<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended June 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------- --------
Commission File Number 33-80731
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PHYSICIAN SUPPORT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3624081
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
ROUTE 230 AND EBY-CHIQUES ROAD
MT. JOY, PENNSYLVANIA 17552
(Address of principal executive offices) (Zip Code)
(717) 653-5340
--------------
Registrant's telephone number, including area code
---------
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, par value $.001 per share 9,720,033 Shares
--------------------------------------- ----------------
Class Outstanding at
August 10, 1997
<PAGE>
Physician Support Systems, Inc. And Subsidiaries
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits 10
Signatures 11
Exhibit Index 12
</TABLE>
1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 355,010 $ 3,826,018
Accounts receivable........................... 22,673,741 17,458,338
Accounts receivable - unbilled................ 15,198,655 11,149,811
Prepaid expenses and other current assets..... 2,349,402 1,991,689
------------ ------------
Total current assets....................... 40,576,808 34,425,856
Property and equipment - net..................... 9,052,539 9,092,630
Intangible assets - net.......................... 59,007,843 44,556,022
Due from related parties......................... 1,179,679 1,054,038
Other assets..................................... 2,851,209 2,776,902
------------ ------------
Total...................................... $112,668,078 $ 91,905,448
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 1,844,045 $ 2,135,924
Accrued expenses.............................. 14,673,343 16,805,042
Current portion of other long-term
liabilities................................ 1,114,966 969,623
Current portion of due to related parties..... 137,543 463,736
Deferred income taxes......................... 31,347 31,347
------------ ------------
Total current liabilities.................. 17,801,244 20,405,672
------------ ------------
Long-term debt................................... 39,798,000 20,017,027
------------ ------------
Other long-term liabilities...................... 2,675,924 3,676,052
------------ ------------
Due to related parties........................... 712,244 771,695
------------ ------------
Deferred income taxes............................ 1,322,263 1,322,263
------------ ------------
Commitments and contingencies.................... -- --
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per share:
authorized 10,000,000 shares: none
outstanding
Common stock, par value $.001 per share:
authorized 100,000,000 shares: outstanding
9,720,033 and 9,156,101 shares at June 30,
1997 and December 31, 1996 respectively.... 9,720 9,156
Additional paid-in capital....................... 58,740,799 55,194,229
Retained earnings (accumulated deficit).......... (8,392,116) ( 9,490,646)
------------ ------------
Total stockholders' equity................. 50,358,403 45,712,739
------------ ------------
Total...................................... $112,668,078 $ 91,905,448
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues................................ $27,346,500 $17,539,517 $52,745,824 $34,269,904
----------- ----------- ----------- -----------
Operating expenses:
Salaries and wages.................... 13,718,450 9,206,902 26,891,844 18,039,616
General and administrative............ 9,509,257 7,148,595 18,983,960 13,233,822
Depreciation and amortization......... 1,581,509 1,292,905 3,028,764 2,555,866
Interest income....................... (26,024) (254,246) (58,003) (443,556)
Interest expense...................... 725,227 260,970 1,254,261 536,343
Other (income) expense................ -- 111,588 -- 102,166
Merger costs.......................... -- 1,150,000 -- 1,150,000
Restructuring charge.................. -- 2,500,000 750,000 2,500,000
----------- ----------- ----------- -----------
Income (loss) before income taxes
(benefit)............................. 1,838,081 (3,877,197) 1,894,998 (3,404,353)
Income taxes (benefit).................. 771,994 (630,000) 796,469 (656,000)
----------- ----------- ----------- -----------
Net income (loss)....................... 1,066,087 (3,247,197) 1,098,529 (2,748,353)
Pro forma income taxes (benefit)........ -- (366,535) -- (153,337)
----------- ----------- ----------- -----------
Pro forma net income (loss)............. 1,066,087 (2,880,662) 1,098,529 (2,595,016)
Preferred stock dividends............... -- -- -- 36,320
----------- ----------- ----------- -----------
Pro forma net income (loss) applicable
to common stock....................... $ 1,066,087 $(2,880,662) $ 1,098,529 $(2,631,336)
=========== =========== =========== ===========
Pro forma earnings (loss) per share..... $ 0.11 $ (0.33) $ 0.11 $ (0.34)
=========== =========== =========== ===========
Weighted average shares outstanding..... 9,736,947 8,604,323 9,577,011 7,638,138
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 1,098,529 $(2,748,353)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization................ 3,028,764 2,530,867
Deferred income taxes........................ -- (658,177)
Loss on disposal of property and equipment... -- 122,609
Other long-term liabilities.................. 156,965 (174,854)
Changes in operating assets and liabilities:
Accounts receivable....................... (4,465,886) 666,250
Accounts receivable - unbilled............ (2,060,891) (510,616)
Prepaid expenses and other current
assets and other assets................ (425,671) (502,136)
Accounts payable.......................... (1,102,261) 240,174
Accrued expenses.......................... (2,091,386) 1,840,019
----------- -----------
Net cash provided by (used in) operating
activities.................................... (5,861,837) 805,783
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired................ (14,139,183) (15,581,515)
Deferred purchase price........................... (414,583) --
Capital expenditures.............................. (1,293,398) (766,314)
------------ ------------
Net cash used in investing activities........... (15,847,164) (16,347,829)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock............ -- 43,556,217
Proceeds from long-term borrowings................ 19,780,973 88,636
Repayment of short-term borrowings................ -- (600,000)
Principal payments on long-term debt.............. (586,274) (10,571,052)
Principal payments on capital lease obligations... (445,421) (159,509)
Due to/from related parties....................... (511,285) (1,233,259)
Common stock dividends............................ -- (143,011)
Redemption of preferred stock..................... -- (2,932,032)
Redeemable preferred stock distributions.......... -- (36,320)
----------- ------------
Net cash provided by financing activities....... 18,237,993 27,969,670
----------- -----------
Net increase (decrease) in cash and
cash equivalents.................................. (3,471,008) 12,427,624
Cash and cash equivalents, beginning of
period............................................ 3,826,018 1,691,758
----------- -----------
Cash and cash equivalents, end of period............ $ 355,010 $14,119,382
=========== ===========
Supplemental investing activity:
Fair value of assets acquired..................... $20,155,912 $19,876,748
Stock issued in acquisitions...................... (3,547,132) (250,000)
Cash acquired..................................... -- (316,877)
Liabilities assumed............................... (2,274,597) (1,466,356)
Deferred purchase price........................... (195,000) (2,262,000)
------------ ------------
Net cash paid for acquisitions.................. $14,139,183 $15,581,515
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 1,103,432 $ 1,540,519
=========== ===========
Capital lease obligations incurred in
acquisition of equipment....................... $ -- $ --
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Physician Support Systems, Inc. And Subsidiaries
Notes To Condensed Consolidated Financial Statements
Three and Six Months Ended June 30, 1997 and 1996
1. Basis Of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission and consequently do not include all of
the disclosures normally required by generally accepted accounting principles.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included in the Company's Annual Report on Form 10-K.
