AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-2486
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 2
ON
FORM S-1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STAT HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8741
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0496236
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
12450 GREENSPOINT DRIVE, SUITE 1200
HOUSTON, TEXAS 77060
(713) 872-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NED E. CHAPMAN
CHIEF FINANCIAL OFFICER
STAT HEALTHCARE, INC.
12450 GREENSPOINT DRIVE, SUITE 1200
HOUSTON, TEXAS 77060
TELEPHONE: (713) 872-6900
FACSIMILE: (713) 876-2999
(NAME ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CARMELO M. GORDIAN, ESQ.
RONALD G. SKLOSS, ESQ.
BROBECK, PHLEGER & HARRISON LLP
301 CONGRESS AVENUE, SUITE 1200
AUSTIN, TEXAS 78701
TELEPHONE: (512) 477-5495
FACSIMILE: (512) 477-5813
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
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* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
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SUBJECT TO COMPLETION, DATED OCTOBER 17, 1996
PROSPECTUS
STAT HEALTHCARE, INC. LOGO
859,166 SHARES OF
COMMON STOCK
62,500 CLASS A WARRANTS
------------------------
This Prospectus relates to the issuance of (i) 734,166 shares of common stock,
par value $0.01 per share (the "Common Stock"), of STAT Healthcare, Inc.
("STAT" or the "Company") purchasable upon the exercise of the Company's
Class A redeemable common stock purchase warrants (the "Class A Warrants") and
(ii) 125,000 shares of Common Stock and 62,500 Class A Warrants purchasable upon
the exercise of the Company's Representatives' Warrants (the "Representatives'
Warrants" and, collectively with the Class A Warrants, the "Warrants"). Each
Class A Warrant entitles the holder thereof to purchase, at any time through
April 19, 1998, one share of Common Stock at a purchase price of $4.50 per
share, subject to anti-dilution adjustments. Each Representatives' Warrant
entitles the holder thereof to purchase, at any time through April 19, 2000, two
shares of Common Stock and one Class A Warrant at an aggregate price of $10.875,
subject to anti-dilution adjustments.
The Class A Warrants are redeemable by the Company, at a redemption price of
$0.05 per warrant, and prior to April 19, 1998, on 30 days' prior written
notice, provided the closing sale price per share of the Common Stock for a
period of 20 consecutive trading days, ending on the third business day prior to
the date of any redemption notice equals or exceeds at least $5.50 (subject to
adjustment in certain events). The Class A Warrants shall be exercisable until
the close of the business day preceding the date fixed for redemption. See
"Description of Capital Stock -- Class A Warrants."
The Common Stock and the Class A Warrants are quoted on the Nasdaq National
Market under the symbols "STHC" and "STHCW," respectively. On October 16,
1996, the closing per unit sale prices of the Common Stock and the Class A
Warrants on the Nasdaq National Market were $7.375 and $3.50, respectively. See
"Market Prices."
ON OCTOBER 7, 1996, STAT ENTERED INTO AN AGREEMENT AND PLAN OF MERGER PURSUANT
TO WHICH SHI ACQUISITION CORP., A DELAWARE CORPORATION AND A WHOLLY OWNED
SUBSIDIARY OF AMERICAN MEDICAL RESPONSE, INC., A DELAWARE CORPORATION
("AMERICAN MEDICAL RESPONSE"), WILL BE MERGED (THE "MERGER") WITH AND INTO
STAT. IN THE MERGER, EACH OUTSTANDING SHARE OF STAT'S COMMON STOCK WILL BE
CONVERTED INTO 0.25 OF A SHARE OF COMMON STOCK OF AMERICAN MEDICAL RESPONSE.
OUTSTANDING WARRANTS AND OPTIONS TO ACQUIRE STAT'S COMMON STOCK (INCLUDING THE
WARRANTS) WILL BECOME EXERCISABLE FOR SHARES OF AMERICAN MEDICAL RESPONSE COMMON
STOCK IN ACCORDANCE WITH THE EXCHANGE RATIO FOR THE MERGER. CONSUMMATION OF THE
MERGER IS SUBJECT TO THE APPROVAL OF STAT'S STOCKHOLDERS AND OTHER CUSTOMARY
CONDITIONS. SEE "THE COMPANY -- RECENT DEVELOPMENTS."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING
INFORMATION UNDER "RISK FACTORS."
THE COMPANY
STAT Healthcare, Inc. ("STAT" or the "Company") provides a continuum of
disease management services primarily to patients with end-stage renal disease
("ESRD" or "chronic kidney failure") and physician practice management
services to affiliated physician groups which staff hospital emergency
departments. The Company currently operates five kidney dialysis facilities,
manages two hyperbaric oxygen ("HBO") therapy facilities and provides home
healthcare management and related ancillary services primarily in the Rio Grande
Valley of south Texas, and has entered into contracts to manage three additional
HBO therapy facilities commencing in October 1996. Through its affiliates
physician groups, STAT also currently provides physician practice management
services to 24 hospital emergency departments, 17 of which are in the Houston
greater metropolitan area.
The Company's disease management services consist of a system of care for
persons with chronic kidney failure, including kidney dialysis treatment, HBO
therapy and related ancillary services. Chronic kidney failure is the state of
advanced renal impairment that generally is irreversible and requires routine
dialysis treatments an average of three times per week or kidney transplantation
in order to sustain life. In addition to the need for dialysis treatment,
chronic kidney failure patients frequently suffer from one or more associated
medical conditions, including diabetes, non-healing wounds, hypertension,
coronary artery disease, anemia and nutritional problems. Qualified patients
with chronic kidney failure have been entitled since 1972 to Medicare benefits
regardless of age or financial circumstances under the federal ESRD program. The
Company estimates that the U.S. market for outpatient and inpatient dialysis
services exceeded $3.6 billion in 1994, based on an average of three treatments
per week per patient at an average cost of $126 per treatment. STAT believes its
integrated approach to kidney disease management is cost-effective and
attractive to managed care companies and other third-party payors. STAT also
believes there are opportunities to contract with hospital networks to provide
inpatient dialysis and other ESRD-related services.
Through its affiliated physician groups, the Company also provides physician
practice management services for emergency departments at hospitals. Hospitals
frequently outsource key departmental functions to third-party management
companies in an effort to control and reduce operating costs and focus on their
core competencies. There are approximately 5,200 hospital emergency departments
in the U.S., many of which face numerous problems in managing their emergency
departments, including difficulties in recruiting, evaluating, scheduling and
retaining qualified emergency physicians, and the inefficient use of emergency
departments for routine primary care. The Company intends to continue to focus
on strategic relationships and outsourcing opportunities with hospital networks
rather than management contracts with individual hospitals. In addition, STAT
believes it can provide physician practice management services to other
hospital-based physician practices, such as radiology, pathology and
anesthesiology.
The Company's objective is to be the preferred provider of integrated kidney
disease management services and physician practice management services in its
current and future market areas. The principal elements of the Company's
strategy are to (i) expand its integrated disease management services, (ii)
leverage its existing relationships with hospital networks, (iii) expand into
new geographic markets and (iv) attract managed care contracts.
RECENT DEVELOPMENTS
PROPOSED MERGER WITH AMERICAN MEDICAL RESPONSE, INC.
On October 7, 1996, STAT entered into an agreement and plan of merger pursuant
to which SHI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of American Medical Response, Inc., a Delaware corporation
("American Medical Response"), will be merged (the "Merger") with and into
STAT. In the Merger, each outstanding share of STAT's Common Stock will be
converted into 0.25 of a share of common stock of American Medical Response and
STAT will become a wholly owned subsidiary of American Medical Response.
Outstanding warrants and options to acquire STAT's Common
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<PAGE>
Stock (including the Warrants) will become exercisable for shares of American
Medical Response common stock in accordance with the exchange ratio for the
Merger. The proposed Merger is intended to be a tax-free reorganization to
holders of Common Stock accounted for as a pooling-of-interests. Consummation of
the Merger is subject to the approval of STAT's stockholders and other customary
conditions. STAT stockholders holding in the aggregate approximately 60% of the
outstanding Common Stock have agreed to vote in favor of the Merger.
American Medical Response's common stock is listed on the New York Stock
Exchange ("NYSE") under the symbol "EMT". On October 16, 1996, the closing
sale price of American Medical Response's common stock on the NYSE was $30.125
per share.
American Medical Response is the nation's leading provider of emergency and
non-emergency ambulance services, with operations in 28 states and over 11,000
employees. Its growth strategy is to continue to acquire ambulance providers and
complimentary health care providers; improve the quality and efficiency of
existing operations; and develop new services that capitalize on its call
management and medical transport expertise.
EXCHANGE WITH AMHEALTH CORPORATION AND RELATED ENTITIES
In June 1996, the Company acquired AmHealth Corporation and its related
healthcare entities (collectively, "AmHealth") in exchange (the "Exchange")
for 11,200,000 shares of Common Stock, representing approximately 75% of the
Company's Common Stock outstanding immediately after the Exchange. AmHealth
operated kidney dialysis facilities, managed HBO therapy facilities and provided
home healthcare management and related ancillary services primarily in the Rio
Grande Valley of south Texas. The Exchange was accounted for as a pooling of
interests, and the Company's consolidated financial statements as of and for the
years ended December 31, 1993, 1994 and 1995 have been restated to give
retroactive effect to the consummation of the Exchange.
THE OFFERING
Securities offered................... 859,166 shares of Common Stock
62,500 Class A Warrants
Common Stock to be outstanding if all
Warrants are exercised............. 15,761,638 shares (1)
Use of Proceeds...................... For general corporate purposes.
Nasdaq National Market symbols....... Common Stock: STHC
Class A Warrants: STHCW
- ------------------------------
(1) Excludes 1,500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan. See "Management -- 1996 Stock
Incentive Plan."
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993(1) 1994(2) 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Net service revenues................. $ 10,043 $ 14,521 $ 23,141 $ 10,375 $ 16,663
--------- --------- --------- --------- ---------
Operating expenses:
Professional medical fees....... 6,823 7,714 9,241 4,548 6,695
Human resources................. 1,107 1,949 4,640 1,625 3,516
Supplies........................ 375 1,143 1,818 822 1,136
Billing and collection costs.... 304 795 1,461 697 996
Other costs..................... 784 1,140 2,215 899 1,437
--------- --------- --------- --------- ---------
Total operating expenses... 9,393 13,041 19,375 8,591 13,780
--------- --------- --------- --------- ---------
Operating income..................... 650 1,480 3,766 1,784 2,883
Interest expense..................... 33 5 121 29 133
Reorganization costs................. -- -- -- -- 1,269
--------- --------- --------- --------- ---------
Income before income taxes........... 617 1,475 3,645 1,755 1,481
Income taxes......................... -- 65 347 181 (44)
--------- --------- --------- --------- ---------
Net income........................... $ 617 $ 1,410 $ 3,298 $ 1,574 1,525
========= ========= ========= ========= =========
Pro forma data (3):
Pro forma income taxes.......... 210 436 892 416 577
--------- --------- --------- --------- ---------
Pro forma net income............ $ 407 $ 974 $ 2,406 $ 1,158 $ 948
========= ========= ========= ========= =========
Pro forma net income per common
share........................... $ 0.05 $ 0.11 $ 0.20 $ 0.13 $ 0.06
========= ========= ========= ========= =========
Number of shares used in
computing pro forma net income
per share....................... 7,458 8.545 11,897 9,078 15,320
========= ========= ========= ========= =========
</TABLE>
JUNE 30,
1996
---------
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 4,189
Total assets......................... 13,759
Long-term debt and capital lease
obligations, less current
portion............................ 2,282
Total liabilities.................... 7,099
Stockholders equity.................. 6,660
- ------------------------------
(1) Represents consolidated financial data for the Company combined with
financial data for its affiliated physician group, South Texas Acute Trauma
Physicians, P.A. ("STAT Physicians").
(2) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(3) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE FOLLOWING
RISK FACTORS SHOULD BE CAREFULLY CONSIDERED BY POTENTIAL INVESTORS BEFORE
PURCHASING COMMON STOCK OFFERED HEREBY:
CLIENT CONCENTRATION; DEPENDENCE ON COLUMBIA/HCA HEALTHCARE CORPORATION. During
the years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, approximately 46%, 41% and 50% of the Company's net service revenues,
respectively, were derived from fee-for-service contracts entered into by the
Company's affiliated physician groups with hospitals currently owned by
Columbia/HCA Healthcare Corporation ("Columbia"). The Company's affiliated
physician groups have contracted to provide physician practice management
services at 23 hospital-based emergency departments, 20 of which are owned by
Columbia. Fifteen of the Columbia hospitals are covered by a single contract.
Several or all of the Columbia hospitals served by the Company in a given region
are generally covered by a single contract. Each current Columbia contract has
an initial term of two years with provisions for automatic renewal, and may be
terminated by Columbia in certain circumstances, including unsatisfactory
service by the Company or its affiliated physician groups. During the term of
each Columbia contract and for two years thereafter, STAT has agreed not to
organize or provide administrative or advisory services to independent physician
or similar associations whose practices relate to areas other than emergency
medicine and who are located in proximity to specified Columbia medical centers.
There can be no assurance that any contract will be renewed, that any contract
will be renewed on substantially the same terms and conditions, or that any
contract will not be terminated prior to the conclusion of its term. Loss of any
Columbia contract covering a substantial number of hospitals would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Operations -- Emergency Physician
Practice Management Services -- Hospital Contracts."
LIMITED OPERATING HISTORY; INTEGRATION OF OPERATIONS OF AMHEALTH. The Company
did not conduct operations as a combined entity with AmHealth until the
consummation of the Exchange in June 1996. Accordingly, the Company has a
limited operating history upon which an evaluation of its prospects can be
based. The integration of the operations of AmHealth will require the dedication
of management resources and distract attention from the day-to-day business of
the Company, which could adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will not incur additional charges in subsequent quarters to reflect costs
associated with the Exchange or that management will be successful in its
efforts to integrate the operations of AmHealth. There can also be no assurance
that the Company's management will be able to oversee the combined entity and
effectively implement the Company's operating and growth strategy. Failure to
integrate the operations of AmHealth or to implement the Company's operating and
growth strategy successfully could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON MEDICARE/MEDICAID AND OTHER SOURCES OF REIMBURSEMENT; RISKS OF
COLLECTION. The Company's business is materially dependent upon its ability to
obtain and maintain reimbursement from third-party payors, including government
programs (such as Medicare and Medicaid) and private insurers, for the Company's
dialysis services and medical services provided by its affiliated physician
groups. The Company's business is also subject to collection risks and working
capital demands associated with its affiliated physician groups fee-for-service
contracts with hospitals.
