SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1-13778
PHYSICIANS RESOURCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0456864
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1540, Dallas, TX 75240
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (972) 982-8200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at August 1, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 30,213,681 shares
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 and December 31, 1996 ............1
Statements of Operations for the six months
ended June 30, 1997 and 1996 ...................................2
Statements of Operations for the three months
ended June 30, 1997 and 1996 ...................................3
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 ...................................4
Notes to Financial Statements ......................................5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................8
PART II. OTHER INFORMATION
Item 1 Legal Proceedings...................................................12
Item 4 Submission of Matters to a Vote of Security Holders.................12
Item 6 Exhibits and Reports on Form 8-K....................................14
SIGNATURES...................................................................21
Exhibit 10.41................................................................22
Exhibit 11.1 ...............................................................26
Exhibit 27 ...............................................................27
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1997 1996
---------- ----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 22,152 $ 53,418
Accounts receivable, net of
contractual and other allowances ............. 33,567 32,162
Due from affiliates ............................ 56,405 46,170
Pharmaceuticals and supplies ................... 7,171 6,768
Prepaid expenses and other ..................... 8,114 6,125
---------- ----------
Total current assets ...................... 127,409 144,643
PROPERTY AND EQUIPMENT, net ......................... 65,947 64,184
INTANGIBLE ASSETS, net .............................. 378,105 366,857
OTHER NONCURRENT ASSETS, net ........................ 7,202 5,850
---------- ----------
Total assets .............................. $ 578,663 $ 581,534
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations to affiliates ... $ 3,322 $ 8,447
Current portion of long-term debt .............. 3,026 2,833
Accounts payable and accrued expenses .......... 18,313 27,205
Deferred taxes ................................. 2,599 2,599
---------- ----------
Total current liabilities ................. 27,260 41,084
LONG-TERM DEBT, net of current portion .............. 128,716 129,339
OBLIGATIONS TO AFFILIATES, net of current portion ... 17,330 19,649
DEFERRED TAXES AND OTHER LONG-TERM LIABILITIES ...... 84,337 80,789
---------- ----------
Total liabilities ......................... 257,643 270,861
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000
shares authorized, 30,207,000 and
29,782,000 outstanding in 1997 and 1996,
respectively ................................. 302 298
Preferred stock, $.01 par value, 10,000,000
shares authorized, 200,000 outstanding in 1997 2 --
Treasury stock, at cost, 161,300 shares in 1997 (2,899) --
Note receivable from stock sale ................ (2,225) --
Additional paid-in capital ..................... 304,047 296,454
Retained earnings .............................. 21,793 13,921
---------- ----------
Total stockholders' equity ................ 321,020 310,673
---------- ----------
Total liabilities and stockholders' equity $ 578,663 $ 581,534
========== ==========
The accompanying notes are an integral part of these financial statements.
1
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PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months
Ended June 30,
--------------------------
1997 1996
---------- ----------
(unaudited)
REVENUES:
Management services ...................... $ 132,092 $ 69,305
Medical services and other ............... 73,370 33,595
---------- ----------
Total revenues ...................... 205,462 102,900
---------- ----------
COSTS AND EXPENSES:
Salaries, wages and benefits ............. 102,515 51,883
Pharmaceuticals and supplies ............. 25,320 13,045
General and administrative ............... 47,394 23,657
Depreciation and amortization ............ 11,808 4,504
Interest expense, net .................... 4,654 389
Patent litigation defense costs .......... 1,231 --
Merger transaction expenses .............. -- 9,000
---------- ----------
Total costs and expenses ............ 192,922 102,478
---------- ----------
INCOME BEFORE INCOME TAXES .................... 12,540 422
PROVISION FOR INCOME TAXES .................... 4,668 3,611
---------- ----------
NET INCOME (LOSS) ............................. $ 7,872 $ (3,189)
========== ==========
NET INCOME (LOSS) PER SHARE ................... $ 0.26 $ (0.15)
========== ==========
NUMBER OF SHARES USED IN NET
INCOME (LOSS) PER SHARE CALCULATION ......... 30,153 21,813
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months
Ended June 30,
-------------------------
1997 1996
---------- ----------
(unaudited)
REVENUES:
Management services ........................ $ 68,930 $ 38,704
Medical services and other ................. 38,025 16,982
---------- ----------
Total revenues ........................ 106,955 55,686
---------- ----------
COSTS AND EXPENSES:
Salaries, wages and benefits ............... 53,514 28,581
Pharmaceuticals and supplies ............... 13,445 7,397
General and administrative ................. 25,374 11,771
Depreciation and amortization .............. 6,171 2,471
Interest expense (income), net ............. 2,547 (118)
Patent litigation defense costs ............ 724 --
---------- ----------
Total costs and expenses .............. 101,775 50,102
---------- ----------
INCOME BEFORE INCOME TAXES ...................... 5,180 5,584
PROVISION FOR INCOME TAXES ...................... 1,994 2,030
---------- ----------
NET INCOME ...................................... $ 3,186 $ 3,554
========== ==========
NET INCOME PER SHARE ............................ $ 0.11 $ 0.15
========== ==========
NUMBER OF SHARES USED IN NET
INCOME PER SHARE CALCULATION .................. 30,176 24,474
========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 7,872 $ (3,189)
Adjustments to reconcile net income (loss) to
net cash used in operating activities--
Depreciation and amortization .......................... 12,116 4,418
Change in deferred taxes ............................... -- (6,321)
Changes in assets and liabilities, net of effects
of acquisitions--
Accounts payable and accrued expenses ............... (9,385) (1,894)
Accounts receivable, net and due from affiliates .... (10,532) (4,488)
Pharmaceuticals and supplies ........................ 150 (178)
Prepaid expenses and other .......................... (5,439) 1,038
---------- ----------
Net cash used by operating activities ............. (5,218) (10,614)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of clinic operating assets,
net of cash acquired ................................... (8,115) (12,486)
Additions to property and equipment,
net of effects of acquisitions ......................... (6,462) (4,877)
---------- ----------
Net cash used in investing activities ............. (14,577) (17,363)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock from
offerings, net of offering costs ....................... -- 114,550
Distributions to owners, net ............................. -- (100)
Proceeds from long-term debt ............................. 1,152 18,746
Payments on long-term debt ............................... (1,756) (41,824)
Net proceeds (repayments) on obligations to
affiliates ............................................. (10,704) --
Proceeds from exercise of stock options .................. 236 700
Purchase of treasury stock ............................... (399) --
---------- ----------
Net cash provided by (used in) financing activities (11,471) 92,072
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (31,266) 64,095
CASH AND CASH EQUIVALENTS, beginning of period .............. 53,418 18,183
---------- ----------
CASH AND CASH EQUIVALENTS, end of period .................... $ 22,152 $ 82,278
========== ==========
SUPPLEMENTAL NONCASH TRANSACTION:
Sale of practice and related ASC in exchange for
PRG common stock ....................................... $ 2,500 $ --
========== ==========
Receivable from sale of stock ............................ $ 2,225 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Physicians Resource
Group, Inc. and subsidiaries ("PRG" or the "Company") included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. In the opinion of management, the accompanying unaudited
interim financial statements contain all adjustments, consisting only of those
of a normal recurring nature, necessary to present fairly the Company's results
of operations and cash flows for the periods presented. Certain amounts in prior
periods financial statements have been reclassified to conform to the 1997
presentation. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
2. ACQUISITIONS
During the three months ended June 30, 1997, the Company acquired
certain assets and liabilities of eight eye care practices, one ambulatory
surgery center ("ASC") and two optical shops. The Company entered into
associated practice service agreements with three of these practices. These
acquisitions were accounted for as purchases. The net assets acquired in the
transactions were approximately $1,273,000. As consideration for these
acquisitions, the Company paid approximately $5,948,000 in cash and executed
convertible promissory notes in the amount of $2,293,000. These notes bear
interest at 7% and are convertible into PRG common stock after two years at the
option of the holder at prices ranging between approximately $15.00 and $19.00
per share.
