INTEGRATED ORTHOPEDICS INC, 8-K, 2000-02-11

INTEGRATED ORTHOPEDICS INC
8-K, 2000-02-11
HEALTH SERVICES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-----------

FORM 8-K

Current Report Pursuant to
Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): January 27, 2000
-------------------

Commission File No. 1-10677

INTEGRATED ORTHOPAEDICS, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

TEXAS 76-0203483
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

5858 Westheimer, Suite 500, Houston, Texas 77057
------------------------------------------------
(Address of Principal Executive Offices)

(713) 225-5464
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

<PAGE> 2

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

Effective December 31, 1999, Integrated Orthopedics, Inc., ("IOI" or
the "Company") and IOI Management Services of Colorado ("IOI of
Colorado"), a wholly-owned subsidiary of IOI, entered into an agreement
to terminate the Management Services Agreement between IOI of Colorado
and Front Range Orthopedic Center, P.C. ("FROC"). In conjunction with
the transaction, IOI of Colorado sold all of its assets to FROC and
FROC, P.C. The transaction was completed on January 27, 2000.

The transaction value of $2,087,000 is comprised of cash, secured
promissory notes, and the assumption by FROC, P.C. of certain
liabilities.

ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(b) Unaudited Pro Forma Financial Information (attached following the
signature page):

Unaudited Pro Forma Condensed Combining Statement of
Operations for the nine months ended September 30, 1999

Unaudited Pro Forma Condensed Combining Statement of
Operations for the year ended December 31, 1998

Unaudited Pro Forma Condensed Combining Balance Sheet -
September 30, 1999

Notes to the Unaudited Pro Forma Condensed Combining Financial
Statements

10.1 Asset Purchase Agreement dated January 27, 2000, by and
between IOI Management Services of Colorado, Inc., and
Front Range Orthopedic Clinic, P.C.

10.2 Asset Purchase Agreement dated January 27, 2000, by and
between IOI Management Services of Colorado, Inc., and
FROC, P.C.

10.3 Agreement to Terminate the Management Agreement
effective as of December 31, 1999, by and between FROC,
P.C., and IOI Management Services of Colorado, Inc.

2
<PAGE> 3

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

INTEGRATED ORTHOPAEDICS, INC.

By: /s/ Laurie Hill Gutierrez
------------------------------
LAURIE HILL GUTIERREZ
Chief Financial Officer
Senior Vice President

Dated: February 11, 2000

3
<PAGE> 4

INTEGRATED ORTHOPAEDICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS

The following unaudited pro forma condensed financial statements have been
prepared based on historical financial statements of the Company after giving
effect to the transaction and the adjustments outlined in the accompanying
notes. The Unaudited Pro Forma Condensed Combining Balance Sheet as of September
30, 1999 gives effect to the transaction as if it had occurred on September 30,
1999. The Unaudited Pro Forma Condensed Combining Statements of Operations for
the nine months ended September 30, 1999 and the year ended December 31, 1998
give effect to the transaction as if it had occurred on January 1, 1999 and
1998, respectively.

Effective December 31, 1999, Integrated Orthopedics, Inc., ("IOI" or the
"Company") and IOI Management Services of Colorado ("IOI of Colorado"), a
wholly-owned subsidiary of IOI, entered into an agreement to terminate the
Management Services Agreement between IOI of Colorado and Front Range Orthopedic
Center, P.C. ("FROC"). In conjunction with the transaction, IOI of Colorado sold
all of its assets to FROC and FROC, P.C. The transaction was completed on
January 27, 2000.

The transaction value of $2,087,000 is comprised of cash, secured promissory
notes, and the assumption by FROC, P.C. of certain liabilities.

These Unaudited Pro Forma Condensed Combining Financial Statements do not
purport to present the financial position or results of operations of the
Company had the above transactions occurred on the dates specified, nor are they
necessarily indicative of results of operations that may be expected in the
future. The Unaudited Pro Forma Condensed Combining Financial Statements are
qualified in their entirety by reference to, and should be read in conjunction
with, the Company's audited consolidated financial statements for the year ended
December 31, 1998, included in the Company's Annual Report on Form 10-K, the
Company's unaudited condensed consolidated financial statements for the quarter
ended September 30, 1999, included in the Company's Quarterly Report on Form
10-Q.

4
<PAGE> 5

INTEGRATED ORTHOPAEDICS, INC. UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)

<TABLE>
<CAPTION>
INTEGRATED PRO FORMA PRO FORMA
ORTHOPAEDICS, ADJUSTMENTS REF. # INTEGRATED
INC. (1) ORTHOPAEDICS, INC.
--------------- ----------------- --------- -------------------
<S> <C> <C> <C> <C
Revenues $ 8,447 $ (1,432) 2 $ 7,015

Costs and expenses:
Practice compensation and benefits 3,174 (577) 2 2,597
Other direct costs 3,135 (397) 2 2,738
General and administrative 4,695 -- 4,695
Depreciation and amortization 1,312 (264) 2,3 1,048

-------- -------- --------
12,316 (1,238) 11,078

Loss From Operations (3,869) (194) (4,063)

Interest income 172 66 4 238
Interest expense (419) 2 5 (417)
-------- -------- --------

Loss Before Income Tax Benefit (4,116) (126) (4,242)

Income Tax Benefit 1,514 47 6 1,561
-------- -------- --------

Net loss before extraordinary items $ (2,602) $ (79) $ (2,681)
======== ======== ========

Loss applicable to common shares $ (4,655) $ (79) $ (4,734)
======== ======== ========

Loss per common share:

Basic and diluted $ (0.72) $ (0.01) $ (0.73)
======== ======== ========

Weighted average common
shares outstanding 6,496 6,496 6,496
</TABLE>

See notes to Unaudited Pro Forma Condensed Combining Financial Statements.

5
<PAGE> 6
INTEGRATED ORTHOPAEDICS, INC. UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)

INTEGRATED PRO FORMA PRO FORMA
ORTHOPAEDICS, ADJUSTMENTS REF. # INTEGRATED

Costs and expenses:
Practice compensation and benefits 4,374 (630) 2 3,744
Other direct costs 4,047 (546) 2 3,501
General and administrative 6,593 -- 6,593
Depreciation and amortization 1,531 (227) 2,3 1,304
Special Charges 2,946 2,946
-------- -------- --------
19,491 (1,403) 18,088
-------- -------- --------

Loss From Operations (7,273) (117) (7,390)

Interest income 493 85 4 578
Interest expense (447) (447)
-------- -------- --------

Loss Before Income Tax Benefit (7,227) (32) (7,259)

Income Tax Benefit 2,300 12 6 2,312
-------- -------- --------
Net loss before extraordinary items $ (4,927) $ (20) $ (4,947)
======== ======== ========

======== ======== ========
Loss applicable to common shares $ (7,466) $ (20) $ (7,486)
======== ======== ========

Loss per common share:
======== ======== ========
Basic and diluted $ (1.16) $ (0.00) $ (1.16)
======== ======== ========

Weighted average common
shares outstanding 6,459 6,459 6,459
</TABLE>

See notes to Unaudited Pro Forma Condensed Combining Financial Statements.

6
<PAGE> 7
INTEGRATED ORTHOPAEDICS, INC. UNAUDITED PRO FORMA
CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 1999 (IN THOUSANDS)

<TABLE>
<CAPTION>
INTEGRATED PRO FORMA PRO FORMA
ORTHOPAEDICS, ADJUSTMENTS REF. INTEGRATED
INC. (1) INCREASE/ # ORTHOPAEDICS,
(DECREASE) INC.
------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,299 $ 700 7 $ 3,999
Accounts receivable, net 2,789 (465) 9 2,324
Other current assets 867 240 7,8 1,107
Deferred income taxes 4,047 853 14 4,900
-------- -------- --------
Total Current Assets 11,002 1,328 12,330
Property and Equipment (including capital leases) 5,115 (532) 9 4,583
Less: Accumulated depreciation and amortization (2,529) 113 9 (2,416)
-------- -------- --------
Net property and equipment 2,586 (419) 2,167
Management services agreements, net 27,452 (5,460) 10 21,992
Other assets 156 639 7,8 795
-------- -------- --------
TOTAL ASSETS $ 41,196 $ (3,912) $ 37,284
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 172 $ (19) 8 $ 153
Accrued liabilities 2,522 93 8,15 2,615
Current maturities of notes payable and 385 (69) 8 316
capital lease obligations
-------- -------- --------
Total Current Liabilities 3,079 5 3,084
Notes Payable 868 -- 868
Obligations under capital leases 874 (266) 11 608
Deferred income taxes 10,200 (2,199) 12 8,001
-------- -------- --------
Total Liabilities 15,021 (2,460) 12,561
-------- -------- --------
Commitments and contingencies -- -- --
Stockholders' Equity:
Preferred stock 3 -- 3
Common stock 7 -- 7
Additional paid-in capital 48,643 -- 48,643
Common stock to be issued 78 -- 78
Accumulated deficit (22,306) (1,452) 13 (23,758)
Treasury shares (250) -- (250)
-------- -------- --------
Total Stockholders' Equity 26,175 (1,452) 24,723
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 41,196 $ (3,912) $ 37,284
======== ======== ========
</TABLE>

See notes to Unaudited Pro Forma Condensed Combining Financial Statements.