MEDICARE
A significant portion of the Company's net service revenues is derived from its
services as a provider of dialysis treatment. The Company is reimbursed for
dialysis services primarily at fixed rates established under the ESRD program
administered by the U.S. Health Care Financing Administration ("HCFA"). Under
this program, once a patient becomes eligible for Medicare reimbursement,
Medicare is responsible
5
<PAGE>
for payment of 80% of the composite rate determined by HCFA for dialysis
treatments and a secondary payor (usually Medicare supplemental insurance or the
state Medicaid or ESRD-type program) pays approximately 20% of the composite
rate. Since 1972, qualified patients with ESRD have been entitled to Medicare
benefits regardless of age or financial circumstances. Since 1983, numerous
Congressional actions have resulted in changes in the Medicare composite
reimbursement rate. The Medicare ESRD composite reimbursement rate currently
ranges from $117 to $138 per treatment, depending on regional wage variations.
The Company receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently $117 per treatment. The
Company is not able to predict whether future rate changes will be made. Because
the Medicare program represents a substantial portion of the federal budget,
Congress takes action in almost every legislative session to modify the Medicare
program for the purpose of reducing the amounts payable from the program to
healthcare providers. Legislation or regulations may be enacted in the future
that may significantly modify the Medicare program or substantially reduce the
amount paid for the Company's services. Such actions could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, increases in operating costs that are subject to
inflation, such as labor and supply costs, without a compensating increase in
prescribed rates, may have a material adverse effect on the Company's results of
operations in the future. The Company also is unable to predict whether certain
ancillary services, for which the Company currently is reimbursed separately,
may in the future be included in the Medicare ESRD composite rate. See
"Business -- Operations -- Disease Management Services -- Sources of
Reimbursement."
MEDICAID
Texas, the only state in which the Company currently operates, provides Medicaid
(or comparable) benefits to qualified recipients to supplement their Medicare
entitlement. The Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and governmental
funding restrictions, all of which may have the effect of decreasing program
payments, increasing costs or modifying the way the Company operates its
business. See "Business -- Operations -- Disease Management Services -- Sources
of Reimbursement."
OTHER SOURCES OF REIMBURSEMENT
Other sources of reimbursement include payments from third-party private payors
with whom the Company contracts. Payments from private payors are generally at
rates that exceed the Medicare and Medicaid rates. Termination of such private
payor agreements could have an adverse effect on the Company. The Company
believes that health maintenance organizations ("HMOs") and other managed care
providers may have a strong incentive to reduce the costs of healthcare and may
seek to reduce amounts paid for the Company's services. The Company is unable to
predict whether and to what extent changes in private reimbursement rates may be
made in the future. Any reduction in such rates could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, as patient care is increasingly controlled by managed care
entities, the Company believes that its success will, in part, be dependent upon
the ability of the Company or its affiliated physician groups to negotiate
managed care contracts with HMOs and other private third-party payors. Such
contracts often shift much of the financial risk of providing care from the
payor to the provider. There can be no assurance that satisfactory arrangements
with respect to risk sharing can be negotiated or that any managed care
contracts entered into will not adversely affect the Company.
FEE-FOR-SERVICE REIMBURSEMENT
The net service revenues from the Company's emergency physician practice
management services are derived under its affiliated physician groups
fee-for-service contracts with hospitals, pursuant to which the Company assumes
the financial risks arising from changes in patient volume, payor mix and
third-party reimbursement rates. Fee-for-service contractual arrangements also
involve a credit risk related to services provided to uninsured individuals. The
Company's working capital needs are related to the acquisition of
6
<PAGE>
new hospital contracts by its affiliated physician groups. As a result, the
Company may require additional working capital in the event of significant
growth in emergency physician practice management services. The Company may
experience a net use of cash in its operating activities in future projects if
the growth in fee-for-service hospital contracts continues. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS ASSOCIATED WITH THE COMPANY'S GROWTH STRATEGY. The Company's growth
strategy includes the development of new dialysis facilities, the acquisition of
existing dialysis facilities and the entry into additional hospital-based HBO
therapy and physician practice management contracts, particularly through
strategic relationships with hospital networks. Competition for existing
dialysis facilities and HBO therapy and physician practice management contracts
has increased significantly in recent years and, as a result, the cost of these
activities has also increased. There can be no assurance that the Company will
be able to develop new dialysis facilities or identify, acquire or successfully
integrate acquired dialysis facilities, or that the Company will be able to
identify, enter into or successfully integrate additional HBO therapy and
physician practice management contracts. In addition, there can be no assurance
that dialysis facilities, HBO therapy facilities or physician practices
developed, acquired or managed in the future will achieve net service revenues
or earnings that justify the Company's investment therein. Such expansion
methods involve a number of risks, including diversion of managements attention
and dependence on retention, hiring and training of increasing numbers of
physicians, nurses and technical personnel, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent the Company is unable to develop or acquire
dialysis facilities or enter into additional HBO therapy and physician practice
management contracts, or to integrate such facilities and activities
successfully, its ability to expand its business would be reduced significantly.
See "Business -- Business Strategy."
COMPETITION. The markets for dialysis, HBO therapy, home healthcare and
physician practice management services are highly competitive. The Company has
both local and national competitors in its businesses, many of whom focus solely
in a particular segment of the Company's business. The Company is also, in
effect, competing against the traditional structure of hospital management and
practicing physician management operations. Competition is based on the scope,
quality and cost of services provided. Certain of the Company's competitors are
significantly larger and have substantially greater financial and other
resources available to them than the Company. There can be no assurance that the
Company can compete effectively with any such competitor. See
"Business -- Competition."
LACK OF BROAD ACCEPTANCE OF HBO THERAPY. The Company's growth strategy includes
expansion through the management of additional HBO therapy facilities. HBO
therapy is recognized as an effective primary treatment for a number of medical
conditions, including carbon monoxide poisoning and smoke inhalation,
decompression sickness and air embolism. Approximately 85% of the patients
treated by the Company's disease management services during 1995 suffer from
diabetes or vascular disease, which conditions predispose those patients to
problem wounds which fail to respond to established medical/surgical management.
Although the Company believes that HBO therapy enhances the healing of selected
problem wounds of these patients, and Medicare currently reimburses certain
costs of HBO therapy, the general medical community has not historically
recognized HBO therapy as primary treatment for such wounds and there can be no
assurance that broad acceptance of HBO therapy for problem wounds will be
achieved in the future. The reluctance of the general medical community to
achieve broad acceptance of HBO therapy to treat problem wounds could adversely
affect the Company's ability to expand such business.
DEPENDENCE ON AFFILIATED PHYSICIAN GROUPS. The Company has entered into
management agreements (the "Management Agreements") with affiliated physician
groups which in turn contract to provide emergency medical services to
hospitals. The Company receives a management fee pursuant to the Management
Agreements, the amount of which is, in part, tied to gross revenues of the
affiliated physician group. The affiliated physician groups, in turn, enter into
contracts with hospitals for the provision of emergency medical and
administrative services. The terms of the hospital contracts are generally two
years,
7
<PAGE>
with provisions for automatic renewal for additional periods. The termination or
failure to renew a significant number of these hospital contracts or a single
contract covering a significant number of facilities would have a material
adverse impact on the Company. See Business -- Operations -- Emergency Physician
Practice Management Services -- Hospital Contracts."
CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS; POTENTIAL STATE AND
FEDERAL TAX LIABILITY. The Company's affiliated physician groups contract with
physicians as independent contractors, rather than employees, to fulfill their
contractual obligations to hospitals. Therefore, no affiliated physician group
currently withholds federal or state income taxes, makes federal or state
unemployment tax payments or provides workers compensation insurance with
respect to such independent contractors. The payment of applicable taxes is
regarded as the responsibility of such independent contractors. The Company
believes that classification of physicians as independent contractors is
standard industry practice and proper for federal tax purposes. A contrary
determination by taxing authorities or a change in existing law could materially
adversely affect the Company and its results of operations. See
"Business -- Operations -- Emergency Physician Practice Management
Services -- Physician Contracts."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The Company is highly dependent
upon the active involvement of its key management and executive personnel, in
particular Russell D. Schneider, the Company's Chairman and Chief Executive
Officer, William H. Rice, M.D., its Vice Chairman, Victor M. Miranda, M.D., its
President -- Emergency Physicians, and Ruben A. Perez, its
President -- Healthcare Management. Messrs. Schneider and Perez have each
enjoyed a long-term relationship with Columbia and Drs. Rice and Miranda have
been largely responsible for the development and maintenance of existing
relationships with hospital administrators. Accordingly, the Company has entered
into employment and non-competition agreements with each of these executive
officers. The Company believes that its future success will also be
significantly dependent on its ability to recruit and retain qualified
physicians to serve as medical directors and to retain independent contractor
attending physicians and skilled nurses, for which competition is intense. The
loss by the Company of any of its executive officers, or the inability to
recruit and retain qualified management personnel, medical directors, and
independent contractor physicians or nurses could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Employees and Independent Contractor Physicians" and
"Management."
DEPENDENCE ON PHYSICIAN REFERRALS. The Company's dialysis facilities are
dependent upon referrals of ESRD patients for treatment by physicians
specializing in nephrology and practicing in the communities served by the
Company's facilities. As is generally true in the dialysis industry, at each
facility one or a few physicians account for all or a significant portion of the
patient referral base. During 1995, two nephrologists who are also principal
stockholders of the Company collectively accounted for approximately 80% of the
Company's net service revenues from dialysis services (approximately 27% of the
Company's total net service revenues). The loss of one or more key referring
physicians at a particular facility could have a material adverse effect on the
operations of that facility and could adversely affect the Company's overall
results of operations.
GOVERNMENT REGULATION. Various state and federal laws regulate the
relationships between providers of healthcare services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Social
Security Act, which prohibit the solicitation, payment, receipt or offering of
any direct or indirect remuneration for the referral of Medicare or Medicaid
patients, or for the ordering or providing of Medicare of Medicaid covered
services, items or equipment. These laws also impose restrictions on physicians
referrals for designated healthcare services to entities with which they have
financial relationships. Violations of these laws may result in substantial
civil or criminal penalties for individuals or entities, including large civil
monetary penalties and exclusion from participation in the Medicare and Medicaid
programs. State laws also prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
Such exclusion, if applied to the Company or its affiliated physician groups,
could result in significant loss of reimbursement to the Company.
8
<PAGE>
Although the Company believes its operations as described herein are, and will
continue to be, in material compliance with existing applicable laws, the
Company's business operations have not been the subject of judicial or
regulatory interpretation. There can be no assurance that review of the
Company's business by courts or regulatory authorities will not result in
determinations that could adversely affect the operations of the Company or that
the healthcare regulatory environment will not change so as to restrict the
Company's existing operations or their expansion. In addition, the regulatory
framework of certain jurisdictions may limit the Company's expansion into, or
ability to continue operations within, such jurisdictions if the Company is
unable to modify its operational structure to conform with such regulatory
framework. Any limitation on the Company's ability to expand its business could
have an adverse effect on the Company.
In addition to extensive, existing government healthcare regulation, there have
been numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services. The
Company believes that such initiatives will continue during the foreseeable
future. Aspects of certain of these reforms as proposed in the past, such as
further reductions in Medicare and Medicaid payments and additional prohibitions
on physician ownership, directly or indirectly, of facilities to which they
refer patients, if adopted, could adversely affect the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES. Due to the nature of their
businesses, the Company's affiliated physician groups and certain physicians who
provide services on their behalf may be the subject of medical malpractice
claims, with the attendant risk of substantial damage awards. One of the most
significant sources of potential liability in this regard is the alleged
negligence of physicians placed by the affiliated physician groups at contract
hospitals. To the extent such physicians are regarded as agents of the Company
in the practice of medicine, the Company could be held liable for any medical
negligence of such physicians. In addition, the Company could be found in
certain instances to have been negligent in performing its contract management
services for the hospitals even if no agency relationship between the Company,
the affiliated physician groups and/or such physician exists. Each affiliated
physician groups contracts with hospitals generally require the affiliated
physician group to indemnify such other parties for losses resulting from a
contracted physicians malpractice. However, there can be no assurance that a
future claim or claims will not exceed the scope or limits of available
insurance coverage or that such coverage will continue to be available. See
"Business -- Corporate Liability and Insurance" and "Legal Proceedings."
POSSIBLE INSUFFICIENCY OF LIABILITY COVERAGE. The Company maintains
professional liability insurance coverage in amounts and coverages as required
by certain agreements or deemed appropriate by management. However, there can be
no assurance that any claim will be within the scope or limits of the Company's
coverage, that any insurer will remain solvent and able to meet its obligations
to provide coverage for any claim or claims or that such coverage will continue
to be available or available with sufficient limits and at a reasonable cost to
adequately and economically insure the Company's operations in the future. See
"Business -- Corporate Liability and Insurance."
VOTING CONTROL BY MANAGEMENT. The current executive officers and directors of
the Company in the aggregate beneficially own approximately 66% of the
outstanding Common Stock. As a result, management has significant influence over
the outcome of all matters submitted to the Company's stockholders for their
approval, including the election of directors and approval of significant
corporate transactions. This ownership by the Company's management may delay,
defer or prevent a potential change of control of the Company and, consequently,
the market price for the Common Stock may be less likely to reflect a
"premium" for such potential transactions. See "Principal Stockholders."
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation
("Charter") and Bylaws ("Bylaws") and the Delaware General Corporation Law
contain certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions
authorizing the issuance of "blank check" Preferred Stock, establishing a
classified Board of Directors, limiting the persons who may
9
<PAGE>
call special meetings of stockholders, prohibiting stockholder action by written
consent and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders meetings. See "Description of Capital Stock -- Certain
Anti-Takeover, Limited Liability and Indemnification Provisions."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS; ADVERSE EFFECT OF POSSIBLE REDEMPTION OF CLASS A WARRANTS. Holders of
the Warrants will be able to exercise the Warrants only if a current prospectus
relating to the securities issuable upon the exercise of the Warrants is then in
effect under the Securities Act and such securities are qualified for sale or
exempt from qualifications under the applicable securities or "blue sky" laws
of the states in which the various holders of the Warrants then reside. Although
the Company has undertaken to use reasonable efforts to maintain the
effectiveness of a current prospectus covering the securities issuable upon the
exercise of the Warrants, there can be no assurance that the Company will be
able to do so. The value of the Warrants may be greatly reduced if a current
prospectus covering the securities issuable upon exercise of the Warrants is not
kept effective or if such securities are not qualified or exempt form
qualification in the states in which the holders of the Warrants then reside.
In addition, the Class A Warrants are subject to redemption by the Company, on
30 days' prior written notice, provided the closing sale price per share of the
Common Stock for a period of 20 consecutive trading days, ending on the third
business day prior to the date of any redemption notice equals or exceeds at
least $5.50 (subject to adjustment in certain events). If the Class A Warrants
are redeemed, holders of Class A Warrants will lose their right to exercise the
Class A Warrants, except during such 30-day notice of redemption period. Upon
receipt of a notice of redemption of the Class A Warrants, the holders thereof
would be required to either exercise the Class A Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so; sell the Class
A Warrants at the then market price (if any) when they might otherwise wish to
hold the Class A Warrants; or accept the redemption price, which could be
substantially less than the market value of the Class A Warrants at the time of
redemption. See "Description of Capital Stock -- Class A Warrants."