The unaudited financial information contained herein reflects all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results of
operations for the three and six month periods ended June 30, 1997 and 1996.
2. Sale of Common Stock
On February 12, 1996, the Company authorized the issuance of up to
10,000,000 shares of preferred stock, increased the number of authorized shares
of common stock from 5,000 to 100,000,000, changed the par value of its common
stock from $.01 to $.001 per share and effected a 1,400-for-one stock split. In
addition, on February 12, 1996, the Company sold 4,025,000 shares of common
stock for $12 per share in its initial public offering of common stock. The net
proceeds of such offering of approximately $43,556,000 were used to repay all
outstanding short and long-term debt except for The Spring Anesthesia Group,
Inc. ("Spring") acquisition subordinated note, redeem all outstanding shares of
preferred stock and acquire three businesses.
3. Business Combinations
During 1996, the Company acquired either 100 percent of the outstanding
common stock or substantially all of the assets and liabilities of seven
businesses in transactions accounted for under the purchase method of
accounting, and merged with three businesses in transactions accounted for as
poolings of interests.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv Solutions, Inc. ("Physerv") for approximately
$10,109,000 in cash plus 563,934 shares of common stock. The Company has begun
to merge the operations of Spring into Physerv, and will complete this
assimilation as soon as is practicable (see Note 5).
The unaudited consolidated results of operations of the Company on a pro
forma basis as if the Company had consummated on January 1, 1996 the
acquisitions of the businesses accounted for under the purchase method of
accounting since January 1, 1996 are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $53,514,129 $50,175,942
=========== ===========
Net income (loss) $ 1,174,700 $(1,962,292)
=========== ===========
Earnings (loss) per share $ 0.12 $ (0.20)
=========== ===========
Weighted average shares 9,720,033 9,720,033
=========== ===========
</TABLE>
5
<PAGE>
4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Loan Agreement Acquisition Line
borrowings, Overnight Market Rate
(6.37% at June 30, 1997)............... $30,000,000 $12,017,027
Loan Agreement Working Capital Line
borrowings, Intermediate Market
Rate (7.02% at June 30, 1997).......... 4,298,000 2,500,000
Spring acquisition subordinated note,
7.6%, payable on August 12, 2003....... 5,500,000 5,500,000
----------- -----------
$39,798,000 $20,017,027
=========== ===========
</TABLE>
5. Restructuring Charge
As previously reported, results at the Company's Spring subsidiary located
in Stockton, California, in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,000
related to the write-off of certain computer hardware and software, and costs
associated with the introduction of a new management team, some limited
severance activity and other transition items. During the three months ended
December 31, 1996, the Spring operating inefficiencies led to client
dissatisfaction. The Company incurred increased salary and general and
administrative costs in an attempt to increase client satisfaction. However,
these efforts were unsuccessful, and led to the loss of clients and loss of
related revenues. As a result, in accordance with Statement of Financial
Accounting Standards No. 121, the Company determined that certain identifiable
intangible assets (primarily customer contracts), and goodwill, were not
recoverable from future cash flows of Spring, and accordingly, an impairment
loss of approximately $6,578,000 was recorded in the year ended December 31,
1996. In addition, in conjunction with the Company's acquisition on February 5,
1997 of Physerv, which like Spring, serves only anesthesiologists, the Company
decided to fold the remaining Spring business into Physerv, in order to develop
a profitable, national approach to the anesthesia market. This entails exiting
the processing of physician charges in remote Spring locations and performing
such processing activities at more efficient central anesthesia processing
locations. As a result of this assimilation, the Company recorded a charge of
$750,000 in the three months ended March 31, 1997 primarily for severance and
lease terminations related to exiting processing activities at Spring.
6. Pro Forma Income Taxes
The Company has acquired certain entities in merger transactions accounted
for as poolings of interests, which prior to the mergers had elected "S"
corporation status for income tax purposes. As a result of the mergers, these
acquired entities terminated their "S" corporation elections. Pro forma income
taxes represent the income tax provision (benefit) that would have been
recognized for periods prior to the mergers had the acquired entities been taxed
as "C" corporations.
7. Related Party Transactions
Legal services provided by related parties were approximately $1,054,000
and $827,000 in the three months ended June 30, 1997 and 1996, respectively and
$1,816,000 and $1,664,000 in the six months ended June 30, 1997 and 1996,
respectively.
Rent paid to related parties was approximately $109,000 and $9,000 for the
three months ended June 30, 1997 and 1996, respectively and $189,000 and $9,000
for the six months ended June 30, 1997 and 1996, respectively.
