, pricing formula,
contracts analyses, financial information, projections, confidential filings
with any state or federal agency, and all other confidential concepts, methods
of doing business, ideas materials or information (other than the Group
Practice's original patient records) prepared or performed for, by or on behalf
of Administrator by its employees, officers, directors, agents, representatives,
or consultants.
(c) COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY INFORMATION.
The Group Practice acknowledges and agrees that Administrator is entitled to
prevent the disclosure of Confidential and Proprietary Information. The Group
Practice agrees that at all times during the term of this Agreement and forever
thereafter to hold in strictest confidence and not to disclose to any person,
firm or corporation, other than to Physicians and persons engaged by
Administrator to further the business of the Group Practice, and not to use
except in the pursuit of the business of Administrator, Confidential and
Proprietary Information, without the prior written consent of Administrator,
unless (i) such information becomes known or available to the public generally
through no wrongful act of the Group Practice or its employees, (ii) disclosure
is required by law or the rule, regulation or order of any governmental
authority under color of law, provided, that prior to disclosing any
Confidential and Proprietary Information pursuant to this clause (ii), the Group
Practice shall, if possible, give prior written notice thereof to the
Administrator and provide Administrator with the opportunity to contest such
disclosure, or (iii) the Group Practice reasonably believes that such disclosure
is required in connection with a lawsuit to which the Group Practice is a party.
(d) RETURN OF MATERIALS TO ADMINISTRATOR. In the event of any
termination of this Agreement for any reason whatsoever, or at any time upon the
request of Administrator, the Group Practice will promptly deliver to
Administrator all documents, data and other information in the Group Practice's
possession that contains any Confidential and Proprietary Information. The Group
Practice shall not take or retain any documents or other information, or any
reproduction or excerpt thereof, containing any Confidential and Proprietary
Information, unless otherwise authorized in writing by Administrator.
(e) RETURN OF MATERIALS TO THE GROUP PRACTICE. In the event of any
termination of this Agreement for any reason whatsoever, or at any time upon the
request of the Group Practice, the Administrator will promptly deliver to the
Group Practice all documents, data and other information pertaining to trade
secrets or other confidential and/or proprietary information of
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the Group Practice, unless such documents, data or information is necessary for
Administrator to perform its services hereunder, in which case Administrator
shall be able to retain such data or information and shall furnish copies of
such documents.
SECTION 6.2 RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES PROVISIONS.
Each Physician Engagement Agreement and each Physician Employment Agreement
contain certain restrictive covenants pertaining to covenants not to compete
with and not to divulge the confidential and proprietary information of
Administrator and the Group Practice ( the "Current Physician Restrictive
Covenants"). Each Physician Engagement Agreement and each Physician Employment
Agreement contain certain provisions pertaining to the payment of liquidated
damages to the Group Practice in certain cases of early termination of such
Physician Engagement Agreement or such Physician Employment Agreement (the
"Liquidated Damages Provisions"). During the term of this Agreement, the Group
Practice shall not amend, alter or otherwise change any term or provision of any
Physician Engagement Agreement or Physician Employment Agreement without the
prior written consent of Administrator. Following termination of this Agreement,
the Group Practice shall not amend, alter or otherwise change any term or
provision of the Restrictive Covenants or Liquidated Damages Provisions ("Future
Physician Restrictive Covenants"), unless such provisions are no longer in force
and effect pursuant to the terms of the applicable Physician Engagement
Agreement or Physician Employment Agreement at the time of termination of this
Agreement.
SECTION 6.3 ENFORCEMENT OF PHYSICIAN AGREEMENTS.
(a) ENFORCEABILITY OF LIQUIDATED DAMAGES PROVISIONS. The Group Practice
hereby acknowledges that the Acquisition Consideration and the terms and
conditions of this Agreement were determined based upon numerous factors,
including the continuity of each Physician's practice and the agreement of
Physicians to remain with the Group Practice pursuant to the terms of the
Physician Engagement Agreement or the Physician Employment Agreements and to
utilize the assets and business overhead required to be provided by
Administrator for a period of five (5) years. Accordingly, in the event that the
Group Practice shall be entitled to any liquidated damages (the "Liquidated
Damages") pursuant to the terms of the Liquidated Damages Provisions, (i) the
Group Practice shall pay to Administrator an amount equal to such Liquidated
Damages on the date such Liquidated Damages are received by the Group Practice
or as otherwise provided in this Section 6.3(a), (ii) at the request of
Administrator, the Group Practice shall assign to Administrator such causes of
action and/or other rights it has in connection with events and actions giving
rise to the Liquidated Damages (the "LD Causes of Action") and shall cooperate
with and provide reasonable assistance to Administrator with respect to the
pursuit of the LD Causes of Action by Administrator, and (iii) at the request of
Administrator, the Group Practice shall seek any and all remedies at law or in
equity that it may have available to it in connection with the LD Causes of
Action. Administrator shall be entitled to receive all Liquidated Damages and/or
other damages or amounts recovered in connection with the LD Causes of Action,
which shall not be included in Group Practice Revenues. The costs and expenses
incurred by the Group Practice or Administrator in connection with pursuing the
LD Causes of Action shall be borne by Administrator and included in
Administrator Expenses. In
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the event that the Group Practice has not initiated proceedings to recover any
Liquidated Damages due and owing to the Group Practice within twenty (20) days
after a request by Administrator, the Group Practice shall, within five (5) days
of a request by Administrator, pay to Administrator an amount equal to such
Liquidated Damages. In no event shall the payment by the Group Practice to
Administrator of Liquidated Damages relieve the Group Practice of its obligation
to assign the LD Causes of Action to Administrator, provided, however, in the
event that the Group Practice pays Liquidated Damages to Administrator pursuant
to the immediately preceding sentence and the Group Practice has assigned the
related LD Causes of Action to Administrator, Administrator shall prosecute such
LD Causes of Action and if Administrator recovers such Liquidated Damages,
Administrator shall reimburse the Group Practice up to the amount paid to
Administrator by the Group Practice out of any Liquidated Damages so recovered.