<PAGE> 8

INTEGRATED ORTHOPAEDICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Reference
Number Description
- --------- -----------
<S> <C>
1. The statements of operations and balance sheet for Integrated
Orthopaedic, Inc. as of and for the nine months ended September 30,
1999, summarized from its September 30, 1999 Quarterly Report on Form
10-Q. The results of operations for the year ended December 31, 1998 is
summarized from the Annual Report on Form 10-K.

2. To remove Front Range Orthopedic Center, P.C.'s ("FROC") historical
results of operations.

3. To remove the IOI Management Services of Colorado's ("IOI of Colorado")
amortization expense for the Management Services Agreement.

4. To record pro forma interest income of $66,000 and $85,000 for the nine
months ended September 30, 1999 and the year ended December 31, 1998,
respectively, on the FROC and FROC, P.C. notes.

5. To remove the interest expense associated with the capital lease
assumed by FROC, P.C.

6. To record the income tax benefit, after taking into effect the
transaction.

7. To record the consideration received for the sale of the accounts
receivable, furniture, fixtures and equipment and the termination of
the Management Services Agreement.

8. To remove FROC's assets and liabilities.

9. To remove IOI of Colorado's furniture, fixtures, equipment and accounts
receivable.

10. To remove IOI of Colorado's Management Services Agreement as well as
the related accumulated amortization.

11. To remove IOI of Colorado's capital lease obligation, which was assumed
by FROC, P.C.

12. To remove the deferred income tax liability associated with the Front
Range Orthopaedic Center, P.C. Management Services Agreement.
</TABLE>

8
<PAGE> 9

INTEGRATED ORTHOPAEDICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Reference
Number Description
- ---------- -----------
<S> <C> <C>
13. To record the estimated loss on the sale as follows (Dollars
in thousands):

Cash Proceeds $ 700
Promissory notes, net of discount 974
Capital lease obligation assumed by FROC, P.C. 266
Other 43
------
Total Consideration 1,943
------

Legal and other closing cost 144
Write-off of Management Services Agreement, Net 3,261
Assets Sold:
Furniture, Fixtures, Equipment and Net Receivables 884
------
4,289
------
Pre-tax loss on sale 2,306
Income tax benefit 854
------
Loss on Sale, net of tax $1,452
------

14. To record the tax benefit associated with the loss on the sale.
15. To record accrual for legal costs related to the transaction.
</TABLE>

<PAGE> 10
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Asset Purchase Agreement dated January 27, 2000, by and between IOI
Management Services of Colorado, Inc., and Front Range Orthopedic
Clinic, P.C.

10.2 Asset Purchase Agreement dated January 27, 2000, by and between IOI
Management Services of Colorado, Inc., and FROC, P.C.

10.3 Agreement to Terminate the Management Agreement effective as of
December 31, 1999, by and between FROC, P.C., and IOI Management
Services of Colorado, Inc.
</TABLE>

<PAGE> 1
EXHIBIT 10.1

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the "Agreement") effective as of
December 31, 1999, is entered into by and between FRONT RANGE ORTHOPEDIC CENTER,
P.C., a Colorado professional corporation ("Buyer"), and IOI MANAGEMENT SERVICES
OF COLORADO, INC., a Colorado corporation ("Seller") (Buyer and Seller are
referred to herein collectively as the "Parties").

W I T N E S S E T H:

WHEREAS, Seller owns certain assets, exclusive of the real estate, of
the orthopedic medical practice located at 2030 Mountainview, Suite 230,
Longmont, CO 80501 (the "Practice") which Practice is operated by Buyer;

WHEREAS, Buyer desires to purchase certain assets of the Practice, and
Seller desires that Buyer purchase such assets all in accordance with the terms
and conditions provided herein;

WHEREAS, there is that certain Management Services Agreement dated
March 11, 1998 pursuant to which Seller provides management services to Buyer
(the "Initial Management Agreement"), as amended by that certain Recruitment
Agreement and Modification to Management Services Agreement dated April 13, 1999
(the "Recruitment and Modification Agreement"; at times the Initial Management
Agreement as modified by the Recruitment and Modification Agreement are
collectively referred to as the "Management Agreement");

WHEREAS, Buyer has assigned or contemporaneously with the execution
hereof will assign the Management Agreement to FROC, PC, a Colorado professional
corporation ("FROC II"); and

NOW, THEREFORE, for and in consideration of the premises and promises
herein contained, and for other good and valuable consideration, the adequacy of
which is hereby acknowledged, the Parties hereby mutually agree as follows:

ARTICLE I
THE TRANSACTION

1.1. Purchase and Sale of Assets. As of the Closing Date, (as
hereinafter defined), the Seller shall sell, transfer, assign, and deliver to
the Buyer, and the Buyer shall purchase, accept, assume, and receive all right,
title, and interest in, to, or arising from the Purchased Assets (as defined
below).

1.2. Purchased Assets. The "Purchased Assets" are the accounts
receivable which exist as of the Closing Date (as defined below), as
specifically listed on Exhibit 1.2 attached hereto.

<PAGE> 2

1.3. Assumed Liabilities and Obligations. At Closing, the Buyer shall
assume only the liabilities and obligations listed on Exhibit 1.3 (the "Assumed
Liabilities and Obligations").

ARTICLE II
CONSIDERATION FOR TRANSFER

2.1 Consideration. The aggregate consideration for the Purchased Assets
to be paid to the Seller shall be as follows:

(a) Eight Hundred Eighty Thousand Dollars ($880,000), payable
as Seven Hundred Thousand Dollars ($700,000) in cash at
Closing (as hereinafter defined) and One Hundred Eighty
Thousand Dollars ($180,000) in a promissory note (the "Note")
payable to Seller; and

(b) Assumption of the Assumed Liabilities and Obligations

(collectively, the "Purchase Price").

2.2 Payment of Consideration. On the Closing Date, the Buyer shall
assume the Assumed Liabilities and Obligations and deliver to Seller the
Purchase Price in the form specified in Article 2.1(a) hereinabove.

2.3 Allocation of Consideration. The consideration for the Purchased
Assets shall be allocated by Buyer and Seller pursuant to Exhibit 2.3 attached
hereto. Such allocation shall be used for all purposes, including preparation
and filing of the Internal Revenue Service Form 8594 with respect to the
transactions contemplated hereby.

ARTICLE III
THE CLOSING AND CLOSING DATE

3.1. Closing. The execution of this Agreement and other collateral
agreements (the "Closing") shall occur at a location to be mutually agreed upon
by the parties on January 27, 2000, or at such other time or place as may be
mutually agreed upon by the parties. Upon consummation, the Closing shall be
deemed to take place and be effective as of 12:01 A.M., January 27, 2000 (the
"Closing Date"). At the Closing, the actions described in this Article shall be
taken. All actions shall be deemed to have occurred simultaneously, and the
effectiveness of any action taken at the Closing shall, unless otherwise agreed
by the Seller and Buyer, be conditioned upon the taking of all other action
called for in this Article.

