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 March 31, 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
(State or other jurisdiction of incorporation or organization)
76-0456864
(I.R.S. Employer Identification No.)
Three Lincoln Center, 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
<PAGE>
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 May 1, 1997
Common Stock, $.01 par value 29,976,982 shares
Physicians Resource Group, Inc.
Form 10-Q for the Quarterly Period Ended March 31, 1997
INDEX
PART I. Financial Information
Page
Item 1 Financial Statements and General Information .........3
Consolidated Balance Sheets - December 31, 1996 and
March 31,1997 (unaudited)...............................4
Consolidated Statements of Operations - Three Months
Ended March 31, 1996 and 1997 (unaudited) ............5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1997 (unaudited) ............6
Notes to Consolidated Financial Statements -
March 31, 1997 (unaudited).........................7-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............11-13
<PAGE>
PART II. Other Information
Item 1 Legal Proceedings ...................................14
Item 2 Changes in Securities ...............................14
Item 3 Defaults Upon Senior Securities .....................14
Item 4 Submission of Matters to a Vote
of Security Holders .................................14
Item 5 Other Information ...................................14
Item 6 Exhibits and Reports on Form 8-K .................14-19
SIGNATURE...................................................20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
General Information
Physicians Resource Group, Inc. (PRG or the Company) was
incorporated in November 1993 for the purpose of providing physician
practice management services to ophthalmic and optometric practices and
developing integrated eye care networks. Simultaneously with the
closing of its initial public offering in June 1995, the Company
acquired in a reorganization, certain assets of and liabilities
associated with 10 ophthalmic and optometric practices. No further
acquisitions were made in 1995.
During 1996, the Company merged with EyeCorp Inc. (EyeCorp) and
acquired the assets and liabilities of seven physician practices in
pooling of interests transactions. At the time of the merger,
EyeCorp provided practice management services to 50 ophthalmic
and optometric practices (one practice was subsequently sold). The
financial statements for periods prior to the consummation of these
pooling of interests transactions have been adjusted to reflect the
operations of the combined entities for those periods. The Company also
completed the acquisition of certain assets and assumed certain
liabilities of 83 ophthalmic and optometric practices in purchase
transactions (entering into new service agreements with 78 of these
practices and providing management services to the other five
practices through existing service agreements). Through May 1, 1997,
the Company completed the acquisition of certain assets and assumed
certain liabilities of nine ophthalmic and optometric practices in
purchase transactions (entering into new service agreements with five
of these practices and providing management services to the other
four practices through existing service agreements). Accordingly, as of
May 1, 1997, the Company was providing management services to 158
practices under 149 service agreements. See Notes 1 and 8 in the
accompanying Notes to Consolidated Financial Statements for further
information regarding the acquisitions.
<PAGE>
<TABLE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's Except Share Data)
December 31, March 31,
ASSETS 1996 1997
<S> (unaudited)
<C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 53,418 $ 47,405
Accounts receivable, net of
contractual and other allowances of
$20,161 and $22,600 32,162 34,877
Due from affiliates 46,170 50,520
Pharmaceuticals and supplies 6,768 7,136
Prepaid expenses and other 6,125 7,508
Total current assets 144,643 147,446
PROPERTY AND EQUIPMENT, net 64,184 63,793
INTANGIBLE ASSETS, net 366,857 372,370
OTHER NONCURRENT ASSETS, net 5,850 7,034
Total assets $ 581,534 $ 590,643
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations to $ 8,447 $ 5,235
affiliates
Current portion of long-term debt 2,833 2,744
Accounts payable and accrued 27,205 28,845
expenses
Deferred taxes 2,599 2,599
Total current liabilities 41,084 39,423
LONG-TERM DEBT, net of current portion 129,339 128,727
OBLIGATIONS TO AFFILIATES, net of 19,649 19,737
current portion
DEFERRED TAXES AND OTHER LONG-TERM 80,789 84,261
LIABILITIES
Total liabilities $ 270,861 $ 272,148
<PAGE>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000
shares authorized, 30,138,000 298 301
and 29,977,000 outstanding
Preferred stock, $.01 par value, 10,000,000
shares authorized, none outstanding --- ---
Treasury stock at cost(0 and 125,000 --- (2,500)
shares)
Additional paid-in capital 296,454 302,087
Retained earnings 13,921 18,607
Total stockholders' equity $ 310,673 $ 318,495
Total liabilities and $ 581,534 $ 590,643
stockholders' equity
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Except Per Share Amounts)
Three Months
Ended March 31,
1996 1997
(unaudited)
<S> <C> <C>
REVENUES:
Management services $ 30,601 $ 63,162
Medical services and other 16,613 35,345
Total revenues 47,214 98,507
COSTS AND EXPENSES:
Salaries, wages and benefits 23,301 49,001
Pharmaceuticals and supplies 5,648 11,875
General and administrative 11,886 22,020
Depreciation and amortization 2,034 5,637
Interest expense, net 507 2,107
Patent litigation defense costs _ 507
Merger transaction expenses 9,000 _
Total costs and expenses 52,376 91,147
INCOME (LOSS) BEFORE INCOME TAXES (5,162) 7,360
PROVISION FOR INCOME TAXES 1,581 2,674
NET INCOME (LOSS) $ (6,743) $ 4,686
NET INCOME (LOSS) PER SHARE $ (.34) $ .16
NUMBER OF SHARES USED IN NET
INCOME (LOSS) PER SHARE CALCULATION 20,057 30,191
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's)
Three Months
Ended March 31,
1996 1997
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (6,743) $ 4,686
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization ............... 2,034 5,637
Changes in deferred taxes ................... -- --
Changes in assets and liabilities, net of
effects of acquisitions-
Accounts payable and accrued expenses...... 4,525 1,172
Accounts receivable, net and due from
affiliates................................. (4,407) (6,497)
Pharmaceuticals and supplies............... (107) 126
Prepaid expenses and other ................ 5,566 (2,106)
Net cash provided by operating
activities .............................. 868 3,018
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of clinic operating assets, net of cash
acquired .................................... (9,441) (1,858)
Additions to property and equipment, net of effects
acquisitions ................................. (2,050) (2,118)
Net cash used in investing activities .... (11,491) (3,976)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock from
offerings, net of offering costs ............. -- --
Distributions to owners, net.................... -- --
Proceeds from long-term debt.................... 6,931 --
Payments on long-term debt...................... (3,887) (701)
Net proceeds (repayments) on obligations to
affiliates ................................... -- (4,563)
Proceeds from exercise of stock options......... -- 209
Net cash provided by (used in) financing
activities.............................. 3,044 (5,055)
NET DECREASE IN CASH AND CASH EQUIVALENTS ........ (7,579) (6,013)
CASH AND CASH EQUIVALENTS, beginning of period.... 18,183 53,418
CASH AND CASH EQUIVALENTS, end of period.......... $ 10,604 $ 47,405
SUPPLEMENTAL NONCASH TRANSACTION:
Sale of practice and related ASC in exchange for
PRG common stock............................. $ -- $ 2,500
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
PRG Organization
Physicians Resource Group, Inc., a Delaware corporation (PRG or the
Company) and subsidiaries were formed to provide physician practice
management services to ophthalmic and optometric practices (the
Practices). The Company was formed in November 1993 but had no
substantive operations prior to its initial public offering and
acquisition of its initial 10 eye care practices and five ambulatory
surgery centers (ASCs) in June 1995 (one was subsequently constructed).
PRG earns revenues by owning or providing management, marketing,
financial resources and other services to ophthalmic and optometric
practices, ASCs and optical dispensaries.
1996 Activity
Poolings
During 1996, PRG merged with EyeCorp and acquired the assets and
liabilities of seven eye care practices and one ASC in transactions
accounted for as poolings of interests. In connection therewith, PRG
issued 6,089,506 shares of common stock to the stockholders of EyeCorp
in exchange for all of its outstanding common stock and 3,636,999 shares
of common stock to the owners of the other pooled practices. The
Company incurred approximately $12,000,000 of costs associated with
these acquisitions. At the time of the merger, EyeCorp provided practice
management services to 50 ophthalmic and optometric practices and owned
five ASCs. PRG subsequently sold one of these practices and the related
ASC back to the original owner. The consolidated financial statements
reflect the financial condition and results of operations of these
entities for all periods presented.
Purchases
During 1996, PRG also acquired certain assets and liabilities of 45
eye care practices and 15 ASCs in purchase transactions. PRG entered
into associated practice service agreements with 40 of these practices
(providing management services to five of the practices through existing
service agreements). As consideration for these acquisitions, PRG paid
approximately $11,820,000 in cash and issued 4,703,800 shares of its
common stock.