LIMITED MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. The
Common Stock has been quoted on the Nasdaq National Market under the symbol
"STHC" since August 23, 1996. The Common Stock was quoted on the Nasdaq
SmallCap Market (under the symbol "ERDR" until June 24, 1996 and "STHC"
thereafter) from April 21, 1995 to August 22, 1996. Factors such as
announcements by the Company or its competitors concerning variations in results
of operations, changes in earnings estimates by securities analysts,
announcements of material events by the Company or its major strategic partners
and proposed government regulations may have a significant effect on the market
price of the Company's securities. The stock market has from time to time
experienced extreme price and volume fluctuations, particularly among healthcare
companies, which have often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
price of the Company's securities. See "Market Prices."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial
number of shares of Common Stock could adversely affect the market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of equity securities. If all of the Warrants are exercised, the Company
will have outstanding 15,761,638 shares of Common Stock, assuming no exercise of
outstanding options after September 30, 1996. Of these shares, (i) 2,847,184
shares, including the 859,166 shares offered hereby, will be freely tradeable
without restriction or further registration under the Securities Act unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), (ii) 3,065,346 shares will
be freely tradeable without restriction or further registration under the
Securities Act following the termination of the lock-up arrangements described
below, (iii) 9,176,486 shares will be held by affiliates and will become
available for sale pursuant to the volume and manner of sale provisions of Rule
144 following the termination of the lock-up arrangements, and (iv) 672,622
shares of Common Stock will be "restricted securities" as that term is defined
under Rule 144 and will become available for sale beginning on June 24, 1998
pursuant to the volume and manner of sale provisions of
10
<PAGE>
Rule 144. An additional 50,000 shares of Common Stock are issuable upon the
exercise of currently exercisable options. Substantially all shares issued
following the exercise of such options will be freely tradeable without
restriction or further registration under the Securities Act unless purchased by
"affiliates" of the Company or subject to the lock-up arrangements. See
"Shares Eligible for Future Sale."
In connection with the Exchange, the Company's officers, directors and certain
of its stockholders holding in the aggregate 12,921,454 shares of Common Stock
entered into lock-up agreements providing that such persons will not sell,
assign, pledge, hypothecate or otherwise dispose of, directly or indirectly,
such shares of Common Stock, or any shares acquired upon the exercise of any
options or warrants until June 24, 1997, without the prior written consent of
the Company. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS. The Company has not declared or paid dividends in the
past and does not anticipate declaring or paying any dividends on the Common
Stock in the foreseeable future. Certain of the AmHealth entities made and have
declared distributions to their shareholders and partners for periods prior to
the Exchange. See "Dividend Policy."
11
<PAGE>
THE COMPANY
STAT provides a continuum of disease management services primarily to patients
with chronic kidney failure and physician practice management services to
affiliated physician groups which staff hospital emergency departments. The
Company currently operates five kidney dialysis facilities, manages two HBO
therapy facilities and provides home healthcare management and related ancillary
services primarily in the Rio Grande Valley of south Texas, and has entered into
contracts to manage three additional HBO therapy facilities commencing in
October 1996. Through its affiliated physician groups, STAT also currently
provides physician practice management services to 24 hospital emergency
departments, 17 of which are in the Houston greater metropolitan area.
The Company's predecessor was incorporated in Delaware in July 1994 and
completed its initial public offering in April 1995. The Company was
incorporated in Delaware in March 1996 to facilitate the reorganization of the
Company in connection with the Exchange. In June 1996 pursuant to the
consummation of the Exchange, (i) the Company's predecessor merged with a wholly
owned subsidiary of the Company, (ii) each outstanding share of common stock of
the Company's predecessor was converted into one share of Common Stock and (iii)
each option and warrant to purchase common stock of the Company's predecessor
was converted into a similar option or warrant, respectively, to purchase shares
of Common Stock.
The principal executive offices of the Company are located at 12450 Greenspoint
Drive, Suite 1200, Houston, Texas 77060 and its telephone number is (713)
872-6900.
RECENT DEVELOPMENTS
PROPOSED MERGER WITH AMERICAN MEDICAL RESPONSE, INC.
On October 7, 1996, STAT entered into an agreement and plan of merger pursuant
to which SHI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of American Medical Response, will be merged with and into STAT. In
the Merger, each outstanding share of STAT's Common Stock will be converted into
0.25 of a share of common stock of American Medical Response and STAT will
become a wholly owned subsidiary of American Medical Response. Outstanding
warrants and options to acquire STAT's Common Stock (including the Warrants)
will become exercisable for shares of American Medical Response common stock in
accordance with the exchange ratio for the Merger. The proposed Merger is
intended to be a tax-free reorganization to holders of Common Stock accounted
for as a pooling-of-interests. Consummation of the Merger is subject to the
approval of STAT's stockholders and other customary conditions. STAT
stockholders holding in the aggregate approximately 60% of the outstanding
Common Stock have agreed to vote in favor of the Merger.
American Medical Response's common stock is listed on the NYSE under the symbol
"EMT". On October 16, 1996, the closing sale price of American Medical
Response's common stock on the NYSE was $30.125 per share.
American Medical Response is the nation's leading provider of emergency and
non-emergency ambulance services, with operations in 28 states and over 11,000
employees. Its growth strategy is to continue to acquire ambulance providers and
complimentary health care providers; improve the quality and efficiency of
existing operations; and develop new services that capitalize on its call
management and medical transport expertise.
EXCHANGE WITH AMHEALTH CORPORATION AND RELATED ENTITIES
In June 1996, (i) AmHealth Corporation, AmHealth Enterprises of the Valley, Inc.
and AmHealth Ambulatory Services, Inc., each a Texas corporation (collectively,
the "AmHealth Corporations"), were merged into the Company, with the Company
as the surviving corporation and (ii) all the general partners and limited
partners (excluding limited partners representing a 25% interest in Brownsville
Kidney Center, Ltd.) of AmHealth Kidney Centers of the Valley, Ltd., Weslaco
Kidney Center, Ltd., Starr Dialysis Center,
12
<PAGE>
Ltd., Mission Kidney Center, Ltd., Brownsville Kidney Center, Ltd., AmHealth
Medical Management, Ltd., Brownsville Hyperbaric Healthcare, Ltd., Southwestern
Infusion Healthcare, Ltd. and AmHealth Ambulatory Healthcare, Ltd., each a Texas
limited partnership (collectively, the "AmHealth Partnerships" and, together
with the AmHealth Corporations, "AmHealth"), received shares of Common Stock
in exchange for their partnership interests in the AmHealth Partnerships (such
transactions being collectively referred to as the "Exchange"). The former
owners of AmHealth received a total of 11,200,000 shares of Common Stock
(representing approximately 75% of the Common Stock outstanding immediately
after the Exchange).
In connection with the Exchange, Mr. Schneider was elected Chairman of the Board
of Directors and Chief Executive Officer of the Company, Mr. R. Perez was
elected President -- Healthcare Management, Treasurer and a director of the
Company, and Daniel A. Perez was elected Senior Vice President of the Company.
Messrs. Schneider, R. Perez and D. Perez, each of whom was an affiliate of
AmHealth prior to the Exchange, also entered into employment agreements with the
Company. Following the Exchange, Ned E. Chapman, the Company's Chief Financial
Officer, resigned from the Company's Board of Directors and Mr. R. Perez was
elected to fill the vacancy created by Mr. Chapmans resignation. The number of
directors constituting the Board was increased to six persons, and Ann N. James,
Ph.D. and David C. Colby, both of whom were designated by former affiliates of
AmHealth, were elected to fill the two newly created positions. See
"Management," "Certain Transactions" and "Principal and Selling
Stockholders."
At the time of the Exchange, AmHealth operated kidney dialysis facilities,
managed HBO therapy facilities and provided home healthcare management and
related ancillary services primarily in the Rio Grande Valley of south Texas.
The Exchange was accounted for as a pooling of interests, and the Company's
consolidated financial statements as of and for the years ended December 31,
1993, 1994 and 1995 have been restated to give retroactive effect to the
consummation of the Exchange. See the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
COLUMBIA AGREEMENT
Effective February 1996, one of the Company's affiliated physician groups
entered into an agreement (the "Columbia Agreement") to provide emergency
medical services to 15 of Columbia's hospitals in the Houston greater
metropolitan area, six of which hospitals were then being served by the Company
under individual contracts with hospitals. The Columbia Agreement has an initial
term ending in January 1998 with provisions for automatic renewal, and may be
terminated by Columbia in certain circumstances, including the loss of
Columbia's certification as a Medicare provider or unsatisfactory service by the
Company or its affiliated physician groups. During the term of the Columbia
Agreement and for two years thereafter, STAT has agreed not to organize or
provide administrative or advisory services to independent physician or similar
associations whose practices relate to areas other than emergency medicine and
who are located in proximity to specified Columbia medical centers. There can be
no assurance that the Columbia Agreement will be renewed at the conclusion of
its initial term, that it will be renewed on substantially the same terms and
conditions, or that it will not be terminated prior to the conclusion of its
term. See "Business -- Operations -- Emergency Physician Practice Management
Services -- Hospital Contracts."
ACQUISITION OF ASSETS OF AMEDICA, LTD.
In February 1996, the Company acquired certain intangible assets of Amedica,
Ltd. for a total purchase price of $270,000, consisting of $200,000 in cash and
15,730 shares of Common Stock. These assets consisted of certain contract rights
and the right to use the name "Amedica."
ACQUISITION OF HEMA CONTRACT
In January 1996, in contemplation of the Columbia Agreement, the Company
acquired the rights to a contract (the "HEMA Contract") for the provision of
physician practice management services at one of Columbia's Houston-area
hospitals for a total purchase price of $1.2 million, consisting of $960,000 in
cash and 52,174 shares of Common Stock. The Company also agreed to pay to the
assignor of the HEMA
13
<PAGE>
Contract up to $100,000 in each of the three 12-month periods following the
acquisition of the contract depending upon the profits realized by the Company
under the HEMA Contract during such periods. The rights to provide services
under the HEMA Contract have been incorporated into the Columbia Agreement.
USE OF PROCEEDS
If all the Warrants are exercised, the Company will receive approximately $3.9
million after deducting estimated offering expenses payable by the Company (and
before deduction of fees paid to any solicitation agents). No assurances can be
given than any or all of the Warrants will be exercised. Any net proceeds
received from the exercise of the Warrants will be used for working capital and
general corporate purposes, including financing accounts receivable and capital
expenditures made in the ordinary course of its business. Pending such uses, the
net proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
DIVIDEND POLICY
To date, the Company has not paid or declared any cash dividends and does not
anticipate paying or declaring any dividends on the Common Stock in the
foreseeable future. In addition, the Company's credit agreement with a
commercial bank prohibits the payment of dividends. Certain of the AmHealth
entities made and have declared distributions to their shareholders and partners
for periods prior to the Exchange. Any future change in the Company's dividend
policy rests solely within the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, capital requirements,
financial condition and any restrictions under credit agreements, as well as
other factors deemed relevant by the Board of Directors.
MARKET PRICES
The Common Stock and the Class A Warrants have been quoted on the Nasdaq
National Market (under the symbols "STHC" and "STHCW," respectively) since
August 23, 1996, and were quoted on the Nasdaq SmallCap Market (under the
symbols "ERDR" and "ERDRW," respectively, until June 24, 1996 and "STHC"
and "STHCW," respectively, thereafter) from April 21, 1995 to August 22, 1996.
The following table sets forth the high and low sales prices for the Common
Stock and the Class A Warrants as reported by the Nasdaq National Market and the
Nasdaq SmallCap Market for the periods indicated:
CLASS A
COMMON STOCK WARRANTS
-------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
1995:
Second Quarter (beginning April
21)............................. $ 3 13/16 $2 1/8 $ 1 5/8 $ 1/4
Third Quarter................... 3 7/8 2 3/8 1 7/8 1
Fourth Quarter.................. 5 2 3/4 1 1/16 1 1/16
1996:
First Quarter................... 6 3/4 3 5/8 4 1/2 1 1/4
Second Quarter.................. 9 5/8 5 1/2 4 7/8 2 3/8
Third Quarter................... 8 3/8 5 3/4 3 5/8 1 1/2
Fourth Quarter (through October
16)........................... 9 7 4 1/4 2 11/16
The Company believes there are currently approximately 60 record holders of
Common Stock and approximately 15 record holders of Class A Warrants. On October
16, 1996, the closing per unit sale prices of the Common Stock and the Class A
Warrants as reported by the Nasdaq National Market were $7.375 and $3.50,
respectively.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30,
1996. The following table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and Unaudited Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
(IN THOUSANDS)
Current portion of long-term debt.... $ 1,486
Current portion of capital lease
obligations........................ 72
Long-term debt....................... 289
Long-term capital lease
obligations........................ 1,993
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized,
no shares issued................ --
Common Stock, $.01 par value,
40,000,000 shares authorized,
14,902,472 shares issued and
outstanding(1).................. 179
Capital in excess of par value..... 4,563
Retained earnings.................. 1,948
--------------
Total stockholders' equity.... 6,660
--------------
Total capitalization....... $ 10,500
==============
- ------------------------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan and (ii) 859,166 shares of Common
Stock issuable upon the exercise of the Warrants. Subsequent to June 30,
1996, 72,940 shares of Common Stock were issued upon the exercise of Class A
Warrants. See "Management -- 1996 Stock Incentive Plan" and "Description
of Capital Stock -- Class A Warrants" and "-- Representatives' Warrants."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents selected consolidated financial data of the Company
and its affiliated physician group, STAT Physicians. The data as of and for the
years ended December 31, 1993, 1994 and 1995 are derived from the Company's
Consolidated Financial Statements and STAT Physicians' Financial Statements
included herein. The data as of June 30, 1996 and for the six months ended June
30, 1995 and 1996 are derived from the Company's Unaudited Consolidated
Financial Statements included herein. In the opinion of management, such
unaudited data reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial data for such
periods. The results of operations for the six months ended June 30, 1996 are
not necessarily indicative of results that may be expected for any future
period. The data set forth below include the accounts of the Company and
AmHealth, which was acquired in June 1996 in a transaction accounted for as a
pooling of interests, as if such businesses had always been members of the same
operating group. See "Recent Developments -- Exchange with AmHealth Corporation
and Related Entities." The selected consolidated financial data are qualified
in their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Consolidated Financial Statements and Notes thereto and Unaudited
Consolidated Financial Statements and Notes thereto, and STAT Physicians'
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993(1) 1994(2) 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Net service revenues................. $ 10,043 $ 14,521 $ 23,141 $ 10,375 $ 16,663
--------- --------- --------- --------- ---------
Operating expenses:
Professional medical fees....... 6,823 7,714 9,241 4,548 6,695
Human resources................. 1,107 1,949 4,640 1,625 3,516
Supplies........................ 375 1,143 1,818 822 1,136
Billing and collection costs.... 304 795 1,461 697 996
Other costs..................... 784 1,440 2,215 899 1,437
--------- --------- --------- --------- ---------
Total operating expenses... 9,393 13,041 19,375 8,591 13,780
--------- --------- --------- --------- ---------
Operating income..................... 650 1,480 3,766 1,784 2,883
Interest and other (income) expense,
net................................ 33 5 121 29 133
Reorganization costs................. -- -- -- -- 1,269
--------- --------- --------- --------- ---------
Income before income taxes........... 617 1,475 3,645 1,755 1,481
Income taxes......................... -- 65 347 181 (44)
--------- --------- --------- --------- ---------
Net income........................... $ 617 $ 1,410 $ 3,298 $ 1,574 $ 1,525
========= ========= ========= ========= =========
Pro forma data (3):
Pro forma income taxes.......... 210 436 892 416 577
--------- --------- --------- --------- ---------
Pro forma net income............ $ 407 $ 974 $ 2,406 $ 1,158 $ 948
========= ========= ========= ========= =========
Pro forma net income per common
share......................... $ 0.05 $ 0.11 $ 0.20 $ 0.13 $ 0.06
========= ========= ========= ========= =========
Number of shares used in
computing pro forma net income
per share..................... 7,458 8,545 11,897 9,078 15,320
========= ========= ========= ========= =========
</TABLE>
DECEMBER 31,
------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Working capital..................... $ 197 $ 1,215 $ 5,618 $ 4,189
Total assets........................ 1,143 4,824 10,575 13,759
Long-term debt and capital lease
obligations, less current
portion........................... 330 1,194 1,640 2,282
Total liabilities................... 697 3,045 4,203 7,099
Stockholders' equity................ 446 1,779 6,372 6,660
- ------------------------------
(1) Represents consolidated financial data for the Company combined with
financial data for STAT Physicians.