3.2. Deliveries by Buyer. To effectuate the Closing, Buyer shall:

(a) execute and deliver to the Seller a Release substantially
in the form of Exhibit 3.2 attached hereto;

2
<PAGE> 3

(b) deliver to Seller a certificate of good standing of Buyer,
dated on a recent date prior to the Closing Date, from the Secretary of State of
Colorado; and

(c) deliver to the Seller such other resolutions, documents,
and certificates as are required to be delivered by Buyer under the provisions
of this Agreement or as may be necessary or appropriate to carry out the
transactions contemplated hereby.

3.3. Deliveries by Seller. To effectuate the Closing, the Seller shall:

(a) execute and deliver to the Buyer a Release substantially
in the form of Exhibit 3.3, attached hereto;

(b) deliver to Buyer a Bill of Sale transferring the ownership
of the Purchased Assets from Seller to Buyer;

(c) deliver to Buyer a certificate of good standing of Seller,
dated on a recent date prior to the Closing Date, from the Secretary of State of
Colorado; and

(d) deliver to Buyer such other resolutions, documents and
certificates as are required under the provisions of this Agreement or as may be
necessary or appropriate to carry out the transactions contemplated hereby.

ARTICLE IV
SELLER'S REPRESENTATIONS AND WARRANTIES

The Seller warrants and represents to Buyer, as of the date of this
Agreement and as of the Closing Date, as follows:

4.1. Legal Authority. Seller is a business corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado.
Seller has all requisite corporate power and authority to enter into the
transactions contemplated hereby and is entitled to carry on its business as now
being conducted and to own, lease, or operate its properties, which are either
owned or leased by Seller, as and in the places where such business is now
conducted; and Seller is duly qualified, licensed and in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned by it make such qualification necessary, except
for jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business condition of Seller.

4.2. Execution, Delivery and Performance of Agreement; Authority.
Seller is not in violation of any term of its articles of incorporation or
by-laws, or in any material respect of any agreement, contract, note, mortgage,
indenture, lease, instrument, permit, concession, franchise or license to which
it is a party or to which it or its properties or assets are subject, and, to
the best of Seller's knowledge, is not in material violation of any order,
statute, rule or regulation applicable to it. The execution, delivery, and/or
performance of this Agreement by Seller will not, with or without the giving of
notice or the passage of time, or both, (i) violate, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien,

3
<PAGE> 4

charge or encumbrance pursuant to, any provision of Seller's articles of
incorporation or by-laws or any agreement, contract, note, mortgage, indenture,
lease, instrument, permit, concession, franchise or license to which Seller is a
party or by which it or its properties or assets may be bound or affected
(except as otherwise disclosed herein), or, (ii) to the best of Seller's
knowledge, conflict with or result in any violation of any material statute,
law, rule, regulation, judgment, order, decree or ordinance applicable to
Seller, its properties or assets (except as otherwise disclosed herein). Seller
has the full power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby, all proceedings required to be taken by
Seller to authorize the execution, delivery and performance of this Agreement
and the agreements relating hereto have been properly taken, and this Agreement
constitutes a valid and binding obligation of Seller.

4.3. No Regulatory Action. No action, consent or approval by, or filing
with, any federal, state, municipal, foreign or other court or governmental or
administrative body or agency, or any other regulatory body, is required in
connection with the execution and delivery by the Seller of this Agreement or
the consummation by the Seller of the transactions contemplated hereby.

4.4. No Claims. There is no claim, action, suit, proceeding,
arbitration, investigation or inquiry of which Seller has notice, before any
federal, state, municipal, foreign or other court or governmental or
administrative body or agency, any securities or commodities exchange, other
regulatory body or any private arbitration tribunal now pending, or threatened
against or relating to Seller which would adversely affect the ability of the
Seller to consummate the sale of the Purchased Assets and the other transactions
contemplated by this Agreement.

4.5. Brokers. Seller has not retained any broker, finder, or agent or
incurred any liability or obligation for any brokerage fees, commissions, or
finder's fees with respect to this Agreement or the transactions contemplated
hereby.

4.6. Disclosures. No statement by Seller contained in this Agreement
and the Exhibits attached hereto, and any written statement or certificate
furnished or to be furnished pursuant hereto or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.

4.7. ERISA. To the best of Seller's knowledge, Seller has operated in
material compliance with ERISA with respect to the: (i) employees of
Seller that provide services on the premises of the Practice; and (ii) the
physician shareholders of Buyer.

ARTICLE V
BUYER'S REPRESENTATIONS AND WARRANTIES

Buyer warrants and represents to Seller, as of the date of this
Agreement and as of the Closing Date, as follows:

4
<PAGE> 5

5.1. Legal Authority. Buyer is a professional corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Buyer has all requisite corporate power and authority to enter into
the transactions contemplated hereby and is entitled to carry on its business as
now being conducted and to own, lease, or operate its properties, which are
either owned or leased by Buyer, as and in the places where such business is now
conducted; and Buyer is duly qualified, licensed and in good standing in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned by it make such qualification necessary, except
for jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business condition of Buyer.

5.2. Execution, Delivery and Performance of Agreement; Authority. Buyer
is not in violation of any term of its articles of incorporation or by-laws, or
in any material respect of any agreement, contract, note, mortgage, indenture,
lease, instrument, permit, concession, franchise or license to which it is a
party or to which it or its properties or assets are subject, and, to the best
of Buyer's knowledge, is not in material violation of any order, statute, rule
or regulation applicable to it. The execution, delivery, and/or performance of
this Agreement by each of Buyer will not, with or without the giving of notice
or the passage of time, or both, (i) violate, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien, charge or encumbrance pursuant to, any provision of Buyer's
articles of incorporation or by-laws or any agreement, contract, note, mortgage,
indenture, lease, instrument, permit, concession, franchise or license to which
Buyer, is a party or by which it or its properties or assets may be bound or
affected (except as otherwise disclosed herein), or, (ii) to the best of Buyer's
knowledge, conflict with or result in any violation of any material statute,
law, rule, regulation, judgment, order, decree or ordinance applicable to Buyer,
its properties or assets (except as otherwise disclosed herein). Buyer has the
full power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby, all proceedings required to be taken by Buyer
to authorize the execution, delivery and performance of this Agreement and the
agreements relating hereto have been properly taken, and this Agreement
constitutes a valid and binding obligation of Buyer.

5.3. No Regulatory Action. No action, consent or approval by, or filing
with, any federal, state, municipal, foreign or other court or governmental or
administrative body or agency, or any other regulatory body, is required in
connection with the execution and delivery by Buyer of this Agreement or the
consummation by Buyer of the transactions contemplated hereby.

5.4. No Claims. There is no claim, action, suit, proceeding,
arbitration, investigation or inquiry of which Buyer has notice, before any
federal, state, municipal, foreign or other court or governmental or
administrative body or agency, any securities or commodities exchange, other
regulatory body or any private arbitration tribunal now pending, or threatened
against or relating to Buyer which would adversely affect the ability of the
Buyer to consummate the sale of the Purchased Assets and the other transactions
contemplated by this Agreement.

5.5. Brokers. Buyer has not retained any broker, finder, or agent or
incurred any liability or obligation for any brokerage fees, commissions, or
finder's fees with respect to this Agreement or the transactions contemplated
hereby.

5
<PAGE> 6

5.6. Disclosure. No statement by Buyer contained in this Agreement and
the Exhibits attached hereto, and any written statement or certificate furnished
or to be furnished pursuant hereto or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.

5.7. Loans with Third Parties. Buyer is not a maker or obligor on any
loans from third parties.

5.8. Cash Collections and Payments. Since March 11, 1998 through and
including the Closing Date: (i) Buyer has processed cash collections consistent
with the normal operating procedures established by Seller; and (ii) has paid
expenses related to the Practice only as such expenses have come due.

ARTICLE VI
OTHER COVENANTS AND AGREEMENTS

6.1. Termination of Management Agreement. Buyer and Seller agree that
effective as of December 31, 1999 the Initial Management Agreement, as modified
and amended by the Recruitment and Modification Agreement pursuant to an
agreement (the "Agreement to Terminate the Management Agreement"), as assigned
from Buyer to FROC II, shall terminate pursuant to that certain Agreement to
Terminate the Management Agreement between FROC II and Seller. Buyer and Seller
agree that as of the Closing Date all agreements Seller had with either of Buyer
and/or FROC II to pursuant to which Seller provided services to Buyer shall
terminate and shall be void and of no further force or effect.