<PAGE>
In November 1996, the Company acquired substantially all of the
assets and certain of the liabilities of the eye care division of
EquiMed, Inc. (EquiMed) in exchange for $55,077,000 in cash.
Additionally, the Company acquired substantially all of the assets and
certain of the liabilities of American Ophthalmic Incorporated (AOI) in
November in exchange for $31,100,000 in cash and 1,314,045 shares of PRG
common stock valued at $30,683,000. Both acquisitions were accounted
for as purchases. The eye care division of EquiMed provided practice
management services to 22 eye care practices and 10 ASCs. AOI provided
practice management services to 16 eye care practices and nine ASCs.
Acquisitions Subsequent to December 31, 1996 and Prior to
March 31,1997
During the first quarter of 1997, PRG acquired certain assets and
liabilities of five eye care practices, one ASC, one optical shop and one
managed care vision company (the First Quarter Acquisitions). PRG entered
into associated practice service agreements with four of these
practices (providing management services to one practice through an
existing service agreement). These acquisitions were accounted for as
purchases. The net assets acquired in the transactions were
approximately $1,065,000. As consideration for these acquisitions,
PRG paid $1,938,000 in cash, issued 329,498 shares of its common
stock and executed convertible promissory notes in the amount of
$1,439,000. 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 $18.60 and $18.73 per share. The PRG common stock issued
in connection with the First Quarter Acquisitions was valued from $16.65
to $18.73 per share.
Basis of Presentation
In the opinion of Company management, the accompanying consolidated
financial statements include the accounts of the Company and all
adjustments necessary to present fairly the Company's financial position
as of March 31, 1997, its results of operations for the three month
periods ended March 31, 1996 and 1997 and its cash flows for the three
month periods ended March 31, 1996 and 1997. The financial statements
for all pooled entities have been combined with those of the Company
for all periods presented. Certain reclassifications of prior year
amounts have been made to conform with current year presentation.
Although the Company believes that the disclosures are adequate to make
the information presented not misleading, certain information and
footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These consolidated financial
statements should be read in conjunction with the Company's financial
statements and footnotes thereto included in the Company's report on
Form 10-K filed with the Securities and Exchange Commission on March
31, 1997. The results of operations for the three month periods ended
March 31, 1996 and 1997 may not be indicative of the results for the
full year.
<PAGE>
2. REVENUE RECOGNITION AND RECEIVABLES:
The Company manages its relationship with the Practices under
various types of service and management agreements. The management
services revenues earned under these arrangements are based on several
different types of arrangements, including percentages of the medical
services revenues or earnings, flat fees and reimbursement of clinic
expenses and are presented as management services 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 owned ASCs are based on facility fees charged to patients
and third-party payors for use of the ASCs. 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 services revenues on the accompanying consolidated
statements of operations; minority owned ASCs are presented as
management service revenues.
Pursuant to the terms of certain of the Company's service
agreements, the Practices' accounts receivable are purchased without
recourse. The purchase price is the face amount of the accounts
receivable less any reserve recorded by the Practices for uncollectible
amounts. Accounts receivable are purchased daily and paid for at the
end of each month. For the seven Practices owned by the Company,
accounts receivable reflect the receivables from patients and third
party payors net of the recorded reserve for contractual and other
allowances.
Due from affiliates on the accompanying consolidated balance sheet
include management services receivables, receivables from the Practices
for certain expenses being paid on their behalf and certain other
miscellaneous receivables from the Practices. The receivables due from
certain of the Practices are collateralized by a security interest in
the Practices' receivables from third-party payors and patients.
3. LONG-TERM OBLIGATIONS:
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 PRG 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 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. As
of March 31, 1997, the Company's borrowing capacity was $90,000,000.
<PAGE>
4. COMMITMENTS AND CONTINGENIES:
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. Although not
named in the lawsuit, 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 first quarter of 1997 and expects to incur
additional costs throughout 1997. Management of the Company believes
that the outcome of this litigation will not have a material impact on
its financial condition or results of operations.
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.
5. STOCKHOLDERS' EQUITY:
Common Stock
In addition to the common stock outstanding at December 31, 1996,
329,498 shares were issued in the first quarter of 1997 in connection
with the First Quarter Acquisitions and 35,700 shares were issued upon
exercise of stock options. In addition, 9,296 shares were returned
related to the AOI acquisition and 125,000 shares were received from
the sale of the assets of one practice and related ASC back to the
original owner. The shares received from the sale of assets have been
accounted for as treasury stock. 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 May 1, 1997, 36,300 shares of PRG
common stock had been purchased for $399,000.
The Company has reserved (a) 5,000,000 shares of common stock for
issuance upon exercise of stock options under the Company's stock option
plans, (b) 40,000 shares of common stock for issuance upon exercise of
warrants, (c) 5,000,000 shares of common stock for issuance upon
conversion of the 6% convertible debentures (Debentures), (d) 101,000
shares of common stock upon conversion of convertible promissory notes
issued in 1997 and (e) 200,000 shares of common stock upon conversion
of the preferred stock issued to the Chairman of the Board and Chief
Executive Officer of PRG discussed below. The Company also registered
10,000,000 shares of common stock during the first quarter of 1997, of
which 9,713,032 shares remain available for future issuance as of May 1,
1997.
<PAGE>
Preferred Stock
In 1997, the Board of Directors created a series of preferred
stock, par value $.01 per share, of the Company and authorized 200,000
shares of convertible preferred stock designated as Series B convertible
preferred stock (Series B). The holders of such Series B shares are not
entitled to dividends nor shall they have voting rights, except as
provided by law. Each share of Series B is convertible, at any time,
into one share of the common stock of PRG, subject to certain
adjustments. The shares are not redeemable and are non-cumulative. Upon
liquidation, dissolution or winding-up of PRG, the holders of the shares
shall be entitled to receive the liquidation value of shares ($.01 per
share) in preference to and in priority over distributions upon the
common stock.
Effective February 21, 1997, the Board of Directors approved,
subject to the consideration and approval of the stockholders of PRG,
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 of
PRG during the two year period beginning February 21, 1997 and ending
on February 21, 1999. The letter agreement provides that the Chairman
shall pay to PRG an amount equal to (i) the closing sales 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 (ii) 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. The
purchase of the shares was funded by a loan from PRG, the principal of
which is nonrecourse and the interest of which is recourse. The note
evidencing the loan is secured by the Series B shares that were
purchased.
6. STOCK OPTION PLANS:
The Amended and Restated 1995 Stock Option Plan, (the Plan) permits
the Company to grant stock options to directors, key employees and
certain advisors. The aggregate amount of common stock with respect to
which options may be granted may not exceed 3,000,000 shares (1,000,000
shares are subject to stockholder approval). The 1995 Health Care
Professionals Stock Option Plan (the HCP Plan) permits the Company to
grant stock options to employees, advisors and consultants of the
Company, which the Company expects will generally be ophthalmologists
and optometrists, who both (i) provide advisory or consulting services
to the Company and (ii) are employed by a Practice. The aggregate
amount of common stock with respect to which options may be granted may
not exceed 2,000,000 shares (1,000,000 shares are subject to stockholder
approval).
7. NEW ACCOUNTING PRONOUCEMENT
The Company will adopt SFAS No. 128 Earnings per Share, effective
December 15, 1997. SFAS No. 128 requires the calculation of basic
earnings per share which is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period and diluted earnings per common share which is computed using the
weighted average number of shares of common stock, common stock
equivalents and any other dilute securities. As required, the Company
will restate the reported earnings per share. Basic earnings (loss)
per share for the three months ended March 31, 1997 and 1996,
<PAGE>
respectively, would have been $.15 and $(.34). Diluted earnings (loss)
per share for the three months ended March 31, 1997 and 1996,
respectively, would have been $.16 and $(.34).
8. SUBSEQUENT EVENTS AND PRO FORMA INFORMATION:
Acquisitions
Between April 1, 1997 and May 1, 1997, the Company completed the
acquisition of the assets of four eye care practices, entering into
service agreements with one of the practices and providing management
services to three of the practices through existing service agreements.
As consideration for these acquisitions, PRG paid $4,413,000 in cash
and executed a convertible promissory note in the amount of $446,000.
