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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE 30,
1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period from
____________ to ____________
Commission file number: 1-14150
THE COMPANY DOCTOR
(Exact name of registrant as specified in its charter)
DELAWARE 72-1234136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
SUITE 1800
5215 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (972) 401-8300
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
COMMON STOCK, NO PAR VALUE PER SHARE on which registered
WARRANTS TO PURCHASE COMMON STOCK BOSTON STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Exchange Act:
NONE
Check whether the registrant (1) 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
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year: $4,193,906
As of September 26, 1996, 4,972,693 shares of the registrant's Common Stock were
outstanding. The aggregate market value of the 3,376,438 shares of Common Stock
held by non-affiliates was $29,965,887 as of September 26, 1996. For purposes of
the foregoing calculation only, each of the Registrant's officers and directors
is deemed to be an affiliate. The market value of the shares was calculated
based on the closing bid price of such shares on The Nasdaq SmallCap Market on
such date.
DOCUMENTS INCORPORATED BY REFERENCE:
THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT IS INCORPORATED BY
REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY STATEMENT IF FILED WITH THE
COMMISSION ON OR BEFORE OCTOBER 28, 1996 OR, IF SUCH PROXY STATEMENT IS NOT
FILED, WILL BE FILED WITH THE COMMISSION AS AN AMENDMENT TO THIS FORM 10-KSB
UNDER COVER OF FORM 10-KSB/A, NOT LATER THAN OCTOBER 28, 1996.
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company Doctor manages the non-medical related portions of medical
practices within facilities that provide occupational and industrial medical and
related services exclusively to employees and prospective employees of corporate
customers located in the states of Texas, Louisiana and Arkansas. With its
recent acquisitions, the Company currently manages eleven occupational and
industrial medicine facilities servicing over approximately 4,000 employers and
clients include local offices of such corporations as Blockbuster Video, Excel
Telecommunications, Fibrebond Corp., Interceramic Tile, Southwest Airlines,
U-Haul Corporation, Levi, the U.S. Postal Service and Atlantic Richfield Co.
(ARCO). At these facilities prospective employees of the corporate customer can
be pre-screened and work-related injuries and medical conditions arising from
employment can be diagnosed and treated. See "Item 1. Description of Business -
Healthcare Operations and Services".
Currently, the Company's operating revenues are derived primarily
through a Practice Management Agreement with The Physician Group, P.A. (formerly
known as Donald F. Angle, M.D. P.A.), a Texas professional association of
physicians and other medical professionals (the "Physician Group"), which is
paid by the employer for services either on a fee-for-service basis or on a
prepaid "capitated" basis (a fixed monthly fee for each employee). The Company
also receives a portion of its operating revenues from management of two
facilities outside the Physician Group. See "Item 1. Business - Physician
Services, Recruitment and Duties" and - "Affiliations, Joint Ventures and
Acquisitions". Healthcare provider reimbursement laws and regulations for
workers' compensation vary on a state-by-state basis, but the Company currently
operates in states which have a fee schedule pursuant to which the maximum
amounts that may be reimbursed to healthcare providers for a designated
procedure are fixed by regulation. See "Item l. Description of Business -
Regulation." The Company receives a management fee for the provision of
non-medical services, including marketing, management of the practice and the
facilities and provision of non-medical procedures and programs.
At its facilities, the Company utilizes the Physician Group to render
the actual medical services provided to employees and prospective employees of
its clients. Because most states have enacted laws limiting the practice of
medicine to licensed individuals or professional organizations comprised of
licensed individuals, the Company will be dependent on the Physician Group or
other professional associations of licensed professionals to render medical
services at the Company's facilities. The Practice Management Agreement between
the Company and the Physician Group is non-exclusive. The Physician Group
renders medical services at all of the Company's facilities in Texas and the
Company anticipates it will continue to contract with the Physician Group to
provide services at facilities which the Company acquires or opens in the
future.
The Company believes its management techniques and cost containment
strategies have in many cases resulted in reductions in loss ratios by workers'
compensation insurers and, thereafter, in reduced insurance premiums charged to
the Company's clients. To benefit indirectly from the advantages of its own cost
containment programs, the Company implemented an arrangement with Employers
General Insurance Group ("EGIG"), a subsidiary of Old Republic General Insurance
Group, Inc., a company listed on the New York Stock Exchange with assets of $6.1
billion, surplus of $1.6 billion and an A+ rating from A.M. Best Company, to
develop and offer an insurance and occupational medicine product known
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as "Comp2000" which is a fully-guaranteed fixed cost workers' compensation
insurance policy that includes the Physician Group's capitated preventive
healthcare services. See "Item 1. Description of Business - Healthcare
Operations and Services and - Insurance and Insurance Related Operations."
In order to benefit even more directly from the use of its cost
containment strategies utilized in its practice management activities, the
Company acquired a Texas domiciled, multi-line insurance company, now known as
Risk Management Assurance Corporation ("RMAC"), effective June 30, 1996. Through
RMAC, the Company intends to enter the workers' compensation insurance market by
participation in insurance policies with other workers' compensation insurers,
including EGIG, that will serve as the issuing carriers. RMAC expects to
participate in these workers' compensation insurance policies, which the Company
anticipates can be marketed to the Company's clients at premiums which are
comparable to or less than those offered by other workers' compensation
insurers. See "Item 1. Business - Insurance and Insurance Related Operations".
INDUSTRY OVERVIEW
Occupational and industrial healthcare consists of two principal
components: (i) workers' compensation injury care and related services, and (ii)
non-injury healthcare services related to employer needs or statutory
requirements.
Workers' Compensation. Workers' compensation laws require certain
employers to compensate employees for medical expenses, lost wages and other
costs resulting from work-related accidents, injuries and illnesses. As each of
the fifty states is responsible for enactment, implementation and regulation of
these laws, workers' compensation laws and regulations on benefits and
arrangements vary on a state-by-state basis and are often highly complex.
Typically however, work-related injuries are broadly defined, and injured or ill
employees are entitled to extensive compensation benefits. Employers are
required to provide first-dollar coverage with no insurance co-payment or
deductible due from the injured or ill employee for medical treatment and, in
many states, there is no lifetime limit on expenses. In exchange for providing
this coverage for employees, employers are not subject to litigation by
employees for compensation or benefits in excess of those provided by the
relevant state statute. In most states, the employer is required to secure the
payment of compensation benefits through the purchase of commercial insurance
from private insurance companies, participation in state-operated insurance
funds or employer self-insurance. In at least three states (Texas, New Jersey
and South Carolina), employers are not required to purchase such insurance, but
uninsured employers are then exposed to significant potential liability as the
result of an employee's work-related injury or death.
Non-Injury Healthcare Services. Non-injury healthcare services include
employment-related physical examinations (including pre-employment screening and
post-hiring annual physical exams), drug and alcohol testing, functional
capacity testing and other related programs designed to meet specific employer
needs. Non-injury healthcare services also include programs to assist employers
in complying with an expanding list of federal and state governmental
requirements, including hearing conservation programs, toxic chemical exposure
surveillance and monitoring programs, and Department of Transportation and
Federal Aviation Administration physical examinations. Federal laws governing
health issues in the workplace, including the Americans with Disabilities Act,
have increased employers' demand for healthcare professionals who have
experience in the delivery of these regulated services.
The Company believes that the cost of work-related injuries is likely
to continue to rise primarily because of (i) broader definitions of injuries and
illnesses covered by workers' compensation laws, (ii) an aging work force, (iii)
the continued requirement that employers pay all of an employee's cost of
medical treatment, without any employee co-payment or deductible, and a
significant portion of lost wages and
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non-medical costs, and (iv) the relatively low utilization to date of
comprehensive cost containment programs in the workers' compensation system. The
Company believes its management techniques and cost containment strategies can
benefit all employers, but in particular, employers in industries that have
relatively high workers' compensation costs and for employers with higher than
average claims experience in their industries.
HEALTHCARE OPERATIONS AND SERVICES
Seven of the eleven occupational healthcare facilities currently
managed by the Company are located in the Dallas/Fort Worth, Texas metropolitan
area. The remaining four clinics are located in Baytown, Texas (a suburb of
Houston); El Paso, Texas; Shreveport, Louisiana; and Little Rock, Arkansas. The
facilities managed by the Company range in size from approximately 1,400 square
feet to 10,000 square feet and have capacity to handle from approximately 40 to
200 patients per day. Each facility is equipped with examination rooms, an
emergency suite, an intake room, an x-ray room, a small laboratory and areas for
reception, drug testing, collection, rehabilitation and administration. The
facilities are generally open nine to eleven hours per day.
Each of these facilities is staffed with at least one licensed
physician under contract to the Physician Group. Licensed physicians are
generally trained and experienced in occupational and industrial medicine or
have emergency or general medicine backgrounds. Each facility generally utilizes
a staff of between five and ten full-time persons (or their part-time
equivalents), including registered nurses, physical therapists and
administrative support personnel.
A majority of the medical and non-medical services are offered on a
walk-in basis, although specialized services are usually scheduled in advance.
Through the Physician Group, urgent care is offered for employees suffering from
work-related injuries, which most commonly involve soft tissue injuries, back
injuries or exposure to hazardous material. Patients with injuries beyond the
scope of the physician's expertise are referred to an appropriate medical
facility.
Fee-for-Services Plan. The following chart lists the services offered
to the Company's clients on a "fee-for-services" basis whereby employers pay the
Physician Group for each medical service rendered to employees as the service is
provided and pay the Company for all non-medical services rendered.
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SERVICES PROVIDED APPLICATION
Prevention............................... Cholesterol testing and
management; RiskScan computerized
health risk analysis; Personalized
health risk analysis; Health
seminars; Stress management; Flu
immunizations; Smoking cessation.
Medical Examinations..................... Examinations in compliance with
both Occupational Safety and
Health Administration and
Department of Transportation
standards; Computerized back
examinations; Pre-employment
examinations; Comprehensive
executive/annual examinations;
Asbestos and other medical
surveillance examinations.
Treatment................................ Physical examinations by
occupational medicine specialists;
Work-related injury treatment;
Physical therapy services; X-rays;
Laboratory facilities; Pharmacy.
Medical Screening and Testing............ Pulmonary function; HIV antibody
screening; Treadmill stress test;
Tuberculosis test; Hepatitis B
screening; Audiometric screening;
Heavy metals screening; Blood
chemistry profile (SMA-24); Chest
X-rays; Vision screening;
Proctoscopic examinations.
Management Services...................... Cost/benefit management reports;
Physician consultation; Safety,
health and accident prevention
services; Case control - loss
management services via
computerized injury tracking;
Regulatory compliance information;
Risk management information;
Medical billing audits; Accident
work status reports; Occupational
medicine supplies; Physician
summary reports to employers and
employees.
Drug Testing............................. Consultation and program
development; Medical review
officer services; Collection
facility in compliance with
National Institute of Drug Abuse
standards; Screening examinations.
The Preferred Employee Plan. A majority of services are offered
pursuant to a "Preferred Employee Plan" or "PEP," a "capitated" plan which
allows businesses to limit the costs they would otherwise pay for certain
services, a managed care approach to occupational medicine. In return for a
prepaid monthly fee for each person employed by a client, ranging from
approximately $8.50 to $21 per person, the Company and the Physician Group
provide an agreed upon package of services. One portion of the capitated fee is
for medical services contracted directly with and arranged by the Physician
Group and the other portion is for non-medical services contracted directly with
and arranged by the Company. Clients pay the same fee for every employee,
regardless of how many services actually are provided to any particular employee
in a given month. All existing PEP agreements are terminable by the client, the
Company or the Physician Group on 30 days' prior written notice.
The PEP is a variation on the approach of using in-house, captive
medical departments to control medical costs. Advantages of the PEP over the
in-house medical department approach are that (i) small companies can have the
same opportunities for cost containment as major corporations have, (ii) the
more
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sophisticated, in-depth physical examinations provided under the PEP to screen
potential or existing employees for health problems and physical fitness aid
earlier discovery of health concerns; and (iii) extensive examinations can
provide a more accurate picture of the potential productivity of existing and
prospective employees and can identify certain significant risks of future
on-the-job injuries and other serious health conditions, thereby assisting in
cost containment. These services are specifically aimed at lowering the cost of
employee benefits, improving employee productivity, decreasing absenteeism and
enhancing employer/employee relations through use of wellness and prevention
programs.
Services provided under the PEP by the Company and/or the Physician
Group include the following:
SERVICES PROVIDED APPLICATION
Comprehensive pre-placement
physical examinations............. RiskScan computerized health risk
analysis with confidential
individual analysis for each
prospective employee and detailed
management reports on the overall
results; A medical and
occupational history for each
prospective employee; Physician's
examination; Audiometric
evaluation; Vision screening;
Pulmonary function testing;
Submaximal stress
electrocardiogram; Computerized
back testing utilizing the
Isotechnology B-200; Chest X-ray;
Complete blood count; Blood
chemistry profile including 24
tests for the assessment of
internal organ function and
coronary risk; Urinalysis.
Comprehensive annual physical
examinations...................... Given in the birth month of the
employee, these are identical to
the pre-placement physical
examinations.
Treatment of all work related
injuries including................ Necessary X-rays; Installation and
removal of sutures and other
physician diagnostic and treatment
services; Tetanus and other
prophylactic vaccinations as
required; Medications (for pain,
infection, etc.); Physical therapy
as necessary.
Management analysis and
reports including................. A cost-benefit analysis of the
program; Projections of
utilization of group health
benefits; Outpatient costs and
associated costs of absenteeism
and low productivity; Mortality
projections; Site analysis and
recommendations for employee
health; Public liability and
customer injury evaluation; Acute
injury management and evaluation;
Management and review of
occupational injuries; Management
and statistical data for
occupational cases; Development of
a health profile for the client
company; Group summary of health
risks with comparisons of the
client to national statistics.
The Company has developed and refined certain testing and evaluation procedures
that are effective in identifying conditions that indicate a significant risk of
on-the-job injuries and serious health concerns, thereby avoiding likely high
cost treatments attributable to preventable conditions. The Company intends to
continue to identify additional prevention strategies and health management
programs which will increase efficiencies without compromising quality of care.
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PHYSICIAN SERVICES, RECRUITMENT AND DUTIES
The Company's operating strategy relies heavily upon the Physician
Group obtaining and retaining skilled physicians that have medical management
experience. Dr. Angle, the President of both the Physician Group and the
Company, has over 13 years experience recruiting and retaining physicians to
staff hospital emergency departments and has operated one of the Company's
facilities since 1987. The Physician Group is responsible for the recruiting of
qualified and experienced physicians who understand and will implement the
Company's cost containment strategy, all of whom perform services for the
Company through the Physician Group, but none of whom are employees of the
Company. Two of the eleven facilities currently managed by the Company were
acquired from Dr. Angle and certain other stockholders of the Company.
In November 1995, the Company entered into the Practice Management
Agreement with the Physician Group, whereby the Company agreed to coordinate,
fund and manage the expansion of the professional medical services of the
Physician Group and the Physician Group agreed to provide medical services at
the facilities managed by the Company. All of the Texas facilities operated by
the Company are included in the Practice Management Agreement. The Physician
Group at all times exercises full control over the medical services rendered at
the facilities, and the Company performs non-medical functions including
marketing, management and administration of the professional medical services of
the Physician Group. The Physician Group does not delegate to the Company any of
the powers, duties and responsibilities vested in the Physician Group by law as
a professional association. The Physician Group authorizes the Company to
negotiate on the Physician Group's behalf with clients and potential clients,
for the purposes of establishing fees for individual and bundled medical
services within guidelines established by the Physician Group. The Practice
Management Agreement provides for mutual indemnification. The Practice
Management Agreement specifically separates medical services by the Physician
Group from non-medical and management services of the Company and employees or
independent contractors of the Physician Group from employees of the Company in
order to comply with the Texas Medical Practice Act.
Under the Practice Management Agreement, the Company is responsible for
organizing start-up operations and providing or securing funds in support of
start-up operations for all facilities. The Physician Group retains a portion of
adjusted gross revenues to cover monthly expenses, including amounts to pay
physicians and their benefits, licenses and certifications. Based upon
calculations from historical data and costs associated with administration and
management of the Physician Group, certain excess adjusted gross revenue is paid
to the Company as compensation for services provided under the Practice
Management Agreement. In the State of Texas, as required by statute, the Company
only retains net ancillary revenues, such as revenues derived from non-medical
services. Additionally, the Company receives management fees computed for each
of the facilities included in the Practice Management Agreement as follows: for
the first $400,000 of annual base facility revenues, each month the greater of
$4,000 or an amount equal to 10% of the base facility revenues and 15% of the
net Physician Group practice revenues accrued during the prior month; for annual
base facility revenues in excess of $400,000, each month the greater of $10,000
or an amount equal to the sum of 20% of base facility revenues and 30% of net
Physician Group practice revenues accrued during the prior month. The Company
also receives as compensation for centralized marketing services an amount equal
to 5% of monthly gross revenues from each facility. All of these fees were
calculated based upon reasonable costs for providing services and upon review of
historical data directly relating to the costs of the Physician Group.
The Practice Management Agreement may be terminated under certain
circumstances including by written agreement of the parties after the one year
anniversary date of the Practice Management Agreement; expiration of 20 years
unless renewed; without notice, by either party if either party becomes
insolvent; the breach or default in performance under the Practice Management
Agreement provided that
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such breach or default continues for a period of 30 days after written notice;
receipt by either party of a final order of any governmental agency or court of
competent jurisdiction concerning the business, affairs or the practice of
either of the parties which requires such termination; or the termination of the
Physician Group practice of medicine in any state in which the Physician Group
is providing medical services under the Practice Management Agreement.
The Company recognizes that its long-term success and viability depends
upon the delivery by physicians of quality medical services that meet or exceed
the quality of care expectations of employees and the expectations of value of
the business community. The Physician Group has implemented procedures designed
to provide cost effective services to employees and keep employers informed
regarding their employee's progress. The Physician Group is cognizant however,
that once an employee enters the workers' compensation system, the relationship
between the healthcare provider and the employee assumes paramount importance,
with employers entitled to only limited information and with providers then
being subject to confidentiality restrictions with respect to privileged
patient/physician information. The Physician Group has implemented a policy that
the attending physician at his or her convenience will telephone the employer
the same day as the employee visit with the results of any examinations and
treatment and provide a report on the employee's physical status. A written
report regarding the visit is sent to the employer no later than the next
business day following the visit. The Physician Group requires that its
contracted physicians be available to speak to both the employer and employee
upon reasonable request.
INSURANCE AND INSURANCE RELATED OPERATIONS
In the fiscal year ended June 30, 1996 (the "1996 Fiscal Year"),
management determined the Company would enter the workers' compensation
insurance market for the purpose of participating in insurance premium revenues
and enhancing the Company's overall profitability by integrating healthcare
management and insurance services. The Company believes that market changes
underway in the occupational healthcare industry encourage workers' compensation
insurers to affiliate with healthcare providers and managers, such as the
Company, in an effort to contain costs and to fully align incentives among
healthcare providers, insurance firms, employers and employees.
EGIG. As the first step to entering into the workers' compensation
insurance market was to implement an arrangement with EGIG, a subsidiary of Old
Republic General Insurance Group, Inc., a company listed on the New York Stock
Exchange with assets of $6.1 billion, surplus of $1.6 billion and an A+ rating
from A.M. Best Company, to develop and offer a fully-guaranteed cost product,
known as Comp2000, that includes the Physician Group's capitated preventive
healthcare services and insurance underwritten by Old Republic General Insurance
Group. EGIG test marketed the Comp2000 product on a trial basis to prospective
clients during the latter part of Fiscal Year 1996, but no sales were made as a
result of the test marketing. Under the Company's arrangement with EGIG with
respect to the Comp2000 product, as originally conceived and test marketed, the
Physician Group would have provided medical services and the Company would have
provided other non-medical services (e.g., ergonomic work site evaluations)
while EGIG would have provided risk management, claims administration and other
administrative services. Each party would have maintained independent control of
all financial books and records, and neither party would have shared in the
revenues attributable to those services provided by the other. Accordingly, the
Company would not have participated in the revenue stream generated by premiums
charged for workers' compensation insurance.
RMAC. The Company viewed the initial arrangement with EGIG as an
interim step to the acquisition and initiation of operations by an insurance
subsidiary, which would allow the Company to participate in the underwriting
risk of workers' compensation insurance and to share in premium revenues.
Effective June 30, 1996, the Company acquired all of the outstanding capital
stock of Montfort Insurance
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Company located in Lubbock, Texas for $687,010 cash. The Company renamed the
acquired subsidiary Risk Management Assurance Corporation ("RMAC"). Prior to the
acquisition, RMAC was a dormant multi-line insurance company domiciled and
licensed in Texas.
RMAC is currently negotiating various affiliations with established
issuing carriers of workers' compensation insurance and is working with EGIG to
redesign the Comp2000 product so that the RMAC can participate in premiums and
risk with EGIG. By relying on companies, including EGIG, experienced in the
workers' compensation insurance market, RMAC may not be required to
independently estimate reserve requirements and, in this respect, will be in
effect relying upon the past claims experience of the issuing carrier.
Guaranteed cost workers' compensation insurance policies may be either (i)
policies whereby the employer purchases an insurance policy written by the
insurer and pays a premium based on the employer's aggregate payroll, and the
insurers (including RMAC, to the extent of its quota share or reinsurance)
assume responsibility for all indemnity and medical costs associated with
injuries and manage the employer's entire workers' compensation program,
including all expenses related to workplace injuries, or (ii) policies with a
higher deductible, under which the employer is responsible for all medical and
indemnity expenses up to a specific dollar amount, while the insurers are
responsible for medical and indemnity expenses over this level. RMAC expects to
become a participant in the workers' compensation risk by reinsuring a layer of
losses corresponding to the medical and indemnity costs of a primary care level
of losses. The policy issuing company will retain losses above the reinsurance
assumption by RMAC.
Certain insurance carriers that write umbrella policies will not
provide coverage to an employer if any portion of the employer's underlying
insurance policy, such as the workers' compensation portion, is issued by an
unrated carrier. Accordingly, the Company will endeavor to affiliate with
insurers carrying ratings which range from very good to superior, as determined
by a nationally-recognized insurance rating organization. Ratings are based on a
comparative analysis of the financial condition and operating performance of
insurance companies. RMAC was not rated prior to its acquisition by the Company
and will not be eligible to obtain a rating until it has five years of operating
experience.
AFFILIATIONS, JOINT VENTURES AND ACQUISITIONS
In addition to establishing new clinics, the Company is expanding
geographically in areas contiguous to existing markets in order to increase its
market penetration and market share within areas in which a patient base is
currently served through affiliations, joint ventures and acquisitions. To the
extent permitted by applicable law, the Company pursues affiliations, joint
ventures and acquisitions with physicians, hospitals and other providers which
have established occupational medicine practices or with patient bases which can
be served in an occupational medical setting.
During the 1996 Fiscal Year, the Company and the Physician Group
acquired the assets, or all outstanding capital stock, of occupational medicine
practices in Lancaster, Texas, a suburb of Dallas, and Baytown, Texas, a suburb
of Houston. Subsequent to the end of the 1996 Fiscal Year, the Company and the
Physician Group acquired all of the outstanding capital stock of an occupational
and family medicine practice in El Paso, Texas and of an occupational medicine
and family medicine practice in Carrollton, Texas and also acquired the assets
of a practice in Fort Worth, Texas. The Company and the Physician Group financed
these acquisitions through the issuance of the Company's Common Stock, options
to purchase Common Stock, payment of cash and/or delivery of secured promissory
notes. Simultaneously with each acquisition, the Company and the Physician Group
entered into an addendum to the Practice Management Agreement to provide that
the Company has the sole right to manage the newly acquired practices for a
minimum of ten years in accordance with the terms and conditions of the existing
Practice Management Agreement. Each of the physicians who previously owned the
acquired practices entered into a standard physician employment agreement with
the Physician Group to perform as a Staff Physician
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for standard compensation rates and into the standard Regional Medical Director
employment agreement to serve as Regional Medical Director of the newly acquired
practice. The Company has implemented its cost containment and other methods of
operation at all of its facilities, including these newly acquired facilities.
In June 1995, the Company and St. Vincent Infirmary Medical Center
("St. Vincent") established a facility to provide occupational medical services
in the Little Rock, Arkansas metropolitan area. Under the agreement with St.
Vincent, the Company owns 50% of the ownership interest of a limited liability
company known as HealthFirst Center, L.L.C. ("HealthFirst") and receives a
monthly minimum management fee based upon a minimum number of hours for
management of the operations of HealthFirst's facility, together with a
specified percentage of gross and net revenues, which relate to the provision of
non-physician services and having no relation to any referral of employers. St.
Vincent owns the remaining 50% interest and is responsible for all costs of
operation of HealthFirst. After repayment of the initial capitalization of
$500,000 which is being provided by St. Vincent, the Company and St. Vincent
will receive equal distributions of any profits generated by the joint venture.
The Company has no obligation to repay any portion of the $500,000 invested by
St. Vincent if the joint venture is unsuccessful. At June 30, 1996, the Company
had outstanding a loan in the amount of $30,000 from St. Vincent to purchase
medical equipment and establish operations of the Little Rock facility prior to
the formation of HealthFirst and had receivables owed from HealthFirst of
$52,000 for management fees and $30,000 for the equipment provided.