The summarized unaudited pro forma consolidated statement of operations
data for the six months ended June 30, 1997 and 1996 presented below have been
prepared as if (i) the public offering in 1996 had been completed; (ii) the
issuance of the $125,000,000 of 6% Convertible Subordinated Debentures had been
completed; (iii) the consummation of all 1997 and 1996 acquisitions and related
service agreements had occurred with the related PRG revenues being based on
historical clinic expenses; (iv) the impact of amortization of intangibles and
interest expense generated by acquisitions had occurred; all as if such
transactions or events had occurred on January 1, 1996.
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues ............... $ 207,969 $ 197,160
Net income (loss) ............ 8,079 (526)
Net income (loss) per share .. $ 0.27 $ (0.02)
Number of shares used in
net income (loss) per
share calculation .......... 30,281 29,617
5
<PAGE>
3. REVENUE RECOGNITION AND RECEIVABLES
The Company manages its relationship with certain affiliated ophthalmic
and optometric practices ("the Practices") under various types of service and
management agreements. The management service revenues earned under these
agreements are based on several different types of arrangements, including
percentages of the medical service revenues or earnings, flat fees and
reimbursement of clinic expenses and are presented as management service
revenues on the accompanying consolidated statements of operations.
Certain states in which the Company operates allow the corporate
practice of medicine. In those states, the Company's revenues are derived from
medical services performed. In addition, the Company owns, operates and manages
ASCs through various arrangements. Revenues derived from company-owned ASCs are
based on facility fees charged to patients and third-party payors for use of the
ASC. Revenues from managed ASCs are derived from a percentage of earnings as
well as reimbursement of ASC expenses. ASCs revenues are also net of contractual
adjustments. Revenues earned under these arrangements from majority owned ASCs
are presented as medical service revenues on the accompanying consolidated
statements of operations; minority owned ASCs are presented as management
service revenues, as discussed in the preceding paragraph.
Due from affiliates on the accompanying consolidated balance sheets
include management service receivables, receivables from the Practices for
certain expenses paid on their behalf and certain other miscellaneous
receivables from the Practices. The receivables due from certain Practices are
collateralized by a security interest in the Practices' receivables from
third-party payors and patients.
During the six months ended June 30, 1997, the Company provided its
affiliated practices access to corporate working capital, resulting in a $10.2
million increase in Due from affiliates since December 31, 1996. The Company is
in the process of implementing procedural changes to prevent the further decline
of the Company's cash balances. Additionally, management is developing repayment
terms for its affiliated practices and is evaluating the collectibility of these
receivables. Management expects to complete this review by year end.
4. CREDIT FACILITY
In March 1997, PRG entered into a $90,000,000 credit facility (the "PRG
Credit Facility") with a group of lenders to be used for acquisitions, capital
expenditures, working capital and repurchase of its common stock. The PRG Credit
Facility is secured by the stock of all subsidiaries of the Company and is
guaranteed by such subsidiaries. The Company may obtain advances under the PRG
Credit Facility to the extent of the lesser of the $90,000,000 or the borrowing
base in effect from time to time. Interest rates on borrowings are at the
lenders' prime rate plus .375% to 1.125% or LIBOR plus 1% to 2.125%, at the
option of the borrower. No amounts have as yet been borrowed under this
facility. The full amount is available for borrowing at June 30, 1997.
5. COMMITMENTS AND CONTINGENCIES
During 1996, the Company acquired a Practice that is a party to
litigation regarding alleged infringement of three patents related to certain
refractive surgical procedures. The Practice believes that its procedure does
not infringe the patented procedures and has not made any royalty payments
related to its performed procedures. PRG is assisting in the defense of this
litigation due to the potential impact on certain other Practices. The Company
has incurred $507,000 of legal expenses related to this litigation during the
three months ended March 31, 1997 and $724,000 during the three months ended
June 30, 1997. The Company expects to incur additional costs associated with
this litigation throughout 1997 (see Part II, Item I, "Legal Proceedings").
Management of the Company believes that while the ultimate outcome of this
litigation will not have a material impact on its financial condition or results
of operations, the $1,231,000 of legal costs associated with this litigation
discussed above has had a material impact on the Company's results of operations
during 1997 to date, and will continue to have a material impact at least
through the third quarter.
6
<PAGE>
On May 15, 1997, EquiMed, Inc. ("EquiMed") initiated arbitration
proceedings against the Company and a wholly-owned subsidiary of the Company
before the American Arbitration Association, Philadelphia, Pennsylvania,
alleging breach of contract, fraud, trespass, and conversion based principally
on the alleged failure of the Company to cooperate with EquiMed in completing
follow on acquisitions that could have resulted in the payment of additional
consideration to EquiMed, the alleged failure by the Company to provide EquiMed
with access to EquiMed's accounting records and the Company's assertion against
EquiMed of an offset claim. EquiMed has asserted entitlement to damages in
excess of $30 million plus punitive damages, costs and attorneys' fees. PRG
intends to vigorously defend such claims and has asserted a counterclaim against
EquiMed for damages in excess of $45 million.
In the normal course of business, certain of the affiliated physician
groups have been named in lawsuits alleging medical malpractice. In the opinion
of the Company's management, the ultimate liability, if any, without considering
possible insurance recoveries, will not have a material impact on the Company's
financial position, results of operations or cash flows. Additionally, the
Company's affiliated physician groups and the Company are insured with respect
to medical malpractice risks on a claims-made basis.
The Company is also involved in certain other lawsuits in the normal
course of business. In the opinion of the Company's management, the ultimate
liability, if any, will not have a material impact on the Company's financial
position, results of operations or cash flows.
6. STOCKHOLDERS' EQUITY
In March 1997, the Board of Directors approved the purchase by the
Company of up to 4,000,000 shares of its outstanding common stock. Such shares
can be purchased at any time at the discretion of management. As of August 1,
1997, 36,300 shares of PRG common stock had been purchased for $399,000.
The Company also registered 10,000,000 shares of common stock during
the first quarter of 1997 to be used primarily for acquisitions, of which
9,670,502 shares remain available for future issuance as of August 1, 1997.
In 1997, the Board of Directors created a series of preferred stock,
par value $.01 per share, of the Company and authorized 200,000 shares of
convertible preferred stock designated as Series B Convertible Preferred Stock
("Series B"). The holders of such Series B shares are not entitled to dividends
nor have voting rights, except as provided by law. Each share of Series B is
convertible, at any time, into one share of the common stock of PRG, subject to
certain adjustments. The shares are non- redeemable and are non-cumulative. Upon
liquidation or dissolution of PRG, the holders of the shares shall be entitled
to receive the liquidation value of shares ($.01 per share) in preference to and
in priority over distributions upon the common stock.
Effective February 21, 1997, the Board of Directors approved the grant
of the right to purchase up to 200,000 of the Series B shares to the Chairman of
the Board of Directors and Chief Executive Officer (the "Chairman") of PRG
during the two year period beginning February 21, 1997 and ending on February
21, 1999. The agreement provides that the Chairman shall pay to PRG an amount
equal to the closing sale price of PRG's common stock on the New York Stock
Exchange on the date of delivery of notice to PRG of the intention to purchase
the shares times the number of shares purchased. The Chairman exercised his
right to purchase 200,000 Series B shares for an aggregate price of $2,225,000
on March 25, 1997. The purchase of the shares was funded by a loan from PRG, the
principal of which is non-recourse and the interest of which is recourse. The
note evidencing the loan is secured by the Series B shares that were purchased.
The note bears interest at 6.42%.
7. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board released
Standard No. 128, "Earnings per Share", which must be adopted for both interim
and annual periods ending after December 15, 1997, with earlier application not
permitted. Based on preliminary estimates, basic earnings per share defined by
the standard is consistent with current reporting of net income per common
share. The difference between basic and diluted earnings per share is expected
to be insignificant.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PRG conducted no significant operations until June 1995. Through the
execution of service agreements with its initial 10 Practices and five ASCs, the
Company began providing management, operational and administrative services in
return for service fees. The expenses incurred by the Company in fulfilling its
obligations under the service agreements are generally the same as the operating
costs and expenses that would have otherwise been incurred by the Practices. In
addition to the operating costs and expenses discussed above, the Company is
incurring personnel and administrative expenses in connection with maintaining
corporate and regional offices, which provide additional management and
administrative services to the Practices.
The Company made a number of acquisitions during 1996 and the first
half of 1997. On March 18, 1996, the Company merged, in a pooling of interests
transaction, with EyeCorp, a physician practice management company currently
providing management services to 49 practices and four ASCs. The Company issued
6,089,506 shares of its common stock in consideration thereof. The Company also
acquired the assets of an additional 11 eye care practices and nine ASCs at
various dates during the first quarter of 1996 for cash of $7,883,000 and
1,446,437 shares of its common stock. During the second quarter of 1996, PRG
acquired certain assets and liabilities of 11 eye care practices and two ASCs
for cash of $1,835,000 and 801,639 shares of its common stock. In addition,
during the second quarter of 1996, PRG acquired, in a transaction accounted for
as a pooling of interests, one eye care practice. In connection therewith, PRG
issued 281,832 shares of its common stock. During the third quarter of 1996, PRG
acquired certain assets and liabilities of 11 eye care practices and four ASCs
for cash of $767,000 and 1,374,799 shares of its common stock in purchase
transactions. In addition, during the third quarter of 1996, PRG acquired, in
transactions accounted for as poolings of interest, six eye care practices and
one ASC. In connection therewith, PRG issued 3,355,167 shares of its common
stock. During the fourth quarter of 1996, the Company completed in purchase
transactions, (i) the acquisition of the assets of 12 eye care practices for
cash of $1,335,000 and 1,080,925 shares of its common stock, (ii) the
acquisition of American Ophthalmic Incorporated, a privately held physician
practice management company providing management services to 16 practices and
nine ASCs for cash of $31,100,000 and 1,314,045 shares of its common stock and
(iii) the acquisition of substantially all of the assets and liabilities of 22
practices and 10 ASCs from EquiMed for $55,077,000 in cash. Through the six
months ended June 30, 1997, PRG has acquired certain assets and liabilities of
an additional 13 eye care practices, two ASCs and three optical shops for cash
of $8,115,000, 329,498 shares of its common stock and convertible promissory
notes in the amount of $3,732,000. The financial statements of EyeCorp and the
pooled practices have been combined with those of the Company for all periods
presented in the accompanying financial statements.
Certain statements in this Form 10-Q consist of forward-looking
statements that involve risks and uncertainties, including the Company's ability
to successfully acquire the assets of, service and integrate eye care providers,
regulatory developments, the ability to adapt to the managed care environment
and other risks detailed from time to time in the reports filed by the Company
with the Securities and Exchange Commission, including Form 10-K dated December
31, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
REVENUES
Total revenue for the six months ended June 30, 1997 increased
$102,562,000, or 100% as compared to the same period in 1996. The increase in
total revenues was largely attributable to the significant increase in the
number of acquisitions made during the second half of 1996 and in 1997.
8
<PAGE>
COSTS AND EXPENSES
Salaries, wages and benefits for the six month period ended June 30,
1997 increased $50,632,000, or 98% over the same period in 1996. Salaries, wages
and benefits as a percentage of total revenue remained unchanged for the
comparable periods. The increase in dollar amounts is largely attributable to
the significant increase in the number of acquisitions during the second half of
1996 and during 1997. Additionally, personnel costs increased with the addition
of regional operating directors and accounting personnel at both the corporate
office and regional accounting centers.
General and administrative expenses for the six month period ended June
30, 1997 increased $23,737,000, or 100% over the same period in 1996. General
and administrative costs as a percent of total revenue remained unchanged for
the comparative periods. This cost increase was largely attributable to the
significant increase in the number of acquisitions made during the second half
of 1996 and during 1997. Additionally, telephone, marketing and meeting costs
increased during the six months ended June 30, 1997 due to the addition of
regional operating directors as well as an increased effort to increase patient
flow into the Practices.
Depreciation and amortization expense for the comparable periods
increased $7,304,000, or 162%, during the six months ended June 30, 1997.
Depreciation and amortization as a percent of total revenue increased from 4%
for the six months ended June 30, 1996 to 6% for the comparable period in 1997.
The percentage increase is primarily due to increased amortization associated
with the significant number of acquisitions during the second half of 1996 and
during 1997 that were accounted for under the purchase method of accounting, as
compared to certain previous acquisitions accounted for under the pooling of
interests method of accounting.
Interest expense, net for the six month period ended June 30, 1997
increased $4,265,000 over the comparable period in 1996. This change is
attributable to the overall increase in outstanding debt during the six months
ended June 30, 1997, as compared to the same period in 1996.
Patent litigation defense costs for the six months ended June 30, 1997
increased $1,231,000 and were primarily incurred in association with the Pillar
Point litigation (see Part II, Item I, "Legal Proceedings"). The Company expects
to incur additional costs associated with this litigation throughout 1997.
Management of the Company believes that while the ultimate outcome of this
litigation will not have a material impact on its financial condition or results
of operations, the costs associated with this litigation have had a material
impact on the Company's results of operations during 1997 to date, and will
continue to have a material impact at least through the third quarter.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
REVENUES
Total revenue for the three months ended June 30, 1997, increased
$51,269,000 or 92% as compared to the same period in 1996. The increase in total
revenues was largely attributable to the significant increase in the number of
acquisitions made during the second half of 1996 and 1997.
COSTS AND EXPENSES
Salaries, wages and benefits for the three month period ended March 31,
1997 increased $24,933,000, or 87% over the three month period in 1996. This
increase is primarily attributable to the significant increase in the number of
acquisitions during the second half of 1996 and during 1997. Additionally,
personnel costs increased with the addition of regional operating directors in
accounting personnel at both the corporate office and regional accounting
centers.
General and administrative expenses for the three month period ended
June 30, 1997, increased $13,603,000 or 116% over the same period in 1996.
General and administrative costs as a percent of total revenue increased from
21% for the three months ended June 30, 1996 to 24% for the comparable period in
1997. This increase was largely attributable to the significant increase in the
number of acquisitions made during the second half of 1996 and during
9
<PAGE>
1997. Additionally, telephone, marketing and meeting costs increased during the
quarter ended June 30, 1997 due to the addition of regional operating directors
as well as an increased effort to increase patient flow into the practices.
Depreciation and amortization expense for the comparable periods
increased $3,700,000 or 150% during the three month period ended June 30, 1997.
Depreciation and amortization as a percent of total revenue increased from 4%
for the three months ended June 30, 1996, to 6% for the comparable period in
1997. The percentage increase is primarily due to increased amortization
associated with the significant number of acquisitions during the second half of
1996 and during 1997 that were accounted for under the purchase method of
accounting, as compared to previous acquisitions primarily accounted for as
poolings of interest.
Interest expense, net for the three month period ended June 30, 1997,
increased $2,665,000 over the comparable period in 1996. This change is
attributable to the overall increase in outstanding debt during the three months
ended June 30, 1997, as compared to the same period in 1996.