This note bears interest at 7% and is convertible into PRG common stock
after two years at the option of the holder at $18.60 per share. In
addition to the subsequent acquisitions discussed above, the Company
is currently in various stages of negotiations with a number of other
eye care practices regarding the acquisition of certain assets and
liabilities and the provision of management services. Management of
PRG believes certain of these negotiations will result in additional
acquisitions in the future.
Pro Forma
The summarized unaudited pro forma consolidated statement of
operations data for the three months ended March 31, 1996 and 1997
presented below have been prepared as if (i) the public offering in 1996
had been completed; (ii) the issurance of the $125,000,000 of Debentures
had been completed (iii) the consummation of the First Quarter
Acquisitions and entry into service agreements with these eye care
practices had occurred; and (iv) consummation of all 1996 acquisitions
had occurred; all as if such transactions or events had occurred January
1, 1996 (amounts in 000's, except per share amounts):
<TABLE>
Three Months Ended
March 31,
1996 1997
(Unaudited)
<S> <C> <C>
Total revenues ................. $ 97,092 $ 99,521
Net income (loss) ............. (4,107) 4,787
Net income (loss) per share .... (.14) .16
Number of shares used in net
income (loss) per share
calculation .................. 29,581 30,297
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
As discussed in Item 1, PRG conducted no significant operations
until June 1995. Through the execution of service agreements with its
initial 10 Practices, 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.
As discussed in Note 1 of the Notes to Consolidated Financial
Statements, the Company made a number of acquisitions during 1996 and
early 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 4
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 9 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 2 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 4 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 interests, 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 AOI, 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 EquuiMed for
$55,077,000 in cash. To date during 1997, PRG has acquired certain
<PAGE>
assets and liabilities of an additional nine eye care practices and one
ASC for cash of $6,351,000, 329,498 shares of its common stock and
convertible promissory notes in the amount of $1,885,000. 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.
RESULTS OF OPERATIONS - UNAUDITED HISTORICAL
Of the 148 acquisitions consummated by PRG during 1996 and early
1997, 92 were accounted for as purchases. As a result, revenues, costs
and expenses have all increased significantly during the three months
ended March 31, 1997, when compared to the corresponding three months of
the previous year.
Three Months Ended March 31, 1997 Compared to Three Months Ended March
31, 1996
Revenues
Revenues for the three month period ended March 31, 1997 increased
$51,293,000 or 109% as compared to the same period in 1996. This
increase was largely attributable to a significant increase in the
number of practice asset acquisitions made during 1996 and 1997
that were accounted for as purchases (92 acquisitions). The percentage
of revenues derived from management services and medical service did
not change significantly between the two periods.
Costs and Expenses
The significant increase in total costs and expenses between the
1997 and 1996 period ($38,771,000), as well as the large percentage
increase (74%), are both attributable to the acquisitions that caused
the large revenue increase between the two periods. The number of
acquisitions is also the primary reason for the large increase in the
individual cost categories. Salaries, wages and benefits and
pharmaceuticals and supplies did not change significantly as a
percentage of revenues between the two periods. General and
administrative decreased as a percentage of revenues (25% to 22%) due
primarily to reduced expenses associated with EyeCorp and improved
leverage of corporate costs relative to increased revenues.
Depreciation and amortization increased as a percentage of revenues (4%
to 6%) between the 1997 and 1996 period due primarily to increased
intangible asset amortization associated with the numerous practice
acquisitions accounted for as purchases during 1996 and early 1997.
Interest expense increased between the two periods due primarily to
significantly higher debt levels relative to the Debentures and assumed
debt associated with the EquiMed and AOI acquisitions, all of which
occurred in the fourth quarter of 1996. PRG had no merger transaction
expenses during 1997 as no poolings were consummated during that period.
Additionally, there were no patent litigation expenses during the first
quarter of 1996, as PRG did not begin participating in this litigation
until the fourth quarter of 1996.
<PAGE>
Provision For Income Taxes
The effective income tax rate for the 1997 period (36%) is higher
than the U.S. statutory rate of 35% due primarily to state income taxes,
offset somewhat by the effect of tax exempt interest income earned on
excess cash. The income tax provision for the 1996 period is primarily
the result of federal and state income taxes on PRG's earnings, before
the $9,000,000 of non-deductible merger transaction expenses and
consideration of the losses from the entities which PRG merged with in
pooling of interests transactions. A tax benefit for the interim
earnings and losses for the entities with which PRG merged in pooling of
interests transactions has not been provided since the taxable income of
these entities was reduced to nominal levels.
RESULTS OF OPERATIONS - UNAUDITED PRO FORMA
As discussed in Note 8 in the Notes to Consolidated Financial
Statements the summarized unaudited pro forma consolidated statement of
operations data for the three months ended March 31, 1996 and 1997
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 Debentures
had been completed (iii) the consummation of the First Quarter
Acquisitions and entry into service agreements with these eye care
practices had occurred; and (iv) consummation of all 1996 acquisitions
had occurred; all as if such transactions or events had occurred January
1, 1996 (amounts in 000's, except per share amounts).
<TABLE>
Three Months Ended
March 31,
1996 1997
(Unaudited)
<S> <C> <C>
Total revenues .................. $ 97,092 $ 99,521
Net income (loss) ............... (4,107) 4,787
Net income (loss) per share ..... (.14) .16
Number of shares used in net
income (loss) per share
calculation ................. 29,581 30,297
</TABLE>
Total revenues increased slightly between the two periods. Pro
forma net income increased approximately $8,894,000 between the two
periods. This increase in income is attributable primarily to the
$9,000,000 of non-recurring merger transaction expenses incurred in 1996
but not in 1997. Had the merger transaction expenses and related tax
effects not been incurred, pro forma income and pro forma income per
share for the three months ended March 31, 1996, would have been
approximately $4,893,000 and $.16 per share, respectively, based on
30,354,251 shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Working Capital and Debt
During the three months ended March 31, 1997, the Company made
various significant cash expenditures with respect to (i) debt
retirement, (ii) various practice asset acquisitions (see Note 1 of
Notes to Consolidated Financial Statements), (iii) capital expenditures
<PAGE>
related to medical equipment and information systems, (iv) payment of
taxes (v) line of credit facility and Debenture offering expenses and
(vi) other miscellaneous cash expenditures. To finance these
expenditures, PRG utilized existing cash balances and cash generated
from operations. Accordingly, as of March 31, 1997, cash on hand was
$47,405,000, working capital was $108,023,000 and total long-term debt
was $148,464,000 (excluding current portion). Subsequent to March 31,
1997, the Company continued to make certain cash expenditures in
connection with acquisitions, debt repayments and capital expenditures.
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 May 1, 1997.
Liquidity
As discussed above, 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 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 quarter 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, as was the case with acquisitions made in April 1997.
Other Matters.
Certain statements in this Form 10-Q consist of forward-looking
statements that involve risks and uncertainies, 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 March 31, 1997.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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. (8)
2.3 -- Agreement and Plan of Merger by and among American
Ophthalmic Incorporated, PRG Acquisition Corporation and
Physician Resource Group, Inc. date 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)
<PAGE>
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 an 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 an 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., Gary A.
Varley, M.D., Linda J. Greff, 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)
<PAGE>
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. Burn 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)
<PAGE>
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, 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.(17)(7)
10.5 -- Employment Agreement between Physicians Resource Group,
Inc. and Richard M. Owen.(17)(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)
<PAGE>
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)
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)
<PAGE>
10.25 -- Loan Agreement dated as of January 8, 1996 between
PRG and NationsBank of Tennessee, N.A.
("NationsBank").(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)
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 Physician Resource Group,
Inc. and NationsBank of Tennessee, N.A. Agent 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)
<PAGE>
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)
24.1 -- Power of Attorney (contained on the signature page
of this report).
27.0 -- Financial Data Schedule(17)
(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 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 (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
<PAGE>
(b) Reports on Form 8-K
1. On April 1, 1997, the Company filed with the Securities and
Exchange Commission (the Commission) a Current Report on Form 8-K
dated March 24, 1997, which Form 8-K reported the consummation of
the acquisitions of Eye Associates, S.C. and Excimer Laser
Associates, Ltd. and West Suburban Eye Associates, Ltd. The
following financial statements were included in such Form 8-K:
(i) The audited balance sheet of Eye Associates, S.C. and Excimer
Laser Associates, Ltd. as of December 31, 1995, and the related
audited statement of earnings, owners' equity and cash flows for
the year then ended and the unaudited statements of earnings
and cash flows for the six months ended June 30, 1995 and 1996.