(b) ENFORCEMENT OF RESTRICTIVE COVENANTS AND OTHER PROVISIONS. The Group
Practice shall enforce the Physician Engagement Agreements and Physician
Employment Agreements, including, without limitation, the Restrictive Covenants.
Subject to Section 6.3(a) and the following sentence, the costs and expenses of
such enforcement shall be included in Group Practice Expenses and all damages
and other amounts recovered thereby shall be included in Group Practice
Revenues. In the event that, after a request by Administrator, the Group
Practice does not pursue any remedy that may be available to it by reason of a
breach or default of the Restrictive Covenants or any other provision of the
Physician Employment Agreements, upon the request of Administrator, the Group
Practice shall assign to Administrator, such causes of action and/or other
rights it has with respect thereto; in which case, all costs and expenses
incurred in connection therewith shall be borne by Administrator and shall be
included in Administrator Expenses, and Administrator shall be entitled to all
damages and other amounts recovered thereby.
SECTION 6.4 REMEDIES. Administrator and the Group Practice acknowledge
and agree that a remedy at law for any breach of the provisions of this Article
6 shall be inadequate, and therefore, either party shall be entitled to specific
performance and injunctive or other equitable relief in the event of any such
breach or attempted breach, in addition to any other rights or remedies
available to either party at law or in equity. Each party hereto waives any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief. If any provision of
the Restrictive Covenants or this Article 6 relating to the restrictive period,
scope of activity restricted and/or the territory described therein shall be
declared by a court of competent jurisdiction to exceed the maximum time period,
scope of activity restricted or geographical area such court deems reasonable
and enforceable under applicable law, the time period, scope of activity
restricted and/or area of restriction held reasonable and enforceable by the
court shall thereafter be the restrictive period, scope of activity restricted
and/or the territory applicable to such provision of the Restrictive Covenants
or this Article 6. The invalidity or non-enforceability of any provision of the
Restrictive Covenants or this Article 6 in any respect shall not affect the
validity or enforceability of the remainder of the Restrictive Covenants or this
Article 6 or of any other provisions of this Agreement.
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ARTICLE 7
Financial and Security Arrangements
SECTION 7.1 SERVICE FEES. The Group Practice and Administrator agree
that the compensation set forth in this Article 7 is being paid to Administrator
in consideration of the services provided and the substantial commitment and
effort made by Administrator hereunder and any such fees have been negotiated at
arms' length and are fair, reasonable and consistent with fair market value.
Administrator shall be paid the following service fees:
(a) Management of Professional Services: Administrator shall be
reimbursed for the amount of all Group Practice Expenses and Ancillary Expenses
recorded by Administrator pursuant to the terms of this Agreement;
(b) Administrator shall receive as compensation an amount equal to
percent (__%) of Group Practice Revenues, subject to any adjustments
provided for herein (the "Service Fee"); and
(c) Management of Ancillary Services: Administrator shall receive as
additional compensation an amount equal to Ancillary Revenues of the Group
Practice minus Ancillary Expenses of the Group Practice multiplied by
percent (__%).
SECTION 7.2 PAYMENTS. The amounts to be paid to Administrator under this
Article 7 shall be calculated by Administrator applying the accrual basis of
accounting and shall be payable monthly. Payments due for each calendar month
shall be paid on the 15th day following the end of such month (or the first
preceding day that is a business day if the 15th day is not a business day) (a
"Payment Date"). Such amounts paid shall be estimates based upon available
information for such month, adjustments to the estimated payments shall be made
to reconcile final amounts due under Section 7.1 on the next Payment Date.
SECTION 7.3 REPAYMENT. Unless otherwise agreed to by Administrator and
the Group Practice, the Group Practice shall repay Administrator for any amounts
advanced to the Group Practice to fund obligations of the Group Practice as
requested by the Group Practice on the first Payment Date following such
advance. The Group Practice shall repay all indebtedness to Administrator in
connection with funding for capital expenditures or otherwise as agreed between
the Group Practice and Administrator. Any amounts owed to the Administrator by
the Group Practice and/or Physicians shall be subject to offset by Administrator
against amounts otherwise owed to Group Practice and/or Physicians in the event
repayment is not made as agreed.
SECTION 7.4 SECURITY AGREEMENT. In order to enforce its rights granted
hereunder, the Group Practice shall execute a Security Agreement in
substantially the form attached hereto as Exhibit 7.4 (the "Security
Agreement"). In addition, Group Practice shall cooperate with Administrator and
execute all other necessary security documents in connection with the granting
and perfection of such security interest (the "Additional Security Documents")
to Administrator
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or at Administrator's option, its lenders. Specifically, the Security Agreement
and the Additional Security Documents shall grant perfected first lien security
interests in all accounts receivable including Medicare/Medicaid and other
governmental receivables to the fullest extent permitted by law, in a form and
manner satisfactory to Administrator's legal counsel. All collections in respect
of such accounts receivable shall be deposited in a bank account or accounts at
a bank designated by Administrator. To the extent that the Group Practice comes
into possession of any payments in respect of such accounts receivable, the
Group Practice shall promptly remit such payments to Administrator for deposit
in Administrator's bank accounts.