In December 1994, the Company entered into a letter of intent with a
software development company to develop and market through a joint venture a
medical practice management information system, including a clinic management
system which would provide an electronic patient clinical record and enhanced
medical quality control functions. The Company was granted a perpetual license
of software developed pursuant to the letter of intent, although the software
development company retained ownership thereof. The Company is currently using
software developed pursuant to the letter of intent, but the parties are not
currently anticipating entering into a joint venture.
MARKETING AND SALES
The Company currently targets employers that employ between 50 and
1,500 workers and either operate in industries with relatively high workers'
compensation costs, such as manufacturing, wholesale, healthcare or hospitality
firms, or have higher than average claims experience for their industries. These
target employers are often in state sponsored assigned risk pools or, in the
State of Texas, may be self-insured. No one customer represents more than 5% of
total revenues.
The Company's officers and sales and marketing personnel are
principally responsible for the marketing. Sales and marketing personnel are
compensated through salaries plus commission based upon revenues generated by
corporate clients. The Company's marketing is currently done on a direct basis
to employers and such efforts are frequently directed toward time periods during
which employers make decisions concerning renewal of existing relationships with
managed care providers, health maintenance organizations or other competitors.
Marketing efforts are continued after a client has retained services.
The Physician Group requires its physicians to engage in follow-up contacts with
an employer on the same day of an employee's visit and requires physicians to
provide routine reports to employers concerning an employee's medical status and
availability for work. The Company also monitors employee satisfaction
concerning the services provided through follow-up audits and questionnaires.
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The Company's arrangement with EGIG for the Comp2000 product is
representative of future marketing strategy for RMAC. In the State of Texas,
EGIG markets its insurance products through in-house insurance representatives
and independent insurance agencies. RMAC will utilize the companion sales
concept, with representatives of EGIG selling the insurance product. RMAC
anticipates that other joint marketing arrangements will be established with the
issuing carriers in order to expand the Company's existing customer base and
thereby increase the number of employees utilizing the Company's services.
COMPETITION
The occupational and industrial healthcare market is highly competitive
and fragmented, with a large number of competitors. The Company competes with
numerous firms, including occupational healthcare firms and networks, national
and regional managed care providers, HMOs and in-house corporate medical
departments. The Company also competes with numerous smaller firms, networks,
hospitals and providers which offer services on a local level. Several large
workers' compensation insurance carriers offer managed care services for their
insurance customers either through the insurance carrier's own personnel or by
outsourcing various services to regional and national providers. The Company
currently views OccuSystems, Inc. and to a lesser extent CRA Managed Care, Inc.
as its principal competition in its existing markets. OccuSystems is the
nation's largest physician practice management company focusing on occupational
healthcare and is active in a number of states, including Texas. CRA Managed
Care, Inc. is a field case management and specialized cost containment firm
which is active in all of the Company's markets.
The Physician Group competes with the same entities as the Company with
respect to recruiting physicians, nurses and physical therapists experienced in
occupational and industrial healthcare. The Physician Group has from time to
time experienced difficulty in recruiting physicians with experience in
occupational and industrial healthcare. The loss of services by the Physician
Group of existing physicians, nurses or therapists, or the inability to attract
similarly qualified individuals, could adversely impact the Company's business.
RMAC will compete with a wide variety of entities, including large
insurance companies, managed healthcare companies, state-sponsored insurance
pools and risk management consultants, and companies in the occupational
healthcare market who may enter the workers' compensation insurance business.
Changes in workers' compensation regulations, or increases in permissible
premium rates, may encourage entry of competitors into markets in which RMAC
will be active, which in turn, may have a material adverse effect on RMAC's
operations. RMAC may also be subject to competition in recruiting personnel with
experience in workers' compensation insurance.
REGULATION
General. The Company's business is conducted within a highly regulated
environment. The Company's activities are regulated primarily at the state
level, so the Company must comply with differing regulatory requirements in each
state in which it does business. The Company believes that its operations are in
material compliance with all applicable regulatory requirements. However, many
aspects of business operations conducted by entities having a relationship such
as that between the Company and the Physician Group have not been the subject of
state or federal court or regulatory agency interpretation. There is no
assurance that any regulatory determinations or court decisions will not
adversely impact the operations of the Company, RMAC or the Physician Group or
require the Company to restructure its operations. Moreover, violations of
federal or state statutes could result in the imposition of substantial civil
and/or criminal penalties on the Company or its officers. And finally, laws and
regulations change
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<PAGE> 12
frequently and any change could negatively or positively affect demand for the
Company's services, could reduce revenues or decrease the Company's ability to
compete effectively.
Workers' Compensation Legislation. Workers' compensation laws establish
an employee's right to compensation and benefits related to work-caused injuries
or disease and impose a wide range of obligations upon employers. Under these
laws, employers are required to assume financial responsibility for medical
costs, a portion of lost wages and related legal costs of work-related disease
and injuries. These laws also prohibit employers from imposing co-payments or
deductibles on employees and, in some states, restrict the employers' rights to
exclusively select healthcare providers. Workers' compensation laws typically
establish the methods and procedures which providers may employ in treatment
programs and the maximum fees charge by providers.
Many states are considering, or have recently enacted, legislation
reforming workers' compensation laws. Such reforms include the ability of
employers to designate health plans such as HMOs and PPOs to cover workers'
compensation claimants and provisions to control medical costs associated with
workers' compensation claims. The federal government and at least one state
currently provide for a "reasonableness" review of medical costs paid or
reimbursed by workers' compensation.
In several states, the number of workers' compensation claims and the
cost per claim have recently deceased, which has caused premium rate reductions
for workers' compensation insurance. The Company believes that these decreases
are due principally to not only legislative reform, but to better management and
control of claim costs by insurance companies and other payors, and improved
risk management by employers. If declines in workers' compensation costs occur
in states in which the Company conducts business and persists over the
long-term, such declines may have an adverse impact on results of operations for
the Company and RMAC.
Corporate Practice of Medicine and Other Laws. Most states have enacted
laws limiting the practice of medicine to licensed individuals or professional
organizations comprised of licensed individuals. Many states also regulate the
relationship between business entities such as the Company and licensed
professionals and professional associations or corporations, such as the
Physician Group, particularly with respect to fee-splitting between a licensed
individual and a non-licensed individual or entity. These laws differ widely
from state to state as do interpretations by courts and regulatory agencies.
Under the Texas Medical Practice Act, only physicians licensed by the Texas
State Board of Medical Examiners may practice medicine in Texas. Texas law
prohibits a person from aiding or abetting, directly or indirectly, the practice
of medicine by any person, partnership, association, or corporation not duly
licensed to practice medicine. Accordingly, the Texas courts have held that a
corporation comprised of non-licensed individuals which employs (or the
practical equivalence of employment such as a contractual relationship) licensed
physicians to treat patients and which receives a fee is unlawfully engaging in
the practice of medicine. For this reason, the Company and Physician Group
entered into the Practice Management Agreement, under which the Company only
provides non-medical services. The Company has no right to any portion of the
Physician Group's profits derived from medical practice, no right to trade and
commercialize on any physician's license, and no right to select medical staff
in the Physician Group. The Company can not arrange for the procurement of
capitated physician services and can not treat or diagnose any medical
condition.
Anti-Referral and Fraud and Abuse Laws. Both federal and state laws
have been enacted covering the payment of remuneration to induce or in return
for (i) referral of Medicare or state health program patients, (ii) patient care
opportunities, or (iii) the purchase, lease or order of items or services
covered by Medicare or state health programs. The State of Texas has enacted
such a statute which applies to all payors, not just federal or state payors,
and which, to the Company's knowledge, has not yet been interpreted by any case
law. Since the Physician Group receives no state or federal funds, it is not
subject
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<PAGE> 13
to the federal laws; however, Texas state law nevertheless applies. Although
certain of the services provided by the Physician Group affiliated with the
Company may be subject to the Texas statute, the Company believes its
arrangements with the Physician Group in Texas and the employment agreement with
Dr. Angle will comply with the "personal services and management contract"
and/or employment agreement safe harbors promulgated under applicable federal
law. [More specifically, the Practice Management Agreement is in writing, signed
by the parties, and specifies the services to be provided by the Company. In
addition, the term of the Practice Management Agreement is for at least one year
and the aggregate compensation paid to the Company over the term of the Practice
Management Agreement is set in advance, is consistent with fair market value in
arm's-length transactions (as determined in the judgment of the disinterested
directors of the Company voting on the terms of the Practice Management
Agreement) and is not determined in a manner that takes into account the volume
or value of any referrals or business otherwise generated between the parties
for which payment may be made in whole or in part under Medicare or a state
health care program or any other circumstances. The Company did not secure an
independent determination of the fairness and reasonableness of the terms of the
Practice Management Agreement. Finally, the services performed under the
Practice Management Agreement do not involve the counseling or promotion of a
business arrangement or other activity that violates any state or federal law.
Dr. Angle's employment contract is a legitimate bona fide employment
relationship wherein he provides services for a salary.] In January 1995,
certain anti-referral provisions became effective which prohibit physicians with
an ownership or financial interest (as defined) in an entity from engaging in
certain business with that entity or referring a patient to that entity for the
provision of certain designated medical services. Several states are considering
similar legislation. The State of Texas has adopted an anti-referral law which
provides that, if the Company refers a patient to an entity in which the
physicians affiliated with the Physician Group have an interest, the Company
could be subject to penalties associated with a Class A misdemeanor which may
include a fine of up to $4,000 and/or imprisonment of up to one year for each
violation. The Company does not make referrals that management considers would
be subject to this prohibition.
Insurance Industry Laws. RMAC will be subject to state insurance laws
and regulations in each state in which it becomes licensed. Currently, it is
subject to the Texas insurance laws and regulations, which are administered by
the Texas Department of Insurance and the Texas Workers' Compensation
Commission. All State regulatory agencies have broad administrative power with
respect to insurance operations, including the establishment of premium rates,
benefit levels, preparation of policy forms, dividend payments, capital adequacy
and the amount and type of investments. In Texas, the State Board of Insurance
("Board") must approve all rates charged by RMAC and regulates RMAC's insurance
plans and policy forms. As a reinsurer, however, many of the Board's regulations
do not apply to RMAC. Further, Texas law requires a workers' compensation
insurer to maintain minimum capital reserves and to provide year end reports of
the calculation of the minimum capital reserves for review by the Board. Under
Texas law, the maximum amount of dividends that can be paid by RMAC to the
Company without authorization by the Commissioner of Insurance of Texas in any
year is equal to the greater of (i) 10% of RMAC's statutory surplus as of the
31st day of December next preceding or (ii) the statutory net income from
operations of RMAC for the 12-month period ending the 31st day of December next
preceding, but shall not include pro-rata distributions of any class of RMAC's
own securities.
Healthcare Reform. Although no national healthcare reform proposal has
been enacted to date, increasing healthcare costs have precipitated various
proposals for reform of the healthcare industry. One such proposal involves
combining traditional employer-sponsored health plans with workers' compensation
coverage to provide a single insurance plan for work related and non-work
related healthcare. While the Company's development of the joint marketing
arrangement with EGIG and the acquisition of RMAC were undertaken to address the
changing occupational and industrial healthcare market, there is no assurance
the Company will be successful in developing products and services which will
address market requirements or that healthcare reform will not adversely affect
the Company's operations.
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<PAGE> 14
Environmental. The Company is subject to various federal, state and
local statutes and ordinances regarding the disposal of infectious waste.
Violations of applicable infectious waste laws may result in the imposition of
penalties and fines or the closure of a facility. As with other regulatory
issues, the Company believes it is in compliance with applicable law.
EMPLOYEES
The Company had 60 full-time employees as of June 30, 1996, all of whom
provided non-physician services. Of the Company's employees, approximately 19
are administrative staff, 22 are paramedical staff, six are sales and marketing
personnel and 13 are corporate personnel. Additionally, as of June 30, 1996, the
Company was contracting through the Physician Group for the services of nine
physicians. Due to its recent practice acquisitions, the Company currently has
118 full-time employees, of whom approximately 45 are administrative staff, 49
are paramedical staff, five are sales and marketing personnel and 13 are
corporate personnel. Additionally, the Company currently contracts through the
Physician Group for the services of 21 physicians. None of the Company's
employees are subject to collective bargaining agreements. The Company believes
its employee relations are good.
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<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently manages a facility in Little Rock, Arkansas,
which is owned by HealthFirst, a joint venture with St. Vincent. The space for
the facility is provided by St. Vincent and the Company currently has no lease
obligation. During the 1996 Fiscal Year, the Company moved its executive offices
to Suite 1800, 5215 North O'Connor, Irving, Texas 75039. The following tabulates
certain information with respect to the facilities currently leased by the
Company.
<TABLE>
<CAPTION>
Current
Square Monthly Lease
Location Footage Rental Lessor Expiration
- ---------------------------- ------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Irving (Executive Offices) 3,172 $ 4,126 Dominion Oil & Gas 02/28/99
5215 North O'Connor, Ste. 1800 Corporation (1)
Irving, Texas 75039
9500 Forest Lane, Ste. 110 5,701 $ 5,345 Dallas Forest Park 12/31/00
Dallas, Texas 75243 Corporation
8585 Stemmons Freeway 6,107 $ 7,379 Twin Towers Investment
Dallas, Texas 75247 Partnership 7/22/96
1200 East Copeland, Ste. 100 7,352 $ 7,505 AGF Stadium Place, Ltd. 7/30/00
Arlington, Texas 76011
1666 E. Bert Kouns Street, Ste. 100 5,137 $ 3,847 Sale Commercial (2)
Shreveport, Louisiana Properties
4308 Garth Road 4,784 $ 2,870 San Jacinto Methodist (2)
Baytown (Houston), Texas 77521 Hospital (1)
2700 W. Pleasant Run Road 1,385 $ 1,847 Healthtrust Inc. 3/31/01
Lancaster (Dallas), Texas 75146
1865 Lee Trevino(3) 4,100 $ 5,466 Francisco J. Guerra, M.D./ (3)
El Paso, Texas 79936 Henry H. Calderoni. M.D.
4775 S. Felix Street 4,385 $ 4,020 HCT Management & 3/31/01
Fort Worth, Texas 76115 Ventures Company
301 W. Central Avenue 2,200 $ 2,000 John D. Willbanks, et al 3/31/97
Fort Worth, Texas 76106
3604 Beltline Road 10,000 $ 8,000 Quad Corners Investments, 9/30/06
Dallas, Texas 75234 Ltd., a Texas Limited
Partnership
</TABLE>
- ------------------
(1) Subleased from the named party.
(2) Currently leased or subleased on a month-to-month basis.
(3) The physicians from whom this practice was acquired intend to enlarge the
facilities at their own expense and the Company has committed to lease the
additional facilities at an initial rate calculated to provide an internal
rate of return on investment of 15% to the Physicians, but not less than
$16.00 per square foot. The Company will have final approval of the design
and scope of the improvements, the contractor retained and the cost of the
improvements. This space is being leased on a month-to-month basis pending
execution of a lease agreement and expansion of the space.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its
directors and officers in their capacities as such) is party or to which
property of the Company is subject is pending and no such material proceeding is
known by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Form 10-KSB to a vote of security holders through the
solicitation of proxies or otherwise.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on The Nasdaq SmallCap
Market under the trading symbols CDOC and on the Boston Stock Exchange under the
symbol CDR since the Company's initial public offering in February, 1996. The
following table sets forth the range of high and low closing bid prices, as
reported by The Nasdaq Stock Market, from February 7, 1996 through June 30,
1996. The prices set forth below reflect interdealer quotations, without retail
markups, markdowns or commissions, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------ --------
FISCAL YEAR 1996 HIGH LOW HIGH LOW
---------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
Third Quarter (commencing 2/7/96) $10.25 $8.50 $3.50 $2.25
Fourth Quarter 10.87 9.37 4.25 3.00
</TABLE>
On September 26, 1996, the closing bid price of the Common Stock was
$8.87 and the number of record holders of the Company's Common Stock was
approximately 75.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. No dividends on the Common
Stock have been paid by the Company, nor does the Company anticipate that
dividends will be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Financial Statements and notes thereto.
OVERVIEW
The Company derives its revenues primarily from the management of
physician practices engaged in the diagnosis, treatment and management of
work-related injuries and illnesses and from non-injury related services such as
employment-related physical examinations, drug and alcohol testing, functional
capacity testing and other related programs. During the 1996 Fiscal Year, the
Company derived 33% of its revenues from management of practices which were
providing services for work-related injuries and illnesses. The remaining 67% of
the Company's revenues were derived from management of practices which were
providing non-injury related medical services. The Company's consolidated
results of operations reflect the revenues generated by the Physician Group and
the costs associated with the delivery of the Company's management services,
including physician fees, benefits, malpractice insurance premiums and other
related expenses. See "Item 7. Financial Statements, Note 8."
The Company's concept and business strategy combine the management of
quality healthcare by the Physician Group in an efficient and cost-effective
manner with the Company's preventive healthcare program. The Company now
operates eleven occupational medicine facilities servicing approximately 4,000
employers. The Physician Group currently acts as the primary caregiver and the
Company serves as the gatekeeper for the majority of claims experienced by its
employer clients. The Company has entered into an arrangement with EGIG and is
revising a plan to market a fully guaranteed cost workers'
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<PAGE> 18
compensation insurance policy that includes the Physician Group's capitated
preventive healthcare services and insurance offered by EGIG's parent, Old
Republic General Insurance Group, Inc. and RMAC. The Company acquired RMAC,
effective June 30, 1996, and intends to enter the workers' compensation
insurance market by participation in insurance policies with other workers'
compensation insurers, including EGIG, that will serve as the issuing carriers.
The Physician Group will provide medical services, the Company will provide
management of the practices and facilities, while RMAC and/or the issuing
carrier will provide risk management, claims administration and other
insurance-related services.
RESULTS OF OPERATIONS
In February and May of 1996, the Company entered into agreements to
purchase a practice in Lancaster, Texas and one in Baytown (Houston), Texas,
respectively. In June of 1996, the Company acquired an insurance subsidiary now
known as RMAC. In August of 1996, the Company acquired a practice in El Paso,
Texas. The following table sets forth certain consolidated financial data as a
percentage of total revenues for each of the three years ended June 30, 1994,
1995 and 1996. The table also sets forth proforma consolidated financial
information as a percentage of proforma revenues assuming the acquisitions of
the Baytown and El Paso practices and the acquisition of RMAC had been completed
on July 1, 1994. The operations of Lancaster are not included in the pro forma
statement of operations as its effect would have been immaterial.
<TABLE>
<CAPTION>
PROFORMA
PERCENTAGE OF REVENUES PERCENTAGE OF REVENUES
FOR THE YEARS FOR THE YEARS
ENDED JUNE 30, ENDED JUNE 30,
-----------------------------------------------------------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues .................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services provided ... 38.3 35.4 34.2 35.4 32.2
General and administrative .. 98.3 65.8 60.5 73.1 53.1
Marketing expenses .......... 2.4 1.7 2.3 1.1 1.3
Development/acquisition costs -- -- 4.8 -- 2.4
Total costs and expenses .. 139.0 102.9 101.8 109.6 89.0
----- ----- ----- ----- -----
Income (loss) from operations (39.0) (2.9) (1.8) (9.6) 11.0
Other income (expense)
Interest income ........... -- -- 3.3 2.42.9
Interest expense .......... (2.9) (3.5) (1.9) (4.7) (1.2)
----- ----- ----- ----- -----
Net income (loss) pre-tax ... (41.9)% (6.4)% (.4) (11.9) 12.7
===== ===== ===== ===== =====
Income tax benefit (expense) --- --- 2.4 -- (4.3)
Net income (loss) ........... (41.9)% (6.4)% 2.0% (11.9)% 8.4%
===== ===== ===== ===== =====
</TABLE>
Comparison of Fiscal Years Ended June 30, 1995 and 1996.
Revenues. Revenues increased $1,188,000 or 39.5%, from $3,006,000 in
the fiscal year ended June 30, 1995 (the "1995 Fiscal Year") to $4,194,000 in
the 1996 Fiscal Year. This growth is attributable mainly to two major factors:
(i) improved marketing efforts resulting in new clients at the established
clinics, which together with fees from the then managed clinics, increased
revenues approximately $816,000, and (ii) management of the clinic in Lancaster,
Texas for all of the 1996 Fiscal Year, and the purchase of this facility in
February 1996, and the commencement of management and ownership of a clinic in
Baytown (Houston), Texas in May 1996. These two new clinics collectively
generated revenues of $372,000 from the date of acquisition to the end of the
1996 Fiscal Year. Revenues increased 118.2%
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<PAGE> 19
for the Garland facility, 83.1% for the Arlington facility, 2.4% for the
Shreveport facility and 4.6% for the Dallas facility from the 1995 Fiscal Year
to the 1996 Fiscal Year. The Company opened a clinic in Ft. Worth in April, 1996
and revenues from that clinic were nominal as a start-up clinic. The unaudited
proforma consolidated statement of operations, assuming the acquisitions of the
Baytown and El Paso practices and the acquisition of RMAC had been completed on
July 1, 1994, indicate that revenues for the 1995 Fiscal Year would have been
$6,355,000 and $8,479,000 for the 1996 Fiscal Year, or over two times the
revenues of the Company as actually constituted in such years.
Cost of Services. Cost of services provided increased 34.6% from
$1,065,000 in the 1995 Fiscal Year to $1,433,000 in the 1996 Fiscal Year. Cost
of services provided as a percentage of revenues decreased slightly from 35.4%
in the 1995 Fiscal Year to 34.2% in the 1996 Fiscal Year. The cost of services'
increase in actual dollars was primarily due to increased costs of supplies and
cost of therapy services, which were provided during all of the 1996 Fiscal Year
and only a part of the 1995 Fiscal Year. The Company believes that cost of
services provided as a percentage of revenues decreased primarily due to
operating efficiencies and the allocation of service cost over a larger revenue
base. The unaudited proforma consolidated statement of operations described
above show that cost of services provided would have been $2,249,000 for the
1995 Fiscal Year and $2,732,000 for the 1996 Fiscal Year, and the cost of such
services as a percentage of revenues would have been 35.4% and 32.2%,
respectively, if the Baytown and El Paso practices and RMAC had been acquired by
July 1, 1994.
General and Administrative Expense. General and administrative expense
increased 28.3% from $1,978,000 in the 1995 Fiscal Year to $2,537,000 in the
1996 Fiscal Year. The general and administrative expenses as a percentage of
revenues decreased 5.3%, from 65.8% of revenues in the 1995 Fiscal Year to 60.5%
of revenues in the 1996 Fiscal Year. This decrease reflects increased absorption
of fixed costs over a larger revenue base. The unaudited proforma consolidated
statement of operations referred to above indicate that general and
administrative expenses would have been $4,644,000 for the 1995 Fiscal Year and
$4,503,000 for the 1996 Fiscal Year, or 73.1% and 53.1% of proforma revenues in
such years, respectively. The decrease in general and administrative expense in
absolute amount was due to an approximate $600,000 increase in claims payable
reserves and expense incurred in the 1995 Fiscal Year, and as to which there was
no significant amount incurred in the 1996 Fiscal Year.
Marketing. Marketing expenses (some of which are incurred with the
express consent of the Physician Group pursuant to the Practice Management
Agreement) increased from $52,000 in the 1995 Fiscal Year to $95,000 in the 1996
Fiscal Year, and increased as a percentage of revenues from 1.7% to 2.3%. The
rise in marketing expense is attributed to the Company's expansion into new
markets and is expected to continue to rise in future periods as the Company
expands in both its existing and new markets. The unaudited proforma
consolidated statement of operations indicate that marketing expenses, assuming
the acquisitions of the Baytown and El Paso practices and RMAC had been
completed on July 1, 1994, would have been $71,000 for the 1995 Fiscal Year and
$108,000 for the 1996 Fiscal Year, just slightly higher than actual marketing
expenses incurred by the Company and significantly less as a percentage of
revenues, as the acquired entities were not aggressively marketing their
services.
Development and Acquisition Costs. The Company had no development and
acquisition costs in the 1995 Fiscal Year, but such costs were $202,000 in the
1996 Fiscal Year, or 4.8% of revenues. The Company's planned expansion
activities caused the Company to incur expected costs in three areas: (i)
pursuing and negotiating affiliations or acquisitions with physicians who have
established occupational medicine practices or patient bases which can be served
in an occupational medical setting; (ii) negotiating the acquisition of, and
acquiring, RMAC on June 30, 1996; and (iii) start-up costs for the clinic
established in April 1996 in Fort Worth, Texas.