6
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
OVERVIEW
The Company is a leading provider of business management services to
hospitals and physicians. The Company's services include preparation and follow-
up on bills for medical services provided, assisting providers in qualifying
patients for state medicaid eligibility, collecting past due accounts, and
providing other business management services on an outsource basis. The Company
is generally compensated with a management fee based upon net receipts of its
clients.
On February 12, 1996, the Company sold 4,025,000 shares of common stock for
$12 per share in its initial public offering of common stock. The net proceeds
of such offering of approximately $43,556,000 were used to repay all outstanding
short and long-term debt except for the Spring acquisition subordinated note,
redeem all outstanding shares of preferred stock and acquire three businesses.
See "ACQUISITIONS."
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Company's latest Annual
Report on Form 10-K.
ACQUISITIONS
During 1996, the Company acquired either 100 percent of the outstanding
common stock or substantially all the assets and liabilities of seven businesses
in transactions accounted for under the purchase method of accounting, and
merged with three businesses in transactions accounted for as poolings of
interests.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv for approximately $10,109,000 in cash plus 563,934
shares of common stock. The Company has begun to merge the operations of Spring
into Physerv, and will complete this assimilation as soon as is practicable.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentages
of net revenue represented by certain items reflected in the Company's statement
of operations.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Salaries and wages 50.2% 52.5% 51.0% 52.6%
General and administrative 34.8% 40.8% 36.0% 38.6%
Depreciation and amortization 5.8% 7.4% 5.7% 7.5%
Interest expense (income), net 2.5% 0.0% 2.3% 0.2%
Other expense (income), net 0.0% 0.6% 0.0% 0.3%
Merger costs 0.0% 6.6% 0.0% 3.4%
Restructuring charge 0.0% 14.2% 1.4% 7.3%
----- ------ ----- ------
Income (loss) before income taxes
(benefit) 6.7% (22.1)% 3.6% (9.9)%
Income taxes (benefit) 2.8% (3.6)% 1.5% (1.9)%
----- ------- ----- -------
Net income (loss) 3.9% (18.5)% 2.1% (8.0)%
Pro forma income taxes (benefit) 0.0% (2.1)% 0.0% (0.4)%
----- ------ ----- ------
Pro forma net income (loss) 3.9% (16.4)% 2.1% (7.6)%
===== ======= ===== ======
</TABLE>
7
<PAGE>
Revenues
Revenues increased 55.9% from $17,539,517 for the three months ended June
30, 1996 to $27,346,500 for the three months ended June 30, 1997 and 53.9% from
$34,269,904 for the six months ended June 30, 1996 to $52,745,824 for the six
months ended June 30, 1997. Such increases resulted primarily from businesses
acquired during 1996 and 1997 plus increased revenues from the addition of new
clients, offset, in part, by decreased revenues from lost clients. In addition,
the Company's revenues during the three months ended March 31, 1997 were
adversely affected by operating inefficiencies in the processing of physician
charges at Spring, the Company's subsidiary located in Stockton, California. See
"Restructuring Charge."
Salaries and Wages
Salaries and wages increased 49.0% from $9,206,902 for the three months
ended June 30, 1996 to $13,718,450 for the three months ended June 30, 1997 and
49.1% from $18,039,616 for the six months ended June 30, 1996 to $26,891,844 for
the six months ended June 30, 1997. Such increases resulted primarily from
businesses acquired during 1996 and 1997 and increases in the number of clients
served by the Company. As a percentage of revenues, salaries and wages were
lower in the three and six months ended June 30, 1997 compared to the three and
six months ended June 30, 1996 primarily due to efficiencies at businesses
acquired in mergers accounted for as poolings of interest subsequent to June 30,
1996 but prior to December 31, 1996.
General and Administrative Expenses
General and administrative expenses increased 33.0% from $7,148,595 for the
three months ended June 30, 1996 to $9,509,258 for the three months ended June
30, 1997 and 43.5% from $13,233,822 for the six months ended June 30, 1996 to
$18,983,960 for the six months ended June 30, 1997. Such increases resulted
primarily from businesses acquired during 1996 and 1997 and increases in the
number of clients served by the Company. As a percentage of revenues, general
and administrative expenses were lower in the three and six months ended June
30, 1997 compared to the three and six months ended June 30, 1996 primarily due
to efficiencies at businesses acquired in mergers accounted for as poolings of
interests subsequent to June 30, 1996 but prior to December 31, 1996, offset by
increased administrative costs associated with being a publicly traded company.
Depreciation and Amortization
Depreciation and amortization increased 22.3% from $1,292,905 for the three
months ended June 30, 1996 to $1,581,509 for the three months ended June 30,
1997 and 18.5% from $2,555,866 for the six months ended June 30, 1996 to
$3,028,764 for the six months ended June 30, 1997. Such increases resulted
primarily from businesses acquired during 1996 and 1997, offset, in part, by
reductions in depreciation and amortization expense due to the write off of
Spring fixed and intangible assets. See "Restructuring Charge."
Interest Income
Interest income decreased from $254,246 for the three months ended June 30,
1996 to $26,024 for the three months ended June 30, 1997 and from $443,556 for
the six months ended June 30, 1996 to $58,003 for the six months ended June 30,
1997 primarily as a result of lower levels of excess cash invested in 1997
compared to 1996.
Interest Expense
Interest expense increased from $260,970 for the three months ended June 30,
1996 to $725,227 for the three months ended June 30, 1997 and from $536,343 for
the six months ended June 30, 1996 to $1,254,261 for the six months ended June
30, 1997. Such increases resulted primarily from increased levels of borrowings
in 1997 resulting from businesses acquired during 1996 and 1997.