SECTION 7.5 PERFORMANCE INCENTIVE/REDUCTION. It is the intent of the
parties to cause the Service Fee to continue to reflect the fair value of
management services rendered as and if the revenues and profitability of the
Accounting Centers of the Group Practice increase or decrease in relation to the
agreement of the parties. Therefore, if the amount of the Service Fee for any
quarterly period exceeds the amount by which Group Practice Revenues exceed the
sum of Group Practice Expenses and the Compensation of Physician Shareholders of
the Accounting Centers in the Group Practice (as further defined in the
appropriate Physician Engagement Agreements) (the "Adjusted Service Fee") by
more than five percent (5%), then the Service Fee shall be decreased by an
appropriate percentage so that such Service Fee equals the Adjusted Service Fee
and applied on a prospective basis unless further adjusted after the passage of
any successive quarterly period. If the amount of the Service Fee for any
quarterly period is less than the amount of the Adjusted Service Fee by more
than five percent (5%), then the Service Fee shall be increased by an
appropriate percentage so that such Service Fee equals the Adjusted Service Fee
and applied on a prospective basis unless further adjusted after the passage of
any successive quarterly period. Recognizing that certain costs and expenses can
vary to a considerable degree and that reducing such costs and expenses to the
extent practicable is one of the obligations of Administrator herein, the
adjustment should serve to maintain the parties negotiated agreement as to the
reasonable fair market value of the items and services furnished by
Administrator pursuant to this Agreement, considering the nature and volume of
the services required and the risks assumed by Administrator.
ARTICLE 8
Records
All records relating in any way to the operation of the Group Practice
(other than original patient medical records contributed to the Group Practice
by the Group Practice Physician Stockholders and all original patients records
created by the Group Practice after the Acquisition Effective Date) shall,
subject to the obligations of the Group Practice to maintain patient medical
records pursuant to Section 3.2(d), at all times be the property of
Administrator as set forth in Section 3.2(d). During the term of this Agreement,
and for a reasonable time thereafter, the Group Practice or its agents shall
have reasonable access during normal business hours to the Group Practice's and
Administrator's personal and financial records relating to the Group Practice,
including, but not limited to, records of collections, expenses with
disbursements as kept by Administrator in performing Administrator's obligations
under this Agreement, and the Group Practice may copy any or all such records.
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ARTICLE 9
Insurance and Indemnity
SECTION 9.1 INSURANCE TO BE MAINTAINED BY THE GROUP PRACTICE. During the
term of this Agreement, the Group Practice shall maintain comprehensive
professional liability insurance with such carrier as determined jointly by
Administrator and the Group Practice, with limits per claim and per physician to
be agreed upon by Administrator and the Group Practice and a separate limit of
the Group Practice with such deductible as is mutually agreeable by
Administrator and the Group Practice. All malpractice premiums and deductibles
related thereto shall be included in Excluded Group Practice Expenses. All
costs, expenses and liabilities incurred by the Group Practice or Administrator
in excess of the limits of such policies shall also be included in Excluded
Group Practice Expenses.
SECTION 9.2 INSURANCE TO BE MAINTAINED BY ADMINISTRATOR. During the term
of this Agreement, Administrator will use commercially reasonable efforts to
provide and maintain, as a Group Practice Expense, comprehensive professional
liability insurance for all professional employees of Administrator, and
comprehensive general liability and property insurance covering the Group
Practice premises and operations with such limits or coverages as may reasonably
be determined to be appropriate by Administrator; provided that Administrator
must obtain the Group Practice's approval in the event any such limits or
coverages are below the limits and coverages maintained as of the date of this
Agreement.
SECTION 9.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Group Practice
shall obtain or require each of its Physicians to obtain comprehensive liability
insurance coverage under either a "tail policy" or a "prior acts policy" with
the same limits and deductibles as the insurance coverage provided pursuant to
Section 9.1, upon the termination of such physician's relationship with the
Group Practice for any reason. In the event that neither the Group Practice nor
the Physician obtains such comprehensive liability insurance coverage,
Administrator may do so. The cost of such comprehensive liability Insurance
coverage shall be included in Group Practice Expenses unless such cost is borne
by the Physician.
SECTION 9.4 ADDITIONAL INSURED. The Group Practice and Administrator
agree to use their reasonable efforts to have each other named as an additional
insured on the other's respective professional liability insurance programs. The
additional cost, if any, associated therewith shall be a Group Practice Expense.
SECTION 9.5 INDEMNIFICATION. The Group Practice shall indemnify, defend
and hold Administrator, AMP and their respective officers, directors,
shareholders, employees, agents and consultants (other than such persons who are
also officers, directors, shareholders, employees, agents or consultants of the
Group Practice) harmless, from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees), not covered by insurance (including self-insured insurance and reserves),
whenever arising or incurred, that are caused or asserted to have been caused,
directly or indirectly, by or as a result
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of the performance of medical services or the performance of any intentional
acts, negligent acts or omissions by the Group Practice and/or its shareholders,
employees and/or subcontractors (other than Administrator or its employees)
during the term of this Agreement. Administrator shall indemnify, defend and
hold the Group Practice and its officers, shareholders, directors, employees,
agents and consultants harmless from and against any and all liabilities,
losses, damages, claims, causes of action and expenses (including reasonable
attorneys' fees), not covered by insurance (including self-insured insurance and
reserves), whenever arising or incurred, that are caused or asserted to have
been caused, directly or indirectly, by or as a result of the performance of way
intentional acts, negligent acts or omissions by Administrator and/or its
shareholders, employees and/or subcontractors (other than the Group Practice or
its employees) during the term of this Agreement.
SECTION 9.6 GUARANTY. Administrator hereby guarantees, absolutely and
unconditionally, the prompt performance by Administrator and any of its
Affiliates of all of its obligations due to the Group Practice under this
Agreement.