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<PAGE> 20
Interest Expense and Interest Income. Interest expense decreased 21.0%
from $105,000 in the 1995 Fiscal Year to $83,000 in the 1996 Fiscal Year. This
decrease is partially attributable to certain equipment leases being paid and
retired in accordance with their terms during the 1996 Fiscal Year and an
overall reduction in interest rates by paying off a number of equipment leases
(which carried interest rates ranging from 11% to 20%) from the proceeds of a
bank loan bearing interest at 6.75%. As a percentage of revenues, interest
expense was 3.5% in the 1995 Fiscal Year and 1.9% in the 1996 Fiscal Year. The
unaudited proforma consolidated statement of operations indicate that interest
expense would have been $299,000 for the 1995 Fiscal Year and $99,000 for the
1996 Fiscal Year. The increase in proforma interest expense as compared to
actual interest expense reflects the interest payable in connection with notes
issued as partial consideration for the acquisitions of the Baytown and El Paso
practices. Proforma interest expense assumes an acquisition date of July 1,
1994, with the notes paid as of July 1995. The Company had no interest income in
the 1995 Fiscal Year but had $139,000 of interest income in the 1996 Fiscal
Year. This additional source of revenue is primarily attributable to investment
of proceeds of the Company's initial public offering in interest-bearing
obligations. As a percentage of revenues, interest income was 3.3% in the 1996
Fiscal Year. The unaudited proforma consolidated statement of operations
indicate that interest income would have been $154,000 in the 1995 Fiscal Year
and $241,000 for the 1996 Fiscal Year.
Net Income or Loss. As a result of the factors described above, in
particular, the combination of growth in revenues and containment of costs, the
Company had net income after tax benefits of $83,000 in the 1996 Fiscal Year as
compared to a loss of $194,000 in the 1995 Fiscal Year, an increase of $277,000.
At June 30, 1996, the Company had approximately $1.149 million of net operating
loss carryforwards (for income tax reporting purposes) which expire in the year
2008 through 2010. However, the use of net operating loss carryforward may be
limited or reduced due to a change in ownership as a result of February 1996
public offering, and, accordingly, the Company may be able to utilize only a
portion of its net operating loss carryforwards. The impairment of the tax
benefit as a result of the net operating loss carryforwards was reduced from
$424,000 to $324,000 in the 1996 Fiscal Year due to the Baytown acquisition and
the historical profitability of such practice, resulting in a $100,000 deferred
tax benefit on the income statement. See "Note 9 to Consolidated Financial
Statements." The proforma consolidated statement of operations indicates that
the Company would have had a net loss of $755,000 in the 1995 Fiscal Year and
net income of $710,000 in the 1996 Fiscal Year had the acquisitions of the
Baytown and El Paso practices and RMAC had been completed on July 1, 1994.
Comparison of Fiscal Years Ended June 30, 1994 and 1995.
Revenues. Revenues increased 45.1% from $2,072,000 in the year ended
June 30, 1994 (the "1994 Fiscal Year") to $3,006,000 in the 1995 Fiscal Year.
This growth is attributable to the further development of the facilities managed
by the Company and the Company's ability to capture additional market share.
Revenues increased 16% for the Shreveport facility, 36% for the Dallas facility,
1,125% for the Garland facility and 210% for the Arlington facility from the
1994 Fiscal Year to the 1995 Fiscal Year. The Garland and Arlington facilities
opened in mid-1994, which make comparisons to the 1995 Fiscal Year less
meaningful. The marketing strategy that has been implemented by the Company
provides for marketing to regional as well as local clients.
Cost of Services. Cost of services provided increased 34% from $794,000
in the 1994 Fiscal Year to $1,065,000 in the 1995 Fiscal Year. Cost of services
provided as a percentage of revenues decreased 2.9% from 38.3% in the 1994
Fiscal Year to 35.4% in the 1995 Fiscal Year. The cost of services' increase is
primarily due to variable costs and facility expenses reflected for an entire
year in the 1995 Fiscal Year which were not in operation for the entire 1994
Fiscal Year. Therapy services in 1995 were
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<PAGE> 21
$75,000, and $0 in 1994. The cost of services as a percentage of revenues
decreased in the 1995 Fiscal Year as a result of management's efforts at cost
control and increased utilization of existing facilities.
General and Administrative Expense. General and administrative expense
decreased 2.8% from $2,036,000 in the 1994 Fiscal Year to $1,978,000 in the 1995
Fiscal Year. The general and administrative expenses as a percentage of revenues
decreased 32.5%, from 98.3% of revenues in the 1994 Fiscal Year to 65.8% of
revenues in the 1995 Fiscal Year. This decrease is the result of the Company's
management of fixed and variable costs.
Marketing. Marketing expenses (some of which are incurred with the
express consent of the Physician Group pursuant to the Practice Management
Agreement) increased slightly from $50,000 in the 1994 Fiscal Year to $52,000 in
the 1995 Fiscal Year, but declined as a percentage of revenues from 2.4% to
1.7%.
Interest Expense. Interest expense increased 75% from $60,000 in the
1994 Fiscal Year to $105,000 in the 1995 Fiscal Year. This increase is
attributable to additional capital leases entered into by the Company. These
capital leases were entered into in mid-1994 and relate to medical and office
equipment associated with the establishment of new facilities. As a percentage
of revenues, interest expense was 2.9% in the 1994 Fiscal Year and 3.5% in the
1995 Fiscal Year.
Net Loss. As a result of the factors described above, the Company's net
loss of $868,000 in the 1994 Fiscal Year decreased to a net loss of $194,000 in
the 1995 Fiscal Year. At June 30, 1995, the Company had approximately $1.138
million of net operating loss carryforwards for income tax reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
In November 1995, the Company raised $500,000 of gross proceeds
($397,500 in net proceeds) by issuing a total of 400,000 shares of Series A
Convertible Preferred Stock. Each share of Preferred Stock automatically
converted into one share of the Company's Common Stock on the completion of the
Company's initial public offering. Proceeds of the private offering were used to
reduce accounts payable (including taxes remaining overdue, penalties and
interest as described above), pay expenses associated with the offering and to
fund working capital.
In February 1996, the Company completed its initial public offering of
1,840,000 units, each unit consisting of one share of Common Stock and one
warrant to purchase one share of Common Stock. The Company realized net proceeds
from the public offering of approximately $7.5 million after deducting stock
offering costs of approximately $2.1 million.
The acquisition of RMAC contributed assets including cash of $1.1
million and short-term investments of $999,000, consisting of $949,000 in U.S.
treasury bills and $50,000 in a certificate of deposit. Those assets are
partially offset by RMAC claims of $1.743 million estimated to be payable over
the course of several years.
The Company has, in the past, utilized short term financing. In January
1995, the Company entered into a promissory note for a line of credit in the
principal amount of $50,000 with Regions Bank of Louisiana. The $50,000 line of
credit accrued interest at the bank prime rate and required quarterly payments
with unpaid interest and principal due on demand. The note was collateralized by
all of the equipment of Andicare, an affiliate of the Company. This line of
credit was used to fund working capital requirements. The balance outstanding
under the line of credit was paid in full prior to June 30, 1996.
-21-
<PAGE> 22
In June 1995, the Company and St. Vincent established a facility, now
owned by HealthFirst, to provide occupational medical services in the Little
Rock, Arkansas metropolitan area. Under the joint venture agreement, the Company
holds 50% of the ownership interest of HealthFirst, a limited liability company,
and will manage the operations of HealthFirst, and St. Vincent owns the
remaining 50% interest. After repayment of the initial capitalization of
$500,000 provided by St. Vincent, the Company and St. Vincent will receive equal
distributions of any profits generated by the joint venture. The Company has no
obligation to repay any portion of the $500,000 invested by St. Vincent if the
joint venture is unsuccessful. The Company borrowed $30,000 from St. Vincent to
purchase medical equipment and establish operations of the Little Rock facility
prior to the formation of HealthFirst and is owed $30,000 by HealthFirst for
such equipment.
Subsequent to September, 1995, the Company borrowed $53,000 from
Regions Bank of Louisiana for a six-month term with principal and interest
payable at maturity. The $53,000 loan accrued interest at the Regions Bank of
Louisiana prime rate, was secured by certificates of deposit pledged by all of
the directors of the Company and the personal guarantee of Dr. Angle, and was
repaid in November 1995 from the proceeds of a private placement. Proceeds of
this loan were used to pay overdue withholding taxes the payment of which had
been deferred because of cash flow difficulties in the last nine months of the
1995 Fiscal Year. Management attributed the cash flow difficulties to the
start-up of operations in the Garland and Arlington facilities in mid-1994,
which facilities were then being supervised by two former directors of the
Company. Based on the operating history of these facilities since that time,
management believes that the results of operations for these two facilities did
not meet expectations due to the failure of the Company to achieve its marketing
plan, which caused revenues to fall below expectations and which required the
Company to fund operating expenses from working capital. In the 1995 Fiscal
Year, the Company changed administration and management for these two facilities
and implemented a new marketing plan which resulted in significant revenue
increases in these facilities.
As of June 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $5.636 million (derived primarily from
proceeds of the public offering and the acquisition of RMAC), short term
investments of $1.250 million and accounts receivable of $1.097 million, with
all currents assets totalling $8.780 million. The Company had net working
capital of $4.388 million at June 30, 1996. The Company also had investments of
$1.630 million in "other assets" consisting of U.S. treasury notes maturing in
excess of one year from June 30, 1996 and therefor classified as long-term
assets. These U.S. treasury notes could be sold and converted to cash at any
time, and would effectively increase working capital to $6.1 million.
The Company's operating activities provided cash of $18,000 during the
1995 Fiscal Year and used cash of $947,000 during the 1996 Fiscal Year. The
principal components in cash used or provided by operating activities included
depreciation and amortization ($129,000 and $164,000 in the 1995 Fiscal Year and
1996 Fiscal Year, respectively), deferred taxes of $100,000 in the 1996 Fiscal
Year, accounts receivable (an increase of $121,000 in the 1995 Fiscal Year and
$385,000 in the 1996 Fiscal Year), accounts payable and accrued expenses
($197,000 increase in the 1995 Fiscal Year and $501,000 decrease in the 1996
Fiscal Year), prepaid expenses ($10,000 in the 1995 Fiscal Year and $78,000 in
the 1996 Fiscal Year) and other assets ($2,000 in the 1995 Fiscal Year and
$111,000 in the 1996 Fiscal Year). The changes in accounts receivable, accounts
payable and accrued expenses in the 1995 Fiscal Year and the 1996 Fiscal Year
correspond, to some degree, with the increase in revenues from the 1995 Fiscal
Year to the 1996 Fiscal Year. Nonetheless, in the 1995 Fiscal Year, the Company
experienced the cash flow difficulties discussed above. The Company's cash flow
difficulties were partially responsible for the increase in accrued expenses and
accounts payable in the 1995 Fiscal Year and the first two quarters of the 1996
Fiscal Year, and also contributed to the Company's deferral of its withholding
tax obligation.
-22-
<PAGE> 23
The majority of such tax was paid by November 1995 and the balance was paid in
February 1996 from the proceeds of the Series A Convertible Preferred Stock
offering.
Cash provided from financing activities totalled $8.407 million in the
1996 Fiscal Year, which was accounted for principally by cash received in the
private placement and the public offering. Cash used in financing activities in
the 1996 Fiscal Year were principally attributed to payments on equipment leases
totalling $371,000 and payment on a note payable of $33,000, offset by proceeds
from a note payable of $506,000. Cash used in financing activities in the 1995
Fiscal Year was primarily attributable to payments on equipment leases totalling
$84,000, countered by proceeds from a note payable of $48,000.
Cash used in investing activities totalled $1.823 million in the 1996
Fiscal Year, which was accounted for principally by cash acquired, predominantly
from the acquisition of RMAC, of $1.139 million, offset by purchases of property
and equipment of $483,000, purchase of investments of $1.881 million, increase
in restricted cash of $500,000 as collateral for a secured bank loan and
purchase of intangibles of $97,000.
The Company currently has no commitments for capital expenditures,
although the Company anticipates that its working capital needs and capital
expenditures will increase as the Company continues its expansion. The expense
of opening of new facilities, which may include the leasing or purchase of
capital equipment including office, computer and medical equipment, can be
substantial. The Company estimates that each of the facilities managed by it
requires a minimum of $80,000 of medical equipment. To the extent capital
equipment can be leased at a reasonable cost, the Company anticipates leasing
such capital equipment in order to conserve working capital. Conversely, if the
interest expense associated with the leasing of capital equipment is
unacceptable to the Company, the Company may purchase such equipment from the
funds allocated to the opening of new facilities. The Company may also acquire
equipment in acquisitions of practices. The Company obtained a $491,000 bank
loan from BankOne in May, 1996 and used the proceeds to pay the outstanding
balance of certain then existing capital lease obligations which carried
interest rates ranging from 10.83% to 20% per annum, resulting in future minimum
lease payments for the remaining terms of the leases being reduced from $504,000
to $132,000. The loan accrues interest at 6.75%, payable monthly, matures in
November, 1996, and is collateralized by a $500,000 certificate of deposit.
The Company allocated $4.0 million of the proceeds of the public
offering to acquisition and capitalization of RMAC and additional medical
practices to manage. During the 1996 Fiscal Year, the Company and the Physician
Group acquired a practice in Lancaster for 51,846 shares of Common Stock and
acquired a practice in Baytown for 33,334 shares of Common Stock, $300,000 cash,
a note for $750,000 and an obligation to issue additional shares of Common Stock
in February 1997 valued at $350,000 at the time of issuance. The Company also
acquired RMAC for $687,000 cash. All of the cash used for these acquisitions was
paid subsequent to the end of the 1996 Fiscal Year. Since the end of the 1996
Fiscal Year, the Company and the Physician Group have acquired a practice in El
Paso, Texas for 226,752 shares of Common Stock, $700,000 cash and promissory
notes in the principal amount of $1.9 million; a practice in Fort Worth for
48,047 shares of Common Stock, $300,000 cash and a promissory note in the
principal amount of $200,000; and another practice in Carrollton (a suburb of
Dallas) for 63,380 Shares, an option to be granted each year for so long as the
selling physician is employed by the Physician Group to purchase that number of
shares of Common Stock of the Company which has a market value of $100,000, cash
of $843,750, and a promissory note in the principal amount of $843,750. The
Company has agreed to register certain of the shares of Common Stock issued in
connection with these acquisitions and, in two instances, if such registration
is not effected by the end of February, 1997, the physicians have the right to
sell the Shares back to the Company for the greater of a specified amount or the
market value of the shares.
-23-
<PAGE> 24
POSSIBLE NON-CASH FUTURE CHARGE
As a condition to the public offering, the representative of the
several underwriters required the Company's stockholders to deposit an aggregate
of 150,000 shares of Common Stock of the Company in an escrow account. The
Common Stock deposited in the escrow account will be subject to release to such
stockholders only in the event the Company's earnings per share for the calendar
year ending December 31, 1996 are equal to or exceed $.25 per share. The
earnings per share calculation will be based on fully diluted earnings per
share, but excluding extraordinary items and excluding any compensation expense
charged to the Company as a result of the release of the escrowed shares. In the
event the Company attains the pre-determined earnings target, the market value
of the escrowed shares held by officers, employees and consultants at the time
the escrowed shares are released will be deemed to be additional compensation
expense to the Company. Accordingly, assuming the earnings target is met (of
which there is no assurance), the Company will recognize what could be a
significant charge to income, and which may reduce or eliminate earnings, if
any. The amount of compensation expense recognized by the Company will not
affect in any way the Company's total stockholders' equity or working capital.
SEASONALITY
The Company's business exhibits some seasonality. From November through
January, factors such as plant closings, vacations and holidays result in fewer
occupational injuries and illnesses. In addition, employers generally hire fewer
employees during the last three months of the year, thereby reducing the number
of pre-hiring physical examinations and drug and alcohol tests during this
period. Patient visits also decline in summer months due to plant closings,
vacations and fewer illnesses related to adverse weather. Accordingly, results
of operations during the Company's first and second fiscal quarters of each year
will tend to be somewhat lower than the remaining quarters of the fiscal year.
The Company anticipates that this seasonality will continue for the foreseeable
future.
INFLATION
When faced with increases in operating costs due to inflation, the
Company has implemented cost control measures intended to contain or reduce its
expenses. However, the Company cannot predict its ability to control future cost
increases or to increase its charges for certain management services covered by
state and federal workers' compensation laws.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
and are subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future operations,
including plans and objectives relating to (i) the operations of RMAC, (ii) the
continued expansion of the Company's operations through joint ventures and
acquisitions, (iii) success of existing and new marketing initiatives undertaken
by the Company, (iv) the retention of physicians, through the Physician Group,
and the Company's success in generating revenue increases through the retention
of such physicians and an increase in their practices, (v) the Company's success
in concluding acquisitions at prices which permit the Company to achieve
reasonable rates of return on such acquisitions, (vi) the Company's success in
expanding service to regional and national customers which can be serviced
through existing facilities and facilities the Company may be successful in
acquiring, and (vii) success in controlling the cost of services provided and
general administrative expenses as a percentage of revenues. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. These
-24-
<PAGE> 25
forward-looking statements were based on assumptions that the Company would
continue to grow and on a timely basis, that competitive conditions within the
industry would not change materially or adversely, that demand for the Company's
services would remain strong, that there would be no material adverse change in
the Company's operations or business, and that changes in laws and regulations
or court decisions will not adversely or significantly alter the operations of
the Company. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive, regulatory and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate. In light of the significant uncertainties
inherent in the forward- looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
-25-
<PAGE> 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
-26-
<PAGE> 27
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company will file a definitive Proxy Statement pursuant to
Regulation 14A for its annual meeting of shareholders. The information called
for by the above Items will be included in such definitive Proxy Statement under
"Election of Directors," "Management and Directors," "Executive Compensation and
Other Remuneration," "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions," which is
incorporated herein by reference. If such definitive Proxy Statement is not
filed with the Commission within 120 days after the end of the fiscal year
covered by this report, then the information described above will be filed as an
amendment to this report before the end of such 120-day period.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following documents are filed herewith or have been included as
exhibits to previous filings with the Securities and Exchange Commission and are
incorporated herein by this reference:
EXHIBIT NO.
- -----------
# 2.2 Stock Purchase Agreement by and between Rubus Realty Company
and the Company.
## 2.3 Asset Purchase Agreement by and between C.A. Riser, M.D. and
the Company.
## 2.4 Asset Purchase Agreement by and between C.A. Riser, M.D. and
Donald F. Angle, M.D., P.A.
+ 2.5 Stock Purchase Agreement by and among Doctors' Inn,
Incorporated, Henry H. Calderoni, Francisco J. Guerra and the
Company.
+ 2.6 Stock Purchase Agreement by and among Francisco J. Guerra,
M.D., P.A., Francisco J. Guerra, M.D. and Donald F. Angle,
M.D., P.A.
+ 2.7 Stock Purchase Agreement by and between Henry H. Calderoni,
M.D., P.A., Henry H. Calderoni, M.D. and Donald F. Angle,
M.D., P.A.
++ 2.8 Asset Purchase Agreement by and among Northside Family
Medical Clinic Professional Association, J.W. Czewski, D.O.,
and The Company Doctor, including Security Agreement
-27-
<PAGE> 28
EXHIBIT NO.
- -----------
++ 2.9 Stock Purchase Agreement by and among Northside Family
Medical Clinic Professional Association, J.W. Czewski, D.O.,
and Donald F. Angle, M.D., P.A., including Secured Promissory
Note, Pledge and Security Agreement and Rescission Agreement
** 2.10 Stock Purchase Agreement by and among Robert G.
Duchouquette, M.D., P.A., Robert G. Duchouquette, M.D. and The
Physician Group, P.A., including Note, Pledge Agreement and
Security Agreement
** 2.11 Stock Option Agreement by and between Robert G.
Duchouquette, M.D. and the Company
** 2.12 Registration Rights Agreement by and between Robert G
Duchouquette, M.D. and the Company
* 3.1.1 Certificate of Incorporation of the Company as filed on
June 4, 1992 with the Secretary of State of the State of
Delaware.
* 3.1.2 Certificate of Amendment to Certificate of Incorporation
of the Company as filed on October 5, 1995 with the Secretary
of State of the State of Delaware.
* 3.2.1 Amended and Restated By-Laws of the Company.
* 4.1 Form of specimen certificate for Common Stock of the Company.
* 4.2 Form of specimen certificate for Warrants of the Company.
* 4.3 Form of specimen certificate for Units of the Company.
* 4.4 Form of Unit Purchase Option to be issued by the Company to
the Representative.
* 4.5 Form of Warrant Agreement by and among the Company,
Continental Stock Transfer & Trust Company and the
Representative.
* 10.1.1 Employment Agreement by and between Donald F. Angle and
the Company.
* 10.1.2 Employment Agreement by and between Fred G. Parrish and
the Company.
* 10.2 Omnibus Stock Option Plan, effective January 1, 1995,
authorizing 440,875 shares of Common Stock for issuance
pursuant to the Plan.
* 10.3.1 Lease Agreement, dated June 21, 1991, by and between
Twin Towers Investment Partnership and Emergency Occupational
Physician's Services, Inc. and Addendum Number One, dated
September 30, 1993.
* 10.3.2 Lease Agreement, dated September 30, 1993, by and
between Dallas Forest Park Corporation and Emergency
Occupational Physician's Services Incorporated.
* 10.3.3 Lease Agreement, dated June 19, 1993, by and between AGF
Stadium Place, Ltd. and the Company.
-28-
<PAGE> 29
EXHIBIT NO.
- -----------
** 10.3.4 Commercial Real Estate Lease, dated October 1, 1996, by
and among Quad Corners Investments, Ltd., a Texas Limited
Partnership, The Physician Group, P.A., and the Company.
o 10.3.5 Sublease Agreement, dated April 23, 1996, by and between
Dominion Oil and Gas Corporation and the Company.
o 10.3.6 Sublease Agreement, dated on or about January 1, 1992,
by and between San Jacinto Methodist Hospital and Dr. C. A.
Riser (as predecessor in interest to the Company).
o 10.3.7 Lease and Addendum, dated December 15, 1991 and December
30, 1991, respectively, by and between Dr. Jim W. Czewski (as
predecessor in interest to the Company) and John D. Willbanks,
et al.
o 10.3.9 Lease Agreement, dated April 1, 1996, by and between HCT
Management & Ventures Company and the Company.
* 10.4 Letter of Intent dated December 13, 1994, by and between
Creative Business Solutions and the Company.
* 10.5 Joint Marketing Agreement, dated March 23, 1995, by and
between Employers General Insurance Group and the Company.
* 10.6 Practice Management, Consulting and Clinic Services
Agreement, dated November 1, 1995, by and between Donald F.
Angle, M.D. P.A. and the Company.
* 10.7.1 Practice Management Agreement, dated April 1, 1995, by
and between Doyle L. Sharp, M.D. P.A. and the Company.
* 10.7.2 Addendum to Practice Management Agreement, effective
December 19, 1995, by and among the Company, Doyle Sharp M.D.
P.A. and Donald F. Angle, M.D. P.A.
* 10.8.1 Operating Agreement of HealthFirst Center, L.L.C., by
and among HealthFirst Center, L.L.C., St. Vincent Infirmary
Medical Center and the Company.
* 10.8.2 MSO Management Agreement by and between HealthFirst
Center, L.L.C. and the Company.
* 10.8.3 Loan Security Agreement, dated July 27, 1995, by and
between St. Vincent Infirmary Medical Center and HealthFirst
Center, L.L.C.
* 10.8.4 Form of Secured Promissory Note from HealthFirst Center,
L.L.C. to St. Vincent Infirmary Medical Center.
* 10.8.5 Practice Management Agreement by and between HealthFirst
Center, L.L.C. and Donald F. Angle, M.D. P.A.
-29-
<PAGE> 30
EXHIBIT NO.
- -----------
* 10.9 Form of Preferred Employee Plan agreement between various
employer customers and the Company.
* 10.9.1 Form of Amendment to Letter of Agreement between
Preferred Employee Plan customers, the Company and Donald F.
Angle, M.D. P.A.
* 10.10.1 Equity Capital Formation Letter Agreement, dated March
10, 1992, among EOPS, Dale Willetts and Jack P. Kennedy.
* 10.10.2 Amendment No. 1 to Equity Capital Formation Letter
Agreement, dated August 24, 1992, among EOPS, Dale Willetts and
Jack P. Kennedy.
* 10.10.3 Memorandum of Understanding, dated June 22, 1994, by
and among Dale W. Willetts, John P. Kennedy and the Company.
* 10.10.4 Amendment No. 2 to Letter Agreement, dated November 1,
1995, among the Company, John P. Kennedy and Dale W. Willetts.
* 10.11 Consulting Agreement, dated March 10, 1992, between Jack
P. Kennedy and EOPS.
* 10.12.1 Exchange Agreement, dated July 24, 1992, by and among
EOPS, Andicare, Donald F. Angle, M.D. and the Company.
* 10.12.2 Exchange Agreement, dated July 20, 1992, by and among
Andicare, Donald F. Angle, M.D., Carl S. Luikart, M.D., Ann
Angle and the Company.
* 10.12.3 Exchange Agreement, dated July 24, 1992, by and among
EOPS, Donald F. Angle, M.D., Jan Kohout, M.D., Dennis Sullivan
and the Company; Settlement Agreement, dated September 26,
1995, by and between Dennis M. Sullivan, M.D. and the Company;
and Settlement Agreement, dated September 26, 1995, by and
between Jan Kohout, M.D. and the Company.
o 10.13 Promissory Note, dated May 6, 1996, from the Company to
BankOne, Texas, N.A.