6.2. Economic Closing as of December 31, 1999. Buyer, and Seller
understand and agree that the "economic closing" of sale of the Purchased Assets
shall occur as of December 31, 1999 meaning that: (i) after the sweep of the
cash collected through December 31, 1999, Seller shall not sweep any money out
of those certain lock box accounts located at Wells Fargo Bank (#4311-854723)
and Bank One (#1192541017) (collectively, the "Lock Box") except to pay the
January 2000 monthly lease payment due on that certain equipment lease (the
"Copelco Equipment Lease") on which Copelco Capital, Inc. is the lessor and
Seller is the lessee for an artoscan, MRI scanner and related equipment; and
(ii) after December 31, 1999, neither Buyer nor FROC II shall write any checks
for expenses vis a vis that certain "zero balance" checking account located at
Bank One. At the Closing, Seller will deliver to Buyer the cash accumulated as
of the Closing Date in the Lock Box. After Closing, on a periodic reasonable
basis, Seller will deliver any remaining cash that accumulates in the Lock Box.

6.3. Payment by Seller of Monies Seller Reserved for Buyer's Profit
Sharing Plan. At Closing, Seller shall deliver to the administrator of the
profit sharing plan of FROC II the monies that Seller reserved from physician
compensation for such purpose in the amount of Ninety-eight Thousand Seventeen
Dollars and Sixty-five Cents ($98,017.65).

<PAGE> 7

6.4. Seller Shall Pay a Portion of the Buyer's Physician Salaries.
Seller shall pay Nineteen Thousand Seven Hundred Thirty-nine Dollars and
Eighty-three Cents ($19,739.83) to Buyer as compensation for the December
salaries of physicians employed by Buyer.

6.5. Seller Shall Pay the January 7, 2000, Staff Payroll of Buyer.
Seller shall pay Thirty-three Thousand Nine Hundred Dollars and Ninety-seven
Cents to the staff employees of Buyer as compensation under the January 7, 2000,
payroll of Buyer.

6.6. Buyer Shall Reimburse Seller for the January 21, 2000, Payroll of
Buyer. Buyer shall pay to Seller Thirty-seven Thousand Four Dollars and
Sixty-four Cents ($37,004.64) as reimbursement for the January 21, 2000, staff
payroll of Buyer paid by Seller.

6.7. January 21, 2000, Staff Payroll Amounts Shall be Offset Against
Seller's Portion of December Physician Salaries. At Closing, Buyer shall deliver
to Seller Seventeen Thousand Two Hundred Sixty-four Dollars and Eighty-one Cents
($17,264.81), which amount represents the difference between (a) the amount owed
by Buyer to Seller pursuant to Section 6.6, above, and (b) the amount owed by
Seller to Buyer pursuant to Section 6.4, above.

6.8. No Reconciliation of Amounts Owing between Buyer and Seller Except
as Otherwise Expressly Stated in this Agreement. Except as expressly provided
for in this Agreement there shall be no reconciliation of amounts owing, whether
actual or alleged, between Seller on the one hand and Buyer on the other hand.

6.9. Return of Video Conference Equipment and CISCO 2500 Series Router.
On or before the Closing Date, Buyer agree to return to Seller the two (2)
following pieces of equipment at the location of the Practice: (i) Seller's
video conference equipment; and (ii) the CISCO 2500 Series Router.

6.10. Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws, rules and regulations to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing Date any party shall consider or be advised
that any further deeds, assignments or assurances in law or in any other things
are necessary, desirable or proper to vest, perfect or confirm, or record or
otherwise, in such party, the title to any property or rights acquired or to be
acquired by reason of or as a result of the acquisition of any shares hereunder,
the other parties agree that they shall execute and deliver all such proper
deeds, assignments and assurances in law and do all things necessary, desirable
or proper to vest, perfect or confirm title to such property or rights in the
original party and to otherwise carry out the purpose of this Agreement.

6.11. Modification of Copelco Lease. On or before the Closing Date,
Buyer and FROC II shall contact Copelco and arrange for that certain Equipment
Lease by and between Seller as lessee and Copelco as lessor for equipment
pertaining to the Practice (the "Copelco Lease") to be modified so that Seller
and Integrated Orthopaedics, Inc. ("IOI"), shall be removed from such lease as
lessee and guarantor, respectively (the "Lease Modification").

<PAGE> 8

ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

Each and all of the obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or at the
Closing Date of the following conditions:

7.1. Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Seller contained herein shall be accurate in
all material respects as if made on and as of the Closing Date. Seller shall
have performed all of its obligations and complied with each and all of the
covenants, agreements, and conditions required to be performed or complied with
by it on or prior to the Closing Date.

7.2. No Pending Action. No action, suit, proceeding, or investigation
before any court, administrative agency, or other governmental authority shall
be pending or threatened wherein an unfavorable judgment, decree, or order would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated hereby, or
cause such transactions to be rescinded.

7.3. Consents. All material consents by third parties that are required
for the consummation of the transactions contemplated hereby, or that are
required in order to prevent a breach of or a default under or a termination of
any agreement to which the Seller is a party, shall have been provided for or
obtained.

7.4. Regulatory Approvals. All regulatory agencies shall have taken
such action as may be required to permit the consummation of the transactions
contemplated hereby, and such actions shall remain in full force and effect and
shall be reasonably satisfactory in form and substance to Buyer.

7.5. Exhibits. All of the Exhibits shall be completed and attached
hereto in final form.

7.6. Deliveries. All documents to be executed and/or delivered by
Seller pursuant to Section 3.3 shall have been executed and or delivered, as
applicable.

ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

Each and all of the obligations of Seller to consummate the
transactions contemplated by this Agreement are subject to fulfillment prior to
or at the Closing Date of the following conditions:

<PAGE> 9

and all of the covenants, agreements, and conditions required to be performed or
complied with by it on or prior to the Closing Date.

8.2. No Pending Action. No action, suit, proceeding, or investigation
before any court, administrative agency, or other governmental authority shall
be pending or threatened wherein an unfavorable judgment, decree, or order would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated hereby, or
cause such transactions to be rescinded.

8.3. Consents. All material consents by third parties that are required
for the consummation of the transactions contemplated hereby, or that are
required in order to prevent a breach of or a default under or a termination of
any agreement to which Buyer is a party, shall have been provided for or
obtained.

8.4. Regulatory Approvals. All regulatory agencies shall have taken
such action as may be required to permit the consummation of the transactions
contemplated hereby, and such actions shall remain in full force and effect and
shall be reasonably satisfactory in form and substance to Seller.

8.5. Exhibits. All of the Exhibits shall be completed and attached
hereto in final form.

8.6. Deliveries. All documents to be executed and/or delivered by Buyer
pursuant to Section 3.2 shall have been executed and or delivered, as
applicable.

ARTICLE IX
SURVIVAL AND INDEMNIFICATION

9.1. Survival. All representations, warranties, covenants, and
agreements contained in this Agreement or in any document delivered pursuant
hereto shall be deemed to be material and to have been relied upon by the
parties hereto. All representations, warranties, covenants, and agreements
contained herein or in a document or agreement called for hereby, except as
otherwise limited therein, shall survive the Closing and be fully effective and
enforceable for a period of five (5) years following the Closing Date. Any claim
for indemnification asserted in writing during the applicable survival period
shall survive until resolved or judicially determined.

9.2. Seller's Indemnification. Seller shall indemnify, hold harmless
and defend Buyer, from and against all losses (including court costs and
reasonable attorneys' fees at all levels of trial and through all levels of
appeal and expenses and costs of investigation), suits, actions, claims,
deficiencies, liabilities or obligations (collectively referred to as "Losses")
related to, caused by or arising from: (i) any misrepresentation, breach of
warranty or failure to fulfill any covenant or agreement of Seller contained
herein or in any agreement or other document delivered pursuant hereto; and (ii)
any and all claims of third parties made based upon facts alleged that, if true,
would have constituted such a misrepresentation, breach or failure.

9
<PAGE> 10

9.3. Buyer's Indemnification. Buyer shall indemnify, hold harmless and
defend Seller, from and against all Losses related to, caused by or arising
from: (i) any misrepresentation, breach of warranty or failure to fulfill any
covenant or agreement of Buyer contained herein or in any agreement or other
document delivered pursuant hereto; and (ii) any and all claims of third parties
made based upon facts alleged that, if true, would have constituted such a
misrepresentation, breach or failure.