(ii) The audited balance sheet of West Suburban Eye Associates,
Ltd. as of December 31, 1996, and the related audited statements
of earnings, owners' equity and cash flows for the period then
ended.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Dated: May 15, 1997 By:/S/RICHARD M. OWEN
Richard M. Owen
President and Chief Financial Officer
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement"), dated February 21, 1997 by
and between Physicians Resource Group, Inc., a Delaware corporation (the
"Company"), and Emmett E. Moore ("Employee").
R E C I T A L S
1. The Company and Employee are parties to that certain
Employment Agreement dated April, 1995 (the "Old Employment Agreement").
2. The Company and Employee desire to terminate the Old
Employment Agreement and enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
conditions contained herein, the parties hereto agree as follows:
Section 1. Employment. The Company hereby agrees to employ
Employee, and Employee hereby accepts employment by the Company, upon
the terms and subject to the conditions hereinafter set forth.
Section 2. Duties. Employee shall serve as the Chairman and
Chief Executive Officer of the Company. Except as otherwise provided
pursuant to Section 11 hereof, Employee agrees to devote his full time
and best efforts to the performance of his duties to the Company.
Employee acknowledges that the executive offices of the Company will be
located in Dallas, Texas.
Section 3. Term. Except as otherwise provided in Section 6
hereof, the term of this Agreement shall be for three years (Initial
Term), commencing on the date of this Agreement. This Agreement shall
be automatically renewed thereafter for successive one year terms unless
either party gives to the other written notice of termination no fewer
than ninety (90) days prior to the expiration of any such term that it
does not wish to extend this Agreement.
Section 4. Compensation and Benefits. In consideration for the
services of the Employee hereunder, the Company will compensate Employee
as follows:
(a) Base Salary. Commencing on the date hereof, Employee
shall be entitled to receive a base salary of $345,000.00 per
annum or as increased from time to time by the Board of Directors
of the Company or the Option and Compensation Committee of the
Board of Directors (Compensation Committee) thereof.
(b) Bonus. Employee shall be eligible to receive a bonus
each year during the term of this Agreement in accordance with a
bonus plan to be established annually by the Compensation
Committee. The bonus plan for fiscal 1997 is attached to this
Agreement as Exhibit A.
<PAGE>
(c) Benefits. During the term of this Agreement, Employee
shall be entitled to participate in and receive benefits under any
and all employee benefit plans and programs which are from time to
time generally made available to the executive employees of the
Company, subject to approval and grant by the appropriate committee
of the Board of Directors of the Company with respect to programs
calling for such approvals or grants.
Section 5. Expenses. It is acknowledged by the parties that
Employee, in connection with the services to be performed by him
pursuant to the terms of this Agreement, will be required to make
payments for travel, entertainment of business associates and similar
expenses. The Company will reimburse Employee for all reasonable
expenses of types authorized by the Company and incurred by Employee in
the performance of his duties hereunder. Employee will comply with such
budget limitations and approval and reporting requirements with respect
to expenses as the Company may establish from time to time.
Section 6. Termination. Employee's employment hereunder will
commence on the date of this Agreement and continue until the end of the
Initial Term and any renewals of such term, except that the employment
of Employee hereunder will terminate earlier upon the occurrence of the
following events:
(a) Death or Disability. Employee's employment will
terminate immediately upon the death of Employee during the term of
his employment hereunder or, at the option of the Company, in the
event of Employee's disability, upon 30 days notice to Employee.
Employee will be deemed disabled if, as a result of Employee's
incapacity due to physical or mental illness, Employee shall have
been absent from his duties with the Company on a full-time basis
for 120 consecutive business days. In the event of the termination
of this Agreement pursuant to this subsection, Employee will not be
entitled to any severance pay or other compensation except for any
portion of his base salary accrued but unpaid from the last monthly
payment date to the date of termination and expense reimbursements
under Section 5 hereof for expenses incurred in the performance of
his duties hereunder prior to termination.
(b) For Cause. The Company may terminate the Employee
employment for "Cause" immediately upon written notice by the
Company to Employee. For purposes of this Agreement, a termination
will be for Cause if: (i) Employee willfully and continuously fails
to perform his duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness), (ii)
Employee willfully engages in gross misconduct materially and
demonstrably injurious to the Company or (iii) Employee has been
convicted of a felony. In the event of the termination of this
Agreement pursuant to this subsection, Employee will not be
entitled to any severance pay or other compensation except for any
portion of his base salary accrued but unpaid from the last monthly
payment date to the date of termination and expense reimbursements
under Section 5 hereof for expenses incurred in the performance of
his duties hereunder prior to termination.
<PAGE>
(c) By Company Without Cause. The Company may terminate this
Agreement at any time for any reason without cause. In the event
of the termination of this Agreement pursuant to this subsection at
any time prior to 90 days before the expiration of the Initial Term,
the Company will pay Employee, as Employee's sole remedy in
connection with such termination, severance pay in the amount
determined by multiplying (i) Employee's monthly base salary at the
rate in effect immediately preceding the termination of Employee's
employment, by (ii) the greater of twelve (12) months or the
remaining number of months of employment in the Initial Term
payable in equal monthly payments in arrears. The Company will also
pay Employee the portion of his base salary accrued but unpaid from
the last monthly payment date to the date of termination and
expense reimbursements under Section 5 hereof for expenses incurred
in the performance of his duties hereunder prior to termination.
(d) By Company Without Cause at the End of the Initial Term
and Thereafter. The Company may terminate this Agreement at the end
of the Initial Term and annually thereafter upon the anniversary
date of this Agreement by providing to the Employee ninety (90)
days prior written notice of its election to terminate this
Agreement, such termination being effective as of the 90th day
after notice is delivered. In the event of termination of this
Agreement pursuant to this subsection, the Company will pay to
Employee as Employee's sole remedy in connection with such
termination, severance pay in the amount of Employee's monthly base
salary at the rate in effect immediately preceding the termination
of Employee's employment from the date of termination for twelve
months from the date of termination, which severance will be paid
by the Company in equal monthly payments in arrears. The Company
will also pay the Employee for expense reimbursements under Section
5 hereof for expenses incurred in the performance of his duties
hereunder prior to termination.
(e) By Employee Without Cause at the End of the Initial Term
and Annually Thereafter. Employee may terminate this Agreement at
the end of the Initial Term and annually thereafter upon the
anniversary date of this Agreement by providing to the Company
ninety (90) days prior written notice of his election to terminate
this Agreement, such termination being effective as of the 90th day
after notice is delivered. In the event of termination of this
Agreement pursuant to this subsection, the Company will continue to
pay to Employee Employee's monthly base salary from the date of
delivery of notice of termination until the earlier of (i) the next
annual anniversary of the date of this Agreement or (ii) 90 days
from the date of termination of employment and Employee will be
entitled to receive expense reimbursements under Section 5 hereof
for expenses incurred in the performance of his duties hereunder
prior to the date of termination.
<PAGE>
Section 7. Effect of Termination on Options. The Employee has
been granted options to purchase shares of the Company's Common Stock
and may continue to be granted such options from time to time. The
effect of the termination of the Employee's employment on such options
shall be determined by this Section. In the event of a conflict between
the termination provisions of an option agreement and the provisions of
this Agreement the terms of this Agreement shall control, except that if
the reason that the terms of an option agreement conflict with the terms
of this Agreement is necessary for the option in question to constitute
an "incentive stock option" under the Internal Revenue Code, the
Employee, in his discretion, may at the time of termination of
employment elect to have the termination provisions of the option
agreement control to the extent necessary to allow the option in
question to constitute an "incentive stock option" under the Internal
Revenue Code. Otherwise all options for the purposes of this Agreement
shall be treated as nonqualified.
(a) If the Employee voluntarily leaves the employment of the
Company in breach of this Agreement, his options will automatically
expire.
(b) If Employee dies or becomes disabled, as defined in
Section 6(a), while employed by the Company, his options shall
become fully exercisable on the date of his death or disability and
shall expire twelve months thereafter unless by its terms it
expires sooner.
(c) If the Employee's employment with the Company is
terminated for Cause, as defined in Section 6(b), his options will
automatically expire.
(d) If the Employee's employment with the Company is
terminated without cause, pursuant to Section 6(c), his options
will remain exercisable and will vest and expire in accordance with
the terms of the applicable option agreements.
(e) If Employee's employment with the Company is terminated
by the Company pursuant to Section 6(d), his options that are
vested as of the termination date shall remain exercisable for a
period of twelve months after the termination date and shall expire
at the end of such twelve month period and the options that would
have vested during the twelve months following the termination
date shall vest upon the termination date, shall remain exercisable
for a period of twelve months after the termination date and
expire at the end of such twelve month period.