14 Not applicable.
15 Not applicable.
* 21 Subsidiaries of the Company.
o 27.1 Financial Data Schedule
- -----------------------------
o Filed herewith.
* Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 (S.E.C. File No. 33-74876-D) as declared effective on
February 6, 1996.
# Incorporated by reference from the Registrant's Form 8-K for event date
of July 9, 1996.
## Incorporated by reference from the Registrant's Form 8-K for event date
of August 15, 1996.
+ Incorporated by reference from the Registrant's Form 8-K for event date
of August 21, 1996.
++ Incorporated by reference from the Registrant's Form 8-K for event date
of August 28, 1996.
** Incorporated by reference from the Registrant's Form 8-K for event date
of September 20, 1996.
-30-
<PAGE> 31
EXHIBIT NO.
- -----------
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the fiscal year ended June 30, 1994, but has subsequently filed four reports on
Form 8-K reporting the acquisitions discussed herein.
-31-
<PAGE> 32
ITEM 7. FINANCIAL STATEMENTS
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheet -- June 30, 1996.............................................................. F-3
Consolidated Statements of Operations -- Years ended June 30, 1995 and 1996.............................. F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
-- Years ended June 30, 1995 and 1996................................................................... F-5
Consolidated Statements of Cash Flows -- Years ended June 30, 1995 and 1996.............................. F-6
Notes to Consolidated Financial Statements............................................................... F-8
</TABLE>
F-1
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Company Doctor and Subsidiaries
Arlington, Texas
We have audited the accompanying consolidated balance sheet of The Company
Doctor (a Delaware corporation) and Subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended June 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Company Doctor and Subsidiaries as of June 30, 1996, and the consolidated
results of their operations and their cash flows for the years ended June 30,
1996 and 1995, in conformity with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
---------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
July 26, 1996 (except for Note 2 as to
which the date is August 23, 1996)
Denver, Colorado
F - 2
<PAGE> 34
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents (Notes 2 and 11) $ 5,636,433
Restricted cash (Note 6) 500,000
Short-term investments (Notes 3 and 11) 1,250,357
Accounts receivable
Trade, less allowance for doubtful accounts of $105,000 (Note 2) 1,097,308
Related parties (Note 8) 113,117
Other 85,348
Prepaid expenses (Note 2) 97,767
------------
Total current assets 8,780,330
------------
Property and equipment (Notes 2, 4, 6, and 7) 1,536,898
Less accumulated depreciation and amortization (659,394)
------------
877,504
Other assets
Intangibles, net (Notes 2 and 5) 1,688,314
Other assets (Notes 5 and 9) 563,406
Investments (Notes 3 and 11) 1,630,453
------------
Total other assets 3,882,173
------------
Total assets $ 13,540,007
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable (Notes 2 and 6) 1,271,357
Current maturities of capital lease obligations (Note 7) 52,501
Accounts payable and accrued expenses 338,077
Due to sellers (Note 2) 987,010
Claims payable (Note 10) 1,743,107
------------
Total current liabilities 4,392,052
Capital lease obligations, net of current maturities (Note 7) 79,644
------------
Total liabilities 4,471,696
------------
Commitments and contingency (Notes 8 and 11)
Stockholders' equity (Notes 2, 11, and 12)
Preferred stock, $.01 par value, 5,000,000 shares authorized --
Series A convertible, no shares issued
Common stock; $.01 par value; 25,000,000 shares authorized; 4,676,494
shares issued and outstanding at June 30, 1996 46,765
Additional paid-in capital 10,255,346
Accumulated deficit (1,233,800)
------------
Total stockholders' equity 9,068,311
------------
Total liabilities and stockholders' equity $ 13,540,007
============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE> 35
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma
For the Year Ended June 30, for the Year Ended June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited Note 2)
<S> <C> <C> <C> <C>
Revenues $ 4,193,906 $ 3,006,064 $ 8,479,398 $ 6,354,577
Cost of services provided 1,433,170 1,064,503 2,732,381 2,249,149
General and administrative expenses 2,536,751 1,977,804 4,502,727 4,644,127
Marketing expenses 94,964 52,032 107,687 71,064
Development and acquisition costs 202,468 -- 202,468 --
----------- ----------- ----------- -----------
4,267,353 3,094,339 7,545,263 6,964,340
----------- ----------- ----------- -----------
Loss from operations (73,447) (88,275) 934,135 (609,763)
Other income (expense)
Interest income 139,082 -- 241,396 153,676
Interest expense (82,665) (105,339) (99,141) (298,740)
----------- ----------- ----------- -----------
56,417 (105,339) 142,255 (145,064)
----------- ----------- ----------- -----------
Net (loss) income before income tax benefit (17,030) (193,614) 1,076,390 (754,827)
Income tax benefit (Note 9) 100,000 -- (366,000) --
----------- ----------- ----------- -----------
Net income (loss) $ 82,970 $ (193,614) $ 710,390 $ (754,827)
=========== =========== =========== ===========
Net income (loss) per common share $ .02 $ (.09) $ .16 $ (.30)
=========== =========== =========== ===========
Weighted average common shares outstanding 4,091,775 2,208,443 4,375,722 2,501,862
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE> 36
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Series A ------------------------
------------------------ Number
Number of Par of Par
Shares Value Shares Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 -- $ -- 2,208,443 $ 22,085
Net loss for the year -- -- -- --
-------- ------- --------- --------
Balance at June 30, 1995 -- -- 2,208,443 22,085
Stock issued for services in conjunction with a private
placement completed in 1993, valued at $5.50 (Note 12) -- -- 106,712 1,067
Issuance of preferred, Series A at $1.25 per share net of
$102,500 of offering costs (Note 12) 400,000 4,000 -- --
Issuance of common stock net of $2,126,569 of offering
costs (Note 12) -- -- 1,840,000 18,400
Imputed costs associated with stock options granted to
underwriter in conjunction with initial public
offering (Note 12) -- -- -- 312,245
Conversion of preferred, Series A to common stock in
conjunction with the initial public offering (Note 12) (400,000) (4,000) 400,000 4,000
Exercise of stock options and warrants (Note 12) -- -- 1,200 12
Issuance of stock in conjunction with acquisition of
medical practice, valued at $5.25 per share (Note 2) -- -- 51,846 518
Issuance of stock in conjunction with acquisition of
medical practice, valued at $10.25 per share (Note 2) -- -- 68,293 683
Net income -- -- -- --
-------- ------- --------- --------
Balance at June 30, 1996 -- $ -- 4,676,494 $ 46,765
======== ======= ========= ========
<CAPTION>
Total
Additional Stockholders'
Paid-in Accumulated Equity
Capital Deficit (Deficit)
--------------- --------------- -------------
<S> <C> <C> <C>
Balance at June 30, 1994 $ 1,003,009 $(1,123,156) $ (98,062)
Net loss for the year -- (193,614) (193,614)
------------ ----------- -----------
Balance at June 30, 1995 1,003,009 (1,316,770) (291,676)
Stock issued for services in conjunction with a private
placement completed in 1993, valued at $5.50 (Note 12) (1,067) -- --
Issuance of preferred, Series A at $1.25 per share net of
$102,500 of offering costs (Note 12) 393,500 -- 397,500
Issuance of common stock net of $2,126,569 of offering
costs (Note 12) 7,570,031 -- 7,588,431
Imputed costs associated with stock options granted to
underwriter in conjunction with initial public
offering (Note 12) 312,245 -- 312,245
Conversion of preferred, Series A to common stock in
conjunction with the initial public offering (Note 12) -- -- --
Exercise of stock options and warrants (Note 12) 6,638 -- 6,650
Issuance of stock in conjunction with acquisition of
medical practice, valued at $5.25 per share (Note 2) 271,673 -- 272,191
Issuance of stock in conjunction with acquisition of
medical practice, valued at $10.25 per share (Note 2) 699,317 -- 700,000
Net income -- 82,970 82,970
------------ ----------- -----------
Balance at June 30, 1996 $ 10,255,346 $(1,233,800) $ 9,068,311
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 37
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
June 30,
-----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 82,970 $(193,614)
----------- ---------
Adjustments to reconcile net loss income to net cash provided by
operating activities
Depreciation and amortization 163,620 129,078
Deferred taxes (100,000) --
Change in assets and liabilities
Accounts receivable (385,711) (121,354)
Prepaid expenses (77,517) (9,877)
Other assets (110,958) (1,793)
Checks written in excess of bank balance (18,265) 18,265
Accounts payable and accrued expenses (501,117) 196,956
----------- ---------
(1,029,948) 211,275
----------- ---------
Net cash (used in) provided by operating activities (946,978) 17,661
----------- ---------
Cash flows from investing activities
Cash acquired from medical practices 1,139,056 --
Purchases of property and equipment (482,825) (3,832)
Purchase of investments (1,881,469) --
Increase in restricted cash (500,000) --
Purchase of intangibles (97,863) (8,884)
----------- ---------
Net cash used in investing activities (1,823,101) (12,716)
----------- ---------
Cash flows from financing activities
Proceeds from notes payable 506,250 48,250
Net proceeds from offerings 8,304,826 --
Payments on notes payable (33,143) --
Payments on equipment leases (371,421) (84,161)
----------- ---------
Net cash provided by (used in) financing activities 8,406,512 (35,911)
----------- ---------
Cash and cash equivalents increase (decrease) 5,636,433 (30,966)
Cash and cash equivalents at beginning of period -- 30,966
----------- ---------
Cash and cash equivalents at end of period $ 5,636,433 $ --
=========== =========
</TABLE>
Supplemental disclosures of interest paid:
Interest paid on borrowings for the years ended June 30, 1996 and 1995
was $95,528 and $92,476, respectively.
Supplemental disclosures of noncash investing and financing activities:
Purchases of medical equipment through capital leases for the year
ended June 30, 1995 was $71,329.
Continued on next page.
See notes to consolidated financial statements.
F - 6
<PAGE> 38
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.
During the year ended June 30, 1996, the Company acquired a medical practice in
Lancaster, Texas for 51,846 shares of common stock and a medical practice in
Baytown, Texas for 33,334 shares of common stock and an estimated 34,959 shares
to be issued in 1997, cash (paid subsequent to year end) and a note payable
(Note 2). Additionally, the Company acquired an insurance company for $687,000
cash (paid subsequent to year end). The assets acquired were as follows:
<TABLE>
<CAPTION>
Total
----------
<S> <C>
Assets acquired
Cash $1,139,000
Investments 999,000
Accounts receivable 424,000
Fixed assets and intangibles 376,000
Other 3,000
----------
2,941,000
Liabilities assumed
Claims payable 1,743,000)
Accounts payable and accrued expenses (83,000)
----------
Net assets acquired 1,115,000
Fair value of common stock issued 972,000
Due to seller 987,000
Notes payable issued 750,000
----------
Goodwill $1,594,000
==========
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE> 39
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
The Company Doctor (TCD) was incorporated in the state of Delaware in June 1992
for the purpose of managing and providing industrial/occupational medical and
related services exclusively to the employees and prospective employees of
subscribing businesses.
Andicare, Inc. (Andicare), Emergency Occupational Physician's Services, Inc.
(EOPS), and Risk Management Assurance Corporation (formerly Montfort Insurance
Company) (RMAC) are wholly owned subsidiaries of TCD and are in the business of
providing services identical to TCD, except for RMAC which is in the business of
providing insurance. Andicare services its patients from one clinic in
Louisiana, EOPS from four clinics in the Dallas/Fort Worth Metroplex, one in
Lancaster, Texas, and one in Baytown, Texas.
RMAC underwrote a workers' compensation policy for its former stockholder and
its affiliates from approximately July 1, 1987 to January 1, 1992 when the
company became inactive. Currently, the only operations of RMAC are the payment
on approximately 65 outstanding claims filed prior to December 31, 1991.
Principles of Consolidation
The accompanying consolidated financial statements contain the accounts of TCD,
Andicare, EOPS, and RMAC. All significant intercompany transactions and balances
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, certificates of deposit and
other highly-liquid investments with maturities of three months or less, when
purchased, to be cash and cash equivalents for cash flow purposes.
Cash overdraft positions may occur from time to time due to the timing of
depositing cash receipts and releasing disbursements in accordance with the
Company's cash management policies.
Accounts and Notes Receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers related to providing industrial/occupational
medical and related services. All customers are located in close proximity to
the Company's clinics which are located in the Dallas/Fort Worth Metroplex,
Shreveport, Louisiana, Baytown, Texas and Little Rock, Arkansas areas.
Because of the credit risk involved, management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which will eventually
become uncollectible. In the event of complete non-performance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance.
F - 8
<PAGE> 40
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments
The Company invests in long-term and short-term certificates of deposit,
T-bills, and U.S. Treasury notes which are classified as held-to-maturity or
available-for-sale. The investments are held with financial institutions. The
Company performs periodic reviews of its investments and the financial
institutions in order to limit credit risk.
Investments which are held-to-maturity are recorded at amortized cost while
available-for-sale investments are recorded at fair value. During fiscal 1996,
there were no material unrealized gains or losses on available-for-sale
investments.
Property and Equipment
Property and equipment are stated at cost; equipment under capital lease is
stated at the lower of fair market value or net present value of minimum lease
payments at inception of the lease. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets which is five
to ten years.
Intangibles
Goodwill is recorded at the difference between net asset acquired and the
purchase price and is amortized over the estimated useful life of twenty years.
Claims Payable
Unpaid claims are based on estimates of reported claims. While management
believes the reserve for claims is adequate, the reserve is continually reviewed
and as adjustments become necessary, they are reflected in current operations.
Investment in Limited Liability Company
In June 1995, the Company, along with St. Vincent Infirmary Medical Center (St.
Vincent), formed a business called HealthFirst to provide medical services. The
Company owns 50% of the outstanding stock of the limited liability company (LLC)
and manages the operations of HealthFirst; St. Vincent owns the other 50% and
has agreed to provide up to $500,000 of the initial capitalization of the LLC.
Under the terms of the agreement, the Company and St. Vincent will split profits
based on ownership after the initial capitalization of $500,000 has been repaid
to St. Vincent. If the new LLC is not successful, the Company has no obligation
to repay any portion of the $500,000 initial capitalization. The Company
receives a $4,000 per month fee to manage the facility and has loaned $30,000 at
June 30, 1996 to start operations which is to be repaid out of the $500,000
capitalization (Note 4). The Company accounts for its 50% investment in
HealthFirst using the equity method of accounting. The Company's total
investment of $1,000 was fully used by its share of the June 30, 1995 net
operating loss of HealthFirst.
F - 9
<PAGE> 41
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company calculates and records the amount of taxes payable or refundable
currently or in future years for temporary differences between the financial
statement basis and income tax basis based on the current enacted tax laws.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years. The Company's temporary
differences result primarily from the allowance for bad debts and net operating
loss carryforwards.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, receivables, accounts payable, notes payable and
accrued expenses approximated fair value as of June 30, 1996 because of the
relatively short maturity of these instruments.
It is not applicable to estimate the fair value of the receivables from related
parties due to the inability to estimate fair value without incurring excessive
costs.
The fair value of held-to-maturity investments approximated fair value at June
30, 1996. As noted above, available-for-sale investments are recorded at fair
value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company has recorded approximately $1,750,000 of claims payable (Note 10)
for the estimated liability related to unpaid losses from workers' compensation
claims. Such reserves are continually reviewed based upon changes in the nature
of the claims outstanding. Accordingly, the reserve is subject to changes due to
circumstances not presently known.
Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed based on the weighted
average number of common shares outstanding during each year. At June 30, 1995,
common stock equivalents have been excluded from the weighted average number of
common shares outstanding as their effect would be immaterial or anti-dilutive.
At June 30, 1996, common stock equivalents are included in weighted average
number of common shares outstanding unless they are anti-dilutive.
F - 10
<PAGE> 42
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Standards Not Yet Adopted
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123 is
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Company currently accounts for stock-based compensation awards to
employees under the provisions of Accounting Principles Board Opinion No. 25, as
permitted by FAS 123, and intends to continue to do so.
The Company has adopted FAS 123 for stock-based compensation awards to
non-employees for transactions entered into after December 15, 1995 (Note 12).
Reclassification
Certain amounts in the June 30, 1995 consolidated financial statements have been
reclassified to conform with the June 30, 1996 presentation.
NOTE 2 - ACQUISITIONS
In February and May of 1996, the Company entered into agreements to purchase
Doyle M. Sharp, M.D. (Sharp) in Lancaster and C.A. Riser MD, d/b/a Occupational
and Family Medicine (OFM) in Baytown, respectively. Additionally, in June 1996,
the Company acquired RMAC.
The accompanying consolidated financial statements includes the results of
operations from February 6, 1996, May 8, 1996, and June 30, 1996 of Sharp, OFM
and RMAC, respectively.
The acquisitions are accounted for under the purchase method of accounting
applying the provisions of Accounting Principles Board Opinion No. 16 ("APB
16"). Pursuant to the requirements of APB 16, the aggregate purchase price,
based on fair values, will be allocated to the tangible and intangible assets
and liabilities assumed based on their estimated fair value at the date of the
acquisitions. Goodwill is amortized over its estimated useful life of 20 years.
The aggregate purchase price allocated to the assets acquired and liabilities
assumed which are included in the consolidated financial statements consists of:
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Asset acquired:
Cash $ 1,139,000
Investments 999,000
Accounts receivable 424,000
Fixed assets and deposits 376,000
Intangibles 3,000
---------------
2,941,000
</TABLE>
F - 11
<PAGE> 43
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Liabilities assumed:
Claims payable (1,743,000)
Accounts payable and accrued expenses (83,000)
---------------
Net assets acquired 1,115,000
Costs associated with acquisition 106,000
Fair value of common stock issued 972,000
Notes payable incurred 750,000
Cash (paid subsequent to June 30, 1996) 987,000
---------------
Goodwill $ 1,700,000
===============
</TABLE>
The common stock issued in the Lancaster clinic acquisition completed in
February was recorded at the fair value of the stock at the date of the
acquisition which was $5.25 or the price of the stock issued in connection with
the initial public offering completed in February.
Per the acquisition document for the Baytown clinic, the seller is to receive
33,334 shares of stock upon closing and an estimated 34,959 additional shares in
February 1997 equal to $350,000 divided the market value of the common stock in
February 1997. All share and per share amounts in the accompanying consolidated
financial statements have been recorded using the average common stock price at
year end or $10.25.
In August 1996, the Company acquired Doctor's Inn, Incorporated in El Paso,
Texas for 226,752 shares of common stock with a total value of $2,250,000 at the
date of closing, cash of $700,000 and notes payable in the amount of $1,900,000.
The notes bear interest at 9.5% and are due as follows:
a. One disbursement of $500,000 not later than April 15, 1997;
and
b. Equal monthly installments in the amount of $25,000 each plus
accrued interest, beginning September 15, 1996 until paid in
full.
Pro Forma Statement of Operations
The accompanying unaudited consolidated June 30, 1996 and 1995 statement of
operations was prepared assuming the acquisitions of the Baytown and El Paso
clinics and RMAC had been completed on July 1, 1994. The revenue and expenses
represent the predecessor entities' year ended December 31, 1995 and 1994
revenues and expenses. The operations of Lancaster are not included in the pro
forma statement of operations for the years ended June 30, 1996 and 1995 as
their effect is immaterial. The Pro forma tax provision and net income, assuming
a 34% tax rate, discloses the tax expense had the acquisition taken place July
1, 1994.
F - 12
<PAGE> 44
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVESTMENTS
The following is a summary of investments at June 30, 1996:
<TABLE>
<CAPTION>
Amortized Cost or Fair Value *
------------------------------
Current Long-Term Total
------- --------- -----
<S> <C> <C> <C>
U.S. treasury notes $ 251,016 $ 1,630,453 $ 1,881,469
T-bills 949,341 -- 949,341
Certificate of deposit 50,000 -- 50,000
-------------- -------------- --------------
$ 1,250,357 $ 1,630,453 $ 2,880,810
============== ============== ==============
</TABLE>
* As the cost or amortized cost approximates fair value of all
investments at June 30, 1996, there were no unrealized gains or losses
during fiscal 1996.
The amortized cost and fair value of held-to-maturity and available-for-sale
fixed maturities at June 30, 1996, by contractual maturity, are shown below:
<TABLE>
<S> <C>
Due in one year or less $ 1,250,357
Due after one year through five years 1,089,520
Due after five years through ten years 540,933
--------------
$ 2,880,810
==============
</TABLE>
There were no sales of available-for-sale investments during fiscal 1996 and
therefore there were no proceeds from sales or realized gains or losses.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1996:
<TABLE>
<S> <C>
Medical equipment $ 1,309,080
Leased equipment 143,780
Furniture and fixtures 30,305
Leasehold improvements 53,733
---------------
1,536,898
Less accumulated depreciation and amortization (659,394)
---------------
$ 877,504
===============
</TABLE>
F - 13
<PAGE> 45
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLES AND OTHER ASSETS
Intangibles consist of the following at June 30, 1996:
<TABLE>
<CAPTION>
Cost
----
<S> <C>
Goodwill $ 1,700,014
Accumulated amortization (11,700)
---------------
$ 1,688,314
===============
<CAPTION>
Other assets consist of the following at June 30, 1996.
<S> <C>
Prepaid tax deposit $ 324,163
Deferred tax asset (Note 9) 100,000
Other 139,243
---------------
$ 563,406
===============
</TABLE>
The State of Texas has established an assessment under the provisions of the
Texas Property and Casualty Insurance Guaranty Act whereby a company makes
contributions to the Texas Property and Casualty Insurance Guaranty Association
and can use these contributed funds as a credit against future premium tax
liabilities. As of June 30, 1996, the Company has deposited $324,163 of
contributions, net of credits used in 1989 to 1991. No impairment is necessary
as the Company anticipates generating premium income in future years from
underwriting new workers' compensation insurance policies.
NOTE 6 - NOTES PAYABLE
The notes payable consist of the following at June 30, 1996:
<TABLE>
<S> <C>
Note payable - bank, interest at 6.75% payable monthly.
Matures November 1996. The note is collateralized by a
$500,000 certificate of deposit. 491,357
Note payable to a limited liability affiliate (Note 3),
interest at 9%, unpaid principal and interest due October
31, 1996. The note is collateralized by the equipment of
HealthFirst. 30,000
Note payable - seller, interest at 9.5%, due in monthly
installments of $10,000 including interest through April
15, 1997 when unpaid principal and interest are due.
Collateralized by the assets of the Houston clinic. 750,000
-----------
$ 1,271,357
===========
</TABLE>
F - 14
<PAGE> 46
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL LEASES
The Company leases medical equipment under capital leases which require monthly
payments ranging from $233 to $2,785 including interest and expire between June
1996 and December 1999. The following is a summary of assets under capital
leases at June 30, 1996:
<TABLE>
<S> <C>
Medical equipment $ 76,582
Office equipment 67,198
Accumulated amortization (28,643)
--------
$115,137
========
</TABLE>
Future minimum lease payments for capital lease obligations are as follows at
June 30, 1996:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1997 $ 63,224
1998 49,607
1999 37,217
Thereafter --
----------
Total minimum lease payments 150,048
Less amounts representing interest (17,903)
----------
Present value of minimum lease payments 132,145
Less current maturities (52,501)
----------
$ 79,644
==========
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
Related Party Receivables
At June 30, 1996, the Company had advanced monies to two shareholders in the
normal course of business for travel and other related costs totaling
approximately $31,000. Additionally, the Company has receivables due from
HealthFirst of $30,000, for advances to assist in funding operations and $52,000
for management fees.
Physicians Group
Due to legislative requirements concerning the practice of medicine in the state
of Texas, the Company has entered into an agreement with the Physicians Group (a
company owned 100% by a stockholder of the Company) for the services of
physicians.
F - 15
<PAGE> 47
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
Physicians Group (continued)
The Physicians Group employs doctors who provide medical services to third
parties and after covering the costs associated with the physicians, remit
proceeds to the Company for management services. The structure of the agreement
between the Company for its Texas clinics and the Physicians Group requires that
all income be paid to the Company for management services or to the physicians
for compensation and performance bonuses. The accompanying financial statements
reflect transactions with the Physicians Group on a basis as if the Company and
Physicians Group were "combined" or "consolidated" as revenue reflects all Texas
clinic revenue billed to patients and expenses reflect compensation paid to the
Physicians Group doctors. Total revenue billed to third parties and compensation
paid associated with the Physicians Group is as follows:
<TABLE>
<CAPTION>
June 30,
--------
1995 1996
---- ----
<S> <C> <C>
Revenue billed to third parties $ 1,871,748 $ 2,865,602
=============== ===============
Compensation to doctors $ 390,879 $ 534,674
=============== ===============
</TABLE>
Lease Financing
A director and stockholder of the Company has assisted the Company in procuring
lease financing to obtain medical equipment and has received commissions from
providers of capital leasing funds as compensation for these services. The
director and stockholder will continue to offer similar services to the Company
in the future and will receive commissions from providers of such funding in the
amount of between 5% and 10% of the amount of each transaction. No amounts have
been paid by the Company under this agreement.