ARTICLE 10
Term and Termination
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence on the
date hereof and shall expire on the 40th anniversary hereof unless earlier
terminated pursuant to the terms of either Section 10.3 or Section 10.4 or
automatically extended pursuant to the terms of Section 10.2
SECTION 10.2 EXTENDED TERM. Unless earlier terminated as provided for in
either Section 10.3 or Section 10.4, the term of this Agreement shall be
automatically extended for additional terms of ten (10) years each, unless
either party delivers to the other party, not less than twelve (12) months nor
earlier than fifteen (15) months prior to the expiration of the preceding term,
written notice of such party's intention not to extend the term of this
Agreement.
SECTION 10.3 TERMINATION BY THE GROUP PRACTICE. The Group Practice may
terminate this Agreement by giving written notice thereof to Administrator
(after the giving of any required notices and the expiration of any applicable
waiting periods set forth below) upon the occurrence of any of the following
events:
(a) Administrator shall admit in writing its inability to generally pay
its debts when due, apply for or consent to the appointment of a receiver,
trustee or liquidator of all or substantially all of its assets, file a petition
in bankruptcy or make an assignment for the benefit of creditors, or upon other
action taken or suffered by Administrator, voluntarily or involuntary, under any
federal or state law for the benefit of creditors, except for the filing of a
petition in involuntary bankruptcy against Administrator which is dismissed
within ninety (90) days thereafter.
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(b) Administrator shall default in the performance of any material duty
or material obligation imposed upon it by this Agreement and such default shall
continue for a period of ninety (90) days after written notice thereof has been
given to Administrator by the Group Practice, provided that the Group Practice
may terminate this Agreement, if and only if, such termination shall have been
approved by the affirmative vote of the holders of eighty percent (80%) of the
interest of the equity holders of the Group Practice.
SECTION 10.4 TERMINATION BY ADMINISTRATOR. Administrator may terminate
this Agreement by giving written notice thereof to the Group Practice (after the
giving of and required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any of the following events:
(a) The Group Practice shall admit in writing its inability to generally
pay its debts when due, apply for or consent to the appointment of a receiver,
trustee or liquidator of all or substantially all of its assets, file a petition
in bankruptcy or make an assignment for the benefit of creditors, or upon other
action taken or suffered by the Group Practice, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors, except for the filing
of a petition in involuntary bankruptcy against the Group Practice which is
dismissed within ninety (90) days thereafter.
(b) The Group Practice shall default in the performance of any material
duty or material obligation imposed upon it by this Agreement, and such default
shall continue for a period of ninety (90) days after written notice thereof has
been given to the Group Practice by Administrator.
(c) The Group Practice or any Physician (i) engages in any conduct or is
formally accused of conduct for which such Physician's license to practice
medicine reasonably would be expected to be subject to revocation or suspension,
whether or not actually revoked or suspended, or (ii) is otherwise disciplined
by any licensing, regulatory or professional entity or institution, the result
of any of which event described in clause (i) or (ii) does or reasonably would
be expected to materially adversely affect the Group Practice.
SECTION 10.5 EFFECTIVE DATE OF TERMINATION. Any termination of this
Agreement shall be effective (the "Termination Date") as follows:
(a) Immediately upon receipt of a termination notice pursuant to Section
10.3 or Section 10.4 (a "Termination Notice"); or
(b) Upon the expiration of this Agreement pursuant to Section 10.1. and
10.2.
SECTION 10.6 EFFECT UPON TERMINATION. Upon the Termination Date, this
Agreement shall terminate and shall be of no further force and effect; provided,
however:
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(a) Administrator shall use its efforts to cooperate with the Group
Practice for the appropriate transfer of management services. Administrator
shall not object to the employment by the Group Practice of Administrator's
employees performing services solely for the Group Practice and located at the
offices of the Group Practice.
(b) Each party hereto shall provide the other party with reasonable
access to books and records owned by it to permit such requesting party to
satisfy reporting and contractual obligations which may be required of it.
(c) On the Termination Date, the Group Practice shall (i) assign to
Administrator, to the extent permitted by law, all accounts receivable included
in Group Practice Revenues that have not been collected and (ii) pay to
Administrator an amount equal to such accounts receivable (net of any related
allowance for doubtful accounts recorded in accordance with GAAP) that are not
assigned to Administrator by the Group Practice. Any other amounts due and owing
but unpaid to either Administrator or the Group Practice as of the Termination
Date shall be paid promptly by the appropriate party.
(d) Any and all covenants and obligations of either party hereto which
their terms or by reasonable implications are to be performed, in whole or in
part, after the termination of this Agreement, shall survive such termination,
including, without limitation, the obligations of the parties pursuant to the
following Sections: 6.1(b), 6.1(c), 6.1(d), 6.2, 6.3, 9.5, Article 7 and the
applicable provisions of Article 11.
ARTICLE 11
General Provisions
SECTION 11.1 ASSIGNMENT. Administrator shall have the right to assign
its rights hereunder without the consent of the Group Practice to AMP or any
direct or indirect wholly-owned subsidiary of Administrator or AMP (that remains
a wholly-owned subsidiary of Administrator or AMP) so long as such assignment
does not create any material economic obligations hereunder. The Group Practice
hereby agrees that Administrator has the right to grant a security interest in
its right to receive payments hereunder to any lending institution from which
Administrator or AMP obtains financing.
SECTION 11.2 AMENDMENTS. This Agreement shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modification(s) or amendment(s) shall be attached hereto.