9.4. Indemnification Procedure. The party seeking indemnification under
this Article shall give written notice to the indemnifying party of the facts
and circumstances giving rise to any claim for indemnification. All rights
contained in this Article are cumulative and are in addition to all other rights
and remedies which are otherwise available, pursuant to the terms of this
Agreement or applicable law. All indemnification rights shall be deemed to apply
in favor of the indemnified party's officers, directors, representatives,
subsidiaries, affiliates, successors, assigns, heirs and devisees.

9.5. Defense Against Asserted Claims. Any party seeking indemnification
(the "Indemnified Party") shall give written notice to the indemnifying party
(the "Indemnifying Party") of the facts and the circumstances giving rise to any
claim (the "Notice"). The Indemnified Party shall not settle or compromise any
claim by a third party for which the Indemnified Party is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld), unless legal action
shall have been instituted against the Indemnified Party and the Indemnifying
Party shall not have taken reasonable control of such suit within fifteen (15)
days after notification thereof as provided herein. In connection with any claim
giving rise to indemnification hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party shall, upon written notice to the Indemnified Party, assume
the defense of any such claim or legal proceeding without prejudice to the right
of the Indemnifying Party thereafter to contest its obligation to indemnify the
Indemnified Party in respect to the claims asserted therein. If the Indemnifying
Party assumes the defense of any such claim or legal proceeding, the
Indemnifying Party shall select counsel, the selection of which counsel shall be
subject to the approval of the Indemnified Party, which approval shall not be
unreasonably withheld, to conduct the defense in such claims and legal
proceedings and at its sole cost and expense shall take all steps necessary in
the defense or settlement thereof. The Indemnifying Party shall not consent to a
settlement of, or the entry of any judgment arising from, any claim or legal
proceeding, without the prior written consent of the Indemnified Party, unless
the Indemnifying Party admits in writing its liability to hold the Indemnified
Party harmless from and against any losses, damages, expenses and liabilities
arising out of such settlement. The Indemnified Party shall be entitled to
participate in the defense of any such action with its own counsel and at its
own expense. If the Indemnifying Party does not assume the defense of any such
claim or litigation resulting therefrom in accordance with the terms hereof, the
Indemnified Party may defend such claim or litigation in such a manner as it may
deem appropriate, including settling such claim or litigation after giving
notice of the same to the Indemnifying Party on such terms as the Indemnified
Party may deem appropriate and after action by the Indemnified Party seeking
indemnification from the Indemnifying Party in accordance with the provisions of
this Section; in such case, the Indemnifying Party shall not be entitled to
question the manner in which the Indemnified Party defended such claim or
litigation

10
<PAGE> 11

or the amount or nature of any such settlement. In the event of a claim by a
third party, the Indemnified Party shall cooperate with the Indemnifying Party
in the defense of such action (including making a personal contact with the
third party if deemed beneficial) and the relevant records of each party shall
be made available on a timely basis.

9.6. Indemnification for Copelco Lease. Buyer, jointly and severally
together with FROC II, hereby agrees to indemnify, hold harmless and defend
Seller and IOI, from and against any and all losses and liability related to,
caused by or arising from the Copelco Lease.

ARTICLE X
GENERAL PROVISIONS

10.1. Survival. Those provisions which by their nature are intended to
survive beyond the execution of this Agreement shall survive same.

10.2. Attorneys' Fees. In the event any adversarial legal action arises
between any of the parties as a result of this Agreement, the prevailing party
shall be entitled to recover from the other party its attorneys' fees and costs
incurred at all pre-trial, trial and appellate proceedings.

10.3. Parties in Interest. This Agreement and all of the terms,
covenants and conditions herein shall bind and inure to the benefit of the
parties named herein and their respective personal representatives, legal
representatives, heirs, successors and assigns. No party may assign its rights
and/or duties hereunder without the prior written consent of the other parties.

10.4. Entire Agreement and Modification. This Agreement and the
exhibits and schedules attached hereto contain the entire understanding among
the parties with respect to the transactions contemplated hereby, and no
representations, warranties or agreements have been made or, if made, have been
relied upon by any party except those specifically referred to herein. This
Agreement may only be amended, modified or supplemented by written instrument
signed by all of the parties hereto.

10.5. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal substantive laws of the State of Colorado. Venue
of any legal action arising under or pursuant to this Agreement shall be in
Boulder County, Colorado.

10.6. Severability. If any provision of this Agreement is found to
violate any statute, regulation, rule, order or decree of any governmental
authority, court, agency or exchange, such invalidity shall not be deemed to
affect any other provision hereof or the validity of the remainder of this
Agreement, and such invalid provision shall be deemed deleted from this
Agreement to the minimum extent necessary to cure such violation.

10.7. Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

11
<PAGE> 12

10.8. Notices. All notices and other communications under this
Agreement shall be given in writing or by overnight delivery service, charges
prepaid, or by registered or certified mail, return receipt requested, postage
prepaid, or hand delivered, personally addressed to the parties set forth below
at the stated addresses or at such other address as any party shall designate in
a notice to the other.

To Seller: IOI Management Services of Colorado, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Attention: Doug P. Badertscher,Sr. V.P./C.O.O.

With a copy to: McDermott, Will & Emery
Miami Center, 22nd Floor
201 South Biscayne Boulevard
Miami, Florida 33131-4336
Attention: Ira J. Coleman, Esq.

To Buyer: Front Range Orthopedic Center, P.C.
2030 Mountainview, Suite 200
Longmont, Colorado 80501
Attention: Kenneth J. Cavanaugh, M.D.

With a copy to: Foley & Lardner
1999 Broadway, Suite 2560
Denver, Colorado 80210
Attention: Richard W. Johns, Esq.

All notices shall be deemed effective when received, or if delivery is
refused, on the date of such refusal.

10.9. Waiver. A waiver of any breach or violation of any term,
provision or covenant contained herein shall not be deemed a continuing waiver,
or a waiver of any future or past breach or violation, or a waiver of any other
term, provision or covenant of this Agreement. All waivers must be in writing.

10.10. Confidentiality. Each of the Parties hereto agrees to keep all
terms of this Agreement and all terms of the documents and agreements executed
pursuant to the terms of this Agreement confidential, except with respect to
communications the undersigned has with: (i) its advisors, such as accountants
or attorneys, to assist in interpreting or enforcing the terms of this Agreement
and the documents and agreements executed pursuant to the terms of this
Agreement; (ii) third parties as necessary to carry out the terms of this
Agreement as long as the undersigned divulges only the minimal information
necessary to carry out the terms of this Agreement; and (iii) third parties as
required by law or court order as long as the undersigned divulges only the
minimal information required. In the event that any of the shareholders or
practice administrators of Buyer or FROC II, as well as any staff upon the
direct or indirect instructions of any of the shareholders or practice
administrators of Buyer or FROC II, violate this

12
<PAGE> 13

confidentially covenant set forth in this Article 10.10, then Buyer and FROC II
are jointly and severally liable to immediately pay to Seller in cash a penalty
fee in the amount of $1,000,000. Such penalty fee is in addition to any other
remedies available to Seller.

10.11. No Disparagement. Buyer agrees that neither Buyer nor any of its
officers, directors, shareholders or employees, nor any of its affiliates, nor
any officers, directors, shareholders or employees of such affiliates, shall
make any disparaging statements about: (i) Seller or IOI; (ii) any of Seller's
affiliated corporations or Seller 's affiliated corporations; or (iii) any
directors, officers, principal shareholders or employees of Seller or IOI. Buyer
agrees that each of Seller and IOI has a legitimate business interest justifying
such no disparagement condition and agreement. Seller agrees that neither Seller
nor any of its officers, directors, shareholders or employees, nor any of its
affiliates, nor any officers, directors, shareholders or employees of such
affiliates, shall make any disparaging statements about the Buyer, or any of
Buyer's officers, directors, shareholders, employees or affiliates. Seller
agrees that Buyer has a legitimate business interest justifying such no
disparagement condition and agreement.