Restructuring Charge
As previously reported, results at the Company's Spring subsidiary located
in Stockton, California in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,000
related to the write-off of certain computer hardware and software, and
8
<PAGE>
costs associated with the introduction of a new management team, some limited
severance activity and other transition items. During the three months ended
December 31, 1996, the Spring operating inefficiencies led to client
dissatisfaction. The Company incurred increased salary and general and
administrative costs in an attempt to increase client satisfaction. However,
these efforts were unsuccessful, and led to the loss of clients and loss of
related revenues. As a result, in accordance with Statement of Financial
Accounting Standards No. 121, the Company determined that certain identifiable
intangible assets (primarily customer contracts) and goodwill were not
recoverable from future cash flows of Spring, and accordingly, an impairment
loss of approximately $6,578,000 was recorded in the year ended December 31,
1996. In addition, in conjunction with the Company's acquisition on February 5,
1997 of Physerv, which like Spring, serves only anesthesiologists, the Company
decided to fold the remaining Spring business into Physerv, in order to develop
a profitable, national approach to the anesthesia market. This entails exiting
the processing of physician charges in remote Spring locations and performing
such processing activities at more efficient central anesthesia processing
locations. As a result of this assimilation, the Company recorded a charge of
$750,000 in the three months ended March 31, 1997 primarily for severance and
lease terminations related to exiting processing activities at Spring.
Income Taxes (Benefit) and Pro Forma Income Taxes
The Company's historical effective rates for income taxes (benefit) changed
from (16.2%) for the three months ended June 30, 1996 to 42.0% for the three
months ended June 30, 1997 and from (19.3%) for the six months ended June 30,
1996 to 42.0% for the six months ended June 30, 1997. Such changes were
primarily attributable to mergers with two companies subsequent to June 30,
1996, but prior to December 31, 1996, that were accounted for as poolings of
interests. Both companies had been taxed as "S" Corporations, and their
historical financial statements, which are now included in the Company's
consolidated financial statements, did not include provisions for income taxes.
Pro forma income taxes are presented for the three and six months ended June 30,
1996 to show what income taxes would have been had these two companies been
taxed as "C" Corporations at that time. In addition, changes in the effective
income tax rate also resulted from differing levels in each year of projected
annual pretax income and the effect on such projected levels of items not
deductible for Federal and State income tax purposes.
Pro Forma Net Income and Pro Forma Earnings Per Share
Pro forma net income and pro forma earnings per share result from the
accumulation of the items described above and the increase in the weighted
average number of shares outstanding in the three and six months ended June 30,
1997 compared to the three and six months ended June 30, 1996 resulting from
shares issued in the Company's initial public offering of common stock and
additional shares of common stock issued as consideration in acquisitions
accounted for as purchases in 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and cash and cash equivalents were $22,776,000
and $355,000, respectively, at June 30, 1997 compared to $14,020,000 and
$3,826,000, respectively, at December 31, 1996.
The Company's total long-term debt, including current portion and amounts
due to related parties was $40,648,000 at June 30, 1997 compared to $21,252,000
at December 31, 1996. Such increase at June 30, 1997 was primarily attributable
to increased borrowings resulting from the acquisition of PhyServ on February 5,
1997, plus borrowings during the six months ended June 30, 1997 to pay
transaction fees associated with the PhyServ acquisition and other acquisitions
that were consummated in the second half of 1996 and borrowings to fund changes
in working capital items, primarily increases in billed and unbilled accounts
receivable associated with increases in revenues and increases in days of billed
accounts receivable outstanding.
As of July 30, 1997, the Company had received commitments from its banks for
a $55 million credit facility to support its future acquisition program and
working capital needs. Subsequent to July 30, 1997, the Company received
commitments for an additional $10 million for that facility. The Company
anticipates that the facility will be secured by a pledge of the capital stock
of all its subsidiaries.
The Company believes anticipated cash flow from operations, cash and cash
equivalents on hand and borrowing capacity from its Loan Agreement and credit
facility commitment are adequate for its anticipated operating needs.
9
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 annual meeting of stockholders on June 4, 1997. In
addition to re-electing all of the Company's directors, stockholders ratified
the election of Deloitte & Touche LLP as the Company's independent auditors for
1997 and approved a change in the Company's corporate name to "Physician &
Hospital Support Services, Inc." A total of 5,477,029 votes were cast for,
60,901 votes were cast against or withheld, and there were 385,798 abstentions
with respect to, the election of each of the directors. A total of 5,701,420
votes were cast for, 162,401 votes were cast against or withheld, and there were
59,907 abstentions with respect to, the ratification of Deloitte & Touche LLP as
the Company's independent auditors for 1997. A total of 5,254,223 votes were
cast for, 628,538 votes were cast against or withheld, and there were 2,120
abstentions with respect to, changing the Company's corporate name to "Physician
& Hospital Support Services, Inc."
Item 6. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<C> <S>
3.1 Amended and Restated By-laws, as amended June 2, 1997
10.1 Employment Agreement as of June 2, 1997 between Physician Support
Systems, Inc., and James M. Drinkwater
27 Financial Data Schedule
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on August 13, 1997.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ DAVID S. GELLER
------------------------------
DAVID S. GELLER
SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICER
(Duly Authorized Officer and
Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1 Amended and Restated By-laws, as amended June 2, 1997
10.1 Employment Agreement as of June 2, 1997 between Physician Support
Systems, Inc., and James M. Drinkwater
27 Financial Data Schedule
</TABLE>
12
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED BY-LAWS
OF
PHYSICIAN SUPPORT SYSTEMS, INC.
as amended June 2, 1997
ARTICLE I
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
---------------
be held for the election of directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may
----------------
be called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required
------------------
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
------------
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where
------
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a
single class if the holders thereof are entitled to vote together as a single
class at the meeting. In the absence of a quorum of the holders of any class of
stock entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner
<PAGE>
provided by Section 1.4 of these by-laws until a quorum of such class shall be
so present or represented. Shares of its own capital stock belonging on the
record date for the meeting to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
neither by entitled to vote nor be counted for quorum purposes; provided, that
--------
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
------------
over by the Chairman of the Board if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in the absence of the President
by a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
---------------
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it in coupled is an interest in
the stock itself or an interest in the Corporation generally. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and
need not be conducted by inspectors unless the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at such meeting shall so determine. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all other matters, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
-------------------------------- ----------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any
<PAGE>
meeting of stockholders or any adjournment thereof, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, that the Board of Directors may fix a new record date for the
- --------
adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary
-------------------------------------
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each ten,stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
ARTICLE II
Board of Directors
------------------
Section 2.1. Powers; Number; Qualifications. The business and affairs
------------------------------
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by the Board. Directors need
not be stockholders.