Patent litigation defense costs for the three months ended June 30,
1997, increased $724,000 and were primarily incurred in association with the
Pillar Point litigation (see Part II, Item I, "Legal Proceedings"). Management
of the Company believes that while the ultimate outcome of this litigation will
not have a material impact on its financial condition or results of operations,
the costs associated with this litigation had a material impact on the Company's
results of operations during 1997 to date, and will continue to have a material
impact at least through the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
CASH, WORKING CAPITAL AND DEBT
During the six months ended June 30, 1997, the Company made various
significant cash expenditures with respect to (i) debt retirement, (ii) various
practice asset acquisitions, (iii) working capital advanced to affiliated
practices, (iv) capital expenditures related to medical equipment and
information systems, (v) payment of taxes, and (vi) the credit facility and
Debenture offering expenses. To finance these expenditures, PRG utilized
existing cash balances and cash generated from operations. Accordingly, as of
June 30, 1997, cash on hand was $22,152,000, working capital was $100,149,000
and total long-term debt was $128,716,000 (excluding current portion).
CREDIT FACILITIES
In March 1997, PRG entered into a $90,000,000 credit facility (the "PRG
Credit Facility") with a group of banks led by its existing lender to be used
for acquisitions, capital expenditures, working capital and purchase of its
common stock. The PRG Credit Facility is secured by the stock of all
subsidiaries and is guaranteed by such subsidiaries. PRG may obtain advances
under the PRG Credit Facility to the extent of the lesser of the $90,000,000 or
the borrowing base in effect from time to time. Interest rates on borrowings are
prime plus .375% to 1.125% or LIBOR plus 1.00% to 2.125%. No amounts have been
drawn on this facility as of August 1, 1997. The full amount is available for
borrowing at June 30, 1997.
LIQUIDITY
During the six months ended June 30, 1997, the Company provided its
affiliated practices access to corporate working capital, resulting in a $10.2
million increase in Due from affiliates since December 31, 1996. The Company is
in the process of implementing procedural changes to prevent the further decline
of the Company's cash balances. Additionally, management is developing repayment
terms for its affiliated practices and is evaluating the collectibility of these
receivables. Management expects to complete this review by year end.
PRG management anticipates that its existing cash resources, cash flow
from operations and available borrowings under its existing credit facility will
be sufficient to fund PRG's ongoing operations and capital
10
<PAGE>
expenditures through 1997, and that a combination of those same cash resources,
PRG common stock, convertible notes and proceeds from other equity or debt
offerings will be sufficient to fund the planned acquisition and stock purchase
activities throughout 1997; however, there can be no assurance that the Company
will be able to successfully consummate such offerings.
During the fourth quarter of 1996 and the first half of 1997, the
Company has experienced a decrease in the trading price for its common stock.
Accordingly, management of PRG anticipates that certain 1997 acquisitions will
be consummated with more cash and convertible notes, or a combination thereof.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EQUIMED, INC. V. PHYSICIANS RESOURCE GROUP, INC. AND PRG GEORGIA, INC.
On May 15, 1997, EquiMed, Inc. initiated arbitration proceedings against the
Company and a wholly-owned subsidiary of the Company before the American
Arbitration Association, Philadelphia, Pennsylvania, alleging breach of
contract, fraud, trespass, and conversion based principally on the alleged
failure of the Company to cooperate with EquiMed in completing follow on
acquisitions that could have resulted in the payment of additional consideration
to EquiMed, the alleged failure by the Company to provide EquiMed with access to
EquiMed's accounting records and the Company's assertion against EquiMed of an
offset claim. EquiMed has asserted entitlement to damages in excess of $30
million plus punitive damages, costs and attorneys' fees. PRG intends to
vigorously defend such claims and has asserted a counterclaim against EquiMed
for damages in excess of $45 million.
PILLAR POINT PARTNERS, SUMMIT PARTNERS, INC. AND VISX PARTNERS, INC. V.
DAVID DULANEY AND ANNE MARIE DULANEY, RONALD BARNET AND TERI LYNN BARNET, BARNET
DULANEY EYE CENTER, P.L.L.C. AND SUN VALLEY ACQUISITION CORP. Pillar Point
Partners, Summit Partners, Inc. and VISX Partners, Inc. initiated this patent
infringement suit against a PRG affiliated practice and claim that the
refractive procedure performed by the physicians associated with this practice
infringes certain patents owned by the plaintiffs. The defendants have asserted
defenses of non-infringement and invalidity of the patents. The action was
recently amended to include a wholly-owned subsidiary of the Company. PRG has
agreed to be responsible for the payment of the attorneys' fees and costs
associated with this action, but has not agreed to be responsible for any damage
awards that may be awarded. To the extent that PRG is involved in the action, it
intends to vigorously defend such claims.
PRG is involved in certain other lawsuits in the normal course of
business. In the opinion of the Company's management, the ultimate liability, if
any, will not have a material adverse impact on the Company's business or
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997, the Annual Meeting of Stockholders of PRG was held in
Dallas, Texas for the following purposes:
(1) The election of nominees for the class of Directors whose term
expired in 1997;
(2) The approval of the Employee Stock Purchase Plan and Amendment
One thereto;
(3) The approval of amendments to the 1995 Health Care
Professionals Stock Option Plan and the Amended and Restated
1995 Stock Option Plan;
(4) The approval of new stock option grants in connection with the
cancellation of existing stock option grants; and
(5) The approval of an arrangement related to the purchase of PRG
Convertible Preferred Stock by Emmett E. Moore, Chairman of
the Board of Directors and Chief Executive Officer of PRG.
Description of Proposals
(1) Six directors, Emmett E. Moore, Joe E. Ellis, O.D., Charles D.
Fritch, M.D., Bruce E. Herron, M.D., James W. Rayner, M.D. and Kenneth C.
Westfield, M.D. were in the class of directors whose term of office expired in
1997. The Board of Directors nominated the six directors listed above for
reelection as directors for a three-year term expiring at PRG's Annual Meeting
of Stockholders in 2000 or until their successors are elected and shall have
qualified. The continuing directors are as follows: Alan C. Baum, M.D., Lucius
E. Burch, III, Richard A. Gilleland, David Meyer, M.D., David M. Schneider,
M.D., P. Harold Wallar, M.D., Richard M. Owen, James E. McDonald, II, M.D.,
Joseph C. Noreika, M.D., Paul M. Shimoff, M.D. and Ronald L. Stanfa, M.D.
12
<PAGE>
(2) On August 19, 1996, the Board of Directors approved, subject to the
consideration and approval of the Stockholders of PRG, a proposed Employee Stock
Purchase Plan (the "Plan"). The Plan's effective date is January 1, 1997. In
addition, effective January 1, 1997, the Executive Committee adopted, subject to
the consideration and approval of the Stockholders, Amendment One to the Plan
reducing the time period which an employee must be employed by PRG to be
eligible to participate in the Plan from one year to six months. The purpose of
the Plan is to allow eligible employees to purchase the Company's Common Stock
through accumulated payroll withholding amounts. The aggregate number of shares
of Common Stock that may be issued pursuant to the Plan is 1,000,000 shares.
(3) On February 2, 1997, the Board approved, subject to the
consideration and approval of the Stockholders of PRG, amendments to the Amended
and Restated 1995 Stock Option Plan. The amendments : (i) increase the maximum
number of shares with respect to which awards may be made to any participant
under the plan from 1,000,000 to 2,000,000; (ii) increase the number of shares
of Common Stock with respect to which options may be granted from 2,000,000 to
3,000,000; (iii) remove certain references to Rule 16b-3 and remove certain
limitations in the plan document upon the use of shares to satisfy a tax
withholding requirement, which references and limitations are no longer required
in light of Rule 16b-3 amendments; (iv) replace the requirement that members of
the Committee (as defined in the plan document) be "disinterested" within the
meaning of Rule 16b-3 as in effect prior to the Rule 16b-3 amendments with a
requirement that the committee members be both (a) "Non-Employee Directors"
within the meaning of Rule 16b-3 as in effect following the Rule 16b-3
amendments and (b) "outside directors" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"); (v) extend the term
of the plan until January 1, 2007; (vi) delete the requirement of stockholder
approval of any amendment to the plan that materially increases the benefits
available under such plan or materially modifies the requirements for
eligibility under such plan; and (vii) delete the prohibition against amending
the terms governing Automatic Grants (as defined in the plan document) more
frequently than every six months.