(f) If the Employee's employment with the Company is
terminated by Employee pursuant to Section 6(e), his options that
are vested as of the termination date shall remain exercisable for
a period of twelve months after the termination date and shall
expire at the end of such twelve month period .
Section 8. Change In Control Termination Payment.
(a) Termination Payment.
<PAGE>
(i) Amount. Notwithstanding anything to the contrary
contained in Section 6 hereof, in the event Employee's
employment with the Company terminates for any reason (other
than death) within the twelve month period following a Change
In Control (as defined in subsection 8(b) hereof) occurring
after the date of this Agreement, the Company will pay
Employee a lump sum payment (the "Termination Payment") in
cash equal to 2.99 times the sum of the items in the following
subsections (I) through (VI):
(I) Employee's annual base compensation determined
by reference to his base salary in effect immediately
prior to the Change In Control;
(II) 50% of the maximum bonus that Employee could
receive under the management incentive bonus plan
established by the Compensation Committee of the Board of
Directors of the Company for the year in which the Change
In Control occurs, assuming all incentives and financial
targets were achieved that are necessary to require
payment of the largest bonus amount by the Company to
Employee;
(III) the amount of Employee's base salary
accrued but unpaid from the last monthly payment date to
the date of termination;
(IV) expense reimbursement under Section 5 hereof
for expenses incurred in the performance of his duties
hereunder prior to the termination of his employment with
the Company;
(V) any other benefit accrued but unpaid as of the
date of such termination; and
(VI) the estimated cost to Employee of obtaining
medical, dental, life and disability insurance coverage
for a period of eighteen months after the expiration of
his continuation (COBRA) rights; provided that such
coverage will be substantially similar to the coverage
provided to Employee by the Company immediately prior to
the Change In Control; and provided further that this
subsection 8(a)(i)(VI) will be applied without regard to,
and the amount payable under this subsection 8(a)(i)(VI)
is in addition to, any continuation (COBRA) rights or
conversion rights under any plan provided by the Company,
which rights are not affected by any provision hereof.
(ii) Time for Payment; Interest. The Company will pay
the Termination Payment to Employee concurrent with Employee's
termination of employment. The Company's obligation to pay to
Employee any amounts under this Section 8, including without
limitation the Termination Payment, will bear interest at the
maximum rate allowed by law until paid by the Company, and all
accrued and unpaid interest will bear interest at the same
rate, all of which interest will be compounded daily.
<PAGE>
(iii) Payment Authority. Any officer of the Company
(other than Employee) is authorized to issue and execute a
check, initiate a wire transfer or otherwise effect payment on
behalf of the Company to satisfy the Company's obligations to
pay all amounts due to Employee under this Section 8.
(iv) Termination. The Company's obligation to pay the
Termination Payment will not be affected by the manner in
which Employee's employment with the Company is terminated.
Without limiting the generality of the foregoing, the Company
will be obligated to pay the Termination Payment regardless of
whether Employee's termination of employment is voluntary,
involuntary, for cause, without cause, in violation of any
employment agreement or other agreement in effect at the time
of the Change In Control, or due to Employee's retirement or
disability. Employee's notice of his termination of
employment in connection with a Change In Control may be made
by any means.
(b) Change In Control. A Change In Control will be deemed to
have occurred for purposes hereof (i) when a change of stock
ownership of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any successor Item of a similar nature has occurred; or
(ii) upon the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) of securities of the Company
representing 33% or more of the combined voting power of the
Company's then outstanding securities; or (iii) a change during any
period of two consecutive years of a majority of the members of the
Board of Directors of the Company for any reason, unless the
election, or the nomination for election by the Company's
shareholders, of each director was approved by a vote of a majority
of the directors then still in office who were directors at the
beginning of the period; provided that a Change In Control will not
be deemed to have occurred for purposes hereof with respect to any
person meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Securities Exchange Act of
1934, as amended.
(c) Arbitration. Any controversy or claim arising out of or
relating to this Section 8, or the breach thereof, will be settled
exclusively by arbitration in Dallas, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment upon the award rendered by
the arbitrator(s) may be entered in, and enforced by, any court
having jurisdiction thereof.
(d) No Right To Continued Employment. This Section 8 will
not give Employee any right of continued employment or any right to
compensation or benefits from the Company except the rights
specifically stated herein.
(e) Exercise of Stock Options. Notwithstanding anything to
the contrary contained herein, all of Employee's options to
purchase the Company's Common Stock will become immediately
exercisable upon a Change In Control.
<PAGE>
Section 9. Confidential Information. Employee recognizes and
acknowledges that certain assets of the Company and its affiliates,
including without limitation information regarding customers, pricing
policies, methods of operation, proprietary computer programs, sales,
products, profits, costs, markets, key personnel, formulae, product
applications, technical processes, and trade secrets (hereinafter called
"Confidential Information") are valuable, special and unique assets of
the Company and its affiliates. Employee will not, during or after his
term of employment, disclose any of the Confidential Information to any
person, firm, corporation, association, or any other entity for any
reason or purpose whatsoever, directly or indirectly, except as may be
required pursuant to his employment hereunder, unless and until such
Confidential Information becomes publicly available other than as a
consequence of the breach by Employee of his confidentiality obligations
hereunder. In the event of the termination of his employment, whether
voluntary or involuntary and whether by the Company or Employee,
Employee will deliver to the Company all documents and data pertaining
to the Confidential Information and will not take with him any documents
or data of any kind or any reproductions (in whole or in part) of any
items relating to the Confidential Information.
Section 10. Noncompetition. Until two years after termination
of Employee's employment hereunder, Employee will not (i) engage
directly or indirectly, alone or as a shareholder, partner, officer,
director, employee or consultant of any other business organization, in
any business activities which relate to the acquisition and
consolidation of medical practices which were either conducted by the
Company at the time of Employee's termination or Proposed to be
Conducted (as defined herein) by the Company at the time of such
termination (the Designated Industry), (ii) divert to any competitor
of the Company in the Designated Industry any customer of Employee, or
(iii) solicit or encourage any officer, employee, or consultant of the
Company to leave its employ for employment by or with any competitor of
the Company in the Designated Industry. The parties hereto acknowledge
that Employee's noncompetition obligations hereunder will not preclude
Employee from (i) owning less than 5% of the common stock of any
publicly traded corporation conducting business activities in the
Designated Industry, (ii) serving as an officer, director, stockholder
or employee of an entity engaged in the healthcare industry whose
business operations are not competitive with those of the Company or
(iii) notwithstanding the above, investing in or serving as an officer
or employee of an entity that owns and operates outpatient surgery
centers and that is not engaged in the business of physician practice
management, provided that if during the term of this Agreement Employee
is serving as an officer, director or employee of another entity, the
amount of time spent by Employee in connection with such service taken
together with the amount of consulting time spent by Employee in
accordance with Section 11 shall not exceed 10% of his professional time
or two (2) days per month. Proposed to be Conducted, as used herein,
shall include those business activities which are the subject of a
formal, written business plan approved by the Board of Directors prior
to termination of Employee's employment and which the Company takes
material action to implement within 12 months of the termination of
Employee's employment. Employee will continue to be bound by the
provisions of this Section 10 until their expiration and will not be
entitled to any compensation from the Company with respect thereto. If
at any time the provisions of this Section 10 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 10 will be considered
<PAGE>
divisible and will become and be immediately amended to only such area,
duration and scope of activity as will be determined to be reasonable
and enforceable by the court or other body having jurisdiction over the
matter; and Employee agrees that this Section 10 as so amended will be
valid and binding as though any invalid or unenforceable provision had
not been included herein.
Section 11. Consulting. During the term of this Agreement,
Employee may devote up to 10% of his professional time or two (2) days
per month to a consulting business independent from the Company.
Section 12. Old Employment Agreement.
(a) Termination. The Company and Employee agree that the Old
Employment Agreement is hereby terminated.
(b) Release by Company. The Company, its employees,
officers, directors, shareholders, affiliates, parents,
subsidiaries, divisions, predecessors, successors, assigns, agents,
and legal representatives forever release and discharge Employee
and his predecessors, successors, assigns, heirs, agents, and legal
representatives of and from any and all claims, demands,
controversies, debts, actions, or causes of action, of whatever
nature or character, whether now known or unknown, related to or in
any way arising out of the Old Employment Agreement. No waiver of
a breach by Employee of the Old Employment Agreement that arises
out of this release shall be deemed to constitute a waiver of a
breach by Employee of this Agreement.