Section 2.2. Election: Term of Office; Resignation; Removal;
-------------------------------------- --------
Vacancies. Each director shall hold office until his or her successor is
- ---------
elected and qualified or until his or her earlier resignation or removal. Any
director may resign at any time upon written notice to the Board of Directors or
to the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective. Any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority
<PAGE>
of the shares then entitled to vote at an election of directors. Whenever the
holders of any class or series of stock are entitled to elect one or more
directors.by the certificate of incorporation, the provisions of the preceding
sentence shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
Unless otherwise provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the certificate
of incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by the sole remaining
director so elected.
Section 2.3. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
----------------
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Participation in Meetings by Conference Telephone
--------------------------------------- ---------
Permitted. Unless otherwise restricted by the certificate of incorporation or
- ---------
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
--------------------------------
Board of Directors a majority of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall be present.
Section 2.7. Organization. Meetings of the Board of Directors shall
------------
be presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
-------------------------------------
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken
<PAGE>
without a meeting if all members of the Board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 2.9. Compensation of Directors. Unless otherwise restricted
-------------------------
by the certificate of incorporation or these by-laws, the Board of Directors
shall have the authority to fix the compensation of directors.
ARTICLE III
Committees
----------
Section 3.1. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation, except
that the Board of Directors may not form an executive committee without the
unanimous consent of the Board of Directors, which consent shall specify the
members of the proposed executive committee and limitations, if any, over the
authority of the executive committee. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
---------------
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these bylaws.
<PAGE>
ARTICLE IV
Officers
--------
Section 4.1. Officers; Election. As soon as practicable after the
------------------
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and a Vice Chairman of the Board. The Board
may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person unless the certificate of incorporation or these bylaws otherwise
provide.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless
------------------------------------- ---------
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of
such resignation shall be necessary to make it effective. The Board may remove
any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. Powers and Duties. The officers of the Corporation shall
-----------------
have such powers and duties in the management of the Corporation as shall be
stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board.
Section 4.4. Chairman of the Board. The Chairman of the Board, if
---------------------
any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.5. Vice Chairman of the Board. In the absence of the
--------------------------
Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he or
she shall be present and shall have and may exercise such powers as may, from
time to time, be assigned to him or her by the Board or as may be provided by
law.
Section 4.6. President. In the absence of the Chairman of the Board
---------
and Vice Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he or she shall be
present. The President [shall be the chief executive officer and]/*/ shall have
general charge and supervision of the business of the
- ------------------------
/*/Bracketed language deleted by June 2, 1997 amendment.
<PAGE>
Corporation and, in general, shall perform all duties incident to the office of
president of a corporation and such other duties as may, from time to time, be
assigned to him or her by the Board or as may be provided by law.
Section 4.7. Vice Presidents. The Vice President or Vice Presidents,
---------------
at the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform an of such duties. The Vice President or Vice
Presidents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.8. Secretary. The Secretary shall have the duty to record
---------
the proceedings of the meetings of the stockholders, the Board of Directors and
any committees in a book to be kept for that purpose, shall see that all notices
are duly given in accordance with the provisions of these by-laws or as required
by law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. Treasurer. The Treasurer shall have charge of and be
---------
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or
cause to be kept full and accurate records of all receipts and disbursements in
books of the Corporation, shall render to the President and to the Board,
whenever requested, an account of the financial condition of the Corporation,
and, in general, shall perform all the duties incident to the office of
treasurer of a corporation and such other duties as may, from time to time, be
assigned to him or her by the Board or the President or as may be provided by
law.
Section 4.10. Other Officers. The other officers, if any, of the
--------------
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security
for the faithful performance of his or her duties.
Section 4.11. Fidelity Bonds. If required by the Board of Directors,
--------------
any officer shall give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board, for the faithful performance of the duties
of his or her office, and for the restoration to the Corporation, in case of his
or her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
<PAGE>
ARTICLE V
Stock
-----
Section 5.1. Certificates. Every holder of stock in the Corporation
------------
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Each certificate representing shares shall state upon the face thereof
that the Corporation is formed under the laws of the State of Delaware, the name
of the person or persons to whom such shares have been issued and the number and
class of such shares, and the designation of the class or series, if any, which
such certificate represents.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock; provided, that, except as otherwise provided by law, in lieu of
--------
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
------------------------------- -------------------------
New Certificates. The Corporation may issue a new certificate of stock in the
- ----------------
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.3. Transfers of Stock. Transfers of stock shall be made on
------------------
the books of the Corporation only by the person named in the certificate or by
his attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. Registered Stockholders. The Corporation may treat the
-----------------------
holder of record of any share or shares of stock as the holder thereof, and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided
<PAGE>
by the laws of Delaware.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which
----
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors
------------------------------- -----------------------
and Committees. Whenever notice is required to be given by law or under any
- --------------
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Employees.