On February 2, 1997, the Board of Directors approved, subject to the
consideration and approval of the Stockholders of PRG amendments to the Health
Care Professionals Plan. The amendments: (i) increase the number of shares of
Common Stock with respect to which options may be granted under the plan from
1,000,000 to 2,000,000; (ii) add non-employee directors to the class of persons
eligible to receive options under the plan; (iii) add a provision limiting the
number of shares with respect to which any participant may receive options under
the plan to 1,000,000; and (iv) add a requirement that Committee (as defined in
the plan document) members be both (a) "Non-Employee Directors" within the
meaning of Rule 16b-3 as in effect following the Rule 16b-3 Amendments and (b)
"outside directors" within the meaning of Section 162(m) of the Code.
(4) Due to a decline in the price of the Common Stock in fiscal 1996,
certain options granted on April 17, 1996 to Emmett E. Moore, Richard M. Owen,
Richard J. D'Amico, Mark P. Kingston, John N. Bingham, Richard Talbot and
Michael Casas were exercisable at prices which exceed the current market value
of the Common Stock. In order to restore the incentive value to such options,
effective February 21, 1997, the Board approved, subject to the consideration
and approval of the Stockholders of PRG, the issuance of new option grants to
Emmett E. Moore, Richard M. Owen, Richard J. D'Amico, Mark P. Kingston, John N.
Bingham, Richard Talbot and Michael Casas with an exercise price equal to the
market price on February 21, 1997. The new options shall vest and become
exercisable over a period of four (4) years at a rate of 25% per year.
(5) The Board created a series of Preferred Stock, par value $.01 per
share of the Company and authorized 200,000 shares of convertible preferred
stock designated as "Series B Convertible Preferred Stock" (hereinafter the
"Shares"). The holders of such Shares are not entitled to dividends nor do they
have voting rights, except as provided by law. Each Share is convertible, at any
time, into one share of the Common Stock of PRG, subject to certain adjustments.
The Shares are not redeemable and they are non-cumulative. The Board may issue
shares senior in preference to the Shares. Upon liquidation, dissolution or
winding-up of PRG, the holders of the Shares are entitled to receive the
liquidation value of such Shares ($.01 per share) in preference to and in
priority over distributions upon the Common Stock of PRG.
13
<PAGE>
Effective February 21, 1997, the Board approved, subject to the
consideration and approval of the Stockholders of PRG, a grant of the right to
purchase up to 200,000 of the Shares to Emmett E. Moore. In order to facilitate
the purchase of the Shares by Mr. Moore, the Board approved, subject to the
consent of the Stockholders of PRG, a loan to Mr. Moore in an amount up to
$5,000,000. All advances under the note evidencing the loan must be repaid on
the fourth anniversary of the advance. Mr. Moore is not personally liable for
the payment of sums of principal due under the note but is personally liable for
the payment of interest accrued under the note. The Shares purchased by Mr.
Moore serve as security for the note. On March 25, 1997, subject to Stockholder
approval, Mr. Moore exercised his right to purchase 200,000 Shares at a price of
$11.125 per share.
Each of the five proposals were approved by the Stockholders. The
number of votes cast are summarized in the following chart.
<TABLE>
<CAPTION>
Votes
------------------------------------
ABSTAINED
DESCRIPTION FOR AGAINST OR WITHHELD
---------- --------- -------
<S> <C> <C> <C>
Election of Directors:
Emmett E. Moore 22,620,830 986,911
Joe E. Ellis, O.D. 22,639,533 955,724
Charles D. Fritch, M.D. 22,766,760 840,981
Bruce E. Herron, M.D. 22,724,878 882,863
James W. Rayner, M.D. 22,829,324 778,417
Kenneth C. Westfield, M.D. 22,717,667 890,074
Employee Stock Purchase Plan and Amendment
One thereto 17,518,051 936,133 40,073
Amendment to the 1995 Health Care Professionals
Plan and the Amended and Restated 1995 Stock
Option Plan 15,126,456 3,302,551 65,250
New Stock Option Grants in connection with
Cancellation of Existing Stock Option Grants 10,767,061 7,632,846 94,350
Arrangement Related to the purchase of PRG
Convertible Preferred Stock by Emmett E. Moore 13,877,707 3,033,622 354,704
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number Description
------ -----------
2.1 -- Amended and Restated Agreement and Plan of Merger by and
among Physicians Resource Group, Inc., PRG Acquisition
Corporation and EyeCorp, Inc., dated December 22,
1995.(2) (8)
2.2 -- Asset Purchase Agreement by and among EquiMed, Inc., PRG
Georgia, and Physicians Resource Group, Inc. dated
October 7, 1996.(12) (8)
14
<PAGE>
2.3 -- Agreement and Plan of Merger by and among American
Ophthalmic Incorporated, PRG Acquisition Corporation and
Physician Resource Group, Inc. dated October 7, 1996.(12)
(8)
2.4 -- Asset Purchase Agreement by and among Sun Valley
Acquisition Corporation, Barnet- Dulaney Eye Center,
P.L.L.C., Ronald W. Barnet, M.D., David D. Dulaney, M.D.,
Robert B. Pinkert O.D. and Scott A. Perkins, M.D. dated
November 29, 1995.(2) (8)
2.5 -- First Amendment to Asset Purchase Agreement by and among
Sun Valley Acquisition Corporation, Barnet-Dulaney Eye
Center, P.L.L.C., Ronald W. Barnet, M.D., David D.
Dulaney, M.D., Robert B. Pinkert, O.D. and Scott A.
Perkins, M.D. dated February 14, 1996.(3) (8)
2.6 -- Agreement and Plan of Merger by and among Physicians
Resource Group, Inc., Sun Valley Acquisition Corporation,
SVAC Acquisition Corporation, Daniel D. Chambers, Michael
R. Beck, John R. Hedrick and Michael Yeary dated December
6, 1995.(2) (8)
2.7 -- Agreement and Plan of Reorganization by and among PRG
Nevada Acquisition Corporation II, Inc., Physician
Resource Group, Inc., Shepard Eye Surgicenter, Ltd., John
R. Shepherd, M.D. and Steven Hansen, M.D. dated December
6, 1995.(2) (8)
2.8 -- Agreement and Plan of Reorganization by and among PRG
Nevada Acquisition Corporation III, Inc., Physicians
Resource Group, Inc., John R. Shepherd, M.D., Ltd., d/b/a
Shepherd Eye Center, John R. Shepherd, M.D. and Steven
Hansen, M.D. dated December 6, 1995.(2) (8)
2.9 -- Asset Purchase Agreement by and among Sun Valley
Acquisition Corporation, Mann Berkeley Eye Center, P.A.,
Paul Michael Mann, M.D. and Ralph G. Berkeley, M.D. dated
November 11, 1995.(2) (8)
2.10 -- First Amendment to Asset Purchase Agreement by and among
Sun Valley Acquisition Corporation, Mann Berkeley Eye
Center, P.A., Paul Michael Mann, M.D. and Ralph G.
Berkeley, M.D. dated February 14, 1996.(3) (8)
2.11 -- Agreement and Plan of Merger by and among Central Florida
Eye Associates, P.A., Ronald Case, M.D., Brian Renz,
M.D., Teo Kulyk, M.D., Jay Mulaney, M.D., PRG FL
Acquisition Corporation, and Physicians Resource Group,
Inc.(13) (8)
2.12 -- Agreement and Plan of Merger by and among G.C.R.