(c) Release by Employee. Employee, his successors, assigns,
heirs, agents, and legal representatives forever release and
discharge the Company and its employees, officers, directors,
shareholders, affiliates, parents, subsidiaries, divisions,
successors, assigns, agents and legal representatives of and from
any and all claims, demands, controversies, debts, actions, or
causes of action, of whatever nature or character, whether now
known or unknown, related to or in any way arising out of the Old
Employment Agreement, including, without limitation, any
obligations by the Company related to payment to Employee of a
bonus related to fiscal 1996. No waiver of a breach by the Company
of the Old Employment Agreement shall be deemed to constitute a
waiver of a breach by the Company of this Agreement.
Section 13. General.
(a) Notices. Except as provided in Section 8(a) hereof, all
notices and other communications hereunder will be in writing or by
written telecommunication, and will be deemed to have been duly
given if delivered personally or if mailed by certified mail,
return receipt requested or by written telecommunication, to the
relevant address set forth below, or to such other address as the
recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section 13(a):
<PAGE>
If to the Company, to: with a copy to:
Physicians Resource Group, Inc. Jackson & Walker, L.L.P.
Three Lincoln Centre, Suite 1540 901 Main Street, Suite 6000
5430 LBJ Freeway Dallas, Texas 75202
Dallas, TX 75240 Attn: James S. Ryan, III
Attn: Chief Executive Officer Fax No.:(214) 953-5822
Fax No.: (972) 982-8299
If to Employee, to:
Emmett E. Moore
5506 Waneta Drive
Dallas, Texas 75209
(b) Withholding; No Offset. All payments required to be made
by the Company under this Agreement to Employee will be subject to
the withholding of such amounts, if any, relating to federal, state
and local taxes as may be required by law. No payment under this
Agreement will be subject to offset or reduction attributable to
any amount Employee may owe to the Company or any other person.
(c) Equitable Remedies. Each of the parties hereto
acknowledges and agrees that upon any breach by Employee of his
obligations under any of Sections 9 and 10 hereof, the Company will
have no adequate remedy at law, and accordingly will be entitled to
specific performance and other appropriate injunctive and equitable
relief.
(d) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable, such provision will be
fully severable and this Agreement will be construed and enforced
as if such illegal, invalid or unenforceable provision never
comprised a part hereof; and the remaining provisions hereof will
remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as part
of this Agreement a provision as similar in its terms to such
illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable.
(e) Waivers. No delay or omission by either party hereto in
exercising any right, power or privilege hereunder will impair such
right, power or privilege, nor will any single or partial exercise
of any such right, power or privilege preclude any further exercise
thereof or the exercise of any other right, power or privilege.
(f) Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of
which together will constitute one and the same instrument.
(g) Captions. The captions in this Agreement are for
convenience of reference only and will not limit or otherwise
affect any of the terms or provisions hereof.
<PAGE>
(h) Reference to Agreement. Use of the words "herein,"
"hereof," "hereto" and the like in this Agreement refer to this
Agreement only as a whole and not to any particular subsection or
provision of this Agreement, unless otherwise noted.
(i) Binding Agreement. This Agreement will be binding upon
and inure to the benefit of the parties and will be enforceable by
the personal representatives and heirs of Employee and the
successors of the Company. If Employee dies while any amounts
would still be payable to him hereunder, such amounts will be paid
to Employee's estate. This Agreement is not otherwise assignable
by Employee.
(j) Entire Agreement. This Agreement contains the entire
understanding of the parties, supersedes all prior agreements and
understandings relating to the subject matter hereof and may not be
amended except by a written instrument hereafter signed by each of
the parties hereto.
(k) Governing Law. This Agreement and the performance hereof
will be construed and governed in accordance with the laws of the
State of Texas, without regard to its choice of law principles.
EXECUTED as of the date and year first above written.
PHYSICIANS RESOURCE GROUP, INC.
By: ___________________________________
Its: ___________________________________
EMPLOYEE
________________________________________
EMMETT E. MOORE
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement"), dated February 21, 1997 by
and between Physicians Resource Group, Inc., a Delaware corporation (the
"Company"), and Richard M. Owen ("Employee").
R E C I T A L S
1. The Company and Employee are parties to that certain
Employment Agreement dated April, 1995 (the "Old Employment Agreement").
2. The Company and Employee desire to terminate the Old
Employment Agreement and enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
conditions contained herein, the parties hereto agree as follows:
Section 1. Employment. The Company hereby agrees to employ
Employee, and Employee hereby accepts employment by the Company, upon
the terms and subject to the conditions hereinafter set forth.
Section 2. Duties. Employee shall serve as the President of
the Company. Except as otherwise provided pursuant to Section 11
hereof, Employee agrees to devote his full time and best efforts to the
performance of his duties to the Company. Employee acknowledges that
the executive offices of the Company will be located in Dallas, Texas.
Section 3. Term. Except as otherwise provided in Section 6
hereof, the term of this Agreement shall be for two years (Initial
Term), commencing on the date of this Agreement. This Agreement shall
be automatically renewed thereafter for successive one year terms unless
either party gives to the other written notice of termination no fewer
than ninety (90) days prior to the expiration of any such term that it
does not wish to extend this Agreement.
Section 4. Compensation and Benefits. In consideration for the
services of the Employee hereunder, the Company will compensate Employee
as follows:
(a) Base Salary. Commencing on the date hereof, Employee
shall be entitled to receive a base salary of $250,000.00 per annum
or as increased from time to time by the Board of Directors of the
Company or the Option and Compensation Committee of the Board of
Directors (Compensation Committee) thereof.
(b) Bonus. Employee shall be eligible to receive a bonus
each year during the term of this Agreement in accordance with a
bonus plan to be established annually by the Compensation
Committee. The bonus plan for fiscal 1997 is attached to this
Agreement as Exhibit A.
<PAGE>
(c) Benefits. During the term of this Agreement, Employee
shall be entitled to participate in and receive benefits under
any and all employee benefit plans and programs which are
from time to time generally made available to the executive employees
of the Company, subject to approval and grant by the appropriate
committee of the Board of Directors of the Company with respect to
programs calling for such approvals or grants.
Section 5. Expenses. It is acknowledged by the parties
that Employee, in connection with the services to be performed by
him pursuant to the terms of this Agreement, will be required to
make payments for travel, entertainment of business associates
and similar expenses. The Company will reimburse Employee for
all reasonable expenses of types authorized by the Company and
incurred by Employee in the performance of his duties hereunder.
Employee will comply with such budget limitations and approval
and reporting requirements with respect to expenses as the
Company may establish from time to time.
Section 6. Termination. Employee's employment hereunder
will commence on the date of this Agreement and continue until
the end of the Initial Term and any renewals of such term, except
that the employment of Employee hereunder will terminate earlier
upon the occurrence of the following events:
(a) Death or Disability. Employee's employment will
terminate immediately upon the death of Employee during the
term of his employment hereunder or, at the option of the
Company, in the event of Employee's disability, upon 30 days
notice to Employee. Employee will be deemed disabled if, as
a result of Employee's incapacity due to physical or mental
illness, Employee shall have been absent from his duties
with the Company on a full-time basis for 120 consecutive
business days. In the event of the termination of this
Agreement pursuant to this subsection, Employee will not be
entitled to any severance pay or other compensation except
for any portion of his base salary accrued but unpaid from
the last monthly payment date to the date of termination and
expense reimbursements under Section 5 hereof for expenses
incurred in the performance of his duties hereunder prior to
termination.
(b) For Cause. The Company may terminate the Employee
employment for "Cause" immediately upon written notice by
the Company to Employee. For purposes of this Agreement, a
termination will be for Cause if: (i) Employee willfully and
continuously fails to perform his duties with the Company
(other than any such failure resulting from incapacity due
to physical or mental illness), (ii) Employee willfully
engages in gross misconduct materially and demonstrably
injurious to the Company or (iii) Employee has been
convicted of a felony. In the event of the termination of
this Agreement pursuant to this subsection, Employee will
not be entitled to any severance pay or other compensation
except for any portion of his base salary accrued but unpaid
from the last monthly payment date to the date of
termination and expense reimbursements under Section 5
hereof for expenses incurred in the performance of his
duties hereunder prior to termination.