SECTION 11.3 WAIVER OF PROVISIONS. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
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SECTION 11.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
SECTION 11.5 ATTORNEYS' FEES. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 11.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decisions, a
regulatory agency or legal counsel in such a manner as to indicate that this
Agreement or any provision hereof may be in violation of such laws or
regulations, the Group Practice and Administrator shall amend this Agreement as
necessary to preserve the underlying economic and financial arrangements between
the Group Practice and Administrator and without substantial economic detriment
to either party. To the extent any act or service required of Administrator in
this Agreement should be construed or deemed, by any governmental authority,
agency or court, to constitute the practice of medicine, the performance of said
act or service by Administrator shall be deemed waived and forever unenforceable
and the provisions of this Section 11.6 shall be applicable. Neither party shall
claim or assert illegality as a defense to the enforcement of this Agreement or
any provision hereof, instead, any such purported illegality shall be resolved
pursuant to the terms of this Section 11.6 and Section 11.9.
SECTION 11.7 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
SECTION 11.8 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 11.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
effected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
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SECTION 11.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF __________________________.
SECTION 11.11 NO WAIVER; REMEDIES CUMULATIVE. No party hereto shall by
any act (except by written instrument pursuant to Section 11.3 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
thereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
SECTION 11.12 ARBITRATION AND MEDIATION. The parties agree to utilize
the following procedure with regard to any contention or claim arising out of or
relating to this Agreement, or any breach thereof (a "Dispute"); provided,
however, that the provisions in this Section 11.12. shall not be applicable to
any LD Cause of Action or other cause of action assigned to Administrator
pursuant to Section 6.3 or any Dispute or cause of action related thereto. If
any Dispute cannot be settled through direct discussions, the parties hereto
agree to endeavor first to resolve the Dispute through mediation in accordance
with Section 11.12(a). If the Dispute cannot be resolved through such mediation,
the parties hereto agree to resolve such Dispute by binding arbitration in
accordance with Section 11.12(b).
(a) Mediation
(i) INITIATION OF PROCEDURE. The initiating party shall give
written notice to the other party, describing the nature of the Dispute
and its claim for relief and identifying one or more individuals with
authority to resolve the Dispute on such party's behalf. The other party
shall have five (5) days from receipt of such notice within which to
designate in writing one or more individuals with authority to resolve
the Dispute on such party's behalf.
(ii) SELECTION OF MEDIATOR. Within ten (10) days from the date
of designation by the noninitiating party, the parties shall make a good
faith effort to select a person to mediate the Dispute. If no mediator
has been selected under this procedure, the parties shall jointly
request the National Health Lawyers Association Alternative Dispute
Resolution Service to provide a list of qualified attorney-mediators.
Within five (5) days of receipt of the list, the parties shall rank the
proposed mediators in numerical order of preference, simultaneously
exchange such list, and select as the mediator the one who has the best
31
<PAGE>
combined ranking. If such mediator is not available to serve, they shall
proceed to contact the mediator who was next highest in ranking until
they select a mediator.
(iii) TIME AND PLACE FOR MEDITATION; PARTIES REPRESENTED. In
consultation with the mediator selected, the parties shall promptly
designate a mutually convenient time in Houston, Texas for the
mediation, such time to be no later than twenty (20) days after
selection of the mediator. In the mediation, each party shall be
represented by persons with authority and discretion to negotiate a
resolution of the Dispute, and may be represented by counsel.
(iv) CONDUCT OF MEDIATION. The mediator shall determine the
format for the meetings and the mediation sessions shall be private. The
mediator will keep confidential all information learned in private
causes with any party unless specifically authorized by such party to
make disclosure of the information to the other party. The parties agree
that the mediation shall be governed by the provisions of Chapter 154 of
the Tex. Civ. Prac. & Rem. Code and such other rules as the mediator
shall reasonably prescribe.
(v) FEES OF MEDIATOR; DISQUALIFICATION. The fees and expenses of
the mediator shall be shared equally by the parties. The mediator shall
be disqualified as a witness, consultant, expert or counsel for any
party with respect to the Dispute and any related matters.
(vi) CONFIDENTIALITY. Mediation is a compromise negotiation for
purposes of federal and state Rules of Evidence that constitutes
privileged communication under Texas law. The entire mediation process
is confidential, and such conduct, statements, promises, offers, views
and opinions shall not be discoverable or admissible in any proceeding
for any purpose.
(b) BINDING ARBITRATION
(i) Following the close of any unsuccessful mediation proceeding
with respect to a Dispute, such Dispute shall, at the written request of
either party, be finally determined and settled pursuant to arbitration
in Houston, Texas by three arbitrators, one to be appointed by
Administrator, one by the Group Practice, and a neutral arbitrator to be
appointed by such two party-appointed arbitrators, The neutral
arbitrator shall be an attorney and act as chairman. Should either party
fail to appoint an arbitrator as hereinabove contemplated within five
(5) days after the party not requesting arbitration has received such
written request, or the two arbitrators appointed by or on behalf of the
parties as contemplated in this Section 11.12(b) fail to appoint a
neutral arbitrator as hereinabove contemplated within five (5) days
after the date of the appointment of the last arbitrator appointed by or
on behalf of the parties, then the National Health Lawyers Alternative
Dispute Resolution Service, upon application of Administrator or of the
Group Practice, shall appoint an arbitrator to fill such position with
the same force and effect as though such arbitrator had been appointed
as hereinabove contemplated.
32
<PAGE>
(ii) The arbitration proceeding shall commence within thirty
(30) days of the initial written request for arbitration and be
conducted in accordance with The Alternative Dispute Resolution Rules of
the National Health Lawyers Association. A determination, award or other
action shall be considered the valid action of the arbitrators if
supported by the affirmative vote of two or three of the three
arbitrators. The costs of arbitration (exclusive of attending the
arbitration, and of the fees and expenses of legal counsel to such
party, all of which shall be borne by such party) shall be shared
equally by Administrator and the Group Practice. The arbitration award
shall be final and conclusive and shall receive full faith and credit
and judgment upon such award may be entered and enforced in any court of
competent jurisdiction.