NOTE 9 - INCOME TAXES
The Company has the following temporary differences which result in a deferred
tax asset at June 30, 1996:
<TABLE>
<S> <C>
Allowance for credit loss $ 36,000
Net operating loss carryforward 388,000
---------------
424,000
Valuation allowance (324,000)
---------------
$ 100,000
===============
</TABLE>
F - 16
<PAGE> 48
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
At June 30, 1996, the Company has approximately $1,149,000 of net operating loss
carryforwards for income tax reporting purposes which expire in 2008 through
2010. The valuation allowance related to the deferred tax asset has been reduced
$100,000 in the current year due to the acquisition of OFM and the historical
profitability of the OFM clinic which will more likely than not allow the
Company to utilize a portion of its net operating loss carryforwards.
NOTE 10 - CLAIMS PAYABLE
The consolidated financial statements include the estimated liability for unpaid
losses from workers' compensation claims of approximately $1,750,000 at June 30,
1996. The liabilities for losses are determined using case-basis evaluations and
represent estimates of the ultimate net cost of all unpaid losses as of June 30,
1996 when TCD acquired RMAC (Note 2). These estimates are continually reviewed
and, as experience develops and new information becomes known, the liability is
adjusted as necessary. The Company anticipates the liability in fiscal 1997 will
increase when it begins to underwrite new policies. Such adjustments will be
reflected in current operations.
NOTE 11 - COMMITMENTS AND CONTINGENCY
Leases
The Company leases office and clinic space, vehicles, and equipment under
noncancellable operating leases, expiring through March 2001. Future minimum
lease payments for the remaining terms of the leases are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1997 $ 386,758
1998 386,131
1999 368,375
2000 333,045
2001 197,043
----------
$1,671,352
==========
</TABLE>
Rent expense for the years ended June 30, 1996 and 1995 was $291,887 and
$259,927, respectively.
F - 17
<PAGE> 49
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCY (CONTINUED)
Equity Agreement
During 1993, the Company entered into an agreement with two unrelated
individuals to raise equity for the Company. Under the terms of the agreement,
the individuals received a non-diluted 5% interest each in the Company if they
were successful in raising $1,000,000 in financing. The 5% was to increase to
7.5% each if the Company did not reach certain performance criteria by January
1995. In connection with the agreement, the Company issued 355,074 shares in
1993 upon the completion of the private placement (Note 12). The Company did not
meet the performance criteria and issued an additional 106,712 shares in 1995.
Since the issuance of the 106,712 shares results from a contract to raise equity
financing, the value of the shares has been reflected as "offering costs"
associated with the 1993 private placement and accordingly charged to additional
paid-in capital.
Marketing Agreement
During 1995, the Company entered into a five year joint marketing program with
an insurance carrier to market a worker's compensation insurance product under
the name "Comp 2000". Expenses of the program are to be approved by the Company
and insurance carrier prior to their expenditure or they are an expense to the
party which incurred them.
Stockholder Agreement
In 1993, two of the Company's stockholders, who were EOPS stockholders, were
granted the right to receive approximately 4,239 additional shares of common
stock of the Company each time a new facility is opened in the Dallas/Ft. Worth
Metroplex and the greater of 2.5% of the gross revenues of all facilities in the
Dallas/Ft. Worth Metroplex or $8,000 per month. The Company opened new
facilities, and a result, 16,957 shares of common stock were issued,
compensation expense of $62,500 was recorded, and $60,000 was accrued as full
satisfaction for gross revenue payments for the two stockholders. The agreement
was subsequently terminated and no additional amounts are due.
Employment Agreement
The Company has entered into an employment agreement with its majority
stockholder and officer of the Company. The agreement provides for a five-year
term, with a right on the part of the Company to extend the agreement from year
to year on written notice to the stockholder/officer given not less than 90 days
prior to expiration of the initial term and any extension, as applicable. The
employment agreement calls for the stockholder/officer to receive a salary of
$135,000 in the first year of employment, $180,000 in the second year of
employment, and a minimum of $180,000 in each year thereafter, subject to
increase upon agreement of the Compensation Committee of the Board of Directors.
The employment agreement also contains bonus provisions which empower the
Compensation Committee to grant bonuses to the stockholder/officer based upon
his performance, the overall performance of the Company and its financial
condition.
F - 18
<PAGE> 50
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCY (CONTINUED)
Employment Agreement (continued)
The employment agreement contains provisions which provide that, upon the
occurrence of a "triggering event" (defined to include a change in ownership of
80% or more of the outstanding shares of the Company, a merger of the Company
into another corporation, or a liquidation of the Company) during the period
that the stockholder/officer is acting as an officer of the Company or for up to
one year after acting in such capacity, the stockholder/officer will receive a
lump sum payment equal to 2.9 times the last year's base pay in the event of
termination other than for just cause.
Statutory Reporting, Capital Requirements, and Dividend and Retained Earnings
Restrictions
On June 30, 1996, the date of acquisition of the insurance company by the
Company, the insurance company had a net surplus of approximately $2,187,000.
Insurance companies are required to prepare statutory financial statements in
conformity with practices prescribed or permitted by their state of domicile.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners, as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices are used when prescribed statutory practices do not address the
accounting for transactions.
The State of Texas imposes certain capital requirements of insurance companies
on a statutory basis. Under the applicable regulations, Montfort is required to
maintain minimum capital stock of $1,000,000 and minimum surplus of $1,000,000.
At June 30, 1996, the date of acquisition, the Company had capital and surplus
of $2,187,000 and has placed internal restrictions on cash and investments for
payment of the approximately $1,750,000 of claims payable.
NOTE 12 - STOCKHOLDERS' EQUITY
Reverse Stock Split
The Board of Directors approved approximately a 1:2.95 reverse stock split. All
references in the accompanying consolidated financial statements to the number
of shares and per share amounts for all periods presented have been restated to
reflect the reverse stock split.
F - 19
<PAGE> 51
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock
During the year ended June 30, 1996, the Company and its stockholders approved
amendments of its Certificate of Incorporation to authorize 5,000,000 shares of
preferred stock with attributes to be determined by the Board of Directors.
Public Offering
In February 1996, the Company completed a public offering of 1,840,000 units,
each unit consisting of one share of common stock and one warrant to purchase
one share of common stock at $7.00 per share, at $5.25. The proceeds of the
offering were $7,588,431, net of offering costs of $2,126,569.
Additionally, the Company issued options to the underwriter to purchase
1,660,000 units at $8.14. Compensation expense related to the options has been
recorded in the accompanying consolidated financial statements as deferred
offering costs related to the initial public offering.
Sale of Stock in a Private Offering
During November 1995, the Company sold 400,000 shares of its Series A preferred
stock at $1.25 per share. The Series A preferred stock automatically converted
into common stock in February 1996 upon completion of the initial public
offering. The proceeds of this offering were $397,500, net of offering costs of
$102,500.
Stock Option Plan
Effective January 1, 1995, the Company adopted a Stock Option Plan that provides
incentive for qualified and non-qualified options. The plan covers an aggregate
of 440,875 shares. The plan is administered by a committee appointed by the
Board of Directors (Committee). Options must be granted at an exercise price of
100% of the fair value of the common stock of the Company on the date of the
grant. Incentive options granted to stockholders who possess more than 10% of
the outstanding common stock have a required exercise price of the greater of
110% of fair value of the common stock on the date of grant. The incentive
options are exercisable six months after the date of grant and expire up to ten
years from date of grant or up to five years from the date of grant for
incentive options to stockholders who possess more than 10% of the outstanding
common stock.
F - 20
<PAGE> 52
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Non-Qualified options may be granted at exercise prices not less than 85% of the
fair value of the common stock of the Company on the date of grant. The
Non-Qualified options become exercisable six months from the date of grant and
expire ten years from the date of grant.
Additionally, the Committee can grant stock appreciation rights in tandem with a
stock option, in addition to a stock option, or free-standing and unrelated to a
stock option. A stock appreciation right entitles the participant to receive
from the Company an amount equal to the positive difference between (i) the fair
market value of common stock on the date of exercise of the stock appreciation
right and (ii) the grant price or some other amount as the Committee may
determine at the time of grant and may only be exercised during a period which
(i) begins on the third business day following a date when the Company's
quarterly summary statement of sales and earnings is released to the public and
(ii) ends on the 12th business day following such date (iii) or automatically on
the date when a related stock option expires. Stock appreciation rights are
payable in cash, shares of common stock or a combination of both. No stock
appreciation rights have been granted.
The Committee may grant Restricted Stock in exchange for consideration in an
amount determined by the Committee to be paid in cash, or at the discretion of
the Committee, in the form of a promissory note, or delivery of common stock
already owned by the participant for at least six months and valued at its fair
value, or any combination thereon, provided no less than the par value of the
common stock is paid in cash. The Restricted Shares can be awarded to a
participant who has rendered no less than three months of services and are
subject to such restrictions as the Committee imposes. No Restricted Stock has
been granted.
The Committee can award Performance Units or Performance Shares to participants
who attain certain objectives as set forth by the Committee and are payable in
cash, common stock, or a combination of both. Performance Units or Performance
Shares do not entitle the holder to voting rights and at the Committee's
discretion, a dividend equivalent can be attached. No Performance Units or
Performance Shares have been awarded.
The following is a summary of options and warrants at June 30, 1996:
<TABLE>
<CAPTION>
Exercise
Price Per
Options Warrants Share
------- ---------- ----------
<S> <C> <C> <C>
Balance - June 30, 1995 - - $ -
Granted 560,500 2,000,000 5.25-8.14
Exercised (1,000) (200) 5.25
------- ---------- ----------
Balance - June 30, 1996 559,500 $1,999,800 $5.25-8.14
======= ========== ==========
</TABLE>
F - 21
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE COMPANY DOCTOR
By: /s/ Donald F. Angle
--------------------------------------
Donald F. Angle, M.D., Chairman of the
Board and President
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ----------------------------------- ----------------
<S> <C> <C>
/s/ Donald F. Angle Chairman of the Board, President October 10, 1996
- ----------------------------- (Principal Executive Officer) and
Donald F. Angle Treasurer (Principal Financial and
Accounting Officer)
/s/ Carl S. Luikart Director October 10, 1996
- -----------------------------
Carl S. Luikart
Director
- -----------------------------
Thomas J. Edwards
/s/ John P. Kennedy Director October 10, 1996
- -----------------------------
John P. Kennedy
/s/ Dale W. Willetts Director October 10, 1996
- -----------------------------
Dale W. Willetts
/s/ W. Howard Haun Director October 10, 1996
- -----------------------------
W. Howard Haun
/s/ Stephen W. Cavanaugh Director October 10, 1996
- -----------------------------
Stephen W. Cavanaugh
</TABLE>
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
# 2.2 Stock Purchase Agreement by and between Rubus Realty Company
and the Company.
## 2.3 Asset Purchase Agreement by and between C.A. Riser, M.D. and
the Company.
## 2.4 Asset Purchase Agreement by and between C.A. Riser, M.D. and
Donald F. Angle, M.D., P.A.
+ 2.5 Stock Purchase Agreement by and among Doctors' Inn,
Incorporated, Henry H. Calderoni, Francisco J. Guerra and the
Company.
+ 2.6 Stock Purchase Agreement by and among Francisco J. Guerra,
M.D., P.A., Francisco J. Guerra, M.D. and Donald F. Angle,
M.D., P.A.
+ 2.7 Stock Purchase Agreement by and between Henry H. Calderoni,
M.D., P.A., Henry H. Calderoni, M.D. and Donald F. Angle,
M.D., P.A.
++ 2.8 Asset Purchase Agreement by and among Northside Family
Medical Clinic Professional Association, J.W. Czewski, D.O.,
and The Company Doctor, including Security Agreement
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
++ 2.9 Stock Purchase Agreement by and among Northside Family
Medical Clinic Professional Association, J.W. Czewski, D.O.,
and Donald F. Angle, M.D., P.A., including Secured Promissory
Note, Pledge and Security Agreement and Rescission Agreement
** 2.10 Stock Purchase Agreement by and among Robert G.
Duchouquette, M.D., P.A., Robert G. Duchouquette, M.D. and The
Physician Group, P.A., including Note, Pledge Agreement and
Security Agreement
** 2.11 Stock Option Agreement by and between Robert G.
Duchouquette, M.D. and the Company
** 2.12 Registration Rights Agreement by and between Robert G
Duchouquette, M.D. and the Company
* 3.1.1 Certificate of Incorporation of the Company as filed on
June 4, 1992 with the Secretary of State of the State of
Delaware.
* 3.1.2 Certificate of Amendment to Certificate of Incorporation
of the Company as filed on October 5, 1995 with the Secretary
of State of the State of Delaware.
* 3.2.1 Amended and Restated By-Laws of the Company.
* 4.1 Form of specimen certificate for Common Stock of the Company.
* 4.2 Form of specimen certificate for Warrants of the Company.
* 4.3 Form of specimen certificate for Units of the Company.
* 4.4 Form of Unit Purchase Option to be issued by the Company to
the Representative.
* 4.5 Form of Warrant Agreement by and among the Company,
Continental Stock Transfer & Trust Company and the
Representative.
* 10.1.1 Employment Agreement by and between Donald F. Angle and
the Company.
* 10.1.2 Employment Agreement by and between Fred G. Parrish and
the Company.
* 10.2 Omnibus Stock Option Plan, effective January 1, 1995,
authorizing 440,875 shares of Common Stock for issuance
pursuant to the Plan.
* 10.3.1 Lease Agreement, dated June 21, 1991, by and between
Twin Towers Investment Partnership and Emergency Occupational
Physician's Services, Inc. and Addendum Number One, dated
September 30, 1993.
* 10.3.2 Lease Agreement, dated September 30, 1993, by and
between Dallas Forest Park Corporation and Emergency
Occupational Physician's Services Incorporated.
* 10.3.3 Lease Agreement, dated June 19, 1993, by and between AGF
Stadium Place, Ltd. and the Company.
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
** 10.3.4 Commercial Real Estate Lease, dated October 1, 1996, by
and among Quad Corners Investments, Ltd., a Texas Limited
Partnership, The Physician Group, P.A., and the Company.
o 10.3.5 Sublease Agreement, dated April 23, 1996, by and between
Dominion Oil and Gas Corporation and the Company.
o 10.3.6 Sublease Agreement, dated on or about January 1, 1992,
by and between San Jacinto Methodist Hospital and Dr. C. A.
Riser (as predecessor in interest to the Company).
o 10.3.7 Lease and Addendum, dated December 15, 1991 and December
30, 1991, respectively, by and between Dr. Jim W. Czewski (as
predecessor in interest to the Company) and John D. Willbanks,
et al.
o 10.3.9 Lease Agreement, dated April 1, 1996, by and between HCT
Management & Ventures Company and the Company.
* 10.4 Letter of Intent dated December 13, 1994, by and between
Creative Business Solutions and the Company.
* 10.5 Joint Marketing Agreement, dated March 23, 1995, by and
between Employers General Insurance Group and the Company.
* 10.6 Practice Management, Consulting and Clinic Services
Agreement, dated November 1, 1995, by and between Donald F.
Angle, M.D. P.A. and the Company.
* 10.7.1 Practice Management Agreement, dated April 1, 1995, by
and between Doyle L. Sharp, M.D. P.A. and the Company.
* 10.7.2 Addendum to Practice Management Agreement, effective
December 19, 1995, by and among the Company, Doyle Sharp M.D.
P.A. and Donald F. Angle, M.D. P.A.
* 10.8.1 Operating Agreement of HealthFirst Center, L.L.C., by
and among HealthFirst Center, L.L.C., St. Vincent Infirmary
Medical Center and the Company.
* 10.8.2 MSO Management Agreement by and between HealthFirst
Center, L.L.C. and the Company.
* 10.8.3 Loan Security Agreement, dated July 27, 1995, by and
between St. Vincent Infirmary Medical Center and HealthFirst
Center, L.L.C.
* 10.8.4 Form of Secured Promissory Note from HealthFirst Center,
L.L.C. to St. Vincent Infirmary Medical Center.
* 10.8.5 Practice Management Agreement by and between HealthFirst
Center, L.L.C. and Donald F. Angle, M.D. P.A.
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
* 10.9 Form of Preferred Employee Plan agreement between various
employer customers and the Company.
* 10.9.1 Form of Amendment to Letter of Agreement between
Preferred Employee Plan customers, the Company and Donald F.
Angle, M.D. P.A.
* 10.10.1 Equity Capital Formation Letter Agreement, dated March
10, 1992, among EOPS, Dale Willetts and Jack P. Kennedy.
* 10.10.2 Amendment No. 1 to Equity Capital Formation Letter
Agreement, dated August 24, 1992, among EOPS, Dale Willetts and
Jack P. Kennedy.
* 10.10.3 Memorandum of Understanding, dated June 22, 1994, by
and among Dale W. Willetts, John P. Kennedy and the Company.
* 10.10.4 Amendment No. 2 to Letter Agreement, dated November 1,
1995, among the Company, John P. Kennedy and Dale W. Willetts.
* 10.11 Consulting Agreement, dated March 10, 1992, between Jack
P. Kennedy and EOPS.
* 10.12.1 Exchange Agreement, dated July 24, 1992, by and among
EOPS, Andicare, Donald F. Angle, M.D. and the Company.
* 10.12.2 Exchange Agreement, dated July 20, 1992, by and among
Andicare, Donald F. Angle, M.D., Carl S. Luikart, M.D., Ann
Angle and the Company.
* 10.12.3 Exchange Agreement, dated July 24, 1992, by and among
EOPS, Donald F. Angle, M.D., Jan Kohout, M.D., Dennis Sullivan
and the Company; Settlement Agreement, dated September 26,
1995, by and between Dennis M. Sullivan, M.D. and the Company;
and Settlement Agreement, dated September 26, 1995, by and
between Jan Kohout, M.D. and the Company.
o 10.13 Promissory Note, dated May 6, 1996, from the Company to
BankOne, Texas, N.A.
14 Not applicable.
15 Not applicable.
* 21 Subsidiaries of the Company.
o 27.1 Financial Data Schedule
</TABLE>
- -----------------------------
o Filed herewith.
* Incorporated by reference from the Registrant's Registration Statement
on Form SB-2 (S.E.C. File No. 33-74876-D) as declared effective on
February 6, 1996.
# Incorporated by reference from the Registrant's Form 8-K for event date
of July 9, 1996.
## Incorporated by reference from the Registrant's Form 8-K for event date
of August 15, 1996.
+ Incorporated by reference from the Registrant's Form 8-K for event date
of August 21, 1996.
++ Incorporated by reference from the Registrant's Form 8-K for event date
of August 28, 1996.
** Incorporated by reference from the Registrant's Form 8-K for event date
of September 20, 1996.
<PAGE> 1
EXHIBIT 10.3.5
SUBLEASE AGREEMENT
The Sublease Agreement (the "Sublease") is entered into on this the 23rd day of
April 1996, by and between DOMINION OIL AND GAS CORPORATION (Sublessor"), and
THE COMPANY DOCTOR ("Subleasee").
WHEREAS, Sublessor is the Tenant under that certain Lease Agreement (the
"Lease") as noted on the attached Exhibit "A", entered into as of December 31,
1993, with Teachers Insurance and Annuity Association of America (Landlord),
and
SUBLESSOR HEREBY LETS to Sublessee approximately 3,172 rentable square feet of
space (the "Demised Premises") located at 5215 N. O'Connor Boulevard, Suite
1800, Irving, Texas 75039.
NOW THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars
($10.00) the mutual premises set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereto agree as follows:
1. SUBLEASE. Sublessor, for and in consideration of the rents and
covenants hereinafter specified to be paid and performed by Sublessee, does
hereby lease, demise and let unto Sublessee the Demised Premises.
2. TERM. The term of this Sublease shall commence on June 1, 1996 (the
"Commencement Date"), and shall terminate on February 28, 1999 (the "Termination
Date"), unless sooner terminated as provided herein.
3. RENTAL. Commencing with the Commencement Date and continuing monthly on
the first day of each month throughout the term of the Sublease, Sublessee
shall pay Sublessor in lawful money of the United States of America at Dominion
Oil USA, PO Box 292605, Lewisville, TX 75029, or such other place as Sublessor
shall direct Sublessee in writing, the total sum of $136,165.92 in equal
monthly installments of $4,126.24.
4. SECURITY DEPOSIT. The Sublessee shall pay to Sublessor an amount of
$4,126.24, that being the equivalent of one month's current rent, as a Security
Deposit for full and faithful perfomance by the Sublessee of the covenants and
obligations of the Tenant as set forth in the Lease. Such Security Deposit
shall not bear interest and shall not be considered an advance payment of rent
or a measure of Sublessor's damages in case of a default by Sublessee.
5. NOTICES. Sublessee shall deliver to Sublessor duplicate copies (or if
oral, written summaries) of all notices required or permitted to be given by
Tenant pursuant to the Lease or
<PAGE> 2
received from the Landlord pursuant to the Lease. All notices given hereunder
shall be in writing addressed to either the Sublessor or Sublessee at the
address specified in Paragraph 9.(c) hereof and shall be deemed delivered and
received upon actual delivery to such address.
6. DEFAULT. Each of the following events shall be deemed to be an Event of
Default (herein so called) under this Sublease:
(a) Sublessee's failure to timely pay any amounts as required in
Paragraph 3 hereof;
(b) Sublessee's failure to timely comply with any term, provision
or covenant of this Sublease or those provisions of the Lease furnished to
Sublessee; this
(c) an assignment for the benefit of creditors is made by Sublessee
or any guarantor of Sublessee's obligations under this Sublease;
(d) the filing by Sublessee or any guarantor of Sublessee's
obligations under this Sublease of a petition seeking an order for relief under
Title 11 of the United State Code, as amended, or under similar law or statue of
the United States or state thereof; the filing of a petition seeking an order
for relief under Title 11 of the United States Code, or under any similar law
or statute of the United States thereof, against Sublessee or any guarantor of
Sublessee's obligations under this Sublease which petition is not dismissed
with prejudice within sixty (60) days from the date of filing:
(e) the appointment of a receiver or trustee for Sublessee's
interest in the Lease, or all or substantially all of the assets of the
Sublessee or any guarantor of Sublessee's obligations under the Sublease
which receivership is not terminated or stayed within sixty (60) days from such
appointment;
(f) Sublessee or any guarantor of Sublessee's obligations under
this Sublease becomes insolvent or makes a transfer in fraud of creditors; or
(g) Sublessee deserts, abandons or vacates the Demised Premises or
any substantial portion of the Demised Premises.
7. REMEDIES. Upon the occurrence of any Event of Default, in addition to
all other remedies at law or in equity to which Sublessor shall be entitled,
sublessor shall be entitled to all remedies of the Landlord pursuant to the
Lease as set forth therein.
8. BROKERAGE. Sublessor and Sublessee each warrant that it has had no
dealings with any broker or agent in connection with the negotiation or
execution of this Sublease other than Baker Commercial Realty, Inc. and Terren
Commercial ("Brokers") and Sublessor agrees to indemnify
<PAGE> 3
Sublessee against all costs, expenses, attorneys' fees or other liability for
commissions or other compensation or charges claimed by any broker or agent.
The brokerage commission payable to the Brokers will be paid by the Sublessor
pursuant to a separate agreement between the Sublessor and the Brokers.
9. MISCELLANEOUS
(a) This Sublease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(b) This Sublease cannot be changed or amended without a document
signed by Sublessor and Sublessee, and consented to by Landlord.
(c) Notices given by either party pursuant to this Sublease may be
hand delivered, or sent by facsimile or certified mail, return receipt
requested, addressed as follows:
If to Sublessor: Dominion Oil and Gas Corp.
P.O. Box 292605
Lewisville, TX 75029
Attn: James LaPorte
If to Sublessee: The Company Doctor
1200 Copeland Road, Suite 100
Arlington, TX 76001
Attn: Fred Parrish, COO
IN WITNESS WHEREOF, each of the parties hereto has executed this Sublease as of
the date first above written.
SUBLESSOR: SUBLESSEE:
DOMINION OIL AND GAS CORP. THE COMPANY DOCTOR
By: \s\ JAMES B. LAPORTE By: \s\ FRED G. PARRISH
-------------------------- ------------------------
Name: James B. LaPorte Name: Fred G. Parrish
------------------------ ----------------------
Title: Managing Director Title: COO
----------------------- ---------------------
<PAGE> 1
EXHIBIT 10.3.6
SUBLEASE AGREEMENT
SAN JACINTO METHODIST HOSPITAL
BAYTOWN, TEXAS
This SUBLEASE AGREEMENT is made and entered into as of the 1st day of
Nov. 1991 by and between SAN JACINTO METHODIST HOSPITAL, a Texas nonprofit
corporation ("Lessee") and C. A. Riser, M.D. ("Sublessee").
W I T N E S S E T H
WHEREAS, Lessee has leased certain net rentable space in the Baker
Court Building 4308 Garth Rd. Baytown, Texas (the "Building") from Piping Rock
Corporation (the "Lessor"), owner of the Building and
WHEREAS, Lessee desires to sublease the space in the Building and
provide certain other services to the Tenant who is on the Medical Staff at San
Jacinto Methodist Hospital (the "Hospital") in Baytown; and
WHEREAS, Lessee desires to sublease space in the Building for
Sublessee's medical office practice and Sublessee also wishes to obtain the
other services offered by Lessee as enumerated in this Sublease Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties to this Sublease Agreement agree to as follows:
I. Sublease of Premises
1.1. Rented Space. Lessee hereby subleases to Sublessee 4,784
square feet (the "Premises") located in the Building.