Investors, Ronald Case, M.D., Brian Renz, M.D., Jay
Mulaney, M.D., PRG FL Partnership I, and Physicians
Resource Group, Inc. (13) (8)
2.13 -- Agreement and Plan of Merger by and among Central Florida
Eye Associates, Partners, Ronald Case, M.D., Brian Renz,
M.D., Teo Kulyk, M.D., Jay Mulaney, M.D., PRG FL
Partnership II, and Physicians Resource Group, Inc.(13)
(8)
2.14 -- Agreement and Plan of Merger by and among South Texas
Retina Affiliates, Inc., South Texas Retina Consultants,
L.L.P., Charles H. Campbell, M.D., P.A., Charles H.
Campbell, M.D., PRG TX Acquisition Corp. I and Physicians
Resource Group, Inc.(13) (8)
2.15 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG Ohio III, Inc., Physicians Resource Group,
Inc., Cincinnati Eye Institute, Inc., John S. Cohen,
M.D., James D. Faulkner, M.D., William J. Faulkner, M.D.,
Robert C. Kersten, M.D., Richard S. Kerstine, M.D.,
Robert H. Osher, M.D., Robert W. Nash, M.D., Michael R.
Petersen, M.D.,
15
<PAGE>
Gary A. Varley, M.D., Linda J. Greff, M.D., Robert J.
Cionni, M.D., Kevin T. Corcoran, O.D. and Corwin M.
Smith, M.D.(14) (8)
2.16 -- Agreement and Plan of Reorganization, dated August 13,
1996, between PRG HEA Acq. Corp., Physicians Resource
Group, Inc., Houston Eye Associates, P.A., Malcom L.
Mazow, MD., Robert H. Stewart, M.D., Robert B. Wilkins,
M.D., Jeffrey D. Lanier, M.D., Michael A. Bloome, M.D.,
Paul C. Salmonsen, M.D., Richard L. Kimbrough, M.D., Jack
T. Holladay, M.D., Jeffrey B. Arnoult, M.D. , William H.
Quayle, M.D., John D. Goosey, M.D., John M. Lim, M.D.,
Kathryn H Musgrove, M.D., Marsha F. Soechting, M.D. and
Marc N. Longo, M.D.(14) (8)
2.17 -- Asset Purchase Agreement, dated August 13, 1996, between
PRG Ohio III, Inc., Physicians Resource Group, Inc. and
CEI Realty Associates, Ltd.(14) (8)
2.18 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG IV Acq. Corp., Physicians Resource Group,
Inc., Gregory L. Henderson, M.D., P.A. and Gregory L.
Henderson, M.D.(14) (8)
2.19 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG IX Acq. Corp., Physicians Resource Group,
Inc., William Reynolds, M.D., P.A. and William Reynolds,
M.D.(14) (8)
2.20 -- Agreement and Plan of Merger, dated August 12, 1996,
between PRG II Acq. Corp., Physician Resource Group,
Inc., Tampa Eye Clinic, P.A., J. Burns Creighton, M.D.,
Ronald Seeley, M.D., Lewis Lauring, M.D., William
Reynolds, M.D., David Leach, M.D., P.A. and Timothy
Lorenzen, M.D., P.A.(14) (8)
2.21 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG XI Acq. Corp., Physician Resource Group,
Inc., Timothy Lorenzen, M.D., P.A. and Timothy Lorenzen,
M.D.(14) (8)
2.22 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG VII Acq. Corp., Physician Resource Group,
Inc., Ronald Seeley, M.D., P.A. and Ronald Seeley, M.D.
(14) (8)
2.23 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG VI Acq. Corp., Physicians Resource Group,
Inc., J. Burns Creighton, M.D., P.A. and J. Burns
Creighton, M.D.(14) (8)
2.24 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG X Acq. Corp., Physicians Resource Group,
Inc., David Leach, M.D., P.A. and David Leach, M.D.(14)
(8)
2.25 -- Agreement and Plan of Merger, dated August 13, 1996,
between PRG VIII Acq. Corp., Physicians Resource Group,
Inc., Lewis Lauring, M.D., P.A. and Lewis Lauring, M.D.
(14) (8)
2.26 -- Asset Purchase Agreement, dated August 13, 1996, between
PRG Ohio, L.P., CEI Realty Associates, Ltd. and
Physicians Resource Group, Inc.(14) (8)
2.27 -- Share Exchange Agreement by and among PRG Florida XII,
Inc., Melbourne Eye Associates of Brevard, Inc.,
Melbourne Eye Associates, P.A., William Broussard,
Trustee U.T.D. March 24, 1980, Michael F. Corcoran, M.D.,
Trustee U.T.D. September 26, 1988,
16
<PAGE>
Andrew Zorbis, M.D., Ralph Paylor, M.D., L. Neal Freeman,
M.D., and Kaukwok Frederick Ho, M.D., Trustee U.T.D.
November 24, 1989 and Physicians Resource Group, Inc.(15)
(8)
3.1 -- Second Restated Certificate of Incorporation of
Physicians Resource Group, Inc.(10)
3.2 -- Certificate of Designations, Preferences, Rights and
Limitations of Class A Preferred Stock of Physicians
Resource Group, Inc.(1)
3.3 -- Third Amended and Restated Bylaws of Physicians Resource
Group, Inc.(5)
4.1 -- Form of Warrant Certificate.(1)
4.2 -- Form of certificate evidencing ownership of common stock
of Physicians Resource Group, Inc.(1)
4.3 -- Rights Agreement dated as of April 19, 1996 between
Physicians Resource Group, Inc. and Chemical Mellon
Shareholder Services.(9)
10.1 -- Physicians Resource Group, Inc. Amended and Restated 1995
Stock Option Plan.(5) (7)
10.2 -- Physicians Resource Group, Inc. 1995 Health Care
Professionals Stock Option Plan.(1)
10.3 -- Employment Agreement between Physicians Resource Group,
Inc. and Gregory L. Solomon.(1) (7)
10.4 -- Employment Agreement between Physicians Resource Group,
Inc. and Emmett E. Moore.(19) (7)
10.5 -- Employment Agreement between Physicians Resource Group,
Inc. and Richard M. Owen.(19) (7)
10.6 -- Form of Indemnification Agreement for certain
Directors.(1)
10.7 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., Physicians Resource Group
Subsidiary, Inc. and TPZ, Inc. d/b/a/ Eye Care of Medina,
Inc.(1)
10.8 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and The
Eye Clinic of Texas.(1)
10.9 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and
David M. Schneider, M.D., Inc.(1)
10.10 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and
Texas Eye Institute Assoc.(1)
10.11 -- Form of Service Agreement by and between Physicians
Resource Group Subsidiary, Inc., its wholly-owned
subsidiary and McDonald Eye Associates, P.A.(1)
10.12 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and
Michael A. Minadeo, M.D., P.A.(1)
17
<PAGE>
10.13 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and
Southern Nevada Eye Clinic, Inc., Kenneth C. Westfield,
M.D., Ltd. and Nevada Institute of Ambulatory Surgery,
Inc.(1)
10.14 -- Form of Service Agreement by and between Physicians
Resource Group, Inc., its wholly-owned subsidiary and Eye
Clinic, P.C.(1)
10.15 -- Form of Service Agreement by and between Superior Eye
Care, Inc. and Charles D. Fritch, M.D., Inc.(1)
10.16 -- Form of Service Agreement by and among Pacific Vision
Services, Inc. and Loma Linda Ophthalmology Medical
Group, Inc., Inland Eye Institute Medical Group, Inc. and
T.E.S.C., Inc.(1)
10.17 -- First Amendment to Service Agreement by and among
Physicians Resource Group, Inc., as successor by merger
to Pacific Vision Services, Inc., Loma Linda
Ophthalmology Medical Group, Inc., Inland Eye Institute
Medical Group, Inc. and T.E.S.C., Inc. dated August 9,
1995.(4)
10.18 -- Subscription Agreement, dated March 31, 1995, between
Notre Capital Ventures, Ltd. and Physicians Resource
Group, Inc.(1)
10.19 -- Form of Registration Rights Agreement.(1)
10.20 -- Form of Registration Rights Agreement.(1)
10.21 -- Form of Registration Rights and Stockholders
Agreement.(1)
10.22 -- Form of Registration Rights Agreement dated as of March
7, 1996, by and among Physicians Resource Group, Inc. and
the former stockholders of EyeCorp, Inc.(5)
10.23 -- Form of Option Agreement between Physicians Resource
Group, James A. Price, M.D., Ben F. House, M.D., Bruce E.