(2) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(3) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
The following discussion and analysis reviews consolidated financial data for
companies which previously reported separately. The consolidation has been made
because of the June 1996 merger of the Company's predecessor ("Old STAT") and
AmHealth into the Company in connection with the Exchange. AmHealth is comprised
of a group of corporations and partnerships with related ownership which were
formed at various dates commencing in October 1992 and which commenced operating
activities in April 1993. The Exchange was accounted for as a pooling of
interests.
Old STAT was incorporated on July 29, 1994, and commenced active operations
effective September 1, 1994, pursuant to a Management Agreement with STAT
Physicians which had been in effect since January 1, 1986. To provide
comprehensive historical operating data, STAT Physicians' operating results for
the year ended December 31, 1993 and the eight months ended August 31, 1994,
which are reported separately, have been combined in the comparative statements
of income data discussed herein. Subsequent to August 1994, STAT Physicians'
operating results were reported on a consolidated basis with the results of Old
STAT.
Historically, Old STAT's operations were limited to a single business segment:
emergency medical management services. AmHealth's operations were focused on
integrated disease management services comprised of two identifiable segments:
kidney dialysis services and medical management services encompassing HBO
therapy and home healthcare management services.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
For purposes of this discussion, the term "same store" refers to facilities
which were open for the duration of each comparable period.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NET SERVICE REVENUES. Net service revenues increased by $6.3 million, or 61%,
to $16.7 million in the six months ended June 30, 1996 from $10.4 million in the
comparable period of 1995. This increase is comprised of a $3.2 million (93%)
increase in disease management revenues and a $3.1 million (45%) increase in
emergency medical management revenues.
The increase in disease management revenues, to $6.7 million in the six months
ended June 30, 1996 from $3.5 million in the comparable period of 1995, was
primarily attributable to the introduction of new services and facilities.
Kidney dialysis services accounted for approximately $3.8 million of 1996
revenues and approximately $2.6 million of 1995 revenues, while medical
management services accounted for $2.9 million of 1996 revenues compared to $0.9
million of 1995 revenues.
At June 30, 1996, the Company operated five kidney dialysis facilities compared
with three facilities at June 30, 1995. Revenues during 1996 attributable to the
new facilities approximated $0.6 million while revenues attributable to
facilities open during both periods increased to $3.2 million from $2.6 million
or a same store growth rate of approximately 19%. Per patient revenue rates
remained relatively constant between the periods. At June 30, 1996, the Company
had approximately 270 dialysis patients compared with approximately 185 patients
at June 30, 1995.
17
<PAGE>
At June 30, 1996, the Company provided management services to one home
healthcare agency, which services commenced in June 1995, and managed two HBO
therapy facilities, one of which opened in May 1995 and one of which opened in
April 1996. The increase in comparative medical management revenues of $2.0
million is attributable to a combination of the short operating history as of
June 30, 1995 and the opening of the second HBO therapy facility in April 1996.
In July 1996, the Company announced contracts for three additional HBO therapy
facilities which are expected to be opened during the fourth quarter of 1996.
The increase in emergency medical management revenues, to $10.0 million in the
six months ended June 30, 1996 from $6.9 million in the comparable period of
1995, was primarily attributable to an increase in the number of patients
treated in 1996 (approximately 124,000) compared with 1995 (approximately
90,000). The increase in patients relates to an increase in the number of
emergency departments being served, 18 as of June 30, 1996 compared with 13 as
of June 30, 1995. During the 1996 period, the Company began providing services
at nine additional emergency departments. In July 1996, the Company announced
contracts for services to five additional emergency departments, two of which
commenced July 1 with the remaining three to commence during the fourth quarter
of 1996. Services were terminated by the Company at four emergency departments
(two in April 1996 and two during the second half of 1995) which were served at
June 30, 1995. Also contributing to the increase in revenues is a 5% increase in
average revenue per patient to $80.31 in 1996 from $76.27 in 1995. The increase
in per patient revenue was due to a pricing increase implemented in February
1996.
OPERATING EXPENSES. Operating expenses increased by $5.2 million, or 60%, to
$13.8 million in the six months ended June 30, 1996 from $8.6 million in the
comparable period of 1995. This percentage increase approximated the comparative
increase in net service revenues.
Significant elements comprising operating expenses included: (i) professional
medical fees which increased $2.1 million or 47%; (ii) human resource costs
which increased $1.9 million or 116%; (iii) billing and collection costs which
increased $0.3 million or 43%; (iv) supplies costs which increased $0.3 million
or 38%; and (v) liability insurance which increased $0.2 million or 54%. Other
combined costs accounted for the remaining increase of $0.4 million. Comments
relating to the five identified costs are as follows:
Professional medical fees, liability insurance, and billing and collection
costs, which increased by 47%, 54% and 43%, respectively, were all directly
related to emergency medical management services, which revenues increased by
45%. The percentage increase in professional medical fees exceeded the
percentage increase in related revenues because of rate increases in fees paid
to independent contract physicians. The percentage increase in liability
insurance exceeded the percentage increase in patients treated (38%) because of
an increase in premiums which are paid on a per patient basis. The average cost
for 1996 was approximately $4.00 per patient compared to approximately $3.60 per
patient in the 1995 period. The increase in billing and collection costs was
slightly less than the increase in revenues because of a May 1996 negotiated
reduction in the cost of this contracted service which is based on a percentage
of collections.
The rate of increase in human resource costs exceeded the rate of increase in
revenues. Such costs increased by 75% (compared to a revenue increase of 45%) or
$0.5 million in emergency medical management services and by 146% (compared to a
revenue increase of 93%) or $1.4 million relating to disease management
services. The disproportionate percentage increases were attributable to the
hiring of administrative and support personnel to accommodate the expanded
operations and contracted future business. Additionally, the home healthcare and
HBO services businesses which were started late in the 1995 period are highly
labor intensive and contributed to an increase in these costs as a percentage of
revenues.
The 38% increase in supply costs was most directly related to a 46% increase in
dialysis net service revenues. These costs did not increase at as great a rate
as revenues because of economies of scale in purchasing supplies for expanded
operations.
REORGANIZATION COSTS. The reorganization costs incurred during the six months
ended June 30, 1996 relate entirely to the Exchange and consist of legal,
accounting and other transactional costs.
18
<PAGE>
INCOME TAXES AND PROFORMA INCOME TAXES. Combined income taxes and proforma
income taxes have been calculated using estimated effective tax rates of 36% for
the six months ended June 30, 1996 and 34% for the comparable period of 1995.
Because the AmHealth entities were S corporations or partnerships for federal
income tax purposes, no income taxes were provided on their pre-Exchange
incomes. Pro forma income taxes represent the additional taxes which would have
been provided had they been subject to income taxes at the established rates.
SHARES USED IN COMPUTING NET INCOME PER SHARE. Shares used in computing net
income per share is based on the weighted average common shares and common share
equivalents outstanding during the periods presented. For the six months ended
June 30, 1996, this includes 14,902,472 shares outstanding plus approximately
418,000 common share equivalents relating to warrants and options. For the
comparable period of 1995, there were no common share equivalents because the
warrants and options were anti-dilutive. Additionally, shares allocable to
AmHealth entities included in the Exchange which were not yet operational as of
June 30, 1995 were excluded from the 1995 average.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SERVICE REVENUES. Net service revenues increased by $8.6 million, or 59%,
to $23.1 million in 1995 from $14.5 million in 1994. This increase was comprised
of a $5.0 million (127%) increase in disease management revenues and a $3.6
million (34%) increase in emergency medical management revenues.
The increase in disease management revenues, to $9.0 million in 1995 from $5.0
in 1994, was primarily attributable to the introduction of new services and
facilities from year to year. Kidney dialysis services accounted for
approximately $6.3 million of 1995 revenues and approximately $3.8 million of
1994 revenues, while medical management services accounted for $2.7 million of
1995 revenues compared to $0.2 million of 1994 revenues.
At December 31, 1995, the Company operated four kidney dialysis facilities
compared with three facilities at December 31, 1994. Two facilities were open
throughout 1994 and 1995, one facility was open for seven months of 1994 and
throughout 1995 and the fourth facility was opened in August 1995. Of the $2.5
million increase in dialysis revenues, approximately $1.4 million was
attributable to new facilities and $1.1 million was attributable to a same store
growth rate of approximately 28%.
Medical management services consisting of one HBO therapy facility and
management and personnel services to a home healthcare agency commenced in May
1995 and June 1995, respectively, and generated approximately $2.6 million of
revenues in 1995 with no comparable revenues for 1994.
The increase in emergency medical management revenues, to $14.1 million in 1995
from $10.5 million in 1994, was attributable to an 18% increase in patients
treated (approximately 180,000 in 1995 compared with approximately 153,000 in
1994) and a 14% increase in average revenue per patient ($78.47 in 1995 compared
with $68.94 in 1994). The comparative increase in patients is attributable to
new emergency department contracts which commenced in mid-December 1994 and in
March 1995. Patient volumes under contracts serviced throughout both periods
were mostly unchanged. The increase in average revenue per patient is
attributable to the conversion between 1994 and 1995 of additional contracts to
fee-for-service arrangements and to increases in levels of service which were
required by patients treated. Standard billing rates for medical procedures were
identical between the two years.
OPERATING EXPENSES. Operating expenses increased by $6.3 million, or 49%, to
$19.4 million in 1995 from $13.1 million in 1994. Significant elements
comprising this increase included: (i) human resource costs which increased $2.7
million or 138%; (ii) professional medical fees which increased $1.5 million or
20%; (iii) supply costs which increased $0.7 million or 59%; and (iv) billing
and collection costs which increased $0.7 million or 84%. Other combined costs
accounted for the remaining increase of $0.7 million. Comments relating to the
four identified costs follow:
Approximately $1.2 million of the increase in human resource costs was
attributable to additional personnel associated with the medical management
services contracts which commenced operations in May and June 1995.
Approximately $0.4 million is attributable to personnel associated with expanded
dialysis operations
19
<PAGE>
and approximately $0.3 million was associated with a recharacterization of
compensation paid to the principal physician stockholders of Old STAT who
received higher compensation as contract physicians. The remaining $0.8 million
increase in attributable to increases in general administrative personnel
required by the expanding operations and general salary increases awarded to
employees.
The percentage increase in professional medical fees approximates the percentage
increase in patients treated between 1995 and 1994. The increase in supply costs
was largely attributable to the expansion of the dialysis business which
increased at a rate of 66% over 1994. The 84% increase in billing and collection
costs, an outsourced service, exceeded the rate of increase in emergency medical
management revenues (34%) because of a shift in reimbursement methods from
direct hospital payments in 1994 to fee-for-service in 1995. Billing and
collection costs were borne by the hospitals under the direct payment
arrangements.
INTEREST INCOME. Interest income of $1.1 million in 1995 was attributable to
the investment of net proceeds received in Old STAT's April 1995 initial public
offering.
INTEREST EXPENSE. Interest expense of $0.2 million in 1995 was attributable to
borrowings associated with equipment for dialysis and HBO therapy facilities and
the interest component of capitalized leases.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SERVICE REVENUES. Net service revenues increased by $4.5 million, or 45%,
to $14.5 million in 1994 from $10.0 million in 1993. This increase was comprised
of a $2.8 million (240%) increase in disease management revenues and a $1.7
million (19%) increase in emergency medical management revenues.
Disease management revenues for both years were comprised almost entirely of
dialysis service revenues which increased to $4.0 million in 1994 from $1.2
million in 1993. This increase is attributable to an expansion of operations and
length of time that dialysis services were provided. The three dialysis centers
which were operational at December 31, 1994 commenced operations at the
following dates: April 1993, November 1993 and June 1994.
The increase in emergency medical management revenues, to $10.5 million in 1994
from $8.8 million in 1993, was attributable to an 18% increase in patients
treated (approximately 153,000 in 1994 compared with approximately 130,000 in
1993). This increase was attributable to additional emergency department
contracts added in 1994.
OPERATING EXPENSES. Operating expenses increased by $3.7 million, or 39%, to
$13.1 million in 1994 from $9.4 million in 1993. Significant elements comprising
this increase included: (i) professional medical fees which increased $0.9
million or 13%; (ii) human resources which increased $0.8 million or 76%; (iii)
supply costs which increased $0.8 million or 205%; and (iv) billing and
collection costs which increased $0.5 million or 162%. Other combined costs
accounted for the remaining increase of $0.7 million. Comments relating to the
identified costs are as follows.