SECTION 11.13 COMMUNICATIONS. The Group Practice and the Administrator
agree that good communication between the parties is essential to the successful
performance of this Agreement, and each pledges to communicate fully and clearly
with the other on matters relating to the successful operation of the Group
Practice.
SECTION 11.14 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 11.15 GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 11.16 REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof', "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 11.17 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party of parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Administrator: American Medical Providers, Inc.
3555 Timmons Lane, Suite 1550
Houston, Texas 77027
Attn: Mr. Jack N. McCrary
33
<PAGE>
With a copy to: Baker & Hostetler, LLP
1000 Louisiana, Suite 2000
Houston, Texas 77002
Attn: Ivan Wood, Esq.
If to the Group Practice: _______________________________
_______________________________
_______________________________
with a copy to: _______________________________
_______________________________
_______________________________
SECTION 11.18 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 11.19 DEFINED TERMS. Terms used in the Exhibits attached hereto
with their initial letter capitalized and not otherwise defined therein shall
have the meanings assigned to such terms in this Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GROUP PRACTICE:
________________________________
By: ____________________________
Name: __________________________
Title: _________________________
ADMINISTRATOR:
AMERICAN MEDICAL PROVIDERS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
35
EXHIBIT 10.13
FORM OF
REIMBURSEMENT AND ASSUMPTION AGREEMENT
THIS REIMBURSEMENT AND ASSUMPTION AGREEMENT (the "Agreement"), is made,
executed and delivered by and between American Medical Providers, Inc., a
Delaware corporation ("AMP"), and Ankle & Foot Centers of America, LLC, a
Delaware limited liability partnership ("AFC"), with respect to the
reimbursement assumption by AMP of certain of AFC's obligations. By this
instrument, AMP and AFC, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), agree as follows:
1. ASSIGNMENT AND ASSUMPTION. AMP shall reimburse certain expenses,
assume certain debt and perform and carry out all of the contracts, obligations
and agreements of AFC all as set forth on Schedule A attached hereto at such
time as AMP has consummated its initial public offering of securities.
2. GENERAL
2.1 FURTHER ASSURANCES. AFC and AMP agree, each at its own expense, to
perform all such further acts and execute and deliver all such further
agreements, instruments and other documents as the other shall reasonably
request to evidence more effectively the reimbursement and assumptions made by
AMP under this Agreement.
2.2 DISCLAIMER. All rights and interests created by this Agreement are
exclusive to the parties to this Agreement, their successors and assigns. No
right, title, interest or cause of action is created for or inures to the
benefit of any other person or entity under this Agreement.
2.3 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given on the date of delivery, if delivered
personally or faxed during normal business hours of the recipient, or three days
after deposit in the U.S. Mail, postage prepaid, if mailed by registered or
certified mail (return receipt requested) as follows:
(a) If to AMP, to:
American Medical Providers, Inc.
3555 Timmons Lane, Suite 1550
Houston, TX 77027
Telephone: (713) 621-5500
Facsimile: (713) 621-4148
(b) If to AFC, to:
Ankle & Foot Centers of America, LLC
3555 Timmons Lane, Suite 1550
Houston, TX 77027
Telephone: (713) 621-5500
Facsimile: (713) 621-4148
2.4 SUCCESSORS IN INTEREST. This Agreement and all the provisions hereof
shall be binding upon, and inure to the benefit of, the successors and assigns
of the parties.
2.5 GOVERNING LAW. This instrument shall be interpreted, construed and
governed according to the laws of the State of Texas.
2.6 COUNTERPARTS. This instrument may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be but one and the same instrument.
2.7 FINAL AGREEMENT THIS INSTRUMENT EMBODIES THE FINAL, ENTIRE AGREEMENT
OF AMP AND AFC WITH RESPECT TO AMP'S REIMBURSEMENT AND ASSUMPTION OF THE ITEMS
LISTED IN SCHEDULE A ATTACHED HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS AGREEMENT IS
1
<PAGE>
INTENDED BY AMP AND AFC AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS
AGREEMENT, AND NO COURSE OF DEALING BETWEEN AMP AND AFC, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
INSTRUMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN AMP AND AFC.
2.8 OBLIGATIONS ABSOLUTE. AMP hereby agrees that its obligations under
this Agreement shall not be released, discharged, diminished, impaired, reduced,
or affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of AMP: (a) the taking or accepting of collateral as security for
any or all of the obligations listed in Schedule A or the release, surrender,
exchange, or subordination of any collateral now or hereafter securing any or
all of the obligations listed in Schedule A; (b) any partial release of the
liability of AMP hereunder, or the full or partial release of any other obligor
or guarantor from liability for any or all of the obligations listed in Schedule
A; (c) any disability of AFC, or the dissolution, insolvency, or bankruptcy of
AFC, AMP, or any other party at any time liable for the payment of any or all of
the obligations listed in Schedule A; (d) any renewal, extension, modification,
waiver, amendment, or rearrangement of any or all of the obligations listed in
Schedule A or any instrument, document, or agreement evidencing, securing, or
otherwise relating to any or all of the obligations listed in Schedule A; (e)
any adjustment, indulgence, forbearance, waiver, or compromise that may be
granted or given by AFC to AMP, or any other party ever liable for any or all of
the obligations listed in Schedule A; (f) any neglect, delay, omission, failure,
or refusal of any party to take or prosecute any action for the collection of
any of the obligations listed in Schedule A or the foreclose or take or
prosecute any action in connection with any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the obligations
listed in Schedule A; (g) the unenforceability or invalidity of any or all of
the obligations listed in Schedule A or of any instrument, document, or
agreement evidencing, securing, or otherwise relating to any or all of the
obligations listed in Schedule A; (h) any payment of AFC or any other party to
any party is held to constitute a preference under applicable bankruptcy or
insolvency law or if for any other reason any party is required to refund any
payment or pay the amount thereof to someone else; (i) the settlement or
compromise of any of the obligations listed in Schedule A; (j) the
non-perfection of any security interest or lien securing any or all of the
obligations listed in Schedule A; (k) any impairment of any collateral security
any or all of the obligations listed in Schedule A; (l) the failure of any party
to sell any collateral securing any or all of the obligations listed in Schedule
A in a commercially reasonable manner or as otherwise required by law; (m) any
change in the corporate existence, structure, or ownership of AFC; or (n) any
other circumstance which might otherwise constitute a defense available to, or
discharge of AFC or AMP.