1.2. Adjustments to Rented Space. The exact amount of square
feet comprising the Premises may be enlarged or reduced at
such later date when Sublessee approves the floor plans for
the Premises.
II. Rent
2.1. Basic Rent. The rental rate for the Premises shall equal
$0.06 per month for each square foot of net rentable area
subleased by Sublessee under terms and provisions hereof.
2.2. Rent Payable. Except as otherwise provided herein, monthly
rent shall be due and payable to Sublessor on the first day
of each calendar month during the term of this Sublease
Agreement.
<PAGE> 2
2.3. Late Charge. In the event any rent due and payable by
Sublessee is not received by Lessee within ten days after
it is due, Lessee may, at its discretion, charge interest
on the delinquent amount at the maximum legal rate from the
date due until the date paid.
2.4. Prorated Rent. If Sublessee's occupancy shall commence on a
date other than the first day of a calendar month, then
rent will be prorated for that month and the last month of
the term of this Sublease Agreement.
III. Use
3.1. Permitted Use. Sublessee may use and occupy the Premises
only for the purpose of operating a medical office practice
and purposes ancillary thereto. Sublessee agrees that
Sublessee and Sublessee's agents, employees and invitees
will at all times comply fully with the rules and
regulations of the Building from time to time adopted by
Lessor and Provided to Sublessee.
3.2. Continued Use. Sublessee agrees to maintain an active
full-time medical practice on the Premises at all times
during the term of this Sublease. "Maintaining an active
full-time medical practice" shall mean that Sublessee shall
conduct a medical office practice on Premises with a full
staff of employees during those regularly scheduled
business hours that are common and appropriate to a full-
time medical practice. Failure to maintain an active
medical practice on the Premises shall constitute a default
of this Sublease Agreement.
3.3. Common Areas. Sublessee and Sublessee's agents, employees
and invitees shall have the revocable, nonexclusive license
in common with others permitted by Lessor, to use the
common areas of the Building as they, may from time to time
exist, but all such common areas will remain within the
exclusive control of Lessor.
3.4. Access by Sublessor. Lessee may at any time, without
liability, enter the Premises for inspection, to supply
janitorial or other services, for emergency entry or to
alter or repair the premises or any portion of the
Building. No provision of this Sublease Agreement shall be
construed as obligating Lessee to perform any repairs,
alterations or decorations at the request of Sublessee,
except as otherwise expressly herein agreed to be performed
by Lessee.
IV. Laboratory, Radiology and Hospital Services
4.1. Laboratory and Radiology Services. Lessee agrees to provide
laboratory and radiology services for non-Medicaid patients
at the discounted rates listed on the Schedules attached
hereto. These prices are subject to renegotiation and
extension each January.
4.2. Relationship to Hospital. Although the Lessee hopes that
the quality and cost-effective nature of the Hospital's
services will commend themselves to the Sublessee's
patients, it is clearly understood that the choice of
services and
<PAGE> 3
the choice of service suppliers that the Sublessee makes on
behalf of the Sublessee's patients must be, and will be
made only with regard to the best interest of patients
themselves. Therefore, so that there will be no
misunderstanding, Lessee and Sublessee specifically
acknowledge that the Sublessee's initial and continued
ability to sublease space in the Building in no way
requires and in no way is contingent upon the admission,
recommendation, referral, or any other form of arrangement
by the Sublessee for utilization by patients or others of
any item or service offered by the Hospital.
V. Noncompetition
5.1. Covenant Not to Compete. Sublessee recognizes (i) that
Lessee's entering into this Sublease Agreement to provide
the services offered hereby is induced by the covenants and
assurances made by Sublessee, (ii) that Sublessee's
covenant not to compete is necessary to ensure the
continuation of Lessee's business and (iii) that
irreparable harm and damage will be done to Lessee in the
event that Sublessee competes with Lessee within the area
or areas described in this Section. Therefore, Sublessee
agrees that during the term of this Sublease Agreement,
Sublessee will not, directly or indirectly, own, manage,
operate, control or participate in the management or
control of, be employed by or retained to provide services
for, lend Sublessee's name to, or maintain or continue any
interest whatsoever in, another medical office building or
any enterprise within Lessee's primary and secondary
service areas offering services similar to those offered by
Lessee, including, but no limited to, laboratory services,
radiology services and hospital services. Notwithstanding
the foregoing, this section shall not be construed to
prohibit membership on a hospital medical staff.
5.2. Existing Competition. The foregoing covenant not to compete
shall not apply to the following interests presently held
by Sublessee:
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VI. Other Services, Utilities and Taxes.
6.1. Services and Utilities Provided. Lessee agrees to furnish
during reasonable hours of generally recognized business
days (to be determined by Lessee) electricity, gas, water
heating and air conditioning for ordinary uses, and
elevator, janitorial and sewage services.
6.2. Direct Obligations of Sublessee. Sublessee shall be
responsible for all telephone and other utility services
billed directly to Sublessee, and for all
<PAGE> 4
property taxes assessed against Sublessee's leasehold
improvements and personal property located in the Premises.
VII. Finish-Out Alterations and Maintenance and Repairs.
7.1. Initial Finish-Out. Initial finish-out of the Premises
shall be by mutual consent of Lessee and Sublessee.
7.2. Subsequent Alterations. Sublessee may not make any
subsequent alterations, additions or improvements to the
Premises without first obtaining Lessee's written consent
(except for installation of unattached, movable equipment
or furniture that may be installed without drilling,
cutting or otherwise defacing the Premises.)
7.3. Maintenance and Repairs. Lessor shall, at its expense,
maintain the roof, foundation and the structural soundness
of the exterior walls of the Building, including the
Premises and the common areas, in good repair and
condition, reasonable wear and tear excepted, and except
for repairs occasioned by the acts or omissions of
Sublessee, its patients, employees, licensees or
concessionaires (unless such act or omission results in
damage covered by valid and collectible fire and extended
coverage insurance policies and is collectible thereunder).
VIII. Term, Termination and Default.
8.1. Term. The term of this Sublease Agreement shall be for a
period of three (3) years, beginning on the day Sublessee
moves into the Premises.
8.2. Default. The following events shall be deemed to be events
of default by Sublessee under this Agreement;
(i) failure to pay rent under this
Sublease Agreement, and such failure continues for a
period to ten days thereafter;
(ii) failure to maintain an active
medical practice on the Premises as required by
Section 3.2 of this Sublease Agreement;
(iii) permanent desertion or vacation of
any substantial portion of the Premises; and
(iv) failure to comply with the covenant
not to compete as required by Section V of this
Sublease Agreement.
8.3. Remedies Upon Default. Upon the occurrence of any event of
default, Lessee shall have the right, in addition to any
other rights Lessee may have, at law or in equity to
terminate this Sublease Agreement. Upon such termination,
Sublessee shall surrender the Premises to Lessee, and if
Sublessee fails to do so, Lessee may, without prejudice to
any other remedy that it may have for possession or
arrearages in the payment of rent, enter
<PAGE> 5
the Premises and take possession of the premises and any
equipment and personal property located therein, and expel
or remove Sublessee and any other person who may be
occupying the Premises or any part thereof, by force if
necessary, without being liable for prosecution or any
claim of damages therefor.
IX. Insurance and Liability.
9.1. Insurance. Sublessee shall procure and maintain, at its sole
cost and expense, throughout the term of this Sublease
Agreement, a policy or policies of general liability and
malpractice insurance, including, without limitation,
professional liability, insuring both Lessee and Sublessee
against all claims, demands or actions arising out of or in
connection with the operation or maintenance of the
Premises, with limits of such policy or policies to be in
amounts not less than One Hundred Thousand Dollars
($100,000) per occurrence and Three Hundred Thousand
Dollars ($300,000) in the aggregate per annum. Each of the
policies described herein shall be written, to the extent
practicable, on standard forms customarily used in Harris
County, Texas, and shall contain (i) the agreement of the
insurer to give Lessee at least thirty (30) days written
notice prior to cancellation of or material change in such
policies or any of them and (ii) waiver of subrogation
rights against Lessee. Sublessee shall furnish Lessee with
a duplicate copy of all policies of insurance (or
certificates therefor.)
9.2. Liability. Lessee shall not be liable to
Sublessee or to Sublessee's patients, employees, agents or
visitors, or to any other person or persons for any injury
or death to such persons or age to property on or about the
Premises caused by the negligence or misconduct of
Sublessee. Sublessee agrees to indemnify Lessee and hold
Lessee harmless from any loss, liability, claims, demands,
causes of action or expense, including attorneys' fees
arising out of any such damage, death, or injury; except
death or injury to persons or damage to property due to the
negligence or misconduct of the Lessee. Lessee agrees to
indemnify Sublessee and hold Sublessee harmless from any
loss, liability, claims, demands, causes of action or
expenses, including attorneys' fees, arising out of damage,
death, or injury caused by the negligence or misconduct of
Lessee; except death or injury to persons or damage to
property due to the negligence or misconduct of Sublessee.
X. Miscellaneous.
10.01. Assignment and Subletting. Sublessee shall not have the
right to assign this Sublease Agreement or to sublet the
whole or any part of the Premises, without the prior
written consent of Lessee and Lessor. Notwithstanding any
permitted assignment or subletting, Sublessee shall at all
times remain fully responsible and liable for the payment
of rent herein specified and for compliance with all of
Sublessee's other obligations under the terms and
conditions of this Sublease Agreement. Assignment with the
consent of Lessee shall be conditioned upon the written
acceptance by the prospective assignee of all the terms of
this Agreement. Lessee shall have the right to
<PAGE> 6
assign any of its rights and obligation under this Sublease
Agreement.
10.02. Legal Fees and Costs. In the event either party elects to
incur legal expenses to enforce or interpret any provision
of this Sublease Agreement, the prevailing party will be
entitled to recover such legal expenses, including, without
limitation, attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which
such party shall be entitled.
10.03. Choice of Law and Venue. The parties agree that this
Sublease Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, and that
the federal and/or state courts located in Harris County,
Texas shall be the exclusive courts of jurisdiction and
venue for any litigation, special proceeding or other
proceedings as between parties that may be brought, or
arise out of, in connection with or by reason of this
Agreement.
10.04. Notice. Any notice, demand or communication required,
permitted, or desired to be given hereunder shall be deemed
effectively given when personally delivered or mailed by
prepaid certified mail, return receipt requested, to the
addresses following the signatures to this Sublease
Agreement.
10.05. Severability. In the event any provision of this Sublease
Agreement is held to be invalid, illegal or unenforceable
for any reason and in any respect, such invalidity,
illegality, or unenforceability shall in no event affect,
prejudice or disturb the validity of the remainder of this
Sublease Agreement, which shall be and remain in full force
and effect, enforceable in accordance with its terms.
10.06. Gender and Number. Whenever the context of this Sublease
Agreement requires, the gender of all words herein shall
include the masculine, feminine and neuter, and the number
of all worlds herein shall include the singular and plural.
10.07. Divisions and Headings. The divisions of this Sublease
Agreement into sections and subsections and the use of
captions and headings in connection therewith are solely
for convenience and shall have no legal effect in
construing the provisions of this Sublease Agreement.
10.08. Waiver of Breach. The waiver by either party of a breach or
violation of any provision of this Agreement shall not
operate as, or be construed to be, a waiver of any
subsequent breach of the same of other provision hereof.
10.09. Entire Agreement/Amendment. This Sublease Agreement
supersedes all previous contracts and constitutes the
entire agreement of whatsoever kind or nature existing
between or among the parties respecting the within subject
matter and no party shall be entitled to benefits other
than those specified herein. As between or among the
parties, no oral statements or prior written material no
specifically incorporated or referenced herein shall be of
any force and effect. The parties specifically acknowledged
that in entering into
<PAGE> 7
and executing this Sublease Agreement, the parties rely
solely upon the representations and agreements contained in
this Sublease Agreement and no others. All prior
representations or agreements, whether written or verbal,
not expressly incorporated or referenced herein are
superseded and no changes in or additions to this Sublease
Agreement shall be recognized unless and until made in
writing and signed by all parties hereto.
IN WITNESS WHEREOF, Lessee and Sublessee have each caused this
Agreement to be executed and to be effective as of the day and year first above
written.
LESSEE: SAN JACINTO METHODIST HOSPITAL
By: /s/ROD SEIDEL
-----------------------
Rod Seidel
President
4401 Garth Road
Baytown, Texas 77521
SUBLESSEE:
By: /s/Dr. C.A. Riser
------------------------
Dr. C.A. Riser
Print Name and Title
4308 Garth Rd.
-----------------------
Address
Baytown, TX 77021
-----------------------
City, State Zip Code
<PAGE> 1
EXHIBIT 10.3.7
LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
1.01 DATE OF LEASE: DECEMBER 15, 1991
1.02 LANDLORD: JOHN D. WILLBANKS, ET AL
1.03 TENANT: JIM W. CZEWSKI
1.04 PROPERTY: Approximately 2200 square feet of space situated at 301 West
Central Avenue, Ft. Worth, Texas 76106, Tarrant County,
Texas.
Legal Description: Half of Lot 12, Block 17, North Ft. Worth
Addition.
1.05 LEASE TERM: Sixty months commencing on the first day of January,1992
and ending twelve months from said date, 1996.
1.06 RENT: $1400.00 per month beginning as 1.05 stipulates for Exhibit A,
B, C, and D.
1.07 SECURITY DEPOSIT: N/A
1.08 LAST MONTH RENT PAYABLE IN ADVANCE: N/A
1.09 PERMITTED USE: Medical Clinic
1.10 BASE YEAR FOR TAXES: 1990 (See Section 12.02)
1.11 RENT PAID TO : John D. Willbanks
8601 Iron Gate Court
Ft. Worth, Tx. 76179
1.12 DAILY LATE CHARGE: (See Section 3.02) $5.00 per day.
1.13 PRINCIPAL REALTOR: None
1.14 COOPERATING REALTOR: None
1.15 COMMISSIONS: None
<PAGE> 2
ARTICLE TWO: LEASE AND LEASE TERM
2.01 Lease of Property. Landlord hereby leases the Property to Tenant and
Tenant hereby leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term.
2.02 Early Occupancy. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease.
2.03 Holding Over. Tenant shall vacate the Property upon the expiration or
earlier termination of the Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon
the expiration or earlier termination of this Lease, Tenant's occupancy of the
Property shall be "month-to-month" tenancy, subject to all the terms and
provisions applicable to a month-to-month tenancy, except that the rent then in
effect shall be increased by fifty percent (50%).
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 Rent. Tenant agrees to pay rent for the Property at the rate specified
in Section 1.06. Tenant shall pay the rent for the first and last (if
applicable under Section 1.06) months of the Lease Term upon the execution of
the Lease. One monthly rental installment shall be due and payable on or before
the same day of the second calendar month of the Lease Term as the Commencement
Date, and a like monthly installment shall be due and payable on or before the
same day of each succeeding calendar month during the Lease Term. All rent
shall be paid to the party designated in Section 1.11 at the address stated
herein for such party.
3.02 Late Charge. If any rent due hereunder is not received within 10 days
after its due date. Tenant shall pay the part named in Section 1.11 above a
late charge equal to the sum stated in Section 1.12 above for each day from its
due date until such delinquent sum is received. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of such late payment.
3.03 Security Deposit. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.11 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No interest shall be paid on the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its other accounts and
no trust relationship is created with respect to the Security Deposit. Upon any
termination of the Lease not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 Permitted Use. Tenant may use the Property only for the Permitted Use
stated in Section 1.09.
4.02 Compliance with Law. Tenant shall comply with all governmental Laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
perversion and abatement of nuisances on or upon, or connected with the
Property, all at Tenant's sole expense.
4.03 Signs. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including
but not limited to the roof or exterior walls of the building or other
improvements thereon, or paint or otherwise deface said exterior walls. Any
signs installed by Tenant shall conform with applicable laws and deed and other
restrictions. Tenant shall remove all signs at the termination of this Lease
and shall repair any damage and close any holes caused or revealed by such
removal.
4.04 Utilities. Tenant shall pay the cost of utility services, including
but not limited to initial connection charges, all charges for gas, water and
electricity used on the Property, and for all electric lights, lamps and tubes.
4.05 Landlord's Access. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the property and any buildings
and other improvements thereon to view, inspect, repair or show the property.
Landlord shall attempt to advise Tenant of the [??] of Landlord or its
authorized agents to enter the property.
4.06 Interruption of Services. Interruption of curtailment of services
furnished to the Property, if caused by [??], mechanical difficulties, or any
cause beyond Landlord's control, whether similar or dissimilar to these
enumerated, shall not entitle Tenant to any claim against Landlord or to any
abatement in rent, nor shall the same constitute constructive or partial
eviction, unless Landlord fails to take such measures as may be reasonable in
[??] circumstances to restore the service without undue delay. If the premises
are rendered untenantable in whole or in part for fifteen (15) business days
because of such interruption or curtailment of services (other than caused by
any act or omission of Tenant or is invitees, employees or customers) there
shall be a proportionable abatement of rent during the period of such
untenantability.
4.07 Exemptions From Liability. Landlord shall not be liable for any
damage or injury to the person, business (or any income therefrom), goods
wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Property, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity, water, gas,
or rain: (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing air conditioning or lighting fixtures
or any other cause; (c) conditions arising on or about the Property or upon
other portions of any building of which the Property is a part, or from other
sources or places: or (d) any act or omission of any other tenant or any
building of which the Property is a part. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
4.07 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATIONS
5.01 Acceptance of Premises. Tenant acknowledges that Tenant has fully
inspected the Property. Tenant hereby accepts the Property and the buildings
and improvements situated thereon, as suitable for the purpose for which the
same are leased, in their present condition (including all later or
environmental defects or risks), with such changes therein as may be caused by
reasonable deterioration between the date hereof and the Commencement Date;
provided that Landlord agrees to (a) repair promptly any presently installed
plumbing, plumbing fixtures, electrical wiring, lighting fixtures, air
conditioning or heating equipment or doors that are not in good working
condition on the Commencement Date of which Tenant delivers written notice to
Landlord within thirty days after the Commencement Date; (b) Landlord expressly
disclaims and Tenant waives any and all warranties including the warranty of
suitability, representations and obligations of Landlord or Landlord's agents
that are not expressly stated herein.
<PAGE> 3
5.02 Maintenance and Repairs by Landlord. Landlord shall at its expense
maintain only the roof, foundation, underground pipes, all outside plumbing and
the structural soundness of the exterior wall (excluding all windows, window
glass, plate glass, and all doors) of the Improvements on the Property in good
repair and condition, except for reasonable wear and tear and any damage caused
by the act or omission of Tenant, or Tenant's Invitees, employees or customers.
Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and Landlord shall proceed promptly to make such repairs or
corrections.
5.03 Maintenance and Repairs by Tenant. Tenant shall at its expense and
risk maintain all other parts of the improvements on the Property in good
repair and condition, including but not limited to repairs (including all
necessary replacements) to the interior plumbing, windows, window glass, plate
glass, doors, heating system, air conditioning equipment, fire protection
sprinkler system, elevators, and the interior of the said improvements in
general; and including the reasonable care of landscaping and regular mowing of
the grass, and maintenance of the paving outside of the improvements and any
railroad siding. Provided, however, that if Tenant occupies a portion of a
multi-tenant building, then Tenant shall not have to maintain the landscaping,
grass area, outside paving or railroad siding, if any. In the event Tenant
should neglect reasonably to maintain the demised premises, Landlord shall have
the right (but not the obligation) to cause repairs or corrections to be made
and any reasonable costs therefor shall be payable by Tenant to Landlord as
additional rental on the next rental payment due date. Upon termination of
this Lease, Tenant shall deliver up the Property in good repair and condition,
reasonable wear and tear, and damage by fire, windstorms or other casualty
excepted. Tenant shall repair any damage caused by Tenant's act or omission,
or the act or omission of Tenant's Invitees, employees or customers.
5.04 Alterations. Tenant shall not create any openings in the roof or
exterior wall, or make any alterations, additions or improvements to the
Property without the prior written consent of Landlord. Consent to
nonstructural alterations, additions or improvements shall not be unreasonably
withheld by Landlord. Tenant shall have the right to erect or install shelves,
bins, machinery, air conditioning or heating equipment and trade fixtures,
provided that Tenant complies with all applicable governmental laws, ordinances
and regulations. At the expiration or termination of this Lease, Tenant shall
be subject to the restrictions of Section 5.05 below, have the right to remove
such items so installed by it, provided Tenant is not in default at the time of
such removal and provided further that Tenant shall, at the time of removal of
such items, repair in a good and workmanlike manner any damage, caused by
installation or removal thereof. Tenant shall pay for all costs incurred or
arising out of alterations, additions or improvements in or to the Property and
shall not permit a mechanic's or materialman's lien to be asserted against the
Property.
5.05 Condition Upon Termination. Upon the termination of this Lease, Tenant
shall surrender the Property to Landlord, broom clean and in the same condition
as received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of this Lease. However, Tenant shall
not be obligated to repair any damage which Landlord is required to repair
under Article Five. In addition, Landlord may require Tenant to remove any
alterations, additions or improvements (whether or not made with Landlord's
consent) prior to the termination of this Lease and to restore the Property to
the prior condition, all at Tenant's expense. All alterations, additions and
improvements which Landlord has not required Tenant to remove shall become
Landlord's property and shall be surrendered to Landlord upon the termination
of this Lease. In no event, however, shall Tenant remove any of the following
materials or equipment without Landlord's prior written consent: any power
wiring or power panels; lighting or signing fixtures; wall coverings, drapes,
blinds or other window coverings; carpets or other floor coverings; heaters, air
conditioners or any other heating or air conditioning equipment; fencing or
security gates; or other similar building operation equipment and decorations.
ARTICLE 6.00 Insurance and Indemnity
6.01 Property Insurance. Tenant shall not keep anything upon the Property,
or do anything in or about Property except the usage specified herein, which
will increase the rates for fire and standard extended coverage insurance upon
the building or buildings which are a part of the Property. Tenant agrees to
pay on demand any increase in insurance premiums that may be charged to
Landlord during the term of this Lease resulting from a deviation from the
usage specified herein or from any other cause within Tenant's control. Tenant
shall be responsible for maintaining insurance on Tenant's equipment and other
personal property located on the Property.
6.02 Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000.
6.03 Indemnity. Tenant hereby agrees to indemnify Landlord and hold it
harmless from any loss, expense or claims arising out of any injury to persons
or damage to property on or about the Property or any adjacent area owned by
Landlord caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensee or concessionaires or any other person entering the
Property under express or implied invitation of Tenant, or arising out of the
use of the Property by Tenant and the conduct of its business therein or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder. Tenant shall not be liable for any injury or damage
caused by the negligence or misconduct of Landlord, or its employees or agents
and Landlord agrees to indemnify Tenant and hold it harmless from any loss,
expenses or damage arising out of such damage or injury.
6.04 Waiver of Subrogation. Landlord and Tenant each hereby waive any and
all rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to the property
or the property of others under its control; if such loss or damage is covered
by any insurance policy, in force (whether or not described in this lease) at
the time of such loss or damage; provided, however, such waiver is made only on
the condition that it does not adversely affect the right of the insured to
recover under the applicable insurance policy or policies. Upon obtaining the
policies of insurance described in this Lease, Landlord and Tenant shall give
notice to the insurance carrier or carriers of the foregoing mutual waiver of
subrogation and shall cause such insurance policies to be properly endorsed.
ARTICLE SEVEN: ABANDONMENT and SUBLETTING
Tenant shall not assign this agreement by The premises, or any part thereof
without the consent of the Landlord in writing, which consent
Landlord agrees it will not be unreasonably withhold, but no assignment or
subletting shall release the Tenant from any obligations hereunder.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
In the event the building or other improvement situated on the Property are
partially or rendered partially unfit for occupancy by like or other casualty,
damaged or destroyed. Tenant shall give immediate notice to Landlord.
Landlord may repair the damage and restore such building or other improvements
to substantially the same condition as immediately prior to the occurrence of
the casualty. Such repairs shall be made at Landlord's expense unless due to
the act or omission of Tenant or Tenant's invitees, employees or customers.
Landlord shall allow Tenant a fair reduction of rent during the time such
building or other improvements are partially unfit for occupancy. If the
building or other improvements situated on the Property are totally destroyed
or deemed by Landlord to be rendered unfit for occupancy by fire or other
casualty, or if Landlord shall decide not to repair or rebuild, this Lease
shall terminate and the rent shall be paid to the date of such casualty.
<PAGE> 4
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 Default. The following events shall be deemed to be events of
default under this Lease:
a. Failure of Tenant to pay any installment of the rent or
other sum payable to Landlord hereunder on the date that same is due
and such failure shall continue for a period of five (5) days;
b. Failure of Tenant to comply with any term, condition or
covenant of this Lease, other than the payment of rent or other sum of
money, and such failure shall not be cured within thirty (30) days
after written notice thereof to Tenant;
c. Tenant shall make an assignment for the benefit of
creditors;
d. Abandonment by Tenant of any substantial portion of the
Property or cessation of the use of the Property for the purpose
leased.