Professional medical fees increased at a slightly lower rate than the increase
in patients treated. This was attributable to increased physician productivity
(more patients treated per physician) from 1993 to 1994. Human resources costs
increased at a greater rate than revenues because of the need for additional
contracts, the staffing of new dialysis centers which had not yet achieved
optimum productivity and annual salary increases for personnel working
throughout both periods. The increase in supply costs was attributable to the
commencement of services at the dialysis centers which are supply cost intensive
operations. Billing and collection costs increased at a disproportionate rate
compared to emergency medical management revenues because of a shift in 1994 to
fee-for-service business from direct reimbursement contracts in 1993 which had
no related billing and collection costs.
20
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following tables set forth unaudited consolidated income statement data for
the ten quarters ended June 30, 1996, as well as such data expressed as a
percentage of the Company's total net service revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the Company's Consolidated Financial Statements appearing
elsewhere herein and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. The operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
1994 1995
--------------------------------------------- ------------------------------------
MAR 31(1) JUN 30(1) SEP 30(1) DEC 31 MAR 31 JUN 30 SEP 30 DEC 31
--------- --------- --------- ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net service revenues................. $ 3,342 $ 3,368 $ 3,718 $4,093 $4,873 $5,502 $6,148 $6,618
--------- --------- --------- ------ ------ ------ ------ ------
Operating expenses:
Professional medical fees.......... 1,862 1,918 1,950 1,984 2,200 2,348 2,367 2,326
Human resources.................... 398 424 530 597 696 929 1,352 1,663
Supplies........................... 168 228 334 413 382 440 473 523
Billing and collection costs....... 170 176 199 250 316 381 395 369
Other costs........................ 314 324 389 413 400 499 648 668
--------- --------- --------- ------ ------ ------ ------ ------
Total operating expenses......... 2,912 3,070 3,402 3,657 3,994 4,597 5,235 5,549
--------- --------- --------- ------ ------ ------ ------ ------
Operating income..................... 430 298 316 436 879 905 913 1,069
Interest and other (income) expense,
net................................ 30 26 32 (83 ) 30 (1 ) 56 36
Reorganization costs................. -- -- -- -- -- -- -- --
--------- --------- --------- ------ ------ ------ ------ ------
Income before income taxes........... 400 272 284 519 849 906 857 1,033
Income taxes......................... 58 27 29 55 77 104 111 55
--------- --------- --------- ------ ------ ------ ------ ------
Net income........................... $ 342 $ 245 $ 255 $ 464 $ 772 $ 802 $ 746 $ 978
========= ========= ========= ====== ====== ====== ====== ======
Pro forma data (2):
Pro forma income taxes............. 78 66 67 121 212 204 180 296
--------- --------- --------- ------ ------ ------ ------ ------
Pro forma net income............... $ 264 $ 179 $ 188 $ 343 $ 560 $ 598 $ 566 $ 682
========= ========= ========= ====== ====== ====== ====== ======
Pro forma net income per common
share............................ $ 0.04 $ 0.03 $ 0.02 $0.05 $0.07 $0.06 $0.04 $0.05
========= ========= ========= ====== ====== ====== ====== ======
Number of shares used in computing
pro forma net income per share... 6,365 6,766 7,583 7,583 7,583 10,556 14,465 14,823
========= ========= ========= ====== ====== ====== ====== ======
AS A PERCENTAGE OF NET SERVICE
REVENUES:
Net service revenues................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ------ ------ ------ ------ ------
Operating expenses:
Professional medical fees.......... 55.7 56.9 52.4 48.5 45.1 42.7 38.5 35.1
Human resources.................... 11.9 12.6 14.3 14.6 14.3 16.9 22.0 25.1
Supplies........................... 5.0 6.8 9.0 10.1 7.8 8.0 7.7 7.9
Billing and collection costs....... 5.1 5.2 5.4 6.1 6.5 6.9 6.4 5.6
Other costs........................ 9.4 9.6 10.5 10.1 8.2 9.1 10.5 10.1
--------- --------- --------- ------ ------ ------ ------ ------
Total operating expenses......... 87.1 91.1 91.6 89.4 81.9 83.6 85.1 83.8
--------- --------- --------- ------ ------ ------ ------ ------
Operating Income..................... 12.9 8.9 8.4 10.6 18.1 16.4 14.9 16.2
========= ========= ========= ====== ====== ====== ====== ======
</TABLE>
QUARTER ENDED
-----------------
1996
-----------------
MAR 31 JUN 30
------- -------
STATEMENTS OF INCOME DATA:
Net service revenues................. $7,549 $9,114
------- -------
Operating expenses:
Professional medical fees.......... 2,824 3,871
Human resources.................... 1,747 1,769
Supplies........................... 566 570
Billing and collection costs....... 445 551
Other costs........................ 704 733
------- -------
Total operating expenses......... 6,286 7,494
------- -------
Operating income..................... 1,263 1,620
Interest and other (income) expense,
net................................ 52 81
Reorganization costs................. -- 1,269
------- -------
Income before income taxes........... 1,211 270
Income taxes......................... 77 (171)
------- -------
Net income........................... $1,134 $ 441
======= =======
Pro forma data (2):
Pro forma income taxes............. 359 268
------- -------
Pro forma net income............... $ 775 $ 173
======= =======
Pro forma net income per common
share............................ $0.05 $0.01
======= =======
Number of shares used in computing
pro forma net income per share... 15,180 15,424
======= =======
AS A PERCENTAGE OF NET SERVICE
REVENUES:
Net service revenues................. 100.0% 100.0%
------- -------
Operating expenses:
Professional medical fees.......... 37.4 41.8
Human resources.................... 23.1 19.1
Supplies........................... 7.5 6.2
Billing and collection costs....... 5.9 5.9
Other costs........................ 9.3 8.0
------- -------
Total operating expenses......... 83.2 81.0
------- -------
Operating Income..................... 16.8 19.0
======= =======
- ------------------------------
(1) Represents consolidated financial data for the Company for the year ended
December 31, 1994 combined with financial data for STAT Physicians for the
eight months ended August 31, 1994.
(2) Reflects the effects of income taxes not otherwise payable by entities which
were partnerships or S corporations prior to the Exchange.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements of the Company relate principally to three areas: (i) funds
required to purchase capital assets for dialysis facilities and equipment for
the expansion of existing and opening of new HBO therapy facilities; (ii)
working capital needs associated with the start-up of new emergency department
contracts; and (iii) availability of funds for acquisitions which complement the
Company's growth strategy.
Management is actively evaluating new markets for the expansion of the Company's
disease management services and considers either dialysis facilities or HBO
therapy facilities to be the optimum vehicles for market entry. These ventures
are the most capital intensive of the Company's businesses and require funds to
purchase dialysis and HBO therapy equipment. At June 30, 1996, the Company had
commitments for approximately $0.5 million of HBO therapy equipment for new
facilities expected to open during the fourth quarter of 1996.
In evaluating individual business segments of the Company, working capital needs
are most extensive as they relate to increases in emergency department
contracts. Experience indicates that upon commencement of new contracts, periods
ranging from 90 to 150 days are required to achieve normal cash flows.
Accordingly, the more rapidly the Company is able to add new contracts, the
greater the working capital needs.
In evaluating growth opportunities, management expects to consider acquisitions
as well as growth through internal development. Some acquisitions may be
accomplished through the issuance of additional stock; however, it is expected
that cash will be a significant medium in the Company's acquisition strategy.
Historically, capital requirements have been met through a combination of
sources including: (i) cash flows from operations; (ii) proceeds from Old STAT's
April 1995 initial public offering; and (iii) lease and bank financing. The
Company currently has a $6.5 million Revolving and Term Credit Facility with two
commercial banks (the "Revolving and Term Credit Facility"). The revolving
portion of the facility has a borrowing limit of up to $3.0 million, based upon
qualified accounts receivable, bears interest, at the Company's option, at
either (i) the prime rate or (ii) the London Interbank Offered Rate plus 1.50%
to 2.25% per annum, depending on the Company's debt to cash flow ratio, and
matures in August 1997. The term portion of the facility has a borrowing limit
equal to the lesser of $3.5 million or 75% of new equipment purchases, bears
interest at the prime rate, and matures in August 1999. Accrued interest is
payable monthly. All borrowings under the term facility must be made prior to
August 1997. Until August 1997, outstanding principal under the term facility is
payable monthly in installments equal to 1/36 of the principal then outstanding.
After August 1997, principal outstanding under the term facility will be payable
in 24 equal monthly installments. In addition, the Company is required to pay to
the banks a quarterly commitment fee of up to 0.25% of the unused revolving
credit commitment. The Revolving and Term Credit Facility also contains
customary restrictive covenants, prohibits the payment of dividends, requires
the Company to maintain certain financial ratios and guaranteed by all of the
Company's subsidiaries and affiliated physician groups. At September 30, 1996,
there was $2.3 million outstanding under the revolving facility and $425,150
outstanding under the term facility. Discussions recently commenced to increase
the borrowing limits of the proposed Revolving and Term Credit Facility.
However, no assurances can be made that the Company will be able to achieve this
objective.
Management believes that cash flows from operations and its borrowing capacity
should be sufficient to meet its anticipated capital expenditures and other
operating requirements and to substantially fund its growth strategy for the
next 12 months. However, because future cash flows and the availability of
financing are subject to a number of variables, such as the timing and size of
dialysis and HBO therapy developments and acquisitions and new emergency medical
management contracts, there can be no assurance that the Company's capital
resources will be sufficient to maintain currently planned levels of growth. If
alternative financing is not available or is not available on terms acceptable
to the Company, the Company may not be able to maintain currently planned levels
of growth.
INFLATION
Inflation has not had a material impact on the operations or financial condition
of the Company during the last three years.
22
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The financial accounting standards of SFAS No. 123
permit companies to either continue accounting for stock-based compensation
under existing rules or adopt SFAS No. 123 and begin reflecting the fair value
of stock options and other forms of stock-based compensation in the results of
operations as additional expense. The disclosure requirements of SFAS No. 123
require companies which elect not to record the fair value in the statement of
operations to provide pro forma disclosures of net income and earnings per share
in the notes to the financial statements as if the fair value of stock-based
compensation had been recorded. The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company will provide the pro forma disclosures beginning with its 1996
Annual Report and will continue accounting for such plans under the existing
accounting rules.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The requirements
are effective for financial statements for fiscal years beginning after December
15, 1995. STAT does not anticipate that adoption of SFAS No. 121 will have a
significant effect on its financial condition or results of operations.
FUTURE OUTLOOK
In addition to historical information, this Prospectus contains predictions,
estimates and other forward-looking statements that involve a number of risks
and uncertainties. These risks and uncertainties include the fact that the
Company is a relatively young company whose business is still developing. This
development will require substantial amounts of funding and the Company will be
dependent on debt financing and the equity markets to finance such efforts.
Where access to funding is difficult, the Company's stockholders may face
significant dilution, and the ability of STAT to proceed with its programs and
plans may be significantly and adversely affected. Actions and advances by
competitors may also significantly affect STAT's prospects.
While this outlook represents managements current judgment on the future
direction of the business, these risks and uncertainties are only some of the
factors that may ultimately affect STAT's success, and actual results may differ
materially from any future performance suggested in this Prospectus. A more
detailed explanation of these and other risks is contained under "Risk
Factors."
23
<PAGE>
BUSINESS
GENERAL
STAT Healthcare, Inc. ("STAT" or the "Company") provides a continuum of
disease management services primarily to patients with end-stage renal disease
("ESRD" or "chronic kidney failure") and also provides physician practice
management services to affiliated physician groups which staff hospital
emergency departments. The Company currently operates five dialysis facilities,
manages two HBO therapy facilities and provides home healthcare management and
related ancillary services primarily in the Rio Grande Valley of south Texas,
and has entered into contracts to manage three additional HBO therapy facilities
commencing in October 1996. Through its affiliated physician groups, STAT also
currently provides physician practice management services to 24 hospital
emergency departments, 17 of which are in the Houston greater metropolitan area.
HEALTHCARE INDUSTRY OVERVIEW
GENERAL. Healthcare in the U.S. traditionally has been delivered through a
fragmented system of healthcare providers. Diverse treatment protocols among
providers of chronic disease care have contributed to increased costs. The role
of healthcare providers is changing dramatically. Third-party payors, including
HMOs, increasingly are turning to specialized disease management companies that
offer integrated care solutions to improve quality and reduce costs. In
addition, hospital networks are outsourcing departmental functions to
specialized management companies to reduce the administrative burdens of
providing healthcare and permit hospitals to focus on their core competencies.
DISEASE MANAGEMENT SERVICES. Certain chronic diseases, including chronic kidney
failure, require frequent and specialized healthcare services to maximize the
benefits of advanced treatment protocols. Chronic kidney failure is the state of
advanced renal impairment that generally is irreversible and requires routine
dialysis treatments an average of three times per week or kidney transplantation
in order to sustain life. In addition to the need for dialysis treatment,
chronic kidney failure patients frequently suffer from one or more associated
medical conditions, including diabetes, non-healing wounds, hypertension,
coronary artery disease, anemia and nutritional problems. Qualified patients
with chronic kidney failure have been entitled since 1972 to Medicare benefits
regardless of age or financial circumstances under the federal ESRD program.
Industry sources estimate that diabetes accounts for approximately 36% of all
new cases of chronic kidney failure, and that in 1995 there were approximately
16 million diagnosed and undiagnosed cases of diabetes in the U.S. According to
the U.S. Health Care Financing Administration ("HCFA"), the number of patients
requiring chronic dialysis services in the U.S. has grown at a 9% compounded
annual growth rate to 187,000 patients in 1994 from 66,000 in 1982. The Company
estimates that the U.S. market for outpatient and inpatient dialysis services
exceeded $3.6 billion in 1994 based on an average of three treatments per week
per patient at an average cost of $126 per treatment.
Advanced-stage diabetics typically have decreased sensation and oxygenation in
their lower extremities and, as a result, are predisposed to non-healing,
ulcerating lower extremity wounds which can become gangrenous and lead to
amputation. Historically, nearly one-third of all diabetics have required lower
extremity amputation after chronic kidney failure. HBO therapy is considered an
important adjunctive treatment for infected, non-healing wounds and other
chronic conditions caused by diminished tissue oxygenation. During HBO therapy,
a patient breathes 100% oxygen in a pressurized chamber at two to three times
the atmospheric pressure at sea level. There are currently only approximately
260 HBO therapy facilities in the U.S. HBO therapy can help avoid amputation and
its costs and complications and is also considered a vital and primary treatment
for resolution of certain emergency situations such as air embolism,
decompression sickness, carbon monoxide poisoning and burns. Medicare
reimbursement is generally available for all these conditions other than
treatment for burns.
The healthcare needs of patients with chronic kidney failure are complex and
costly and require frequent, specialized care. When specifically tailored to
care for patients with chronic kidney failure, home healthcare helps identify
problems early, often reducing the need for more expensive in-patient care. Home
healthcare organizations also assist in administering special medical services
to persons with ESRD, including the
24
<PAGE>
administration of erythropoietin ("EPO") and general nutrition analysis.