[SIGNATURE PAGE FOLLOWS]

13
<PAGE> 14

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

Signed, sealed and delivered BUYER:
in the presence of: -----

FRONT RANGE ORTHOPEDIC CENTER,
P.C., a Colorado professional corporation

By:
- ----------------------------- ----------------------------------------
Print Name:
--------------------------------
Print Title:
- ----------------------------- -------------------------------

SELLER:
-------
IOI MANAGEMENT SERVICES OF
COLORADO, INC.,
a Colorado corporation

By:
- ----------------------------- ----------------------------------------
Print Name:
--------------------------------
Print Title:
- ----------------------------- -------------------------------

14
<PAGE> 15

EXHIBITS
<TABLE>
<CAPTION>

Exhibit
Number Description
- ------- ------------
<S> <C>
1.2 - Purchased Assets

1.3 - Assumed Liabilities and Obligations

2.3 - Allocation of Consideration

3.2 - Buyer's Release

3.3 - Seller's Release
</TABLE>

<PAGE> 16

EXHIBIT 1.2

PURCHASED ASSETS

Accounts Receivable of FROC I existing as of the Closing Date.

<PAGE> 17

EXHIBIT 1.3

ASSUMED LIABILITIES AND OBLIGATIONS

1. Any and all liabilities and obligations of Seller to pay compensation of any
kind to the physician employees and shareholders of Buyer which accrue and/or
are payable on or after December 31, 1999, except as set forth in this
Agreement.

2. Any and all liabilities and obligations of Seller to pay compensation of any
kind to the staff employees and independent contractors of Buyer which accrue
and/or are payable on or after the December 31, 1999, except as set forth in
this Agreement.

3. Any and all other liabilities and obligations of Seller to Buyer or to the
operation of the Practice which accrue and/or are payable on or after December
31, 1999, except as set forth in this Agreement.

<PAGE> 18

EXHIBIT 2.3

ALLOCATION OF CONSIDERATION

100% Allocated to Account Receivable

<PAGE> 19

EXHIBIT 3.2

BUYER'S RELEASE

<PAGE> 20

EXHIBIT 3.3

SELLER'S RELEASE

<PAGE> 1
EXHIBIT 10.2

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the "Agreement") effective as of
December 31, 1999, is entered into by and between FROC, P.C., a Colorado
professional corporation ("Buyer"), and IOI MANAGEMENT SERVICES OF COLORADO,
INC., a Colorado corporation ("Seller") (Buyer and Seller are referred to herein
collectively as the "Parties").

W I T N E S S E T H:

WHEREAS, Buyer desires to purchase certain assets of the Practice, and
Seller desires that Buyer purchase such assets all in accordance with the terms
and conditions provided herein;

WHEREAS, there is that certain Management Services Agreement dated
March 11, 1998 (the "Initial Management Agreement"), pursuant to which Seller
provides management services to Front Range Orthopedic Center, P.C., a Colorado
professional corporation ("FROC I"), as amended by that certain Recruitment
Agreement and Modification to Management Services Agreement dated April 13, 1999
(the "Recruitment and Modification Agreement"; at times the Initial Management
Agreement as modified by the Recruitment and Modification Agreement are
collectively referred to as the "Management Agreement");

WHEREAS, FROC I has assigned or contemporaneously with the execution
hereof will assign the Management Agreement to Buyer; and

WHEREAS, Buyer desires to, and Seller agrees to, terminate the
Management Agreement, and Buyer agrees to pay consideration for such termination
as described further in Section 6.1 hereinbelow.

ARTICLE I
THE TRANSACTION

<PAGE> 2

1.2. Purchased Assets. The "Purchased Assets" are the following assets
as specifically listed on Exhibit 1.2 attached hereto:

(a) The personal property at the location of the Practice,
including, but not limited to furniture, fixtures and equipment; and

(b) Inventories of supplies and goods at the location of the
Practice.

1.3. Assumed Liabilities and Obligations. At Closing, the Buyer shall
assume only the liabilities and obligations listed on Exhibit 1.3 (the "Assumed
Liabilities and Obligations").

ARTICLE II
CONSIDERATION FOR TRANSFER

2.1 Consideration. The aggregate consideration for the Purchased Assets
to be paid to the Seller shall be as follows:

(a) Two Hundred Ten Thousand Dollars ($210,000) in a
promissory note (the "Note") payable to Seller; and

(b) Assumption of the Assumed Liabilities and Obligations
(collectively, the "Purchase Price").

ARTICLE III
THE CLOSING AND CLOSING DATE

2
<PAGE> 3

3.2. Deliveries by Buyer. To effectuate the Closing, Buyer shall:

(a) execute and deliver to the Seller a Release substantially
in the form of Exhibit 3.2 attached hereto;

(b) deliver to Seller a certificate of good standing of Buyer,
dated on a recent date prior to the Closing Date, from the Secretary of State of
Colorado; and

3.3. Deliveries by Seller. To effectuate the Closing, the Seller shall:

(a) execute and deliver to the Buyer a Release substantially
in the form of Exhibit 3.3, attached hereto;

(b) deliver to Buyer a Bill of Sale transferring the ownership
of the Purchased Assets from Seller to Buyer;

(c) deliver to Buyer a certificate of good standing of Seller,
dated on a recent date prior to the Closing Date, from the Secretary of State of
Colorado; and

ARTICLE IV
SELLER'S REPRESENTATIONS AND WARRANTIES

The Seller warrants and represents to Buyer, as of the date of this
Agreement and as of the Closing Date, as follows:

3
<PAGE> 4

or license to which it is a party or to which it or its properties or assets are
subject, and, to the best of Seller's knowledge, is not in material violation of
any order, statute, rule or regulation applicable to it. The execution,
delivery, and/or performance of this Agreement by Seller will not, with or
without the giving of notice or the passage of time, or both, (i) violate,
conflict with, result in a default, right to accelerate or loss of rights under,
or result in the creation of any lien, charge or encumbrance pursuant to, any
provision of Seller's articles of incorporation or by-laws or any agreement,
contract, note, mortgage, indenture, lease, instrument, permit, concession,
franchise or license to which Seller is a party or by which it or its properties
or assets may be bound or affected (except as otherwise disclosed herein), or,
(ii) to the best of Seller's knowledge, conflict with or result in any violation
of any material statute, law, rule, regulation, judgment, order, decree or
ordinance applicable to Seller, its properties or assets (except as otherwise
disclosed herein). Seller has the full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby, all proceedings
required to be taken by Seller to authorize the execution, delivery and
performance of this Agreement and the agreements relating hereto have been
properly taken, and this Agreement constitutes a valid and binding obligation of
Seller.

4.7. ERISA. To the best of Seller's knowledge, Seller has operated in
material compliance with ERISA with respect to the: (i) employees of Seller that
provide services on the premises of the Practice; and (ii) the physician
shareholders of Buyer.

4
<PAGE> 5

ARTICLE V
BUYER'S REPRESENTATIONS AND WARRANTIES

Buyer warrants and represents to Seller, as of the date of this
Agreement and as of the Closing Date, as follows:

5
<PAGE> 6

to Buyer which would adversely affect the ability of the Buyer to consummate the
sale of the Purchased Assets and the other transactions contemplated by this
Agreement.

5.7. Loans with Third Parties. Other than that certain revolving line
of credit in the amount of $125,000 with Bank One, Buyer is not a maker or
obligor on any loans from third parties.

ARTICLE VI
OTHER COVENANTS AND AGREEMENTS

6.1. Termination of Management Agreement. Buyer and Seller agree that
effective as of December 31, 1999 the Initial Management Agreement, as modified
and amended by the Recruitment and Modification Agreement pursuant to an
agreement (the "Agreement to Terminate the Management Agreement"), as assigned
from FROC I to Buyer, shall terminate pursuant to that certain Agreement to
Terminate the Management Agreement between Buyer and Seller. Buyer and Seller
agree that as of the Closing Date all agreements Seller had with either of Buyer
and/or FROC I to pursuant to which Seller provided services to FROC I shall
terminate and shall be void and of no further force or effect.