<PAGE>
(c) By Company Without Cause. The Company may
terminate this Agreement at any time for any reason without
cause. In the event of the termination of this Agreement
pursuant to this subsection at any time prior to 90 days
before the expiration of the Initial Term , the Company will
pay Employee, as Employee's sole remedy in connection with
such termination, severance pay in the amount determined by
multiplying (i) Employee's monthly base salary at the rate
in effect immediately preceding the termination of
Employee's employment, by (ii) the greater of twelve (12)
months or the remaining number of months of employment in
the Initial Term payable in equal monthly payments in
arrears. The Company will also pay Employee the portion of
his base salary accrued but unpaid from the last monthly
payment date to the date of termination and expense
reimbursements under Section 5 hereof for expenses incurred
in the performance of his duties hereunder prior to
termination.
(d) By Company Without Cause at the End of the Initial
Term and Thereafter. The Company may terminate this
Agreement at the end of the Initial Term and annually
thereafter upon the anniversary date of this Agreement by
providing to the Employee ninety (90) days prior written
notice of its election to terminate this Agreement, such
termination being effective as of the 90th day after notice
is delivered. In the event of termination of this Agreement
pursuant to this subsection, the Company will pay to
Employee as Employee's sole remedy in connection with such
termination, severance pay in the amount of Employee's
monthly base salary at the rate in effect immediately
preceding the termination of Employee's employment from the
date of termination for twelve months from the date of
termination, which severance will be paid by the Company in
equal monthly payments in arrears. The Company will also
pay the Employee for expense reimbursements under Section 5
hereof for expenses incurred in the performance of his
duties hereunder prior to termination.
(e) By Employee Without Cause at the End of the
Initial Term and Annually Thereafter. Employee may terminate
this Agreement at the end of the Initial Term and annually
thereafter upon the anniversary date of this Agreement by
providing to the Company ninety (90) days prior written
notice of his election to terminate this Agreement, such
termination being effective as of the 90th day after notice
is delivered. In the event of termination of this Agreement
pursuant to this subsection, the Company will continue to
pay to Employee Employee's monthly base salary from the date
of delivery of notice of termination until the earlier of
(i) the next annual anniversary of the date of this
Agreement or (ii) 90 days from the date of termination of
employment and Employee will be entitled to receive expense
reimbursements under Section 5 hereof for expenses incurred
in the performance of his duties hereunder prior to the date
of termination.
<PAGE>
Section 7. Effect of Termination on Options. The
Employee has been granted options to purchase shares of the
Company's Common Stock and may continue to be granted such
options from time to time. The effect of the termination of the
Employee's employment on such options shall be determined by this
Section. In the event of a conflict between the termination
provisions of an option agreement and the provisions of this
Agreement the terms of this Agreement shall control, except that
if the reason that the terms of an option agreement conflict with
the terms of this Agreement is necessary for the option in
question to constitute an "incentive stock option" under the
Internal Revenue Code, the Employee, in his discretion, may at
the time of termination of employment elect to have the
termination provisions of the option agreement control to the
extent necessary to allow the option in question to constitute an
"incentive stock option" under the Internal Revenue Code.
Otherwise all options for the purposes of this Agreement shall be
treated as nonqualified.
(a) If the Employee voluntarily leaves the employment
of the Company in breach of this Agreement, his options will
automatically expire.
(b) If Employee dies or becomes disabled, as defined
in Section 6(a), while employed by the Company, his options
shall become fully exercisable on the date of his death or
disability and shall expire twelve months thereafter unless
by its terms it expires sooner.
(c) If the Employee's employment with the Company is
terminated for Cause, as defined in Section 6(b), his
options will automatically expire.
(d) If the Employee's employment with the Company is
terminated without cause, pursuant to Section 6(c), his
options will remain exercisable and will vest and expire in
accordance with the terms of the applicable option
agreements.
(e) If Employee's employment with the Company is
terminated by the Company pursuant to Section 6(d), his
options that are vested as of the termination date shall
remain exercisable for a period of twelve months after the
termination date and shall expire at the end of such twelve
month period and the options that would have vested during
the twelve months following the termination date shall vest
upon the termination date, shall remain exercisable for a
period of twelve months after the termination date and
expire at the end of such twelve month period.
(f) If the Employee's employment with the Company is
terminated by Employee pursuant to Section 6(e), his options
that are vested as of the termination date shall remain
exercisable for a period of twelve months after the
termination date and shall expire at the end of such twelve
month period .
Section 8. Change In Control Termination Payment.
<PAGE>
(a) Termination Payment.
(i) Amount. Notwithstanding anything to the
contrary contained in Section 6 hereof, in the event
Employee's employment with the Company terminates for
any reason (other than death) within the twelve month
period following a Change In Control (as defined in
subsection 8(b) hereof) occurring after the date of
this Agreement, the Company will pay Employee a lump
sum payment (the "Termination Payment") in cash equal
to 2.99 times the sum of the items in the following
subsections (I) through (VI):
(I) Employee's annual base compensation
determined by reference to his base salary in
effect immediately prior to the Change In Control;
(II) 50% of the maximum bonus that Employee
could receive under the management incentive bonus
plan established by the Compensation Committee of
the Board of Directors of the Company for the year
in which the Change In Control occurs, assuming
all incentives and financial targets were achieved
that are necessary to require payment of the
largest bonus amount by the Company to Employee;
(III) the amount of Employee's base
salary accrued but unpaid from the last monthly
payment date to the date of termination;
(IV) expense reimbursement under Section 5
hereof for expenses incurred in the performance of
his duties hereunder prior to the termination of
his employment with the Company;
(V) any other benefit accrued but unpaid as
of the date of such termination; and
(VI) the estimated cost to Employee of
obtaining medical, dental, life and disability
insurance coverage for a period of eighteen months
after the expiration of his continuation (COBRA)
rights; provided that such coverage will be
substantially similar to the coverage provided to
Employee by the Company immediately prior to the
Change In Control; and provided further that this
subsection 8(a)(i)(VI) will be applied without
regard to, and the amount payable under this
subsection 8(a)(i)(VI) is in addition to, any
continuation (COBRA) rights or conversion rights
under any plan provided by the Company, which
rights are not affected by any provision hereof.
<PAGE>
(ii) Time for Payment; Interest. The Company will
pay the Termination Payment to Employee concurrent with
Employee's termination of employment. The Company's
obligation to pay to Employee any amounts under this
Section 8, including without limitation the Termination
Payment, will bear interest at the maximum rate allowed
by law until paid by the Company, and all accrued and
unpaid interest will bear interest at the same rate,
all of which interest will be compounded daily.
(iii) Payment Authority. Any officer of the
Company (other than Employee) is authorized to issue
and execute a check, initiate a wire transfer or
otherwise effect payment on behalf of the Company to
satisfy the Company's obligations to pay all amounts
due to Employee under this Section 8.
(iv) Termination. The Company's obligation to pay
the Termination Payment will not be affected by the
manner in which Employee's employment with the Company
is terminated. Without limiting the generality of the
foregoing, the Company will be obligated to pay the
Termination Payment regardless of whether Employee's
termination of employment is voluntary, involuntary,
for cause, without cause, in violation of any
employment agreement or other agreement in effect at
the time of the Change In Control, or due to Employee's
retirement or disability. Employee's notice of his
termination of employment in connection with a Change
In Control may be made by any means.
(b) Change In Control. A Change In Control will be
deemed to have occurred for purposes hereof (i) when a
change of stock ownership of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and any successor
Item of a similar nature has occurred; or (ii) upon the
acquisition of beneficial ownership, directly or indirectly,
by any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) of securities of the Company
representing 33% or more of the combined voting power of the
Company's then outstanding securities; or (iii) a change
during any period of two consecutive years of a majority of
the members of the Board of Directors of the Company for any
reason, unless the election, or the nomination for election
by the Company's shareholders, of each director was approved
by a vote of a majority of the directors then still in
office who were directors at the beginning of the period;
provided that a Change In Control will not be deemed to have
occurred for purposes hereof with respect to any person
meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Securities Exchange
Act of 1934, as amended.
<PAGE>
(c) Arbitration. Any controversy or claim arising
out of or relating to this Section 8, or the breach thereof,
will be settled exclusively by arbitration in Dallas, Texas,
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Judgment
upon the award rendered by the arbitrator(s) may be entered
in, and enforced by, any court having jurisdiction thereof.
(d) No Right To Continued Employment. This Section 8
will not give Employee any right of continued employment or
any right to compensation or benefits from the Company
except the rights specifically stated herein.
(e) Exercise of Stock Options. Notwithstanding
anything to the contrary contained herein, all of Employee's
options to purchase the Company's Common Stock will become
immediately exercisable upon a Change In Control.