Management believes that the healthcare needs of patients with chronic kidney
failure are better served by an integrated approach including kidney dialysis,
HBO therapy and home healthcare and related ancillary services.
EMERGENCY PHYSICIAN PRACTICE MANAGEMENT SERVICES. Hospitals frequently
outsource key departmental functions, including emergency medicine, radiology,
anesthesiology and pathology, to third-party management companies in an effort
to control and reduce operating costs and focus on their core competencies.
There are approximately 5,200 hospitals in the U.S., many of which face numerous
problems in managing their emergency departments, including difficulties in
recruiting, evaluating, scheduling and retaining qualified emergency physicians,
increased patient volumes, and the inefficient use of emergency departments for
routine primary care. Competitive pressures have focused the attention of many
hospital administrators on the need for better management of their emergency
departments. Hospitals frequently turn to physician practice management firms
with specialized skills to help solve physician contract and scheduling
problems, to strengthen the management of their professional medical staff and
specific clinical departments, to better control costs, and to assist in meeting
their healthcare coverage needs and obligations to patients who are indigent,
uninsured or unassigned to a referring private physician.
OPERATIONS
DISEASE MANAGEMENT SERVICES
GENERAL. The Company currently operates five dialysis facilities, manages two
HBO therapy facilities and provides home healthcare management and related
ancillary services primarily in the Rio Grande Valley of south Texas.
TREATMENT OPTIONS FOR END-STAGE RENAL DISEASE. Treatment options for chronic
kidney failure include hemodialysis, peritoneal dialysis and kidney
transplantation. HCFA estimates that as of December 31, 1994, 82% of the ESRD
patients in the United States were receiving hemodialysis treatment in
outpatient facilities, with the remaining patients being treated in the home
either through peritoneal dialysis (17%) or home hemodialysis (1%).
Hemodialysis is generally performed on an outpatient basis in a freestanding
facility. Hemodialysis uses an artificial kidney, called a dialyzer, to remove
certain toxins, fluids and salt from a patients blood combined with a machine to
control external blood flow and to monitor certain vital signs of the patient. A
hemodialysis treatment usually lasts approximately three hours and is performed
three times per week per patient.
Peritoneal dialysis is generally performed by the patient at home. There are
several variations of peritoneal dialysis. The most common are continuous
ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal
dialysis ("CCPD") or automated peritoneal dialysis ("APD"). All forms of
peritoneal dialysis use the patients peritoneal (abdominal) cavity to eliminate
fluid and toxins from the patient. Toxins in the blood continuously cross the
peritoneal membrane into the dialysis solution. After several hours, the patient
drains the used dialysis solution and replaces it with fresh solution. CCPD and
APD are performed in a manner similar to CAPD, but use a mechanical device to
cycle dialysis solution while the patient is sleeping or at rest.
An alternative treatment not provided by the Company is kidney transplantation.
While transplantation, when successful, is generally the most desirable form of
therapeutic intervention, the shortage of suitable donors limits the
availability of this treatment option. The Company currently has transplantation
agreements with the University of Texas Medical Branch-Galveston and the
University of Texas Health Science Center, San Antonio, to provide assessment
and evaluation of the Company's patients for possible kidney transplant services
and to facilitate patient transfers. No fees are involved or paid in connection
with such relationship.
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DIALYSIS FACILITIES. STAT currently operates 83 dialysis stations at five
facilities. The Company expects to open one additional facility with ten
dialysis stations in the fourth quarter of 1996. The following table sets forth
certain information as of the date of this Prospectus regarding the Company's
dialysis facilities:
NO. OF SERVICE
INSTALLED STATION COMMENCEMENT
FACILITY LOCATIONS STATIONS CAPACITY(1) DATE
- --------------------------------- ---------- ----------- ---------------
McAllen, Texas................... 27 30 April 1993
Rio Grande City, Texas........... 10 16 November 1993
Weslaco, Texas................... 20 20 June 1994
Mission, Texas................... 15 24 August 1995
Brownsville, Texas(2)............ 11 24 May 1996
El Paso, Texas................... 10 24 (3)
--- ---
Total....................... 93 138
=== ===
- ------------------------------
(1) Number of dialysis stations for which plumbed, certified space is currently
available.
(2) Owned by a limited partnership in which physicians hold a non-controlling
interest.
(3) Operations expected to commence in the fourth quarter of 1996.
Company's dialysis facilities are designed specifically for outpatient
hemodialysis and generally contain, in addition to space for dialysis
treatments, a nurses' station, a patient weigh-in area, a supply room, a water
treatment space used to purify the water used in hemodialysis treatments, a
dialyzer reprocessing room (where dialyzers are sterilized for reuse), staff
work areas, offices and a staff lounge and kitchen. Many of the Company's
facilities also have a designated area for training patients in home dialysis.
Each currently installed dialysis unit is generally operated at or near capacity
ten to 13 hours per day, six days per week. As demand for dialysis increases,
the Company intends to increase capacity by purchasing and installing additional
dialysis units in vacant stations and/or expanding operating hours.
In accordance with conditions for participation in the Medicare ESRD program,
each facility has a qualified physician who serves as medical director and an
Administrator who supervises the day-to-day operations of the facility and the
staff. Generally, the medical director must be board eligible or board certified
in internal medicine and have had at least 12 months of experience or training
in the care of patients at ESRD facilities. The staff of each facility typically
consists of registered nurses, licensed practical or vocational nurses, patient
care technicians, a social worker, a registered dietician, a unit clerk and
bio-medical technicians.
All of the Company's dialysis facilities offer both high-efficiency and
conventional hemodialysis, which physicians practicing at the Company's
facilities deem suitable for their patients. The Company considers the equipment
installed and supplies utilized at its facilities to be among the most
technologically advanced presently available.
The Company also offers CAPD and various other forms of home dialysis. Home
dialysis services consist of providing equipment and supplies, training, patient
monitoring and follow-up assistance to patients who prefer and are able to
receive dialysis treatments in their homes. Patients and their families are
trained by a registered nurse to perform either CAPD or CCPD at home.
HBO THERAPY SERVICES. Approximately 85% of the patients with chronic kidney
failure served by the Company during 1995 also suffer from diabetes or vascular
disease. These diseases generally cause decreased sensation and oxygenation in
the lower extremities. As a result, these individuals are predisposed to problem
wounds which fail to respond to established medical/surgical management,
including diabetic feet, compromised amputation sites, non-healing traumatic
wounds, and vascular insufficiency ulcers. HBO therapy provides a significant
increase in tissue oxygenation in the poorly perfused, infected wound. This
elevation in oxygen induces significant positive changes in the wound repair
process. HBO therapy is prescribed, either as a primary or adjunctive treatment,
and only for those physical conditions approved by the Undersea and Hyperbaric
Medical Society. In the case of problem wounds, the average treatment
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consists of approximately 20 treatments, each with a duration of approximately
two hours. Specially-trained personnel observe and monitor the entire treatment.
Governmental regulations require that HBO therapy be hospital-based.
STAT currently manages the operations of six monoplace chambers at two HBO
therapy facilities, and expects to open six monoplace chambers at three
additional facilities in the fourth quarter of 1996. The following table sets
forth certain information as of the date of this Prospectus regarding the HBO
therapy facilities managed by the Company:
NO. OF
INSTALLED CHAMBER EXPIRATION OF INITIAL
FACILITY CHAMBERS(1) CAPACITY(2) CONTRACT TERM
- ------------------------- ----------- ----------- ---------------------
Brownsville, Texas....... 3 3 May 2000
Corpus Christi, Texas.... 3 3 April 1999(3)
Kingsville, Texas........ 2 2 Fall 1999(4)
Mission, Texas........... 2 4 Fall 2001(4)
Eagle Pass, Texas........ 2 4 Fall 2001(4)
-- --
Total............... 12 16
== ==
- ------------------------------
(1) Number of monoplace chambers currently installed or expected to be installed
upon commencement of facility operations.
(2) Number of monoplace chambers for which plumbed, certified space is currently
available.
(3) Upon commencement of operations at the Kingsville facility, the contract
term of the Corpus Christi facility will restart for a new three-year
period.
(4) Assumes operations commence as expected in the fourth quarter of 1996.
The Company administers HBO therapy to patients in monoplace chambers pursuant
to contracts with hospitals, which, except with respect to the Kingsville
facility, may be automatically renewed for additional, one-year periods after
the initial term. Under the terms of each contract, the Company provides and
maintains HBO and related medical equipment at each hospital and furnishes
qualified supervising physicians, nurses and medical technicians specially
trained in HBO therapy to administer the HBO therapy to patients. The Company
receives from the hospitals a fixed fee for each outpatient HBO therapy, with
fees for inpatient treatments determined on a case-by-case basis. Each currently
installed chamber is generally operated at or near capacity 12 to 14 hours per
day, six days per week. As demand for HBO therapy increases, the Company intends
to increase capacity by purchasing and installing additional chambers in
available space and/or expanding operating hours.
HOME HEALTHCARE AND OTHER ANCILLARY SERVICES. Approximately 45% of the patients
served by the Company's home health services during 1995 had chronic kidney
failure or diabetes. In addition, a number of Company's patients are elderly,
are often immobile and have medical conditions requiring frequent at-home
healthcare. To serve the special needs of these patients, the Company has
entered into a management services agreement with a local provider of home
healthcare services. Under the terms of the agreement, the Company furnishes
nursing staff to perform basic nursing services as well as a nursing staff
specially trained for the care of renal, diabetic, transplant, cancer and
cardiac patients. In addition, the Company provides continuing education and
training for its employees on an on-going basis and provides a number of
administrative, financial and management services to the home health agency such
as quality assurance, risk management, employee safety and physician relations
services. For its services, the Company receives a fixed fee for each visit made
to a patients home and a fixed hourly management support services fee for other
enumerated services. Fees are subject to amendment based on changes in Medicare
or Medicaid laws. The agreement expires in December 2002 and contains
non-competition provisions throughout its term and for a one-year period
thereafter.
STAT's dialysis facilities also provide a comprehensive range of related
ancillary services to ESRD patients, the most significant of which is the
administration of EPO upon a physicians prescription. EPO is a bio-engineered
protein which stimulates the production of red blood cells and is used in
connection with all
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forms of dialysis to treat anemia, a medical complication frequently experienced
by ESRD patients. Other ancillary services include: (i) certain laboratory tests
required by Medicare to determine the effectiveness of dialysis treatments; (ii)
general nutrition analysis; (iii) studies to test the degree of bone
deterioration; (iv) electrocardiograms; (v) nerve conduction studies to test for
deterioration of a patients nerves; (vi) doppler flow testing to test the
effectiveness of a patients vascular access for dialysis; and (vii) blood
transfusions.
PHYSICIAN RELATIONSHIPS. A key factor in the success of any of the Company's
dialysis facilities is its relationship with local nephrologists. ESRD patients
generally seek treatment at a facility near home and where the attending
nephrologist has practice privileges. Consequently, the Company's dialysis
business relies upon its ability to meet the needs of the referring physicians
and the ESRD patients in the communities the Company serves. During 1995, two
nephrologists who are also principal stockholders of the Company collectively
accounted for approximately 80% of the Company's net service revenues from
dialysis services (approximately 27% of the Company's total net service
revenues).
The medical directors of the Company's dialysis facilities, each of whom is a
nephrologist, enter into written contracts with the Company which specify their
duties and establish their compensation (which is fixed for periods of three
years or more). The compensation of the medical directors and other physicians
for services under contract is separately negotiated for each facility and
generally depends upon competitive factors in the local market, the physicians
professional qualifications and responsibilities and the size and utilization of
the facility or relevant program.
SOURCES OF REIMBURSEMENT. Under the Medicare ESRD program, Medicare reimburses
dialysis providers for the treatment of individuals who are diagnosed to have
chronic kidney failure and are eligible for participation in the Medicare
program, regardless of age or financial circumstances. For each treatment,
Medicare pays 80% of the amount set by the Medicare prospective reimbursement
system, and a secondary payor (usually Medicare supplemental insurance or the
state Medicaid program) pays approximately 20% of the amount set by the Medicare
prospective reimbursement system. Texas (currently the only state where the
Company provides dialysis services) provides Medicaid benefits to qualified
recipients to supplement their Medicare entitlement. The Medicare and Medicaid
programs are subject to statutory and regulatory changes, administrative
rulings, interpretations of policy and governmental funding restrictions, some
of which may have the effect of decreasing program payments, increasing costs or
modifying the way the Company operates its dialysis business. See "Medicare
Reimbursement," below.
Assuming a patient is eligible for participation in the Medicare program, the
commencement date of Medicare benefits for ESRD patients electing hemodialysis
is dependent on several factors. ESRD patients under 65 years of age who are not
covered by an employer group health plan (for example, the uninsured, those
covered by Medicaid and those covered by an individual health insurance policy)
must wait 90 days after commencing dialysis treatment to be eligible for
Medicare benefits. During the first 90 days of treatment, the patient, Medicaid
or the private insurer is responsible for payment (and, in the case of the
individual covered by private insurance, such responsibility is limited to the
terms of the policy, with the patient being responsible for the balance). ESRD
patients under 65 years of age who are covered by an employer group health plan
must wait 21 months after commencing dialysis treatment before Medicare becomes
the primary payor. Medicare generally covers those who are ages 65 and over,
except that Medicare coverage is secondary for some patients who have qualifying
employer group health insurance. During the first 21 months of treatment, the
employer group health plan is responsible for payment at its negotiated rate or,
in the absence of such a rate, at the Company's usual and customary rates and
the patient is responsible for deductibles and co-payments, if applicable, under
the terms of the employer group health plan.
If an ESRD patient with an employer group health plan elects home dialysis
training during the first 90 days of dialysis, Medicare becomes the primary
payor after 18 months. If an ESRD patient without an employer group health plan
begins home dialysis training during the first three months of dialysis,
Medicare immediately becomes the primary payor.
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MEDICARE REIMBURSEMENT. The Company is reimbursed by Medicare under a
prospective reimbursement system for chronic dialysis services provided to ESRD
patients. Under this system, the reimbursement rates are fixed in advance and
have been adjusted from time to time by Congress. Although this form of
reimbursement limits the allowable charge per treatment, it provides the Company
with predictable and recurring per treatment revenues and allows the Company to
retain any profit earned. Medicare has established a composite rate set by HCFA
that governs the Medicare reimbursement available for a designated group of
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and certain medications. The Medicare
composite rate is subject to regional differences based upon certain factors,
including regional differences in wage earnings. Certain other services and
items are eligible for separate reimbursement under Medicare and are not part of
the composite rate, including certain drugs (including EPO), blood (for amounts
in excess of three units per patient per year), and certain physician-ordered
tests provided to dialysis patients. Claims for Medicare reimbursement must
generally be presented within 15 to 27 months of treatment depending on the
month in which the service was rendered and for Medicaid secondary
reimbursement, if applicable, within 60 to 90 days after payment of the Medicare
claim. The Company generally submits claims monthly and is usually paid by
Medicare within 30 days of the submission. If in the future Medicare were to
include in its composite reimbursement rate any of the ancillary services
presently reimbursed separately, the Company would not be able to seek separate
reimbursement for these services and this would adversely affect the Company's
results of operations to the extent a corresponding increase were not provided
in the Medicare composite rate.