9.02 Remedies. Upon the occurrence of any of the events of default listed
in Section 9.01, Landlord shall have the option to pursue any one or
more of the following remedies without any notice or demand
whatsoever;
a. Terminate this Lease, in which event Tenant shall immediately
surrender the Property to Landlord. If Tenant fails to so surrender
such premises, Landlord may, without prejudice to any other remedy
which it may have for possession of the Property or arrearages in
rent, enter upon and take possession of the Property and expel or
remove Tenant and any other person who may be occupying such premises
or any part thereof. Landlord may hold Tenant liable for all rent and
other indebtedness accrued to the date of such termination, plus, as
liquidated damages and not as a penalty, an amount equal to the then
present value of rent provided for hereunder for the remaining portion
of the Lease Term (had this Lease not been terminated) using a ten
(10%) percent value discount factor. In the event Landlord elects to
terminate this Lease by reason of an event of default, in lieu of
recovering from Tenant under the preceding sentence, Landlord may hold
Tenant liable for the amount of all loss and damages which Landlord
may suffer by reason of such termination, whether through inability to
relet the Property on satisfactory terms or otherwise.
b. Enter upon and take possession of the Property without terminating
this Lease, and expel or remove Tenant and any other person who may be
occupying such premises or any part thereof. Landlord may relet the
Property and receive the rent therefor. Tenant agrees to pay to
Landlord monthly or on demand from time to time any deficiency that
may arise by reason of any such reletting. In determining the amount
of such deficiency, the brokerage commission, attorneys fees,
remodeling expenses and other costs of reletting shall be subtracted
from the amount of rent received under such reletting.
c. Enter upon the Property without terminating the Lease, and
do whatever Tenant is obligated to do under the terms of this Lease.
Tenant agrees to pay Landlord on demand for expenses which Landlord
may incur in thus effecting compliance with Tenant's obligations under
this Lease, together with interest thereon at the rate of twelve (12%)
percent per annum from the date expended until paid. Landlord shall
not be liable for any damages resulting to Tenant from such action,
whether caused by negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the Property if Tenant's
goods, equipment, or other property are removed from the Property in
an amount substantial enough to indicate a probable intent to abandon
the Property and such removal is not within the normal course of
Tenant's business. In the event that Tenant is presumed to have
abandoned the Property, Landlord may remove and store any property of
Tenant that remains on the Property. Landlord may store such property
at any location satisfactory to Landlord. Landlord may dispose of such
stored property after the expiration of sixty (60) days from the date
such property is so stored. Landlord shall deliver by certified mail
to Tenant at Tenant's last known address as shown by Landlord's
records a notice stating that Landlord may dispose of Tenant's
property if Tenant does not claim the same within sixty (60) days
after the date the property was stored.
e. In the event Tenant is in default under this Lease by reason of
Tenant's failure to pay rent as set forth above, the Landlord may, at
Landlord's option, change all door locks and leave a written notice on
a door to Tenant's leased premises stating the name and address or
telephone number of the individual from whom a new key can be obtained
during Tenant's regular business hours, which are defined for this
purpose as being between 9:00 a.m. and 5:00 p.m. on Monday through
Friday of each week. Tenant hereby waives the three (3) days written
notice to vacate required by Texas Property Code Section 24.005 and
agrees that one (1) day written notice to vacate is sufficient for
purposes of Texas Property Code Section 24.005 and the filing of a
Forcible Entry and Detainer lawsuit.
Upon the occurrence of any such events of default, Landlord may
enter upon and take possession of the Property by force, if necessary,
without being liable for prosecution of any claim for damages
therefor. Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, conditions and covenants herein
contained.
<PAGE> 5
10.05 Payment to Principal Realtor. Landlord shall be liable for payment of
all commissions to Principal Realtor only, whereupon it shall be protected from
any claims from any Cooperating Realtor or broker.
ARTICLE ELEVEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. If all or any portion of the
Property is taken under the power of eminent domain or sold under the threat of
that power (all of which are called "Condemnation"), this lease shall terminate
as to the part taken or sold or the date the condemning authority takes title
or possession, whichever occurs first. If more than 20 percent (20%) of the
floor area of the building in which the Property is located, or which is
located on the Property is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten
(10) days after the condemning authority takes possession). If neither Landlord
nor Tenant terminates this Lease, this Lease shall remain in effect as to the
portion of the Property not taken, except that the rent shall be reduced in
proportion to the reduction in floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its Interest in the Property: (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property: and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the lease or otherwise. If this
Lease is not terminated, Landlord shall repair any damage to the Property
caused by the Condemnation, except that Landlord shall not be obligated to
repair any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not sufficient to
pay for such repair, Landlord shall have the right to either terminate this
Lease or make such repair at Landlord's expense.
ARTICLE TWELVE: TAXES
12.01 Payment by Landlord. Landlord shall pay the real estate taxes on the
Property during the Lease Term.
12.02 Payment by Tenant. Tenant shall pay the party named in Section 1.11
above, as additional rental, the excess, if any, of the real estate taxes on
the Property for any year during the Lease Term over the real estate taxes on
the Property for the base year stated in Section 1.10. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the
amount and computation of such increases. Tenant shall be responsible for the
pro-rata portion of such additional rental for any fractional part of a year
preceding the end of the Lease Term, which prorated sum shall be due and
payable upon the termination of this Lease. If the termination of this Lease
occurs before the tax rate is fixed for the particular year, the proration
shall be upon the basis of the tax rate for the preceding year applied to the
latest assessed valuation, and notwithstanding the termination of this Lease.
Any difference in the actual real estate taxes for such year shall be
adjusted between the parties upon receipt of written evidence of the payment
thereof.
12.03 Joint Assessment. If the Property is not separately assessed, Tenant's
share of the real estate taxes payable by Tenant under Section 12.02 shall be
determined from reasonably available information. Landlord shall make a
reasonable determination of Tenant's proportionate share of such real estate
taxes and Tenant shall pay such share to Landlord within fifteen (15) days
after receipt of Landlord's written statement.
12.04 Contest by Tenant. Tenant may, at its own expense, contest any tax or
assessment for which Tenant may be wholly or partially responsible. Except as
hereinafter provided, Tenant need not pay the tax, assessment or charge during
the pendency of the contest and Tenant may prevent Landlord from paying any
tax, assessment or charge that Tenant is contesting pursuant to this section
12.04, pending any resolution of the contest, by depositing with Landlord,
before such tax assessment or charge becomes delinquent, Tenant's portion of
the full amount of the tax or assessment, plus the full amount of any penalty
that might be imposed for the failure to make timely payment and six (6) months
of interest at the rate imposed by the entity levying the tax or assessment.
Upon final resolution of the tax or assessment contest, Landlord may use the
money deposited by Tenant to pay Tenant's portion of any tax or assessment,
plus the full amount of any penalty or;interest, due under the final
resolution, and Tenant shall receive the balance of the deposit, if any. If the
deposit is insufficient to pay these amounts, Tenant must immediately pay such
insufficiency to Landlord. Notwithstanding the foregoing, Landlord may pay, or
require Tenant to pay, any tax, assessment or charge, or any portion thereof,
for which Tenant is responsible under this Article Twelve, pending resolution
of Tenant's contest of the tax, assessment or charge. If payment is demanded by
a holder of a mortgage on the property, or if failure to pay will subject all
or part of the Property to forfeiture or loss. Landlord reserves the right to
contest any tax, assessment or charge on the Property.
ARTICLE THIRTEEN: LANDLORD'S LIEN
In addition to the statutory landlord's lien, Tenant hereby grants to Landlord
a security interest to secure payment of all rent and other sums of money
becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated in or upon the
Property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of Landlord until all
arrearage in rent and other sums of money then due to Landlord hereunder shall
first have been paid and discharged. Upon request by Landlord, Tenant agrees to
execute and deliver to Landlord a financing statement in turn sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force
in the State of Texas.
<PAGE> 6
ARTICLE FOURTEEN: SUBORDINATION ATTORNMENT AND NON-DISTURBANCE
14.01 Subordination. Landlord shall have the right to subordinate this Lease
to any ground Lease, deed of trust or mortgage encumbering the Property and
advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien on its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this lease is dated prior or subsequent to the
date of said ground lease, deed of trust or mortgage of the date of recording
thereof.
14.02 Attornment. If Landlord's interest in the Property is required by any
ground lessor, beneficiary under a deed of trust, mortgage or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
14.03 Signing of Documents. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
14.04 Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying (i) that none of
the terms or provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) that this
Lease has not been cancelled or terminated; (iii) the last date of
payment of the rent and other charges and the time period covered by
such payment; and (iv) that Landlord is not in default under this Lease
(or, if Landlord is claimed to be in default, stating why). Tenant
shall deliver such statement to Landlord within ten (10) days after
Landlord's request. Any such statement by Tenant may be given by
Landlord to any prospective purchaser or encumbrancer of the Property.
Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
ten (10) day period, Landlord, and any prospective purchaser or
encumbrancer may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been
changed except as otherwise represented by Landlord; (ii) that this
Lease has not been cancelled or terminated except as otherwise
represented by the Landlord; (iii) that not more than one month's rent
or other charges have been paid in advance; and (iv) that Landlord is
not to default under the Lease. In such event, Tenant shall be estopped
from denying the truth of such facts.
ARTICLE FIFTEEN: MISCELLANEOUS
15.01 Exhibits. All exhibits, attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all purposes with the
same force and effect as if copied at full length herein.
15.02 Interpretation. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural, unless the contract otherwise requires. In any provision
relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors,
permitted assigns or others using the Property with Tenant's expressed or
implied permission.
15.03 Captions. The captions or headings of paragraphs in the Lease are
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
15.04 Waivers. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provisions of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future.
No statement on a check from Tenant or in a letter accompanying a payment check
shall be binding on Landlord. Landlord may, with or without notice to Tenant,
negotiate such check without being bound to the conditions of such statement.
15.05 Severability. A determination by a court of competent jurisdiction that
any provision of this Lease or any part thereof is illegal or unenforceable
shall not cancel or invalidate the remainder of such provision of this Lease,
which shall remain in full force and effect.
15.06 Joint and Several Liability. All parties signing this Lease as Tenants
shall be jointly and severally liable for the obligations of Tenant.
15.07 Incorporation of Prior Agreements; Modifications. This lease is the
only agreement between the parties pertaining to the lease of the Property and
no other agreements are effective. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendments shall be
void.
15.08 Binding Effect. The terms, conditions and convenants contained in the
Lease, shall apply, to inure to the benefit of, and be binding upon the parties
hereto and their respective representatives, successors and permitted assigns,
except as otherwise herein expressly provided. All rights, powers, privileges,
immunities and duties of Landlord under this Lease, including but not limited
to any notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by Landlord's
agent or attorney.
15.09 Notices. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not when
deposited in the United States Mail, postage prepaid, registered or certified
mail, return receipt requested, addressed to parties hereto at the respective
addresses stated herein, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith. Notices to
Tenant shall be delivered to the address specified on the signature page herein,
except that, upon Tenant's taking possession of the Property, the Property
address shall be Tenant's address for notice purposes.
15.10 Force Majeure. In the event performance by Landlord of any term,
condition or convenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood or any other cause not within the control of
Landlord, the period of performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or
hindered.
<PAGE> 7
15.11 Attorneys' Fees. If on account of any breach or default of any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Realtor(R)), It shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
15.12 Time of Essence. Time is of the essence of this Lease.
ARTICLE SIXTEEN: SPECIAL PROVISIONS AND RIDERS.
Special provisions may be set forth in the blank space and/or on a
rider or riders attached hereto. If no additional provisions are to be inserted
in the blank space below, please draw a line through such space. If no rider or
riders are to be attached hereto, please state "No Riders" in the blank space
below. If a rider or riders are to be attached hereto, please state in the
blank space below: "See Rider or Riders Attached," and please have Landlord and
Tenant initial all such riders.
ADDENDUM "AA" TO LEASE AGREEMENT
BETWEEN
JOHN D. WILLBANKS, LANDLORD
AND
DR. JIM W. CZEWSKI, TENANT
1. All utility expenses are Tenant's responsibility. The utilities at
presently serve subject property are in the Landlord's name and will be
paid by Landlord. However, Tenant agrees to reimburse Landlord for
this expense within five (5) days of receipt of bills by Landlord.
2. Reference proposed lease on clinic building, storage facility, and
allocated parking spaces.
EXECUTED as of the date stated in Section 1.01 above.
LANDLORD TENANT
JOHN D. WILLBANKS, SR. JIM W. CZEWSKI
----------------------------- --------------------------
By:/s/ JOHN D. WILLBANKS, SR. By: /s/ JIM W. CZEWSKI
-------------------------- -----------------------
TITLE: OWNER TITLE: PRESIDENT
----------------------- --------------------
ADDRESS: 8601 Iron Gate Ct. ADDRESS:
--------------------- ------------------
Ft. Worth, Texas
--------------------- ------------------
76179
--------------------- ------------------
Phone: 626-0511
--------------------- ------------------
Date of execution by Landlord: Date of execution by Tenant:
12-30-1991 12-30-1991
----------------------------- ---------------------------
<PAGE> 8
[MAP OF FACILITY]
<PAGE> 9
ADDENDUM
To The Certain Lease Between John D. Willbanks, etal and Dr. J. Czweski dated
December 30, 1991.
It is agreed that the new lease payment will be $2000.00, paid in advance each
month in U.S.A. funds. (Replaces $1400.00, per month payment).
The term of the lease will be five years (sixty months). Commencement of the
$2000.00 will begin when the construction is completed and building occupied.
Completion date is expected to be on or before march 31, 1992. Utilities will
continue to be paid by Dr. Czweski.
Willbanks will make the following changes to the building at 301 W. Central
Avenue.
1. Install a new 10T airconditioner/heating unit on the roof with
new duct work in hallway and 6" by 10" registers in all rooms.
Note: It is understood that the building will be without heat
and air for approximately one week.)
2. Remove existing roof and replace it with a new 3-ply roof.
3. Modify existing and install new electrical where needed.
4. Install cabinets near laboratories as requested.
5. Install new floor tile and carpet where requested. Allowance
of $4,000.00 total includes base trim: excludes sales tax.
6. Construct 10'x20' addition as per plans; includes two rest
rooms and a 3'x7' outside metal door in East end of
building.
7. Install new Dalworth drop in ceiling, 2'x2' white tile, in
all rooms, hall and lobby; new wall height approximate 96".
8. Textone and paint rooms and trim that were not done January,
1992.
9. Willbanks will use his best effort to complete the project as
scheduled, but cannot be held responsible for delays caused by
weather or local building codes.
10. Dr. Czewski agrees to furnish building access to contractors.
11. All construction cost will be born by Willbanks.
12. Cut door in west end of hallway to reception room.
13. Cut door between labs.
14. Add door and wall in South end of ER room.
<PAGE> 10
Page two
Addendum - Czweski/Willbanks Lease
15. Add wall across hall at West end of building.
16. Install door from reception room to front rest room.
17. Add door from lab to Dr. Czweski's garage office.
18. Add sliding door between Dr. Czewski's office and Cindy.
19. Put exhaust fans in all rest rooms.
20. Add 3' x 3' closet in Cindy's office vented for computer.
21. Add sink and drain boards in kitchen.
22. Add bottom cabinets to all cabinets.
23. Install 20 gallon electric heater, kill existing gas service.
25. Move electric plug in hallway per instructions.
26. Rework cabinet doors in ER room. Add flanges and cut off top
of two doors. Cut all doors for 8'0' ceilings.
27. Take out shelves in "Logan's" office.
28. Prepare front desk top per instructions.
Note: Washer and dryer nor file cabinets not included in
agreement.
Signed: /s/ DR. JIM CZWESKI, Tenant /s/ JOHN D. WILLBANKS, Owner
-------------------- ----------------------
Dr. Jim Czweski John D. Willbanks
Dated: 11/17/92 11-17-92
-------------------- ----------------------
<PAGE> 1
EXHIBIT 10.3.9
LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
1.01 DATE OF LEASE: April 1, 1996
1.02 LANDLORD: HCT Management & Ventures Company
4916 Camp Bowie Boulevard Ft. Worth, TX 76107
1.03 TENANT: The Company Doctor
8585 Stemmons Frwy Suite 107N Dallas, TX 75247
1.04 PROPERTY: Approximately 4,385 square feet of space situated at
4775 South Frwy (street address)
Ft. Worth, TX 76115 Tarrant County, Texas
Legal Description: Lot 2, Block 24, Southland Terrace, Fifth
1.05 LEASE TERM: 60 months, commencing on the 1st day of May, 1996,
and ending on the 31st day of March, 2001
1.06 RENT: Four Thousand nineteen and 58/100 Dollars ($4019.58) per month
beginning on the Commencement Date through March 31, 2001.
___________________________________________ Dollars ($__________)
per month beginning _________, 19 through ____________________.
___________________________________________ Dollars ($__________)
per month beginning _________, 19 through ____________________.
1.07 SECURITY DEPOSIT
(See Section 3.03): n/a _______________________________________ Dollars
($ ). (If none, so state)
1.08 LAST MONTH'S RENT PAYABLE IN ADVANCE: __________________________ Dollars
($ ). (If none, so state)
1.09 PERMITTED USE (See Section 4.01): Medical Facility
1.10 BASE YEAR FOR TAXES (See Section 11.02):
1.11 RENT TO BE PAID TO: HCT Management & Ventures Company
Address: 4916 Camp Bowie Boulevard Fort Worth, TX 76107
1.12 LATE CHARGE (See Section 3.02): Twenty Dollars $20.00).
(If none, so state)
ARTICLE TWO: LEASE AND LEASE TERM
2.01 Lease of Property. Landlord hereby leases the Property to Tenant and
Tenant hereby leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term.
2.02 Early Occupancy. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease.
2.03 Holding Over. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon
the Expiration or earlier termination of this Lease, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all the terms and
provisions applicable to a month-to-month tenancy, except that the rent then in
effect shall be increased by fifty percent (50%).
Notwithstanding anything contained herein to the contrary, in the event
that the premises are not delivered to Tenant by Landlord on or before the
Commencement Date for the purposes of Tenant's occupancy, Tenant shall only be
required to pay Rent herein for the number of days during the first month on
the Term acctually occupied by Tenant, which Rent shall be calculated using a
daily rate of $133.99.
<PAGE> 2
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 Rent. Tenant agrees to pay rent for the Property at the rate specified
in Section 1.06. Tenant shall pay the rent for the first and last (if
applicable under Section 1.08) months of the Lease Term upon the execution of
this Lease. One monthly rental installment shall be due and payable on or
before the same day of the second calendar month of the Lease Term as the
Commencement Date, and a like monthly installment shall be due and payable on
or before the same day of each succeeding calendar month during the Lease Term.
All rent shall be paid to the party designated in Section 1.11 at the
address stated herein for such party.
3.02 Late Charge. If any rent due hereunder is not received within five (5)
days after its due date, Tenant shall pay the party named in Section 1.11 above
a late charge equal to the sum stated in Section 1.12 above for each day from
its due date until such delinquent sum is received. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of such late payment.
3.03 Security Deposit. Upon execution hereof, Tenant shall deposit with
the party named in Section 1.11 above a cash Security Deposit in the sum stated
in Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No interest shall be paid on the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its other accounts and
no trust relationship is created with respect to the Security Deposit. Upon any
termination of the Lease not resulting from Tenant's default, and after tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 Permitted Use. Tenant may use the Property only for Permitted Use
stated in Section 1.09.
4.02 Compliance with Law. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances on or upon or connected with
the Property, all at Tenant's sole expense.
4.03 Signs. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including
by not limited to the roof or exterior walls of the building or other
improvements thereon, or paint or otherwise deface said exterior walls. Any
signs installed by Tenant shall conform with applicable laws and deed and other
restrictions. Tenant shall remove all signs at the termination of this Lease
and shall repair any damage and close any holes caused or revealed by such
removal.
4.04 Utilities. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water and electricity used on the Property, and for all electric lights, lamps
and tubes.
4.05 Landlord's Access. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the property and any buildings
and other improvements thereon to view, inspect, repair or show the Property.
Landlord shall attempt to advise Tenant of the intent of Landlord or its
authorized agents to enter the Property.
4.06 Interruption of Service. Interruption or curtailment of services
furnished to the Property, if caused by strikes, mechanical difficulties, or
any cause beyond Landlord's control, whether similar or dissimilar to those
enumerated, shall not entitle Tenant to any claim against Landlord or to any
abatement in rent, nor shall the same constitute constructive or partial
eviction, unless Landlord fails to take such measures as may be reasonable in
the circumstances to restore the service without undue delay. If the premises
are rendered untenantable in whole or in part for fifteen (15) business days
because of such interruption or curtailment of services (other than caused by
any act or omission of Tenant or its invitees, employees or customers) there
shall be a proportionate abatement of rent during the period of such
untenantability.
4.07 Exemptions from Liability. Landlord shall not be liable for any damage
or injury to the person, business (or any loss of income therefrom) goods,
wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Property, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity, water, gas,
or rain; (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures or any other cause; (c) conditions arising on or about the Property or
upon other portions of any building of which the Property is a part, or from
other sources or places; or (d) any Act or omission of any other tenant of any
building of which the Property is a part. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
4.07 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
<PAGE> 3
ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATIONS
5.01 Acceptance of Premises. Tenant acknowledges that Tenant has fully
inspected the Property. Tenant hereby accepts the Property and the buildings
and improvements situated thereon, as suitable for the purpose for which the
same are leased, in their present condition (including all later or
environmental defects or risks), with such changes therein as may be caused by
reasonable deterioration between the date hereof and the Commencement Date;
provided that Landlord agrees to (a) repair promptly any presently installed
plumbing, plumbing fixtures, electrical wiring, lighting fixtures, air
conditioning or heating equipment or doors that are not in good working
condition on the Commencement Date of which Tenant delivers written notice to
Landlord within thirty days after the Commencement Date. Landlord expressly
disclaims and Tenant waives any and all warranties including the warranty of
suitability, representations and obligations of Landlord or Landlord's agents
that are not expressly stated herein. Subject to the improvements to be
constructed by the Lessor as shown on the plans attached - Exhibit B (Plans).
5.02 Maintenance and Repairs by Landlord. Landlord shall at its expense
maintain only the roof, foundation, underground pipes, all outside plumbing and
the structural soundness of the exterior wall (excluding all windows, window
glass, plate glass, and all doors) of the improvements on the property in good
repair and condition, except for reasonable wear and tear and any damage caused
by the act or omission of Tenant, or Tenant's invitees, employees or customers.
Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and landlord shall proceed promptly to make such repairs or
corrections.
5.03 Maintenance and Repairs by Tenant. Tenant shall at its expense and
risk maintain all other parts of the improvements on the Property in good
repair and condition, including but not limited to repairs (including all
necessary replacements) to the interior plumbing, windows, window glass, plate
glass, doors, heating system, air conditioning equipment,fire protection
sprinkler system, elevators, and the interior of the said improvements in
general; and including the reasonable care of landscaping and regular mowing of
the grass, and maintenance of the paving outside of the improvements and any
railroad siding. Provided, however, that if Tenant occupies a portion of a
multitenant building, then Tenant shall not have to maintain the landscaping,
grass areas, outside paving or railroad siding, if any. In the event Tenant
should neglect reasonably to maintain the demised premises, landlord shall have
the right (but not the obligation) to cause repairs or corrections to be made
and any reasonable costs therefor shall be payable by Tenant to Landlord as
additional rental on the next rental payment due date. Upon termination of this
Lease, Tenant shall deliver up the Property in good repair and condition,
reasonable wear and tear, and damage by fire, windstorms or other casualty
excepted. Tenant shall repair any damage caused by Tenant's act or omission, or
the act or omission of Tenant's invitees, employees or customers.
5.04 Alterations. Tenant shall not create any openings in the roof or
exterior wall, or make any alterations, additions or improvements to the
Property without the prior written consent of landlord. Consent to
nonstructural alterations, additions or improvements shall not be unreasonably
withheld by landlord. Tenant shall have the right to erect or install shelves,
bin, machinery, air conditioning or heating equipment and trade fixtures,
provided that Tenant complies with all applicable governmental laws, ordinances
and regulations. At the expiration or termination of this Lease, Tenant shall,
subject to the restrictions of Section 5.05 below, have the right to remove
such items so installed by it, provided Tenant is not in default at the time of
such removal and provided further that Tenant shall, at the time of removal of
such items, repair in a good and workmanlike manner any damage caused by
installation or removal thereof. Tenant shall pay for all costs incurred or
arising out of alterations, additions or improvements in or to the property and
shall not permit a mechanic's or materialman's lien to be asserted against the
Property.
5.05 Condition Upon Termination. Upon the termination of this Lease, Tenant
shall surrender the Property to Landlord, broom clean and in the same condition
as received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of this Lease. However, Tenant shall
not be obligated to repair any damage which Landlord is required to repair under
Article Five. In addition, landlord may require Tenant to remove any
alterations, additions or improvements (whether or not made with Landlord's
consent) prior to the termination of this Lease and to restore the Property to
its prior condition, all at Tenant's expense. All alterations, additions and
improvements which Landlord has not required Tenant to remove shall become
Landlord's property and shall be surrendered to Landlord upon the termination
of this Lease. In no event, however, shall Tenant remove any of the following
materials or equipment without landlord's prior written consent: any power
wiring or power panels; lighting or lighting fixtures; wall coverings; drapes;
blinds or other window coverings; carpets or other floor coverings; heaters;
air conditioners or any other heating or air conditioning equipment; fencing or
security gates, or other similar building operation equipment and decorations.