----------------------------------------------------
The Corporation shall indemnify to the full extent permitted by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this by-law shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director, officer or
employee as provided above. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this by-law, the term "Corporation" shall include
any predecessor of the Corporation and any constituent corporation (including
any constituent of a constituent) absorbed by the Corporation in a consolidation
or merger; the term "other enterprise" shall include any corporation,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include service as a director, officer or
employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
<PAGE>
Section 6.5. Interested Directors; Quorum. No contract or transaction
----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the
---------------
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
--------------------
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
ARTICLE VII
Offices
-------
Section 7.1. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
Section 7.2. Other Offices. The Corporation may also have an office
-------------
or offices at other places within or without the State of Delaware.
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT, dated as of June 2, 1997, between Physician
Support Systems, Inc., a Delaware corporation (the "Company"), and James M.
Drinkwater (the "Employee").
The Company desires to employ Employee, and Employee desires to be
employed by the Company, on the terms and subject to the conditions set forth
herein.
Based upon the mutual covenants and consideration set forth herein,
the sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Position and Responsibilities.
-----------------------------
1.1. Scope. During the Employment Period (defined below),
-----
Employee shall serve in an executive capacity as the President and Chief
Operating Officer of the Company. In such capacity, Employee shall be
responsible for performing such functions and undertaking such responsibilities
as may be delegated to him by the Board of Directors of the Company (the
"Board") and as are customarily associated with Employee's position
(collectively, the "Services"). During the Employment Period, in the performance
of the Services, Employee shall report to and be subject to the authority of the
Board.
1.2. Performance. (a) During the Employment Period, Employee
-----------
will render the Services in conformity with professional standards, in a prudent
and workmanlike manner and in a manner consistent with the obligations imposed
on officers of corporations under applicable law. Employee shall promote the
interests of the Company and its subsidiaries in carrying out Employee's duties
and shall not deliberately take any action which could, or fail to take any
action which failure could, reasonably be expected to have a material adverse
effect upon the business of the Company or any of its subsidiaries or any of
their respective affiliates.
(b) Employee shall, to the same extent as other
executive officers of the Company, be indemnified from any and all liabilities
(including reasonable attorney's fees and costs) incurred by reason of the fact
that on and after the date hereof Employee is an employee of the Company;
provided that such indemnity shall be pursuant to the Company's certificate of
incorporation and bylaws. To the same extent as other executive officers of the
Company, Employee shall as an officer of the Company be covered by liability
insurance against liabilities as to which Employee is permitted to be
indemnified by the Company's certificate of incorporation or bylaws.
Section 2. Term. The term of employment of Employee by the Company
----
pursuant to this Agreement shall commence upon the date of this Agreement (the
"Commencement Date") and end on December 31, 1999, subject to any termination
under Section 6 or any extension under Section 9 (such term, as so terminated or
extended, being referred to herein as the "Employment Period").
<PAGE>
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company
------
shall pay to Employee an annual base salary of $190,000 during each year of the
Employment Period, payable in equal installments in accordance with the
Company's normal payroll practices (the "Salary"). The Board shall annually
review Employee's and the Company's performance during the preceding year and,
in its sole discretion, may award Employee a bonus for such preceding year in an
amount up to $35,000.
3.2. Stock Options. As additional compensation for the
-------------
Services, Employee shall be entitled to receive an option to purchase 100,000
shares of the Company's common stock, par value $.001 per share, in accordance
with and subject to the terms of the Company's Amended and Restated 1996 Stock
Option Plan and the Stock Option Agreement entered into by Employee in
connection with such option.
3.3. Reimbursement. Pursuant to the Company's standard
-------------
reimbursement policies, the Company shall reimburse Employee for all reasonable
out-of-pocket expenses incurred by Employee directly related to the performance
by Employee of the Services. Employee shall account for such expenses in
accordance with the Company's reasonable record-keeping requirements.
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by the Company to its senior management
employees. The Company reserves the right to expand, restrict, designate or
eliminate the benefits provided to Employee so long as such expansion,
restriction, designation or elimination applies generally to all of the
Company's senior management employees. Employee shall be entitled to vacations
consistent with the Company's vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after
-------
the Commencement Date, (a) all clients and/or accounts serviced by the Company,
or any of its subsidiaries or any other affiliates of the Company (hereinafter
collectively, "affiliates"), Employee or the Company's or its affiliates' other
employees during Employee's employment with the Company, including all clients
and/or accounts acquired due to Employee's efforts during the term of Employee's
employment with the Company, are the clients and accounts of the Company or its
affiliates, as the case may be (collectively, "Existing Accounts"), and (b) all
businesses or individuals who (i) have been contacted by Employee, the Company,
or any of its affiliates with a view toward having such business or entity
retain the Company or any of its affiliates to provide services or (ii) are
known to Employee as a result of his employment with the Company are prospective
clients and accounts of the Company or its affiliates, as the case may be
(collectively, "Prospective Accounts," and, with Existing Accounts, "Client
Accounts").
-2-
<PAGE>
5.2. Non-Disclosure. (a) Except as provided in this Section
--------------
5.2, Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or any of its affiliates
to any person, firm, corporation, association or other entity for any reason or
purpose whatsoever (other than to the Company, its affiliates, or officers or
employees thereof and then only in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the Company
or its affiliates. As used herein, the term "confidential or proprietary
information" means all information which is or becomes known to Employee and
relates to matters such as trade secrets, research and development activities,
business or financing plans, acquisition opportunities, computer software, books
and records, customer or potential customer lists (including, without
limitation, any list of Client Accounts or any part thereof), vendor lists,
suppliers, distribution channels, pricing information and private processes as
they may exist from time to time; provided that the term "confidential or
proprietary information" shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by Employee or a person who received such
information from Employee).
(b) If Employee is requested or required by law or
judicial order to disclose any confidential or proprietary information, Employee
shall provide the Company with prompt notice of any such request for such
information or requirement so that the Company may seek an appropriate
protective order or waiver of Employee's compliance with the provisions of this
clause. Employee will not oppose action by, and will cooperate with, the Company
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the confidential or proprietary
information. During the Employment Period, and for matters arising from events
or circumstances occurring during the Employment Period, the Company will
provide for the defense of matters arising under this provision.