The Company receives reimbursement for outpatient dialysis services provided to
Medicare-eligible patients at rates that are currently $117 per treatment. The
Medicare ESRD composite reimbursement rate is subject to change by legislation
and recommendations by the Prospective Payment Assessment Commission
("PROPAC"). The Medicare ESRD composite reimbursement rate currently ranges
from $117 to $138 per treatment, depending on regional wage variations. The
Company is unable to predict what, if any, future changes may occur in the rate
of reimbursement, or, if made, whether any such changes will have a material
effect on the Company's revenues and net earnings.
On June 1, 1989, the FDA approved the production and sale of EPO, and
HCFA-approved Medicare reimbursement for EPO's use by dialysis patients. EPO
stimulates the production of red blood cells and is beneficial in the treatment
of anemia, with the effect of reducing or eliminating the need for blood
transfusions for dialysis patients. Physicians began prescribing EPO for their
patients in the Company's dialysis facilities in April 1993. The Medicare ESRD
reimbursement rate for EPO is currently $10 per 1,000 units. Legislation has
been enacted in recent years to reduce the Medicare reimbursement rate for EPO,
and the reimbursement rate may be further reduced in the future. There can be no
assurance that the Company can maintain current operating margins in the future
for EPO administrations due to potential reimbursement decreases, or to
potential increases in product costs from its sole manufacturer.
MEDICAID REIMBURSEMENT. Medicaid programs are state administered programs
partially funded by the federal government. These programs are intended to
provide coverage for patients whose income and assets fall below state defined
levels and who are otherwise uninsured. The programs also serve as supplemental
insurance programs for the Medicare co-insurance portion and provide certain
coverages (E.G., oral medications) that are not covered by Medicare. State
regulations generally follow Medicare reimbursement levels and coverages without
any co-insurance amounts. The Company is a licensed ESRD Medicaid provider in
Texas.
PRIVATE REIMBURSEMENT/CERTAIN PAYOR ARRANGEMENTS. The Company receives
reimbursement from private payors for ESRD treatments prior to Medicare becoming
a patients primary payor at rates significantly higher than the per treatment
rate set by Medicare. After Medicare becomes a patients primary payor, private
secondary payors generally reimburse the Company for 20% of the Medicare per
treatment rate. In addition, the Company has entered into non-exclusive
contracts with third-party payors, including many leading HMOs in the Company's
service areas, to provide dialysis services to their beneficiaries.
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EMERGENCY PHYSICIAN PRACTICE MANAGEMENT SERVICES
GENERAL. STAT also provides physician practice management services to its
affiliated physician groups, which in turn provide emergency medical and related
services to hospitals. Through the affiliated physician groups, the Company
currently provides emergency medical services at 24 hospitals primarily in the
Houston greater metropolitan area.
MANAGEMENT AGREEMENTS WITH AFFILIATED PHYSICIAN GROUPS. Under the Management
Agreements between the Company and its affiliated physician groups, which are
generally perpetual and without provision for cancellation or termination, the
Company identifies, recruits and screens potential candidates to serve as
emergency room physicians in hospitals which have contracted with the Company's
affiliated physician groups to provide physician contract management services.
The affiliated physician groups then enter into contracts with physicians
meeting the groups' qualifications and present those physicians as candidates
for admission to the hospital's medical staff. The Company also coordinates, on
behalf of and with the assistance of the affiliated physician groups, the
scheduling of staff physicians to provide coverage on a 24-hour, 365-day-a-year
basis for the hospital's emergency departments. In addition, the Company assists
the hospital's administration and medical staff in such areas as quality
assurance, risk management, departmental accreditation and marketing.
The Company also manages and administers the affiliated physician groups'
day-to-day business functions, which include but are not limited to, assuring
responsibility for the administrative, accounting, payroll and personnel
functions related to the practice of medicine. Under the Management Agreements,
the Company is also required to bill and collect the professional fees for the
medical services provided on behalf of the affiliated physician groups,
maintains all files and records, negotiates and administers all hospital
contracts, and provides consulting services to the affiliated physician groups
in connection with the procurement and administration of professional liability
insurance and the employment of personnel. All final decisions relating to
medical care are solely that of the affiliated physician groups.
In consideration of the services provided by the Company under the Management
Agreements, each affiliated physician group pays a management fee and provides
reimbursement of all related expenses to the Company. Each affiliated physician
group has also appointed the Company its attorney-in-fact to act on its behalf
for the purposes of collecting and receiving all fees and revenues payable to
the affiliated physician groups as a result of professional services rendered
and for the purpose of carrying out its management functions under its hospital
contracts.
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HOSPITAL CONTRACTS. The Company's affiliated physician groups currently provide
emergency medical services through their independent contracting physicians with
the following hospitals:
SERVICE
COMMENCEMENT
FACILITY(1) LOCATION DATE
- ------------------------------------- ---------------------- --------------
San Jacinto Methodist Hospital(2).... Baytown, Texas July 1987
Twelve Oaks Hospital(3).............. Houston, Texas May 1989
Fort Bend Hospital................... Missouri City, Texas April 1990
Alvin Community Hospital............. Alvin, Texas February 1991
Parkway Hospital..................... Houston, Texas August 1991
Katy Medical Center.................. Katy, Texas December 1992
Kingwood Plaza Hospital.............. Kingwood, Texas January 1993
Alice Physicians & Surgeons.......... Alice, Texas January 1994
Mainland Regional Health Hospital.... Texas City, Texas December 1994
Conroe Regional Medical Center....... Conroe, Texas February 1996
Springbranch Medical Center.......... Houston, Texas February 1996
Bellaire Hospital.................... Houston, Texas March 1996
Doctors Hospital Airline............. Houston, Texas March 1996
West Houston Medical Center.......... Houston, Texas March 1996
Doctors Hospital East Loop........... Houston, Texas April 1996
Rosewood Medical Center.............. Houston, Texas April 1996
Sunbelt Medical Center............... Houston, Texas April 1996
Brownsville Medical Center(3)........ Brownsville, Texas June 1996
Gulf Coast Medical Center............ Wharton, Texas July 1996
Bayshore Medical Center.............. Bayshore, Texas July 1996
Doctors Hospital..................... Laredo, Texas October 1996
Valley Regional Medical Center....... Brownsville, Texas October 1996
Rio Grande Regional Medical Center... McAllen, Texas October 1996
Medical Center of Southeastern
Oklahoma(4)........................ Durant, Oklahoma October 1996
- ------------------------------
(1) Except as otherwise noted, all hospitals are owned by Columbia.
(2) Facility owned by The Methodist Healthcare Network.
(3) Facility owned by Tenet Health System.
(4) Facility owned by Health Management Associates.
Through its affiliated physician groups, the Company provides contract
management services to hospitals under fee-for-service contracts. Hospitals
entering into fee-for-service contracts agree to authorize the affiliated
physician group to bill and collect the professional component of the charges
for medical services rendered by the group's contracted physicians. Under
fee-for-service arrangements, the affiliated physician groups receive directed
disbursements of the amounts collected and, depending on the hospital's patient
volume and payor mix, may also receive a stand-by or on-call fee from the
hospital. Pursuant to such contracts, the affiliated physician groups assume
responsibility for billing and collection and assumes the risks of non-payment,
changes in patient volume or payor mix and delays attendant to reimbursement
through government programs or third-party payors. All of these factors are
taken into consideration by the affiliated physician groups, in consultation
with the Company, in arriving at appropriate contractual arrangements with
healthcare institutions and professionals. The affiliated physician groups'
service contracts with hospitals generally have a term of two years, and contain
provisions permitting renewal for additional periods.
Pursuant to the Columbia Agreement, one of the Company's affiliated physician
groups has agreed to be the exclusive provider of emergency medical services to
15 of Columbia's hospitals in the Houston greater
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metropolitan area. The Columbia Agreement has an initial term ending in January
1998 with provisions for automatic renewal, and may be terminated by Columbia in
certain circumstances, including unsatisfactory service by the Company or its
affiliated physician group. During the term of the Columbia Agreement and for
two years thereafter, STAT has agreed not to organize or provide administrative
or advisory services to independent physician or similar associations whose
practices relate to areas other than emergency medicine and who are located in
proximity to specified Columbia medical centers. There can be no assurance that
the Columbia Agreement will be renewed at the conclusion of its initial term,
that it will be renewed on substantially the same terms and conditions, or that
it will not be terminated prior to the conclusion of its term.
PHYSICIAN CONTRACTS. The Company's affiliated physician groups contract with
physicians as independent contractors to fulfill their contractual obligations
to provide qualified doctors to hospital clients. While each hospital with which
each affiliated physician group contracts ultimately determines whether a
physician must be board certified in emergency medicine to provide medical
services in its emergency room, hospitals generally do not require physicians to
be so certified. Each affiliated physician group requires all physicians to be
currently licensed to practice medicine and to be Advanced Cardiac Life Support
("ACLS") certified before entering into a contract for the physicians service.
Professional fees payable to the physician are disbursed by the Company pursuant
to the Management Agreements. As independent contractors, the physicians are
responsible for their own income and social security taxes, as well as workers
compensation insurance. The contracts with independent contractor physicians can
be terminated by the affiliated physician group or the independent contractor
physicians with 30 days' notice, or immediately by the affiliated physician
group for cause.
QUALITY ASSURANCE
As part of the Company's continuing efforts to increase the quality of its
services and reduce its professional liability exposure with respect to
potential negligent acts of its employees and contractors, the Company manages
and monitors the quality and performance of its physicians and services.
DISEASE MANAGEMENT SERVICES. In order to optimize therapy and improve outcomes,
the Company monitors patient outcomes in all of its dialysis facilities. Regular
monitoring of the prescribed dialysis treatments and the key physiological
parameters of patients (including periodic measurements to assess anemia,
nutritional status and adequacy of dialysis) constitutes part of the continuous
quality improvement that is conducted as a matter of Company policy. At the
dialysis facility level, pursuant to Medicare requirements, each facility has a
quality assurance committee that typically includes the facilitys medical
director, administrator and nurses, as well as other technical personnel. This
committee meets regularly to monitor the quality of care in the facility and to
assure compliance with applicable regulations. At the patient level, the Company
attempts to ensure quality care through the provision of instruction to all ESRD
patients before and after the initiation of dialysis treatment. Patients are
encouraged to participate in their own care to the fullest extent possible.
A comprehensive wound monitoring, measurement and documentation process provides
consistency and quality of the wound management systems associated with HBO
therapy. Clinical records are monitored to assure compliance with treatment
standards, clinical improvements and outcomes. Side effect and infection
profiling are also a routine part of the quality monitoring process. The
complete quality measurement program of HBO therapy is incorporated into each
hospital-wide continuous quality improvement process and is regularly reported.
EMERGENCY PHYSICIAN PRACTICE MANAGEMENT SERVICES. STAT employs an ongoing
quality management system for its emergency physician practice management
services which measures both clinical and non-clinical outcomes. For clinical
outcomes, the system is focused on high frequency or high criticality diagnoses
with diagnosis-specific standards reported in a physician- and hospital-specific
format enabling a very focused feedback to physicians and support staff. For
non-clinical outcomes, the system tracks and studies waiting times,
interpersonal interactions, and patient perceptions in order to measure overall
patient
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satisfaction and identify areas for improvement. The non-clinical system
includes a patient questionnaire program, a patient complaint program, and a
patient call-back program and complies with Joint Commission on Accreditation of
Healthcare Organizations (JCAHO) standards. Both the clinical and non-clinical
portions of the quality management system are incorporated into each individual
hospitals continuous quality improvement program and are reported on a monthly
basis.
MANAGEMENT INFORMATION SYSTEMS
The Company has implemented information systems designed to enhance the quality
of its disease management and emergency physician practice management services.
The Company's management information systems collect and report data regarding
patient flow, utilization, physician efficiency, patient demographics, managed
care participation and other important data used by the Company, hospital
clients and medical directors. In addition to assisting the Company in
developing staffing patterns and marketing strategies, the Company believes
these systems improve efficiency of service, cost effectiveness and patient
outcomes.
GOVERNMENT REGULATION
GENERAL. The Company's operations are subject to extensive governmental
regulations at the federal, state and local levels. These regulations require
the Company to meet various standards relating to, among other things, the
management of facilities, personnel, maintenance of proper records, equipment
and quality assurance programs. The Company's facilities are subject to periodic
inspection by state agencies and other governmental authorities to determine if
the premises, equipment, personnel and patient care meet applicable standards.
Any loss by the Company of its various federal certifications, its authorization
to participate in the Medicare or Medicaid programs or its license under the
laws of any state or other governmental authority from which a substantial
portion of its revenues is derived, or a change resulting from reforms that
reduce reimbursement or reduce or eliminate coverage for services would have a
material adverse effect on the Company's business. To date, the Company has not
had any difficulty in maintaining the required licenses or its Medicare and
Medicaid certifications. The healthcare services industry will continue to be
subject to intense regulation at the federal and state levels, the scope and
effect of which cannot be predicted. No assurance can be given that the
activities of the Company will not be reviewed and challenged or that healthcare
reform will not result in a material adverse change to the Company's business.
FEE-SPLITTING; CORPORATE PRACTICE OF MEDICINE. The laws of many states prohibit
physicians from splitting professional fees with non-physicians and prohibit
non-physician entities, such as the Company, from practicing medicine and from
employing physicians to practice medicine. In the states in which the Company
conducts or may conduct business, including Texas, general business corporations
are not permitted to practice medicine, exercise control over physicians who
practice medicine or engage in certain practices such as fee-splitting with
physicians. The corporate practice of medicine refers to the rendering directly,
or through employment, of medical services by a business corporation. The laws
in most states regarding the corporate practice of medicine have been subject to
limited judicial and regulatory interpretation. Management believes the
Company's current and planned activities do not constitute fee-splitting or the
corporate practice of medicine as contemplated by these statutes or case law
interpretations. The Company believes that it is not engaged in the corporate
practice of medicine because the physicians who provide patient care services do
so as independent professionals. Physicians who are paid directly by the Company
are paid for specific administrative and management services under medical
director agreements. These agreements also reserve to the physicians exclusive
authority to make all decisions regarding medical care. Under the Company's
Management Agreements with its affiliated physician groups, the Company is paid
for administrative and other services provided at rates which the Company
believes reflect the fair market value of such services. In addition, these
agreements specifically acknowledge that the affiliated physician groups have
the exclusive authority and responsibility for making all decisions regarding
medical care. Based on current interpretations of state law in Texas where the
Company now operates, the Company believes its arrangements with physicians and
affiliated physician groups do not violate the prohibition
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against the corporate practice of medicine. However, all such laws are subject
to interpretation by the courts as well as administrative agencies, and any
restructuring required by such change could be detrimental to the Company's
business, financial condition and results of operations. There can be no
assurance that future interpretations of such laws will not require structural
and organizational modifications of the Company's existing relationships with
physicians and its affiliated physician groups.