6.2. Economic Closing as of December 31, 1999. Buyer, and Seller
understand and agree that the "economic closing" of sale of the Purchased Assets
shall occur as of December 31, 1999 meaning that: (i) after the sweep of the
cash collected through December 31, 1999, Seller shall not sweep any money out
of that certain lock box accounts located at Wells Fargo Bank (#4311-854723) and
Bank One (#1192541017) (collectively, the "Lock Box") except to pay the January
2000 monthly lease payment due on that certain equipment lease (the "Copelco
Equipment Lease") on which Copelco Capital, Inc. is the lessor and Seller is the
lessee for an artoscan, MRI scanner and related equipment; and (ii) after
December 31, 1999, neither Buyer nor FROC I shall write any checks for expenses
vis a vis that certain "zero balance" checking account located at Bank One. At
the Closing, Seller will deliver to Buyer the cash accumulated

6
<PAGE> 7

as of the Closing Date in the Lock Box. After Closing, on a periodic reasonable
basis, Seller will deliver any remaining cash that accumulates in the Lock Box.

6.3. Payment by Seller of Monies Seller Reserved for Buyer's Profit
Sharing Plan. At Closing, Seller shall deliver to the administrator of the
profit sharing plan of Buyer the monies that Seller reserved from physician
compensation for such purpose in the amount of Ninety-eight Thousand Seventeen
Dollars and Sixty-five Cents ($98,017.65).

6.4. Seller Shall Pay a Portion of FROC I's Physician Salaries. Seller
shall pay Nineteen Thousand Seven Hundred Thirty-nine Dollars and Eighty-three
Cents ($19,739.83) to FROC I as compensation for the December salaries of
physicians employed by FROC I.

6.5. Seller Shall Pay the January 7, 2000, Staff Payroll of FROC I.
Seller shall pay Thirty-three Thousand Nine Hundred Dollars and Ninety-seven
Cents to the staff employees of FROC I as compensation under the January 7,
2000, payroll of FROC I.

6.6. FROC I Shall Reimburse Seller for the January 21, 2000, Payroll of
FROC I. FROC I shall pay to Seller Thirty-seven Thousand Four Dollars and
Sixty-four Cents ($37,004.64) as reimbursement for the January 21, 2000, staff
payroll of FROC I paid by Seller.

6.7. January 21, 2000, Staff Payroll Amounts Shall be Offset Against
Seller's Portion of December Physician Salaries. At Closing, FROC I shall
deliver to Seller Seventeen Thousand Two Hundred Sixty-four Dollars and
Eighty-one Cents ($17,264.81), which amount represents the difference between
(a) the amount owed by FROC I to Seller pursuant to Section 6.6, above, and (b)
the amount owed by Seller to FROC I pursuant to Section 6.4, above.

6.9. Return of Video Conference Equipment and CISCO 2500 Series Router.
On or before the Date, Buyer agree to return to Seller the two (2) following
pieces of equipment at the location of the Practice: (i) Seller's video
conference equipment; and (ii) the CISCO 2500 Series Router.

7
<PAGE> 8

to such property or rights in the original party and to otherwise carry out the
purpose of this Agreement.

6.11. Modification of Copelco Lease. On or before the Closing Date,
Buyer and FROC I shall contact Copelco and arrange for that certain Equipment
Lease by and between Seller as lessee and Copelco as lessor for equipment
pertaining to the Practice (the "Copelco Lease") to be modified so that Seller
and Integrated Orthopaedics, Inc. ("IOI"), shall be removed from such lease as
lessee and guarantor, respectively (the "Lease Modification").

ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

Each and all of the obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or at the
Closing Date of the following conditions:

7.5. Exhibits. All of the Exhibits shall be completed and attached
hereto in final form.

7.6. Deliveries. All documents to be executed and/or delivered by
Seller pursuant to Section 3.3 shall have been executed and or delivered, as
applicable.

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<PAGE> 9

ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

Each and all of the obligations of Seller to consummate the
transactions contemplated by this Agreement are subject to fulfillment prior to
or at the Closing Date of the following conditions:

8.1. Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Buyer contained herein shall be accurate in
all material respects as if made on and as of the Closing Date. Buyer shall have
performed all of its obligations and complied with each and all of the
covenants, agreements, and conditions required to be performed or complied with
by it on or prior to the Closing Date.

8.5. Exhibits. All of the Exhibits shall be completed and attached
hereto in final form.

8.6. Deliveries. All documents to be executed and/or delivered by Buyer
pursuant to Section 3.2 shall have been executed and or delivered, as
applicable.

ARTICLE IX
SURVIVAL AND INDEMNIFICATION

9
<PAGE> 10

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<PAGE> 11

settlement. The Indemnified Party shall be entitled to participate in the
defense of any such action with its own counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom in accordance with the terms hereof, the Indemnified Party
may defend such claim or litigation in such a manner as it may deem appropriate,
including settling such claim or litigation after giving notice of the same to
the Indemnifying Party on such terms as the Indemnified Party may deem
appropriate and after action by the Indemnified Party seeking indemnification
from the Indemnifying Party in accordance with the provisions of this Section;
in such case, the Indemnifying Party shall not be entitled to question the
manner in which the Indemnified Party defended such claim or litigation or the
amount or nature of any such settlement. In the event of a claim by a third
party, the Indemnified Party shall cooperate with the Indemnifying Party in the
defense of such action (including making a personal contact with the third party
if deemed beneficial) and the relevant records of each party shall be made
available on a timely basis.

9.6. Indemnification for Copelco Lease. Buyer, jointly and severally
together with FROC I, hereby agrees to indemnify, hold harmless and defend
Seller and IOI, from and against any and all losses and liability related to,
caused by or arising from the Copelco Lease.

ARTICLE X
GENERAL PROVISIONS

10.1. Survival. Those provisions which by their nature are intended to
survive beyond the execution of this Agreement shall survive same.

10.6. Severability. If any provision of this Agreement is found to
violate any statute, regulation, rule, order or decree of any governmental
authority, court, agency or exchange, such

11
<PAGE> 12

invalidity shall not be deemed to affect any other provision hereof or the
validity of the remainder of this Agreement, and such invalid provision shall be
deemed deleted from this Agreement to the minimum extent necessary to cure such
violation.

10.7. Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

To Seller: IOI Management Services of Colorado, Inc.
5858 Westheimer, Suite 500
Houston, Texas 77057
Attention: Doug P. Badertscher, Sr. V.P./C.O.O.

With a copy to: McDermott, Will & Emery
Miami Center, 22nd Floor
201 South Biscayne Boulevard
Miami, Florida 33131-4336
Attention: Ira J. Coleman, Esq.

To Buyer: FROC, P.C.
2030 Mountainview, Suite 200
Longmont, Colorado 80501
Attention: Kenneth J. Cavanaugh, M.D.

With a copy to: Foley & Lardner
1999 Broadway, Suite 2560
Denver, Colorado 80210
Attention: Richard W. Johns, Esq.

All notices shall be deemed effective when received, or if delivery is
refused, on the date of such refusal.

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<PAGE> 13

advisors, such as accountants or attorneys, to assist in interpreting or
enforcing the terms of this Agreement and the documents and agreements executed
pursuant to the terms of this Agreement; (ii) third parties as necessary to
carry out the terms of this Agreement as long as the undersigned divulges only
the minimal information necessary to carry out the terms of this Agreement; and
(iii) third parties as required by law or court order as long as the undersigned
divulges only the minimal information required. In the event that any of the
shareholders or practice administrators of Buyer or FROC II, as well as any
staff upon the direct or indirect instructions of any of the shareholders or
practice administrators of Buyer or FROC II, violate this confidentially
covenant set forth in this Article 10.10, then Buyer and FROC II are jointly and
severally liable to immediately pay to Seller in cash a penalty fee in the
amount of $1,000,000. Such penalty fee is in addition to any other remedies
available to Seller.

[SIGNATURE PAGE FOLLOWS]

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<PAGE> 14

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

Signed, sealed and delivered BUYER:
in the presence of:
FROC, PC, a Colorado professional
corporation

By:
------------------------------
- ------------------------------- Print Name:
----------------------
- ------------------------------- Print Title:
---------------------

SELLER:

IOI MANAGEMENT SERVICES OF
COLORADO, INC.,
a Colorado corporation

By:
------------------------------
- ------------------------------- Print Name:
----------------------
- ------------------------------- Print Title:
---------------------

14
<PAGE> 15

EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.2 - Purchased Assets

1.3 - Assumed Liabilities and Obligations

2.3 - Allocation of Consideration

3.2 - Buyer's Release

3.3 - Seller's Release
</TABLE>

<PAGE> 16

EXHIBIT 1.2

PURCHASED ASSETS

Please see attached schedule of assets.