2.9 REPRESENTATIONS AND WARRANTIES. AMP represents and warrants as
follows:
(a) AMP is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, is qualified to do
business in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure to so qualify would have
a material adverse effect on its business, financial condition or operations.
(b) AMP has the corporate power and authority an legal right to execute,
deliver, and perform its obligations under this Agreement and this Agreement
constitutes the legal, valid, and binding obligation of AMP, enforceable against
AMP in accordance with its respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditor's rights.
(c) The execution, delivery, and performance by AMP of this Agreement has
been duly authorized by all requisite action on the part of AMP and do not and
will not violate or conflict with the articles of incorporation or bylaws of AMP
or any law, rule, or regulation or any order, writ, injunction or decree of any
court, governmental authority or agency, or arbitrator and do not and will not
conflict with, result in a breach of, or constitute a default under, or result
in the imposition of any lien upon any assets of AMP
2
<PAGE>
pursuant to the provisions of any indenture, mortgage, deed of trust, security
agreement, franchise, permit, license, or other instrument or agreement to which
AMP or its properties is bound.
(d) No authorization, approval, or consent of, and no filing or
registration with, any court, governmental authority, or third party is
necessary for the execution, delivery or performance by AMP of this Agreement or
the validity or enforceability thereof.
(e) The value of the consideration received and to be received by AFC as a
result of AMP incurring the obligations listed in Schedule A and AMP executing
and delivering this Agreement is reasonably worth at least as much as the
liability and obligation of AMP hereunder, and such liability and obligation
have benefited and may reasonably be expected to benefit AMP directly or
indirectly.
(f) AMP has, independently and without reliance upon any other party and
based upon such documents and information as AMP has deemed appropriate, made
its own analysis and decision to enter into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of November
, 1997.
AMERICAN MEDICAL PROVIDERS, INC.
a Delaware corporation
By: __________________________________
JACK N. MCCRARY, CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
ANKLE AND FOOT CENTERS OF
AMERICA LLP, a Delaware corporation
By: __________________________________
JACK N. MCCRARY, MANAGING DIRECTOR
3
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by American Medical Providers, Inc.
ARTHUR ANDERSEN LLP
Houston, Texas
December 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM AMERICAN MEDICAL PROVIDERS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 416,714 1,817,102
<PP&E> 116,648 234,314
<DEPRECIATION> 5,258 25,100
<TOTAL-ASSETS> 528,104 2,026,316
<CURRENT-LIABILITIES> 1,042,045 3,937,435
<BONDS> 0 0
0 0
0 0
<COMMON> 200 200
<OTHER-SE> (514,141) (1,911,319)
<TOTAL-LIABILITY-AND-EQUITY> (528,104) 2,026,316
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 514,141 1,397,178
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (514,141) (1,397,178)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (514,141) (1,397,178)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (514,141) (1,397,178)
<EPS-PRIMARY> 0.00 0.00
<EPS-DILUTED> 0.00 0.00
</TABLE>
EXHIBIT 99.1
June 16, 1997
Stanley R. Kalish, D.P.M.
6911 Tara Blvd.
Jonesboro, Ga 30326
Dear Stan,
It is with great pleasure that I extend this personal invitation to you to
join the Board of Directors of American Medical Providers, Inc. (the
"Company"). As I am sure you are aware, the Company is planning an initial
public offering ("IPO") in September of this year. A critical part of the
success of the Company involves the selection of a Board of Directors who are
knowledgeable in the Company's business and who can be responsive to the
Company's needs. Stan, I strongly believe that with the merger of your practice
into the Company you will be an asset to our Board of Directors. I have taken
the liberty of enclosing an informational package about the Company, which
includes:
o An Organizational Chart dated June 6, 1997.
o A brief biographical description for each of the members of the
Company's management team.
o A copy of the corporate bylaws of Podiatry Newco, Inc., (whose name
will be changed to American Medical Providers, Inc.) These bylaws are
in the process of being modified, and as soon as they are completed,
we will see that you receive a copy promptly.
o A copy of the Directors and Officers liability insurance policy
currently in effect.
o A copy of the Company's policy to compensate the members of its Board
of Directors.
Because of the need to include the Board of Directors names in our upcoming
filings with the Securities and Exchange Commission, I would very much
appreciate your acknowledging that you would be willing to serve on the
Company's Board by executing a copy of this letter and returning it to us for
our files. I look forward to working with you and the other Board members in
making this Company into a powerhouse of practice management companies.
Sincerely,
/s/ JACK N. McCRARY
Jack N. McCrary
Chairman
I will be most pleased to serve on the Board of Directors for American
Medical Providers, Inc., and look forward to contributing to the successes of
the Company.