(c) Employee agrees that Employee will promptly and
fully disclose to the Company (i) all inventions, ideas, trade secrets or know-
how (whether patentable or copyrightable or not) made or conceived by Employee
(either solely or jointly with others) during the Employment Period and which
shall in any way relate to the business conducted or contemplated to be
conducted by the Company or any of its affiliates; and (ii) all tangible work
product (whether in the nature of developed ideas, know-how, trade secrets and
similar intellectual property) and inventions (whether patentable or
copyrightable or not) made or conceived by Employee (either solely or jointly
with others) during the Employment Period which relates in any way to the
business conducted or contemplated to be conducted by the Company or any of its
affiliates; and all such inventions, ideas, trade secrets and know-how shall be
and remain the sole and exclusive property of the Company. At the request of the
Company, Employee shall, during the Employment Period, without charge to the
Company, but at the expense of the Company, assist the Company in any reasonable
way to vest in it title to all such inventions, ideas, trade secrets and know-
how and to obtain any patents, trademarks or copyrights thereon in all countries
throughout the world. In this regard, Employee shall execute
-3-
<PAGE>
and deliver any and all documents that the Company may reasonably request,
including applications for patents, copyrights and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and
--------------------
recognizes (i) that, during his employment by the Company, Employee will come
into possession of confidential or proprietary information and (ii) the highly
competitive nature of the business of the Company and its affiliates.
Accordingly, Employee agrees that, in consideration of the Company's entering
into this Agreement, and the premises contained herein, Employee will not, from
and after the Commencement Date until (x) in the case of clause (a) below, the
date which is one year after the expiration of his employment by the Company and
(y) in the case of clauses (b), (c) and (d) below, the date which is two years
after the expiration of his employment by the Company, either individually or as
an officer, director, owner, employee, partner, agent, principal or other agent
or participant:
(a) directly or indirectly engage in any area where the
Company or any of its affiliates may be engaged in business or about to be
engaged in business, in any competitive business,
(b) solicit or attempt to solicit any Client Account on
Employee's own behalf or on behalf of any other Person,
(c) associate with any Person that Does Business with a
then existing or former Client Account; provided that the foregoing shall not
prohibit an association with any Person if, in the aggregate, not more than five
Client Accounts do business with such Person, or
(d) induce employees of the Company or any of its
affiliates to terminate their employment with the Company or such affiliate or
hire any employees of the Company or any of its affiliates to work with Employee
or any Person associated with Employee.
For purposes of this Section 5.3, (i) "Does Business" means providing medical
billing, accounts receivable, accounting, financial or consulting services to
any Client Account, or otherwise engaging in a type of business with a Client
Account which is substantially similar to the type of business engaged in by the
Company or any affiliate of the Company with such Client Account and (ii)
"Person" means any person, firm, corporation, association, partnership or other
entity.
5.4. Remedies. Employee acknowledges that the Company may
--------
elect to specifically enforce Section 5.1, 5.2 or 5.3 by injunctive or other
equitable remedies (as provided in Section 10.4) or, in the alternative, seek
damages as a result of Employee's breach of the agreements set forth in such
section. Employee recognizes that the right to service each Client Account is a
valuable asset of the Company and its affiliates and that the precise value of
the loss of such asset may be difficult to measure in monetary sums.
-4-
<PAGE>
5.5. Emergency Medicine Business. Notwithstanding any
---------------------------
provision to the contrary in this Agreement, the parties agree that in the event
of the termination of Employee's employment by the Company for any reason, other
than a voluntary termination by the Employee of his employment with the Company
prior to December 31, 1999, nothing in this Agreement shall prohibit the
Employee upon such termination, as an owner or principal, from engaging in the
business of providing services to emergency medicine physicians in the States of
Georgia, Florida and North Carolina or from soliciting any emergency medicine
physician in the State of Georgia, Florida or North Carolina in connection with
such business; provided, in either case, that such emergency medicine physician
(a) is not at such time and has not been for a period of six months preceding
the date of Employee's termination of employment with the Company an Existing
Account or (b) is not a Prospective Account for whom the Company or one of its
affiliates prepared a written proposal regarding prospective services, including
a financial pro forma, prior to or within 30 days after the date of such
termination of employment.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during
-------------------
the Employment Period, the Employment Period shall terminate as of the date of
death. If the Employee becomes unable to perform the Services reasonably
satisfactorily for at least 180 consecutive days during the Employment Period
due to a physical or mental disability, the Company may elect to terminate the
Employment Period at any time thereafter, provided the Employee still suffers
from such disability, and the Employment Period shall terminate as of the date
of such election. All disabilities shall be certified by a physician reasonably
acceptable to Employee and to the Company. The Employee's failure to submit to
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Employee's inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the
-----
Employment Period and all of the obligations of the Company hereunder for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to terminate
the Employee's employment hereunder in the event (i) the Employee has, after
repeated warnings from the Board specifying the alleged dereliction, willfully
or repeatedly failed or ceased to perform his duties in any material respect as
provided in this Agreement (other than as a result of his incapacity due to
illness or injury), (ii) of any act of fraud, misrepresentation,
misappropriation, embezzlement or similar dishonest or wrongful act by the
Employee, (iii) of the Employee's abuse of alcohol or any substance which
materially interferes with the Employee's ability to perform services on behalf
of the Company, or (iv) of the Employee's conviction for, or plea of guilty or
nolo contendere to, a felony.
6.3. Payments in the Event of Termination. If the Employment
------------------------------------
Period is terminated or expires pursuant to Section 2 or Section 6, the Company
shall pay the Employee any Salary earned to the date of such termination or
expiration, as the case may be.
-5-
<PAGE>
6.4. Termination Obligations. Upon a termination of the
-----------------------
Employment Period, all obligations of the Company with respect thereto shall
terminate, except as specifically set forth in Section 6.3.