Herron, M.D. and Mark R. Bateman, M.D.(1)
10.24 -- Separation and Mutual Release Agreement between Gregory
Solomon and Physicians Resource Group.(6) (7)
10.25 -- Loan Agreement dated as of January 8, 1996, between PRG
and NationsBank of Tennessee, N.A.(2)
10.26 -- Subordination Agreement dated as of December 28, 1995, by
and among NationsBank, EyeCorp, Eyecare Resource, Inc.,
the EyePA, Inc. and PRG.(2)
10.27 -- Reimbursement Agreement dated as of December 28, 1995,
between EyeCorp and PRG.(2)
10.28 -- Service Agreement dated as of February 23, 1994, by and
between EyeCorp, Inc., the Vitreoretinal Foundation and
David Meyer, M.D., John E. Linn, M.D., John D. Armstrong,
M.D., John L. Elfervig, M.D. and Thomas A. Browning,
M.D.(5) (8)
10.29 -- Amendment to Service Agreement, dated March 8, 1996, by
and between the Vitreoretinal Foundation, David Meyer,
M.D., John E. Linn, M.D., John D. Armstrong, M.D., John
L. Elfervig, M.D. and Thomas A. Browning, M.D. and
EyeCorp, Inc.(5)
18
<PAGE>
10.30 -- Second Amendment to Service Agreement dated as of
February 23, 1994, by and between EyeCorp, Inc., the
Vitreoretinal Foundation and David Meyer, M.D., John E.
Linn, M.D., John D. Armstrong, M.D., John L. Elfervig,
M.D. and Thomas A. Browning, M.D.(5)
10.31 -- Loan and Security Agreement dated as of December 28,
1995, among EyeCorp, Inc., EyeCare Resource, Inc., The
EyePA, Inc. and NationsBank of Tennessee, N.A.(5)
10.32 -- Form of Indenture dated as of December 11, 1996, between
Physicians Resource Group, Inc. and U.S. Trust Company of
New York, N.A. (10)
10.33 -- Form of Registration Rights Agreement, dated as of
December 6, 1996, between Physicians Resource Group,
Inc., and Smith Barney, Inc., Alex Brown & Sons
Incorporated, Soloman Brothers, Dillon Reed & Co., Inc.
and Volpe Welty & Company.(10)
10.34 -- Form of Purchase Agreement dated as of December 6,
1996.(10)
10.35 -- Loan Agreement for $90,000,000 Revolving Credit Loan,
dated March 14, 1997, between Physicians Resource Group,
Inc. and NationsBank of Tennessee, N.A., Agent for the
Banks Signatory hereto.(16)
10.36 -- Physicians Resource Group, Inc. Employee Stock Purchase
Plan (11)
10.37 -- Employment Agreement between Physicians Resource Group,
Inc. and Mark Kingston.(7) (16)
10.38 -- Employment Agreement between Physicians Resource Group,
Inc. and Richard D'Amico.(7) (16)
10.39 -- Employment Agreement between Physicians Resource Group,
Inc. and Jonathan Bond.(7) (16)
10.40 -- Employment Agreement between Physicians Resource Group,
Inc. and Daniel Chambers.(7) (16)
10.41 -- First Amendment to Loan Agreement, dated June 2, 1997,
between Physicians Resource Group, Inc. and NationsBank
of Tennessee, N.A., Agent for the Bank's signatory
thereto.(17)
10.42 -- Physicians Resource Group, Inc. 401(k) Plan.(18) (8)
11.1 -- Computation of Earnings per Share.(17)
24.1 -- Power of Attorney (contained on the signature page of
this report).
27.0 -- Financial Data Schedule.(17)
19
<PAGE>
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 33-91440) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-00230) and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated February 14, 1996, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending June 30, 1995, and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's annual report on Form 10-K
for the year ending December 31, 1995, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ending September 30, 1995, and incorporated by
reference.
(7) Management contract or compensatory plan or arrangement, which is being
identified as such pursuant to Item 14(a)3 of Form 10-K.
(8) Schedules and similar attachments to this Exhibit have not been filed
herewith, but the nature of their contents is described in the body of this
Exhibit. The Company agrees to furnish a copy of any such omitted schedules
and attachments to the Securities & Exchange Commission upon request.
(9) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-3852) and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-19185) and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (No. 333-15547) and incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated October 7, 1996 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Current Report on Form 8-K,
dated June 30, 1996, and incorporated herein by reference.
(14) Previously filed as an amendment to the Company's Current Report on Form
8-K, dated August 30, 1996, and incorporated herein by reference.
(15)Previously filed as an amendment to the Company's Current Report on Form
8-K, dated October 19, 1996, and incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ending December 31, 1996, and incorporated herein by
reference.
(17) Filed herewith
(18) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated May 15, 1997, and incorporated herein by reference.
(19) Previously filed as an exhibit to The Company's quarterly report on Form
10-Q for the quarter ended March 31, 1997, and incorporated herein by
reference.
(b) Reports on Form 8-K
1. On June 12, 1997, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K dated May 15, 1997, which Form
8-K reported the initiation of arbitration proceedings by EquiMed,
Inc. against the Company.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Dated: August 13, 1997 By: /s/ DAVID D. REAL
David D. Real
Senior Vice President and Chief
Financial Officer
By: /s/ RANDALL S. SIMPSON
Randall S. Simpson
Vice President and Chief
Accounting Officer
21
EXHIBIT 10.41
FIRST AMENDMENT TO
LOAN AGREEMENT
This First Amendment to Loan Agreement ("Amendment") is entered into as
of the 27th day of June, 1997 by and among PHYSICIANS RESOURCE GROUP, INC.
("Borrower"), a Delaware corporation; the banks that have executed this
Amendment below (collectively "Lenders"); and NATIONSBANK OF TENNESSEE, N.A., in
its capacity as Agent for Lenders ("Agent").
R E C I T A L S:
WHEREAS, Lenders, Agent and Borrower have previously entered into that
Loan Agreement (the "Loan Agreement") dated as of March 14, 1997; and
WHEREAS, the parties wish to amend the Loan Agreement in certain
respects and to also evidence the Lenders' consent of a certain transaction
proposed by Borrower that would violate the Loan Agreement in the absence of a
waiver;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, the parties agree as follows:
1. The Loan Agreement is hereby amended by revising the definition of
"Permitted Acquisition" therein to read in full as follows:
"PERMITTED ACQUISITION" means the purchase (by asset purchase,
stock purchase, merger or otherwise, subject to the other requirements
of this definition set forth below) by a Borrower Entity of either (i)
another physician practice management company whose primary business is
the ownership and management of Practices in a manner similar to that
of Borrower, or of another company in a business substantially related
thereto, or (ii) all or substantially all of the assets of a Practice
in the ordinary course of business (it being acknowledged that medical
records and certain other professional assets that are required by Law
to be owned by a Provider are not acquired in these transactions),
subject to the further satisfaction of the following requirements, as
applicable:
a. If Borrower wishes to have pre-acquisition earnings
approved as Acquisition EBITDA hereunder or the
approval of Lenders is required under any of the
other subsections of this definition, Borrower shall
have delivered to Agent and Lenders an Acquisition
Certificate in the form attached hereto as Exhibit
1.1, together with all required schedules and
exhibits thereto, within the time required by the
terms of the Acquisition Certificate.