Dated: , 1997 /s/ STANLEY R. KALISH
STANLEY R. KALISH, DPM
EXHIBIT 99.2
June 16, 1997
John S. Bace
J.M. Partners, Ltd.
3730 Del Monte
Houston, Texas 77019
Dear Jack,
It is with great pleasure that I extend this personal invitation to you to
join the Board of Directors of American Medical Providers, Inc. (the
"Company"). As I am sure you are aware, the Company is planning an initial
public offering ("IPO") in September of this year. A critical part of the
success of the Company involves the selection of a Board of Directors who are
knowledgeable in the Company's business and who can be responsive to the
Company's needs. Jack, I strongly believe that you will be an asset to our Board
of Directors. I have taken the liberty of enclosing an informational package
about the Company, which includes:
o An Organizational Chart dated June 6, 1997.
o A brief biographical description for each of the members of the
Company's management team.
o A copy of the corporate bylaws of Podiatry Newco, Inc., (whose name
will be changed to American Medical Providers, Inc.) These bylaws are
in the process of being modified, and as soon as they are completed,
we will see that you receive a copy promptly.
o A copy of the Directors and Officers liability insurance policy
currently in effect.
o A copy of the Company's policy to compensate the members of its Board
of Directors.
Because of the need to include the Board of Directors names in our upcoming
filings with the Securities and Exchange Commission, I would very much
appreciate your acknowledging that you would be willing to serve on the
Company's Board by executing a copy of this letter and returning it to us for
our files. I look forward to working with you and the other Board members in
making this Company into a powerhouse of practice management companies.
Sincerely,
/s/ JACK N. McCRARY
Jack N. McCrary
Chairman
I will be most pleased to serve on the Board of Directors for American
Medical Providers, Inc., and look forward to contributing to the successes of
the Company.
Dated: July 2, 1997 /s/ JOHN S. BACE
JOHN S. BACE
EXHIBIT 99.3
June 16, 1997
S.F. "Charlie" Hartley, D.P.M.
2201 Juanita Lane
Deer Park, Texas 77536
Dear Charlie,
It is with great pleasure that I extend this personal invitation to you to
join the Board of Directors of American Medical Providers, Inc. (the
"Company"). As I am sure you are aware, the Company is planning an initial
public offering ("IPO") in September of this year. A critical part of the
success of the Company involves the selection of a Board of Directors who are
knowledgeable in the Company's business and who can be responsive to the
Company's needs. Charlie, I strongly believe that with the merger of your
practice into the Company you will be an asset to our Board of Directors. I have
taken the liberty of enclosing an informational package about the Company, which
includes:
o An Organizational Chart dated June 6, 1997.
o A brief biographical description for each of the members of the
Company's management team.
o A copy of the corporate bylaws of Podiatry Newco, Inc., (whose name
will be changed to American Medical Providers, Inc.) These bylaws are
in the process of being modified, and as soon as they are completed,
we will see that you receive a copy promptly.
o A copy of the Directors and Officers liability insurance policy
currently in effect.
o A copy of the Company's policy to compensate the members of its Board
of Directors.
Because of the need to include the Board of Directors names in our upcoming
filings with the Securities and Exchange Commission, I would very much
appreciate your acknowledging that you would be willing to serve on the
Company's Board by executing a copy of this letter and returning it to us for
our files. I look forward to working with you and the other Board members in
making this Company into a powerhouse of practice management companies.
Sincerely,
/s/ JACK N. McCRARY
Jack N. McCrary
Chairman
I will be most pleased to serve on the Board of Directors for American
Medical Providers, Inc., and look forward to contributing to the successes of
the Company.
Dated: June 18, 1997 /s/ S.F. "CHARLIE" HARTLEY
S.F. "CHARLIE" HARTLEY, DPM
EXHIBIT 99.4
July 15, 1997
Donald S. Huge, MD
1177 W. Loop South, Suite 700
Houston, TX 77027
Dear Donald,
It is with great pleasure that I extend this personal invitation to you to
join the Board of Directors of American Medical Providers, Inc. (the
"Company"). As I am sure you are aware, the Company is planning an initial
public offering ("IPO") in September of this year. A critical part of the
success of the Company involves the selection of a Board of Directors who are
knowledgeable in the Company's business and who can be responsive to the
Company's needs. Donald, I strongly believe you will be an asset to our Board of
Directors. I have taken the liberty of enclosing an informational package about
the Company, which includes:
o An Organizational Chart dated July 9, 1997.
o A brief biographical description for each of the members of the
Company's management team.
o A copy of the corporate bylaws of Podiatry Newco, Inc., (whose name
will be changed to American Medical Providers, Inc.) These bylaws are
in the process of being modified, and as soon as they are completed,
we will see that you receive a copy promptly.
o A copy of the Directors and Officers liability insurance policy
currently in effect.
o A copy of the Company's policy to compensate the members of its Board
of Directors.
Because of the need to include the Board of Directors names in our upcoming
filings with the Securities and Exchange Commission, I would very much
appreciate your acknowledging that you would be willing to serve on the
Company's Board by executing a copy of this letter and returning it to us for
our files. I have enclosed a biography for you, which will be included in our
S-1 filings. If you desire any changes to the biography, please let me know. I
look forward to working with you and the other Board members in making this
Company into a powerhouse of practice management companies.
Sincerely,
/s/ JACK N. McCRARY
Jack N. McCrary
Chairman
I will be most pleased to serve on the Board of Directors for American
Medical Providers, Inc., and look forward to contributing to the successes of
the Company.
Dated: July 7, 1997 /s/ DONALD S. HUGE MD
DONALD S. HUGE, MD