Section 9. Confidential Information. Employee
recognizes and acknowledges that certain assets of the Company
and its affiliates, including without limitation information
regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs,
markets, key personnel, formulae, product applications, technical
processes, and trade secrets (hereinafter called "Confidential
Information") are valuable, special and unique assets of the
Company and its affiliates. Employee will not, during or after
his term of employment, disclose any of the Confidential
Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or
indirectly, except as may be required pursuant to his employment
hereunder, unless and until such Confidential Information becomes
publicly available other than as a consequence of the breach by
Employee of his confidentiality obligations hereunder. In the
event of the termination of his employment, whether voluntary or
involuntary and whether by the Company or Employee, Employee will
deliver to the Company all documents and data pertaining to the
Confidential Information and will not take with him any documents
or data of any kind or any reproductions (in whole or in part) of
any items relating to the Confidential Information.
Section 10. Noncompetition. Until two years after
termination of Employee's employment hereunder, Employee will not
(i) engage directly or indirectly, alone or as a shareholder,
partner, officer, director, employee or consultant of any other
business organization, in any business activities which relate to
the acquisition and consolidation of medical practices which were
either conducted by the Company at the time of Employee's
termination or Proposed to be Conducted (as defined herein) by
the Company at the time of such termination (the Designated
Industry), (ii) divert to any competitor of the Company in the
Designated Industry any customer of Employee, or (iii) solicit or
encourage any officer, employee, or consultant of the Company to
leave its employ for employment by or with any competitor of the
Company in the Designated Industry. The parties hereto
acknowledge that Employee's noncompetition obligations hereunder
will not preclude Employee from (i) owning less than 5% of the
<PAGE>
common stock of any publicly traded corporation conducting
business activities in the Designated Industry or (ii) serving as
an officer, director, stockholder or employee of an entity
engaged in the healthcare industry whose business operations are
not competitive with those of the Company, provided that if
during the term of this Agreement Employee is serving as an
officer, director or employee of another entity, the amount of
time spent by Employee in connection with such service taken
together with the amount of consulting time spent by Employee in
accordance with Section 11 shall not exceed 10% of his
professional time or two (2) days per month. _Proposed to be
Conducted_, as used herein, shall include those business
activities which are the subject of a formal, written business
plan approved by the Board of Directors prior to termination of
Employee's employment and which the Company takes material action
to implement within 12 months of the termination of Employee's
employment. Employee will continue to be bound by the provisions
of this Section 10 until their expiration and will not be
entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 10 are
determined to be invalid or unenforceable, by reason of being
vague or unreasonable as to area, duration or scope of activity,
this Section 10 will be considered divisible and will become and
be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable
by the court or other body having jurisdiction over the matter;
and Employee agrees that this Section 10 as so amended will be
valid and binding as though any invalid or unenforceable
provision had not been included herein.
Section 11. Consulting. During the term of this
Agreement, Employee may devote up to 10% of his professional time
or two (2) days per month to a consulting business independent
from the Company.
Section 12. Old Employment Agreement.
(a) Termination. The Company and Employee agree that
the Old Employment Agreement is hereby terminated.
(b) Release by Company. The Company, its employees,
officers, directors, shareholders, affiliates, parents,
subsidiaries, divisions, predecessors, successors, assigns,
agents, and legal representatives forever release and
discharge Employee and his predecessors, successors,
assigns, heirs, agents, and legal representatives of and
from any and all claims, demands, controversies, debts,
actions, or causes of action, of whatever nature or
character, whether now known or unknown, related to or in
any way arising out of the Old Employment Agreement. No
waiver of a breach by Employee of the Old Employment
Agreement that arises out of this release shall be deemed to
constitute a waiver of a breach by Employee of this
Agreement.
<PAGE>
(c) Release by Employee. Employee, his successors,
assigns, heirs, agents, and legal representatives forever
release and discharge the Company and its employees,
officers, directors, shareholders, affiliates, parents,
subsidiaries, divisions, successors, assigns, agents and
legal representatives of and from any and all claims,
demands, controversies, debts, actions, or causes of action,
of whatever nature or character, whether now known or
unknown, related to or in any way arising out of the Old
Employment Agreement, including, without limitation, any
obligations by the Company related to payment to Employee of
a bonus related to fiscal 1996. No waiver of a breach by
the Company of the Old Employment Agreement shall be deemed
to constitute a waiver of a breach by the Company of this
Agreement.
Section 13. General.
(a) Notices. Except as provided in Section 8(a)
hereof, all notices and other communications hereunder will
be in writing or by written telecommunication, and will be
deemed to have been duly given if delivered personally or if
mailed by certified mail, return receipt requested or by
written telecommunication, to the relevant address set forth
below, or to such other address as the recipient of such
notice or communication will have specified to the other
party hereto in accordance with this Section 13(a):
If to the Company, to: with a copy to:
Physicians Resource Group, Inc. Jackson & Walker, L.L.P.
Three Lincoln Centre, Suite 1540 901 Main Street, Suite 6000
5430 LBJ Freeway Dallas, Texas 75202
Dallas, TX 75240 Attn: James S. Ryan, III
Attn: Chief Executive Officer Fax No.: (214) 953-5822
Fax No.: (972) 982-8299
If to Employee, to:
Richard M. Owen
4814 Cedar
Bellaire, Texas 77401
(b) Withholding; No Offset. All payments required to
be made by the Company under this Agreement to Employee will
be subject to the withholding of such amounts, if any,
relating to federal, state and local taxes as may be
required by law. No payment under this Agreement will be
subject to offset or reduction attributable to any amount
Employee may owe to the Company or any other person.
<PAGE>
(c) Equitable Remedies. Each of the parties hereto
acknowledges and agrees that upon any breach by Employee of
his obligations under any of Sections 9 and 10 hereof, the
Company will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other
appropriate injunctive and equitable relief.
(d) Severability. If any provision of this Agreement
is held to be illegal, invalid or unenforceable, such
provision will be fully severable and this Agreement will be
construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and
the remaining provisions hereof will remain in full force
and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically
as part of this Agreement a provision as similar in its
terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.
(e) Waivers. No delay or omission by either party
hereto in exercising any right, power or privilege hereunder
will impair such right, power or privilege, nor will any
single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(f) Counterparts. This Agreement may be executed in
multiple counterparts, each of which will be deemed an
original, and all of which together will constitute one and
the same instrument.
(g) Captions. The captions in this Agreement are for
convenience of reference only and will not limit or
otherwise affect any of the terms or provisions hereof.
(h) Reference to Agreement. Use of the words
"herein," "hereof," "hereto" and the like in this Agreement
refer to this Agreement only as a whole and not to any
particular subsection or provision of this Agreement, unless
otherwise noted.
(i) Binding Agreement. This Agreement will be binding
upon and inure to the benefit of the parties and will be
enforceable by the personal representatives and heirs of
Employee and the successors of the Company. If Employee
dies while any amounts would still be payable to him
hereunder, such amounts will be paid to Employee's estate.
This Agreement is not otherwise assignable by Employee.
(j) Entire Agreement. This Agreement contains the
entire understanding of the parties, supersedes all prior
agreements and understandings relating to the subject matter
hereof and may not be amended except by a written instrument
hereafter signed by each of the parties hereto.
<PAGE>
(k) Governing Law. This Agreement and the performance
hereof will be construed and governed in accordance with the
laws of the State of Texas, without regard to its choice of
law principles.
EXECUTED as of the date and year first above written.
PHYSICIANS RESOURCE GROUP, INC.
By:
_____________________________
Its:
_____________________________
EMPLOYEE
_______________________________
RICHARD M. OWEN
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Physicians Resource Group, Inc. for the three
months ended March 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 47,405
<SECURITIES> 0
<RECEIVABLES> 34,877<F1>
<ALLOWANCES> (22,600)
<INVENTORY> 7,136
<CURRENT-ASSETS> 147,446
<PP&E> 63,793<F1>
<DEPRECIATION> (20,525)
<TOTAL-ASSETS> 590,643
<CURRENT-LIABILITIES> 39,423
<BONDS> 0
0
0
<COMMON> 301
<OTHER-SE> 318,194
<TOTAL-LIABILITY-AND-EQUITY> 590,643
<SALES> 98,507
<TOTAL-REVENUES> 98,507
<CGS> 11,875
<TOTAL-COSTS> 91,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,107
<INCOME-PRETAX> 7,360
<INCOME-TAX> 2,674
<INCOME-CONTINUING> 4,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,686
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<FN>
<F1> This asset value represents a net amount.
</FN>
</TABLE>