ARTICLE SIX: INSURANCE AND INDEMNITY
6.01 Property Insurance. Tenant shall not keep anything upon the property,
or do anything in or above Property except the usage specified herein, which
will increase the rates for fire and standard extended coverage insurance upon
the building or buildings
<PAGE> 4
which are a part of the Property. Tenant agrees to pay on demand any increase
in insurance premiums that may be charged to Landlord during the term of this
Lease resulting from a deviation from the usage specified herein or from any
other cause within Tenant's control. Tenant shall be responsible for
maintaining insurance on Tenant's equipment and other personal property located
on the Property.
6.02 Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000.00. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days prior
written notice to Landlord. Tenant shall deliver a copy of such policy or
certificate (or a renuewal thereof) to Landlord prior to the Commencement Date
and prior to the expiration of any such policy during the Lease Term. If Tenant
fails to maintain such policy, Landlord may elect to maintain such insurance at
Tenant's expense.
6.03 Indemnify. Tenant hereby agrees to indemnify Landlord and hold it
harmless from any loss, expense or claims arising out of any injury to persons
or damage to property on or about the Propery or any adjacent area owned by
Landlord caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires or any other person entering the
property under express or implied invitation of Tenant, or arising out of the
use of the Property by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder. Tenant shall not be liable for any injury or damage
caused by the negligence or misconduct of Landlord, or its employees or agents,
and Landlord agrees to indemnify Tenant and hold it harmless from any loss,
expense or damage arising out of such damage or injury.
6.04 Waiver of Subrogation. Landlord and Tenant each hereby waive any and
all rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its property,
or the property of others under its control, if such loss or damage is covered
by any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage; provided, however, such waiver is made only
on the condition that it does not adversely affect the right of the insured to
recover under the applicable insurance policy or policies. Upon obtaining the
policies of insurance described in this Lease, Landlord and Tenant shall give
notice to the insurance carrier or carriers of the foregoing mutual waiver of
subrogation and shall cause such insurance policies to be properly endorsed, if
necessary, to prevent the invalidation of the insurance coveage by reason of
such mutual waiver.
ARTICLE SEVEN: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this agreement or sublet the premises, or any part
thereof without the consent of the Landlord in writing, which consent Landlord
agrees it will not unreasonably withhold, but no assignment or subletting shall
release Tenant from any obligations hereunder.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
In the event the building or other improvement situated on the Property are
partially damaged or destroyed or rendered partially unfit for occupancy by
fire or other casualty, Tenant shall give immediate notice to Landlord.
Landlord may repair the damage and restore such building or other improvements
to substantially the same condition as immediately prior to the occurrence of
the casualty. Such repairs shall be made at Landlord's expense unless due to
the act or omission of Tenant or Tenant's invitees, employees or customers.
Landlord shall allow Tenant a fair reduction of rent during the time such
building or other improvements are partially unfit for occupancy. If the
building or other improvements situated on the Property are totally destroyed
or deemed by Landlord to be rendered unfit for occupancy by fire or other
casualty, or if Landlord shall decide not to repair or rebuild, this Lease
shall terminate and the rent shall be paid to the date of such casualty.
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 Default. The following events shall be deemed to be events of default
under this lease:
a. Failure of Tenant to pay any installment of the rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of five (5) days;
b. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of rent or other sum or money, and such
failure shall not be cured within thirty (30) days after written notice
thereof to Tenant;
c. Tenant shall make an assignment for the benefit of creditors;
d. Abandonment by Tenant of any substantial portion of the Property or
cessation of the use of the Property for the purpose leased.
<PAGE> 5
9.02 Remedies. Upon the occurrence of any of the events of default
listed in Section 9.01, Landlord shall have the option to pursue any one
or more of the following remedies without any notice or demand
whatsoever;
a. Terminate this Lease, in which event Tenant shall immediately
surrender the Property to Landlord. If tenant fails to so surrender such
premises, Landlord may, without prejudice to any other remedy which it
may have for possession of the Property or arrearages in rent, enter
upon and take possession of the Property and expel or remove Tenant and
any other person who may be occupying such premises or any part thereof.
Landlord may hold Tenant liable for all rent nad other indebtedness
accrued to the date of such termination, plus, as liquidated damages and
not as a penalty, an amount equal to the then present value of rent
provided for hereunder for the remaining portion of the Lease Term (had
this Lease not been terminated) using a ten (10%) percent value discount
factor. In the event Landlord elects to terminate this Lease by reason of
an event of default, in lieu of recovering from Tenant under the
preceding sentence, Landlord may hold Tenant liable for the amount of
all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Property on
stisfactory terms or otherwise.
b. Enter upon and take possession of the Property without terminating
this Lease, and expel or remove Tenant and any other person who may be
occupying such premises or any part thereof. Landlord may relet the
Property and receive the rent therefor. Tenant agrees to pay to Landlord
monthly or on demand from time to time any deficiency that may arise by
reason of any such reletting. In determining the amount of such
deficiency, the brokerage commission, attorneys fees, remodeling
expenses and other costs of reletting shall be subtracted from the
amount of rent received under such reletting.
c. Enter upon the Property without terminating the Lease, and do
whatever Tenant is obligated to do under the terms of this Lease. Tenant
agrees to pay Landlord on demand for expenses which Landlord may incur
in thus effecting compliance with Tenant's obligations under this Lease,
together with interest thereon at the rate of twelve (12%) percent per
annum from the date expended until paid. Landlord shall not be liable
for any damages resulting to Tenant from such action, whether caused by
negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the property if Tenant's
goods, equipment, or other property are removed from the Property in an
amount substantial enough to indicate a probable intent to abandon the
Property and such removal is not within the normal course of Tenant's
business. In the event that Tenant is presumed to have abandoned the
property, landlord may remove and store any property of Tenant that
remains on the Property. Landlord may store such property at any
location satisfactory to landlord. Landlord may dispose of such stored
property after the expiration of sixty (60) days from the date such
property is so stored. Landlord shall deliver by certified mail to
Tenanat at Tenant's last known address as shown by Landlord's records a
notice stating that Landlord may dispose of Tenant's property if Tenant
does not claim the same within sixty (60) days after the date the
property was stored.
e. In the event Tenant is in default under this Lease by reason of
Tenant's failure to pay rent as set forth above, then Landlord may, at
Landlord's option, change all door locks and leave a written notice on a
door to Tenant's leased premises stating the name and address or
telephone number of the individual from whom a new can be obtained
during Tenant's regular business hours, which are defined for this
purpose as being from 9:00 a.m. and 5:00 p.m. on Monday through Friday
of each week. Tenant hereby waives the three (3) days written notice to
vacate required by Texas property Code Section 24.005 and agrees that
one (1) day written notice to vacate is sufficient for purposes of Texas
Property Code Section 24.005 and the filing of a Forcible Entry and
Detainer lawsuit.
Upon the occurrence of any of such events of default, Landlord may enter
upon and take possession of the Property by force, if necessary, without
being liable for prosecution of any claim for damages therefor. Pursuit
of any of the foregoing remedies shall not preclude pursuit of any of
the other remedies herein provided or any other remedies provided by
law, nor shall pursuit of any remedy herein provided constitute a
foreiture or waiver of any rent due to Landlord hereunder or of any
damages accruing to Landlord by reason of the violation of any of the
terms, conditions and covenants herein contained.
ARTICLE TEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. If all or any portion of the
Property is taken under the power of eminent domain or sold under the threat of
that power (all of which are called "Condemnation"), this Lease shall terminate
as to the part taken or sold on the date the condemning authority takes title
or possession, whichever occurs first. If more than 20 percent (20%) of the
floor area of the building in which the Property is located, or which is
located on the Property, is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten
(10) days after the condemning authority takes possession). If neither Landlord
nor Tenant terminates this Lease, this Lease shall remain in effect as to the
portion of the Property not taken except that the rent shall
<PAGE> 6
be reduced in proportion to the reduction in floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground Lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for
loss of or damage to Tenant's trade fixtures or removable personal property;
and (c) third, to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the taking of the
fee, or otherwise. If this Lease is not terminated, Landlord shall repair any
damage to the Property caused by the Condemnation, except that Landlord shall
not be obligated to repair any damage for which Tenant has been reimbursed by
the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE ELEVEN: TAXES
11.01 Payment by Landlord. Landlord shall pay the real estate taxes on the
Property during the Lease Term.
11.02 Payment by Tenant. Tenant shall pay the party named in Section 1.11
above, as additional rental, the excess, if any, of the real estate taxes on
the Property for any year during the Lease Term over the real estate taxes on
the Property for the base year stated in Section 1.10. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the
amount and computation of such increase. Tenant shall be responsible for the
pro-rata portion of such additional rental for any fractional part of a year
preceding the end of the Lease Term, which prorated sum shall be due and
payable upon the termination of this Lease. If the termination of this Lease
occurs before the tax rate is fixed for the particular year, the proration
shall be upon the basis of the tax rate for the preceding year applied to the
latest assessed valuation, and notwithstanding the termination of this Lease,
any difference in the actual real estate taxes for such year shall be adjusted
between the parties upon receipt of written evidence of the payment thereof.
11.03 Joint Assessment. If the Property is not separately assessed, Tenant's
share of the real estate taxes payable by Tenant under Section 11.02 shall be
determined from reasonably available information. Landlord shall make a
resonable determination of Tenant's proportionate share of such real estate
taxes and Tenant shall pay such share to Landlord within fifteen (15) days
after receipt of Landlord's written statement.
11.04 Contest by Tenant. Tenant may, at its own expense, contest any tax or
assessment for which Tenant may be wholly or partially responsible. Except as
hereinafter provided, Tenant need not pay the tax, assessment or charge during
the pendency of the contest and Tenant may prevent Landlord from paying any
tax, assessment or charge that Tenant is contesting pursuant to this Section
11.04, pending any resolution of the contest, by depositing with Landlord,
before such tax, assessment or charge becomes delinquent, Tenant's portion of
the full amount of the tax or assessment, plus the full amount of any penalty
that might be imposed for failure to make timely payment and six (6) months of
interest at the rate imposed by the entity levying the tax assessment. Upon
final resolution of the tax or assessment contest, Landlord may use the money
deposited by Tenant to pay Tenant's portion of any tax or assessment, plus the
full amount of any penalty or interest, due under the final resolution, and
Tenant shall receive the balance of the deposit, if any. If the deposit is
insufficient to pay those amounts, Tenant must immediately pay such
insufficiency to Landlord. Notwithstanding the foregoing, Landlord may pay, or
require Tenant to pay, any tax assessment or charge, or any portion thereof,
for which Tenant is responsible under this Article Eleven, pending resolution
of Tenant's contest of the tax, assessment or charge, if payment is demanded by
a holder of a mortgage on the Property, or if failure to pay will subject all
or part of the Property to forfeiture or loss. Landlord reserves the right to
contest any tax, assessment or charge on the Property.
ARTICLE TWLEVE: LANDLORD'S LIEN
In addition to the statutory landlord's lien, Tenant hereby grants to Landlord
a security interest to secure payment of all rent and other sums of money
becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated in or upon the
Property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of Landlord until all
arrearages in rent and other sums of money then due to Landlord hereunder shall
first have been paid and discharged. Upon request by Landlord, Tenant agrees to
execute and deliver to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force
in the State of Texas.
ARTICLE THIRTEEN: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
13.01 Subordination. Landlord shall have the right to subordinate this Lease
to any ground Lease, dead of trust or mortgage encumbering the Property, and
advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the
<PAGE> 7
respective heirs, representatives, successors and permitted assigns, except as
otherwise herein expressly provided. All rights, powers, privileges, immunities
and duties of Landlord under this Lease, including but not limited to any
notices required or permitted to be delivered by Landlord to Tenant hereunder,
may, at Landlord's option, be exercised or performed by Landlord's agent or
attorney.
14.09 Notices. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not when
deposited in the United States Mail, postage prepaid, registered or certified
mail, return receipt requested, addressed to parties hereto at the respective
addresses stated herein, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith. Notices to Tenant
shall be delivered to the address specified on the signature page hereof,
except that, upon Tenant's taking possession of the Property, the Property
address shall be Tenant's address for notice purposes.
14.10 Force Majeure. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood or any other cause not within the control of
Landlord, the period of performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or
hindered.
14.11 Attorney Fees. If on account of any breach or default of any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Realtor, it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
14.12 Landlord's Work. Prior to the Commencement Date, Landlord shall
perform the following work at Landlord's sole expense:
- Clean all the carpet in Premises.
- Replace carpet in hallway in Premises.
- Remove the wall in Premises as previously agreed.
- Touch up paint and replace ceiling tiles as necessary throughout the
Premises.
- Modify exterior signage of Building to identify The Company Doctor.
- Will be responsible for trimming the bushes and cutting the grass on
the outside of Premises.
EXECUTED as of the date stated in Section 1.01 above,
LANDLORD TENANT
HCT Management & Ventures Company The Company Doctor
- --------------------------------- ---------------------------------------
By: /s/ V.W. YOUNG, JR. By: /s/ DONALD F. ANGL, MD
------------------------------- -----------------------------------
Title: Title: President
----------------------------- ---------------------------------
Address: 4916 Camp Bowie Boulevard Address: 8585 Stemmons Frwy Ste 107N
--------------------------- ------------------------------
Fort Worth, TX 76107 Dallas, TX 75247
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
Date of execution by Landlord Date of execution by Tenant
<PAGE> 1
EXHIBIT 10.13
[BANK ONE LOGO]
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$500,000.00 05-06-1996 11-06-1996 247259 020 1766452613 82744
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
</TABLE>
BORROWER: THE COMPANY DOCTOR LENDER: BANK ONE, TEXAS, N.A.
1200 E. COPELAND, SUITE 100 ARLINGTON-BOWEN
ARLINGTON, TX 76011 1301 S. BOWEN RD.
ARLINGTON, TX 76013
================================================================================
PRINCIPAL AMOUNT: $500,000.00 DATE OF NOTE: MAY 6, 1996
PROMISE TO PAY. For value received, the undersigned and if more than one, each
of them, jointly and severally ("Borrower") promises to pay to Bank One, Texas,
N.A. ("Lender"), or order, in lawful money of the United States of America, the
principal amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00),
together with interest at the rate of 6.750% per annum on the unpaid principal
balance from the date advanced until maturity.
PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on June 6, 1996 and continuing on the
same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable on November 6, 1996. Interest on this Note
is computed on a 365/360 simple interest basis; that is by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding, unless such calculation would result in a usurious rate, in
which case interest shall be calculated on a per diem basis of a year of 365 or
366 days, as the case may be. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. If any payment
of principal of or interest on this Note shall become due on a day which is not
a Business Day, such payment shall be made on the next succeeding Business Day
and any such extension of time shall be included in computing interest in
connection with such payment. As used herein, the term "BUSINESS DAY" shall mean
any day other than a Saturday, Sunday or any other day on which national banking
associations are authorized to be closed. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs. The books
and records of Lender shall be prima facie evidence of all outstanding principal
of and accrued but unpaid interest on this Note. If this Note is governed by or
is executed in connection with a loan agreement, this Note is subject to the
terms and provisions thereof.
PREPAYMENT. Borrower may pay without premium or penalty all or a portion of the
principal amount owed hereunder earlier than it is due. All prepayments shall be
applied to the indebtedness owing hereunder in such order and manner as Lender
may from time to time determine in its sole discretion.
POST MATURITY RATE. Upon an Event of Default or at maturity, whether by
acceleration or otherwise, all unpaid principal of this Note shall bear interest
at the maximum rate permitted by law. If applicable law ceases to provide for
such a maximum rate, the maximum rate shall be equal to 18.000% per annum.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b)
failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "Related Documents"); (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related Documents;
(d) any representation or statement made or furnished to Lender herein, in
any of the Related Documents or in connection with any of the foregoing is false
or misleading in any material respect; (e) Borrower or any other party liable
for the payment of this Note, whether as maker, endorser, guarantor, surety or
otherwise, becomes insolvent or bankrupt, has a receiver or trustee appointed
for any part of its property, makes an assignment for the benefit of its
creditors, or any proceeding is commenced either by any such party or against it
under any bankruptcy or insolvency laws; (f) the occurrence of any event of
default specified in any of the other Related Documents or in any other
agreement now or hereafter arising between Borrower and Lender; (g) the
occurrence of any event which permits the acceleration of the maturity of any
indebtedness owing now or hereafter by Borrower to any third party; or (h) the
liquidation, termination, dissolution, death or legal incapacity of Borrower or
any other party liable for the payment of this Note, whether as maker, endorser,
guarantor, surety, or otherwise;
LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire indebtedness, including the unpaid principal
balance on this Note, all accrued unpaid interest, and all other amounts, costs
and expenses for which Borrower is responsible under this Note or any other
Related Document, immediately due, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue
any other rights, remedies, and recourses available to the Lender, including
without limitation, any such rights, remedies or recourses under Related
Documents, at law or in equity, or (v) pursue any combination of the foregoing.
The rights, remedies and recourses of Lender, as provided in this Note and in
the other Related Documents, shall be cumulative and concurrent and may be
pursued separately, successively or together as often as occasion therefore
shall arise, at the sole discretion of Lender. The acceptance by Lender of any
payment under this Note which is less than the payment in full of all amounts
due and payable at the time of such payment shall not (i) constitute a waiver
of or impair, reduce, release or extinguish any right, remedy or recourse of
Lender, or nullify any prior exercise of any such right, remedy or recourse,
or (ii) impair, reduce, release or extinguish the obligations of any party
liable under any of the Related Documents as originally provided herein or
therein. Lender may hire an attorney to help collect this Note if Borrower
does not pay, and Borrower will pay Lender's reasonable attorneys' fees and all
other costs of collection. To the extent interest is not paid on or before the
fifth day after it becomes due and payable, Lender may, at its option, add such
accrued but unpaid interest to the principal balance of this Note. This Note has
been delivered to Lender and is performable in Tarrant County, Texas. Courts
within the State of Texas have jurisdiction over any dispute arising under or
pertaining to this Note and venue for such dispute shall be in Tarrant County,
Texas. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.
GENERAL PROVISIONS. NOTICE: Under no circumstances (and notwithstanding any
other provisions of this Note) shall the interest charged, collected, or
contracted for on this Note exceed the maximum rate permitted by law. The term
"maximum rate permitted by law" as used in this Note means the greater of (a)
the maximum rate of interest permitted under federal or other law applicable to
the indebtedness evidenced by this Note, or (b) the higher, as of the date of
this Note, of the "Indicated Rate Ceiling" or the "Quarterly Ceiling" as
referred to in Article
<PAGE> 2
prepayments __________________________________________________________________
_______________________________________________________________________________
sole discretion.
POST MATURITY RATE. Upon an Event of Default or at maturity, whether by
acceleration or otherwise, all unpaid principal of this Note shall bear
interest at the maximum rate permitted by law. If applicable law ceases to
provide for such a maximum rate, the maximum rate shall be equal to 18.000% per
annum.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under
this Note or any other indebtedness owing now or hereafter by Borrower to
Lender; (b) failure of Borrower or any other party to comply with or perform
any term, obligation, covenant or condition contained in this Note or in any
other promissory note, credit agreement, loan agreement, guaranty, security
agreement, mortgage, deed of trust or any other instrument, agreement or
document, whether now or hereafter existing, executed in connection with this
Note (the Note and all such other instruments, agreements, and documents shall
be collectively known herein as the "Related Documents"); (c) Borrower defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement or any other agreement, in favor of any other creditor or person that
may materially affect any of Borrower's property or Borrower's or ability to
repay this Note or perform Borrower's obligations under this Note or any of the
Related Documents; (d) any representation or statement made or furnished to
Lender herein, in any of the Related Documents or in connection with any of the
foregoing is false or misleading in any material respect; (e) Borrower any
other party liable for the payment of this Note, whether as maker, endorser,
guarantor, surety of otherwise, becomes insolvent or bankrupt, has a receiver
or trustee appointed for any part of its property, makes an assignment for the
benefit of its creditors, or any proceeding is commenced either by any such
party or against it under any bankruptcy or insolvency laws; (f) the occurrence
of any event of default specified in any of the other Related Documents or in
any other agreement now or hereafter arising between Borrower and Lender; (g)
the occurrence of any event which permits the acceleration of the maturity of
any indebtedness owing now or hereafter by Borrower to any third party; or (h)
the liquidation, termination, dissolution, death or legal incapacity of
Borrower or any other party liable for the payment of this Note, whether as
maker, endorser, guarantor, surety, or otherwise;
LENDER'S RIGHTS. Upon default, Lender may at its option, without further
notice or demand (i) declare the entire indebtedness, including the unpaid
principal balance on this Note, all accrued unpaid interest, and all other
amounts, costs and expenses for which Borrower is responsible under this Note
or any other Related Document, immediately due, (ii) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing payment
hereof, (iv) pursue any other rights, remedies and recourses available to the
Lender, including without limitation, any such rights, remedies or recourses
under the Related Documents, at law or in equity, or (v) pursue any combination
of the foregoing. The rights, remedies and recourses of Lender, as provided in
this Note and in the other Related Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of Lender. The
acceptance by Lender of any payment under this Note which is less than the
payment in full of all amounts due and payable at the time of such payment
shall not (i) constitute a waiver of or impair, reduce, release or extinguish
any right, remedy or recourse of Lender, or nullify any prior exercise of any
such right, remedy or recourse, or (ii) impair, reduce, release or extinguish
the obligations of any party liable under any of the Related Documents as
originally provided herein or therein. Lender may hire an attorney to help
collect this note if Borrower does not pay, and Borrower will pay Lender's
reasonable attorneys' fees and all other costs of collection. To the extent
interest is not paid on or before the fifth day after it becomes due and
payable, Lender may, at its option, add such accrued but unpaid interest to the
principal balance of this Note. This Note has been delivered to Lender and is
performable in Tarrant County, Texas. Courts within the State of Texas have
jurisdiction over any dispute arising under or pertaining to this Note and
venue for such dispute shall be in Tarrant County, Texas. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
APPLICABLE FEDERAL LAWS.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall
be used solely for business, commercial, agricultural or other similar
purposes.
GENERAL PROVISIONS. NOTICE: Under no circumstances (and notwithstanding any
other provisions of this Note) shall the interest charged, collected, or
contracted for on this Note exceed the maximum rate permitted by law. The term
"maximum rate permitted by law" as used in this Note means the greater of (9a)
the maximum rate of interest permitted under federal or other law applicable to
the indebtedness evidenced by this Note, or (b) the higher, as of the date of
this Note, of the "Indicated Rate Ceiling" or the "Quarterly Ceiling" as
referred to in Article 5069-1.04(a)(1) and Article 5069-1.04(a)(2)
respectively, V.T.C.S. If any part of this Note cannot be enforced, this fact
will not affect the rest of the Note. In particular, this section means (among
other things) that Borrower does not agree or intend to pay, and Lender does
not agree or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excess interest or unauthorized fee shall, instead
of anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Lender does not intend to charge
or collect any unearned interest in the event of acceleration. All sums paid
or agreed to be paid to Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced
by this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forego enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, severally waive
presentment, demand for payment, protest, notice of protest, notice of
dishonor, notice of intent to accelerate the maturity of this Note, notice of
acceleration of the maturity of this Note, diligence in enforcement and
indulgences of every kind. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this Note, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral without the consent of or notice to anyone.
All such parties also agree that Lender may modify this Note without the
consent of or notice to anyone other than the party with whom the modification
is made. Borrower agrees to provide to Lender such further financial
information with respect to Borrower as Lender may reasonably request from time
to time, including, without limitation, financial statements in form and detail
satisfactory to Lender.
<PAGE> 3
05-06-1996 PROMISSORY NOTE PAGE 2
LOAN NO (CONTINUED)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
THE COMPANY DOCTOR
By: /s/ FRED G. PARRISH
-----------------------------------------
FRED G. PARRISH, CHIEF OPERATING OFFICER
AND VICE PRESIDENT
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 6,136,433
<SECURITIES> 1,250,357
<RECEIVABLES> 1,400,773
<ALLOWANCES> 105,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,780,330
<PP&E> 1,536,898
<DEPRECIATION> 659,394
<TOTAL-ASSETS> 13,540,007
<CURRENT-LIABILITIES> 4,392,052
<BONDS> 0
0
0
<COMMON> 10,302,111
<OTHER-SE> (1,233,800)
<TOTAL-LIABILITY-AND-EQUITY> 13,540,007
<SALES> 4,193,906
<TOTAL-REVENUES> 4,193,906
<CGS> 1,433,170
<TOTAL-COSTS> 4,267,353
<OTHER-EXPENSES> (139,082)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,665
<INCOME-PRETAX> (17,030)
<INCOME-TAX> (100,000)
<INCOME-CONTINUING> 82,970
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<EXTRAORDINARY> 0
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<NET-INCOME> 82,970
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