22
<PAGE>
b. If the Total Consideration to be paid by Borrower
Entities in connection with any single acquisition
exceeds eight (8) times the Acquisition EBITDA (as
determined according to the best financial
information available) of the target Practice for the
most recent four fiscal quarters, the prior written
approval of the Required Lenders shall be required.
c. If Borrower's ratio of Funded Debt to Consolidated
Adjusted EBITDA, as last reported in financial
statements delivered to Agent and Lenders pursuant to
this Agreement, is less than 3.00:1.00, the prior
written approval of the Required Lenders shall be
required as to individual acquisitions for which the
Total Cash Consideration is greater than Five Million
and No/100 Dollars ($5,000,000.00) or for which the
Total Consideration is greater than Fifteen Million
and No/100 Dollars ($15,000,000.00).
d. If Borrower's ratio of Funded Debt to Consolidated
Adjusted EBITDA, as last reported in financial
statements delivered to Agent and Lenders pursuant to
this Agreement, is equal to or greater than
3.00:1.00, the prior written approval of the Required
Lenders shall be required as to individual
acquisitions for which the Total Cash Consideration
is greater than Three Million and No/100 Dollars
($3,000,000.00) or for which the Total Consideration
is greater than Ten Million and No/100 Dollars
($10,000,000.00).
e. Borrower shall not enter into any acquisition unless
both prior to and giving effect to the acquisition no
Event of Default shall exist under this Agreement.
All approvals of the Required Lenders under this
definition shall be requested by Borrower through the
delivery of the Acquisition Certificate to Lenders
and Agent and responses of the Lenders shall be
compiled by Agent.
2. Section 5.11.2 of the Loan Agreement is hereby amended by deleting
the period at the end of the second sentence thereof and inserting the following
language:
23
<PAGE>
in the case of Providers who are physicians and at least Three
Hundred Thousand and No/100 Dollars ($300,000.00) per
occurrence in the case of Providers who are not physicians.
3. Section 6.11 of the Loan Agreement is hereby amended by deleting the
word "and" in the final line thereof, deleting the period after the word "Loans"
in the final line thereof, and adding the following language:
, and (iv) advances to Providers in connection with Permitted
Acquisitions to the extent that, due to legal constraints,
some or all of the acquisition consideration must be paid by
the Provider rather than by a Borrower Entity, and further
provided that repayment of the advance is a shared obligation
of the Provider and the Borrower Entity making the related
acquisition on the same proportional basis that would apply
under a Service Agreement with respect to the acquisition of
equipment for use by the Provider.
4. Section 6.15 of the Loan Agreement is hereby amended by inserting
the phrase "and Permitted Minority Interest Investment Entities" in the sixth
line thereof following the defined term "Permitted Subsidiaries."
5. In addition to the foregoing amendments to the Loan Agreement, the
Lenders and Agent hereby consent to the following transaction and waive any
violation of Section 6.11 of the Loan Agreement that the transaction would cause
in the absence of a waiver:
Borrower is permitted to loan to Dr. Kenneth Westfield the sum
of $500,000.00, unsecured, at an interest rate of 8% per
annum, due and payable in full (including accrued but unpaid
interest) one year from the closing date of the acquisition by
Dr. Westfield of Dr. Steven P. Shearing's ophthalmology
practice.
This waiver applies only to the specific transaction described herein and this
Amendment does not obligate Lenders or Agent to hereafter consent to any other
transaction, even if it is similar to that approved herein. Without limiting the
foregoing, this waiver does not permit the loan to Dr. Westfield to remain
outstanding beyond the maturity date approved above, and any extension of the
maturity date or other change in essential terms from those described above
would require an additional waiver, which may be issued or withheld, in the
Required Lenders' discretion.
6. As amended hereby, and subject to the waiver issued herein, the Loan
Agreement remains in full effect, and all agreements among the parties with
respect to the subject hereof are represented fully in this Amendment and the
other written documents among the parties. Borrower shall pay the reasonable
fees and expenses of Agent's counsel for the consideration, negotiation and
preparation of this Amendment. The validity, construction and enforcement hereof
shall be determined according to the substantive laws of the State of Tennessee.
7. The approval of the Required Lenders is required for this Amendment
to be
24
<PAGE>
effective, and all Lenders have joined in the execution hereof to evidence
their consent hereto. This Amendment may be executed in counterparts, each of
which shall constitute an original hereof.
Executed as of the date first written above.
PHYSICIANS RESOURCE GROUP, INC.,
a Delaware corporation, as Borrower
By:
Title:
NATIONSBANK OF TENNESSEE, N.A.,
a national banking association, as Agent
By: /s/ ELIZABETH L. KNOX
Elizabeth L. Knox,
Senior Vice President
NATIONSBANK OF TENNESSEE, N.A.,
a national banking association, as a Lender
By: /s/ ELIZABETH L. KNOX
Elizabeth L. Knox,
Senior Vice President
BANK ONE TEXAS,
a Texas banking corporation, as a Lender
By: /s/ KAREN A. PATTERSON
Karen A. Patterson,
Vice President
AMSOUTH BANK OF TENNESSEE,
a Tennessee banking corporation, as a Lender
By: /s/ CATHY M. WIND
Cathy M. Wind,
Vice President
25
EXHIBIT 11.1
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, 1997
THREE MONTHS SIX MONTHS
ENDED ENDED
------------ ----------
PRIMARY EARNINGS PER SHARE
Net earnings .................................... $ 3,186 $ 7,872
======= =======
Weighted average number of
common shares outstanding ..................... 30,041 29,975
Net effect of dilutive stock
options, warrants and convertible
preferred stock based on the
treasury stock method using average
market price .................................. 135 178
------- -------
Weighted average number of
common and common equivalent
shares outstanding ............................ 30,176 30,153
======= =======
PRIMARY EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE ...................... $ 0.11 $ 0.26
======= =======
FULLY DILUTED EARNINGS PER SHARE
Net earnings .................................... $ 3,186 $ 7,872
======= =======
Weighted average number of
common shares outstanding ..................... 30,041 29,975
Net effect of dilutive stock
options based on the treasury
stock method using the greater
of the average or ending
market price .................................. 135 178
------- -------
Weighted average number of
common and common equivalent
shares outstanding ............................ 30,176 30,153
======= =======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE ASSUMING FULL DILUTION .......... $ 0.11 $ 0.26
======= =======
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE
30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,152
<SECURITIES> 0
<RECEIVABLES> 89,972<F1>
<ALLOWANCES> 0
<INVENTORY> 7,171
<CURRENT-ASSETS> 127,409
<PP&E> 65,947<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 578,663
<CURRENT-LIABILITIES> 27,260
<BONDS> 125,000
0
2
<COMMON> 302
<OTHER-SE> 320,716
<TOTAL-LIABILITY-AND-EQUITY> 578,663
<SALES> 0
<TOTAL-REVENUES> 205,462
<CGS> 0
<TOTAL-COSTS> 192,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,654
<INCOME-PRETAX> 12,540
<INCOME-TAX> 4,668
<INCOME-CONTINUING> 7,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,872
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<FN>
<F1>NET OF CONTRACTUAL AND OTHER ALLOWANCES
<F2>NET OF ACCUMULTAED DEPRECIATION
</FN>
</TABLE>