<PAGE> 17

EXHIBIT 1.3

ASSUMED LIABILITIES AND OBLIGATIONS

2. Any and all liabilities and obligations of Seller to pay compensation of any
kind to the staff employees and independent contractors of Buyer which accrue
and/or are payable on or after December 31, 1999, except as set forth in this
Agreement.

<PAGE> 18

EXHIBIT 2.3

ALLOCATION OF CONSIDERATION

Assets: 100%

<PAGE> 19

EXHIBIT 3.2

BUYER'S RELEASE

<PAGE> 20

EXHIBIT 3.3

SELLER'S RELEASE

<PAGE> 1
EXHIBIT 10.3

AGREEMENT TO TERMINATE THE MANAGEMENT AGREEMENT

This Agreement to Terminate the Management Agreement ("Termination
Agreement"), effective as of December 31, 1999 (the "Effective Date"), is made
by and between IOI MANAGEMENT SERVICES OF COLORADO, a Colorado business
corporation (the "IOI Management Corporation") and FROC, P.C., a Colorado
professional corporation ("FROC II") (the parties, at times, are collectively
referred to herein as the "Parties").

RECITALS

WHEREAS, currently there is that certain Management Services Agreement
dated March 11, 1998 pursuant to which IOI Management Corporation provides
management services to Front Range Orthopedic Clinic, P.C., a Colorado
professional corporation ("FROC I") (the "Initial Management Agreement"), as
amended by that certain Recruitment Agreement and Modification to Management
Services Agreement dated April 13, 1999 (the "Recruitment and Modification
Agreement"; the Initial Management Agreement as modified by the Recruitment and
Modification Agreement is referred to as the "Management Agreement");

WHEREAS, FROC I has assigned or contemporaneously with the execution
hereof will assign the Management Agreement to FROC II; and

WHEREAS, FROC II desires to, and IOI Management Corporation agrees to,
terminate the Management Agreement, and in consideration thereof FROC II agrees
to, and shall, pay to IOI Management Corporation Seven Hundred Fifty Thousand
Dollars ($750,000) pursuant to a promissory note payable in twenty-five (25)
consecutive and equal monthly payments (the "Promissory Note"), as described
further in Section 2, below;

WHEREAS, subsequent to the termination of the Management Agreement, IOI
Management Corporation shall assign all of its rights in the Promissory Note to
Integrated Orthopaedics, Inc., a Texas corporation ("IOI"), and FROC II shall
agree to such assignment.

NOW, THEREFORE, for and in consideration of the mutual covenants and
consideration set forth herein, the receipt and sufficiency of which is
acknowledged by all the Parties hereto, the Parties hereto agree as follows:

TERMS AND CONDITIONS

1. Recitals. The above recitals are true and correct as stated and are
incorporated herein by this reference.

2. Termination of Management Agreement. Each of IOI Management Corporation and
FROC II agree that effective as of the Effective Date, the Initial Management
Agreement, as amended and modified by the Recruitment and Modification Agreement
shall be terminated, null and void and of no further force and effect. In
consideration for IOI Management Corporation's agreement to terminate the
Initial Management Agreement, as amended and modified by the Recruitment and
Modification Agreement, FROC II agrees to pay to IOI Management Corporation
Seven Hundred Fifty Thousand Dollars ($750,000), payable in twenty-five (25)

<PAGE> 2

consecutive and equal monthly payments of Thirty Thousand Dollar ($30,000)
installments pursuant to a promissory note substantially in the form of Exhibit
A attached hereto. FROC II consents to the assignment of the Promissory Note
from IOI Management Corporation to IOI as provided for at the end of the
Promissory Note. FROC II understands and agrees that as of the Effective Date,
neither IOI Management Corporation nor IOI has any duty or obligation to provide
any services of any nature whatsoever to FROC II.

3. Miscellaneous.

3.1 Attorneys' Fees. If any Party institutes litigation or arbitration
to interpret or enforce this Termination Agreement, or to recover damages for
breach of this Termination Agreement, the non-prevailing party shall bear the
attorneys' fees and litigation costs (including any attorneys' fees and costs
for appeals) incurred by the prevailing party.

3.2 Further Acts. Each Party will do such further acts, including
executing and delivering additional agreements or instruments as the other may
reasonably require, to consummate, perform, evidence or confirm the covenants
and conditions contained in this Termination Agreement.

3.3 Applicable Law and Venue. This Termination Agreement shall be
construed, interpreted and enforced according to the laws of the State of
Colorado without giving effect to the laws of the domicile of any nonresident
party, and venue for any action arising hereunder shall be in Colorado.

3.4 Integration. The making, execution and delivery of this Termination
Agreement by the Parties has not been induced by any representations,
statements, warranties, or agreements other than those expressed in this
Termination Agreement. Except as otherwise set forth in this Termination
Agreement and the documents and agreements executed by the Parties hereto in
connection with this Termination Agreement, this Termination Agreement embodies
the entire understanding of the Parties with respect to the subject matter of
this Termination Agreement.

3.5 Preparation of Agreement. Each Party represents and warrants that it
was represented by, or had the opportunity to be represented by, counsel in
connection with the negotiation of this Termination Agreement and each party
hereto and its or his, as applicable, counsel participated in the negotiation
and drafting of this Termination Agreement. Accordingly, this Termination
Agreement shall not be construed more favorably for any party hereto regardless
of who is responsible for its preparation.

3.6 Parties in Interest. This Termination Agreement and all of the
terms, covenants and conditions herein shall bind and inure to the benefit of
the Parties hereto and their respective permitted successors and assigns. This
Termination Agreement may not be assigned by any Party hereto without the other
Party's written consent.

3.7 Severability. If any provision of this Termination Agreement is
found to violate any statute, regulation, rule, order or decree of any
governmental authority, court, agency or exchange, such invalidity shall not be
deemed to affect any other provision hereof or the validity of the remainder of
this Termination Agreement, and such invalid provision shall be deemed

2
<PAGE> 3

deleted from this Termination Agreement to the minimum extent necessary to cure
such violation.

3.8 Headings. The section and other headings contained in this
Termination Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Termination Agreement.

3.9 Waiver. A waiver of any breach or violation of any term, provision,
or covenant contained herein shall not be deemed a continuing waiver, or a
waiver of any future or past breach or violation, or a waiver of any other term,
provision or covenant of this Termination Agreement.

3.10 Confidentiality. Each of the Parties hereto agrees to keep all
terms of this Termination Agreement and all terms of the documents and
agreements executed pursuant to the terms of this Termination Agreement
confidential, except with respect to communications the undersigned has with:
(i) its advisors, such as accountants or attorneys, to assist in interpreting or
enforcing the terms of this Termination Agreement and the documents and
agreements executed pursuant to the terms of this Termination Agreement; and
(ii) third parties as necessary to carry out the terms of this Termination
Agreement as long as the undersigned divulges only the minimal information
necessary to carry out the terms of this Termination Agreement.

3.11 No Disparagement. FROC II agrees that it shall not make any
disparaging statements about IOI Management Corporation, any of IOI Management
Corporation 's affiliated corporations, or any directors, officers or employees
of IOI Management Corporation or the IOI Management Corporation's affiliated
corporations. FROC II agrees that IOI Management Corporation has a legitimate
business interest justifying such no disparagement condition and agreement. IOI
Management Corporation agrees it shall not make any disparaging statements about
FROC II. IOI Management Corporation agrees that FROC II has a legitimate
business interest justifying such no disparagement condition and agreement.

[SIGNATURES FOLLOW ON THE NEXT PAGE]

3
<PAGE> 4

In witness whereof, the Parties hereto have executed this Termination
Agreement as of the day and year above written.

THE MEDICAL PRACTICE:

FROC, P.C., a Colorado professional
corporation

By:
-------------------------------
Print Name:
----------------------
Print Title:
----------------------

IOI MANAGEMENT CORPORATION:

IOI MANAGEMENT SERVICES OF
COLORADO, INC., a Colorado business
corporation

By:
--------------------------------
Print Name:
----------------------
Print Title:
----------------------

4
<PAGE> 5

EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT DESCRIPTION
--------- -----------

<S> <C>
Exhibit A Promissory Note
</TABLE>