Section 7. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
managing the transition of the Company's business affairs, including maintaining
the Company's and its affiliates' professional relationship with all Client
Accounts. Without limiting the generality of the foregoing, the Employee shall
cooperate and assist the Company, at the Company's direction and instruction, to
advise and consult regarding managerial responsibilities and to transfer such
responsibilities to a successor executive officer or officers of the Company and
to retain and transition each Client Account during the transition period
between the receipt of notice of the termination of employment and the final day
of employment.
Section 8. Moving Expenses. The Company and Employee agree that
---------------
Employee will relocate to Newark, New Jersey or such other location beyond the
Atlanta, Georgia region as the Company and Employee may agree is necessary or
appropriate in order to facilitate Employee's performance of his
responsibilities under this Agreement. In the event of such a relocation, the
Company shall reimburse Employee for reasonable moving expenses to relocate
himself and his family to such location.
Section 9. Change of Control. (a) In the event that, at any time
-----------------
during the Employment Period and after the first anniversary of the Commencement
Date, a Change of Control (as hereinafter defined) occurs, this Agreement may
not be terminated by the Company for a period of one year following such Change
of Control, and the Employment Period shall be extended for a period of one year
following such Change of Control (subject to the provisions of Section 6).
(b) During the Employment Period and after a Change of
Control, the bonus amount of $35,000 described in Section 2 of this Agreement
that has not been paid as of the date of the Change of Control will become fixed
and payable on each of the first and second anniversaries of the Commencement
Date.
(c) At any time during the Employment Period following a
Change of Control, Employee cannot be required to assume significantly greater
responsibilities under this Agreement or have the scope of his responsibilities
hereunder materially curtailed from the scope of his responsibilities before the
Change of Control (recognizing however that the Company may become a subsidiary
or report to a controlling Person following such a Change of Control), and
Employee cannot be required, without his consent, to relocate other than as
contemplated by Section 8.
(d) For purposes of this Agreement, "Change of Control"
means (i) any event or series of events by which any Person or "group" (as such
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of
-6-
<PAGE>
Persons (other than any of the stockholders of the Company identified under the
caption "Principal Stockholders" in the Company's Proxy Statement dated April
30, 1997 or their affiliates) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 of the Exchange Act) of more than 50% of the total voting
power of the Company's outstanding capital stock, (ii) a sale, lease, exchange
or other transfer of all or substantially all of the assets of the Company to
any Person (other than a wholly owned subsidiary of the Company) or "group" of
Persons in one transaction or series of related transactions or (iii) a merger
or consolidation of the Company with another Person or Persons with the effect
that any Person or "group" of Persons (other than any of the stockholders of the
Company identified in such Proxy Statement or their affiliates) holds more than
50% of the total voting power of the outstanding capital stock of the surviving
entity.
Section 10. Miscellaneous.
-------------
10.1. Assignment; Benefit. This Agreement is personal in its
-------------------
nature and the parties shall not, without the prior written consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company, whether by merger, consolidation or
transfer of all or substantially all of its assets.
10.2. Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by telecopy (with confirmation of receipt) or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company, at:
Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall
-7-
<PAGE>
be deemed to have been given when received or, if given by mail, when delivered
at the address specified in this Section 10.2 or on the fifth business day
following the date on which such communication is posted, whichever occurs
first.
10.3. Entire Agreement; Amendments and Waivers. This Agreement
----------------------------------------
represents the entire agreement between the parties with respect to the subject
matter hereof and supersedes all negotiations and prior agreements. No
amendment, alteration, modification, or waiver of any provision of, or consent
required by, this Agreement, nor any consent to any departure herefrom, shall be
effective unless it is in writing and signed by the parties hereto. Such
amendment, alteration, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
10.4. Specific Performance. In the event of a breach or
--------------------
threatened breach by Employee of the provisions of Section 5, the Company shall
be entitled to an injunction restraining Employee from such breach. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available at law or equity for such breach or threatened breach
of this Agreement nor limiting the amount of damages recoverable in the event of
a breach or threatened breach by Employee of the provisions of Section 5.
Without limiting the generality of the foregoing, Employee acknowledges that, in
the event of a breach or threatened breach by him of any of the provisions of
Section 5, the Company's damages may exceed the value of the consideration
received by Employee in the Purchase.
10.5. Enforceability. It is the desire and intent of the
--------------
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
10.6. Acknowledgment. Employee acknowledges that Employee has
--------------
read this Agreement and has been afforded the opportunity to discuss and review
this Agreement with the Company and/or an attorney of Employee's choice.
Employee understands that execution of this Agreement and acceptance of its
terms are conditions to Employee's employment with the Company.
10.7. Headings. Descriptive headings are for convenience only
--------
and shall not control or affect the meaning or construction of any provision of
this Agreement.
10.8 Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
10.9. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
-8-
<PAGE>
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ Hamilton F. Potter III
----------------------------------
Name: Hamilton F. Potter III
Title: Executive Vice President
/s/ James M. Drinkwater
----------------------------------
James M. Drinkwater
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 355,010
<SECURITIES> 0
<RECEIVABLES> 39,907,212
<ALLOWANCES> (2,034,816)
<INVENTORY> 0
<CURRENT-ASSETS> 40,576,808
<PP&E> 9,052,539
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,668,078
<CURRENT-LIABILITIES> 17,801,244
<BONDS> 0
0
0
<COMMON> 9,720
<OTHER-SE> 50,348,683
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 52,745,824
<CGS> 0
<TOTAL-COSTS> 49,596,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,254,261
<INCOME-PRETAX> 1,894,998
<INCOME-TAX> 796,469
<INCOME-CONTINUING> 1,098,529
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<EXTRAORDINARY> 0
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<EPS-PRIMARY> 0.11
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