SELF-REFERRAL. Certain provisions contained in the Omnibus Budget
Reconciliation Act of 1989 ("Stark I") and the Omnibus Budget Reconciliation
Act of 1993 ("Stark II"), and subsequent amendments, prohibit physician
referrals for clinical laboratory services and certain other designated health
services, including without limitation outpatient prescription drugs, parenteral
and enteral nutrients, equipment and supplies, durable medical equipment and
supplies, home health services, and inpatient and outpatient hospital services,
to entities with which a physician or an immediate family member has a financial
relationship (the "Stark Law"). The Stark Law also prohibits entities from
presenting or causing to be presented a claim or bill to any individual,
third-party payor or other entity for designated health services furnished under
a prohibited referral. A violation of the Stark Law may result in significant
civil penalties, which may include exclusion or suspension of the physician and
entity from future participation in the Medicare and Medicaid programs and
substantial fines.
In August 1995, HCFA published regulations interpreting Stark I. These
regulations only address the original scope of Stark I (clinical laboratories)
but representatives of HCFA assert in the preamble to the regulations that these
regulations will be used by HCFA as the basis for interpretation of matters
involving the other designated health services. The regulations specifically
provide that clinical laboratory services that are reimbursed as part of the
Medicare composite billing rate for renal dialysis services are excluded from
the coverage of Stark I. However, laboratory services not included in the
Medicare composite rate could be included within the coverage of Stark I.
Although the Company provides a limited number of such laboratory services, the
Company believes that it is not a provider of clinical laboratory services
subject to the Stark Law.
In addition, the Company believes it is not a provider of any designated health
services which would subject it to application of Stark II. Based upon the
preamble to the regulations, as described above, the Company believes that the
provision of other services that are paid for under the composite billing rate
is outside of the scope of the Stark Law. The Company believes that EPO and
other pharmaceuticals that the Company uses in connection with its dialysis
services and bills HCFA for separately from the composite billing rate do not
constitute outpatient prescription drugs for purposes of the Stark Law and that,
therefore, the Company is not a provider of outpatient prescription drugs as a
designated health service. However, if it is determined that the Company is
providing a designated health service, then each financial relationship between
the Company and any physician who refers Medicare or Medicaid covered patients
to the Company for the provision of a designated health service must qualify
under an exception to the Stark Law or the Company will be unable to submit a
bill for payment for such service.
A financial relationship consists of either a compensation arrangement between a
physician, a member of the physicians immediate family and the Company or an
ownership interest in the Company held by a physician or a member of the
physicians immediate family. The Company has entered into medical director
agreements with certain physicians who are in a position to refer patients to
the Company's dialysis facilities. The Company has structured these medical
director agreements to comply with the Stark Law exception for personal service
arrangements. Four of the Company's dialysis facilities lease space from joint
ventures in which physicians who refer patients to the facilities hold
interests. The Company has structured the leases to comply with the Stark Law
exception for the rental of office space. Two nephrologists who are in a
position to refer patients to the Company are significant equity owners of the
Company as well as medical directors of the Company. In addition, one of the
Company's dialysis facilities is currently owned by a limited partnership in
which four physicians who refer patients to the facility own interests as
limited partners. The physicians respective ownership interests in the Company
and the limited partnership do not fully comply with any of the exceptions to
the Stark Law. Determinations that the Company provides designated health
services and that any particular financial relationship with a referring
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physician does not comply with an exception to the Stark Law could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although HBO therapy services constitute outpatient and inpatient hospital
services and are therefore a designated health service, the Company does not own
or control such services, but merely administers HBO therapy services, and
perform certain non-professional functions related thereto, pursuant to
management contracts with hospitals. The hospitals, as the licensed entities,
provide and bill for the HBO therapy services. The Company is not a licensed
provider of inpatient and outpatient hospital services and has no control over
or financial interest in any of these hospitals. The only relationship between
the hospital and the Company is through the Company's HBO management agreements.
Accordingly, the Company believes its HBO administrative operations fall outside
the purview of the Stark Law. Nevertheless, a determination that the Stark Law
is applicable to the Company's HBO activities would require that the Company's
financial relationships with referring physicians comply with a specified
exception set forth in the Stark Law, or that the Company take steps to ensure
that the physician does not refer patients covered under the Medicare or
Medicaid programs to any hospital with which the Company has an agreement to
administer HBO therapy services.
The Company also provides nursing staff and certain administrative, financial
and management services to a local home healthcare agency that provides home
health services to patients, including many of the patients of the Company's
dialysis facilities. The home healthcare agency, as the licensed entity,
provides and bills for the home health services. Since the Company is not a
licensed home healthcare agency and has no control over nor financial interest
in this agency other than through the Company's management agreement, the
Company believes that it is not a provider of home health services as designated
health services under the Stark Law. However, if a court or regulatory or
enforcement agent determines that the Stark Law applies to the Company's home
health management activities, the Company would have to ensure that each of its
financial relationships with referring physicians complies with an exception to
the Stark Law. In such event, a determination that any financial relationship
between the Company and affiliated physicians described in the second preceding
paragraph fails to comply with an exception to the Stark Law could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The list of designated health services under the Stark Law does not include the
management of a physician healthcare practice such as the Company performs for
its affiliated physician groups. The Company does not consider these operations
to include the provision of a designated health service. In addition, the
Company believes that the Stark Law does not apply to its affiliated physician
groups' contracts with hospitals. The affiliated physician groups have entered
into agreements with hospitals whereby the hospitals authorize the physician
groups to bill and collect the professional component of the charges for medical
services rendered by the groups' independent contractor physicians. Depending
upon a hospital's patient volume and payor mix, a hospital may pay an affiliated
physician group a stand-by or on-call fee. In such an event, the agreement could
constitute a financial relationship between the affiliated physician group and
the hospital that would prohibit the physicians from referring covered patients
to the hospital for designated health services. The Company believes that each
of the hospital contracts either does not constitute a financial relationship
between the affiliated physician group and the hospital because no remuneration
is paid to the group by the hospital, or if the relationship qualifies as a
financial relationship, it complies with the Stark Law exception for
remuneration paid to a physician by a hospital that does not relate to the
provision of designated health services. Because the Common Stock is publicly
held, a determination of the ownership of such shares by a referring physician,
or any member of his or her immediate family, may be extraordinarily difficult.
It is the Company's belief that it does not provide, directly or indirectly, any
designated health service and that the Stark Law does not apply to the Company's
activities. Because there have been no cases or other interpretations of the
Stark Law or regulations applicable to organizations like the Company, the
Company cannot ascertain how its activities might be assessed if reviewed.
Furthermore, the Company has no ability to obtain advisory opinions from the
regulatory and enforcement agencies that govern the Stark Law. If it is
determined that the Company is a provider of designated health services, then no
physician who owns, or
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who has an immediate family member who owns, shares of the capital stock of the
Company, may refer a Medicare or Medicaid covered patient to the Company for
designated health services.
Violations of the Stark Law are punishable by civil penalties, which may include
exclusion or suspension of the provider from future participation in Medicare
and Medicaid programs and substantial fines. A determination that any of the
Company's activities constitutes a violation of the Stark Law could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
MEDICARE AND STATE FRAUD AND ABUSE PROVISIONS. Federal law prohibits the offer,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Medicare or Medicaid program patients or patient care opportunities,
or in return for the purchase, lease or order of any item or service that is
covered by Medicare or certain other federal and state healthcare programs (the
"Anti-Kickback Laws"). To prove a violation of the Anti-Kickback Laws, the
entity must provide services that are reimbursable under the Medicare or other
federal or state healthcare programs, the offer or receipt of remuneration, and
the intent to induce referrals.
Pursuant to the Anti-Kickback Laws, the federal government released a special
alert which announced a policy of increased scrutiny of joint ventures and other
transactions among healthcare providers in an effort to reduce potential fraud
and abuse relating to Medicare and Medicaid costs. The applicablility of these
provisions to many business transactions in the healthcare industry has not yet
been subject to judicial and regulatory interpretation.
In 1991, the Inspector General of the U.S. Department of Health and Human
Services published "Safe Harbor Regulations" defining safe harbors for certain
arrangements that, if complied with, would not violate the Anti-Kickback Laws. A
failure to comply with the safe harbors does not, however, mean that a person or
entity has violated the Anti-Kickback Laws. Among the safe harbors specifically
provided for are safe harbors for ownership interests, personal service
contracts, management contracts and space rentals.
The Anti-Kickback Laws provide civil and criminal penalties for individuals or
entities participating in the Medicare and Medicaid programs who knowingly and
willfully offer, pay, solicit or receive remuneration in order to induce
referrals for items or services reimbursed under such programs. In addition to
federal criminal penalties, the Social Security Act also establishes the
intermediate sanctions of excluding violators from participation in the Medicare
or Medicaid programs.
The Company believes that its medical director agreements for its dialysis
centers, HBO therapy operations and affiliated physician groups described above
comply with the safe harbor provisions for personal service arrangements.
Four of the Company's dialysis facilities are leased from entities in which
physicians who refer patients to the facility hold ownership interests. The
Company believes that the leases comply with the space rental safe harbor and
are in compliance with the Anti-Kickback Laws.
Although certain other of the Company's financial relationships with affiliated
physicians relating to ownership interests in the Company (as described in the
fourth paragraph under "-- Self-Referral" above) do not fully comply with the
safe harbor for investment interests, the Company believes these relationships
are in compliance with the Anti-Kickback Laws, and the Company has no intent to
compensate any party for the referral of any patients.
The Company is compensated under its various management agreements for providing
management services to affiliated physician groups, home health agencies and
hospital-based HBO therapy operations. The fees payable under these agreements
are intended by the Company to be consistent with fair market value in arms'
length transactions for the nature and amount of management services rendered,
and therefore, would not constitute unlawful remuneration under the
Anti-Kickback Laws. Furthermore, the Company does not believe it is in a
position to make or influence referrals of patients or services reimbursed under
Medicare or Medicaid programs to any provider of covered services. Consequently,
the Company does not believe that the management fees payable to it should be
viewed as remuneration for referring or
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influencing referrals of patient or services covered by such programs as
prohibited by the Anti-Kickback Laws. Except for its dialysis services, the
Company is not a provider or supplier of services or items reimbursed by
Medicare or state healthcare programs.
No assurance can be made, however, that a court or regulatory or enforcement
agency would view these above-described arrangements in a similar manner. Should
any of the Company's business arrangements be deemed to constitute an
arrangement designed to induce the referral of Medicare, Medicaid or other
covered patients, then such arrangement could be viewed as violating the
Anti-Kickback Laws. Noncompliance with the Anti-Kickback Laws can result in
exclusion from all such governmental programs as well as civil and criminal
penalties. A determination of liability under any such law could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In 1991, Texas enacted a law similar to the federal Anti-Kickback Laws which is
referred to as the "Illegal Remuneration Statute" and which covers patients
sponsored by private payors as well as governmental programs. The Illegal
Remuneration Statute prohibits, among other things, a person from intentionally
offering to pay or accepting any remuneration directly or indirectly to or from
any person or corporation in exchange for a healthcare referral if the person,
at the time of initial contact and at the time of the referral, does not
disclose to the patient the person's affiliation with the person for whom the
patient is secured and that the person will receive remuneration for securing
the patient. The Company believes it is in compliance with the Illegal
Remuneration Statute and that none of its business arrangements constitute a
payment in exchange for a referral. However, a determination that the Company
has violated the Illegal Remuneration Statute could subject the Company to
injunctive relief, civil penalties or both, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
THE FALSE CLAIMS ACT. An increasing number of healthcare providers and other
entities are being faced with lawsuits alleging fraudulent billing practices
under the federal Civil False Claims Act. The Civil False Claims Act permits a
person (generally employees or former employees of the healthcare provider or
other entity) to assert the rights of the government by initiating a qui tam
action against a healthcare provider or other entity if such person has or
purports to have information that the healthcare provider or other entity
submitted a claim to the government for payment that could be false or
fraudulent. Upon filing, the government has the opportunity to intervene and
assume control of the case. Penalties of up to $10,000 for each false or
fraudulent claim presented to the government for payment may be awarded as well
as treble damages. Defendants also may be excluded permanently or for a period
of time from participation in the Medicare and Medicaid programs. Because of
penalties and treble damages, many of these lawsuits involve large monetary
claims and substantial defense costs. In the event that the Company as a
dialysis provider is named as a defendant in a qui tam action and it is
successfully prosecuted, no assurance can be made that such event would not have
a material adverse effect on the Company and its operations.
MEDICARE. The Medicare program represents a substantial portion of the federal
budget, and Congress takes action in almost every legislative session to modify
the Medicare program for the purpose of reducing the amounts otherwise payable
from the program to healthcare providers. Legislation or regulations may be
enacted in the future that may significantly modify the ESRD program or
substantially reduce the amount paid for the company's services. Further,
statutes or regulations may be adopted which impose additional requirements for
the Company to be eligible to participate in the federal and state healthcare
payment programs. Such new legislation or regulations may adversely affect the
Company's business operations.
Recently, HCFA has promulgated regulations to implement the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 93") with respect to the
coordination-of-benefits period for Medicare beneficiaries. HCFA has established
rules for Medicare beneficiaries who are eligible for, or entitled to, Medicare
on the basis of ESRD and are also entitled on the basis of age or disability.
There are essentially four rules currently in effect for primary payor
determination during the coordination-of-benefits period.
o first rule provides that if the 18-month period ended before August
1993, Medicare is primary payor from the first month of dual
eligibility entitlement.
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o The second rule provides that if the first month of ESRD-based
eligibility or entitlement and the first month of dual
eligibility/entitlement both fall after February 1992 and before August
10, 1993, Medicare is (i) primary payor from the first month of dual
eligibility/entitlement through August 9, 1993; (ii) secondary payor
from August 10, 1993 through the 18th month of ESRD-based eligibility
or entitlement; and (iii) primary payor again after the 18th month of
ESRD-based eligibility or entitlement.
o The third rule provides that if the first month of dual eligibility or
entitlement is after February 1992, and the first month of dual
eligibility or entitlement is after August 9, 1993, Medicare is
secondary payor during the first 18 months of ESRD-based eligibility or
entitlement, and primary payor after the 18th month of ESRD-based
eligibility or entitlement.
o The fourth rule, and the most controversial, provides in part that
Medicare remains the primary payor if a group health plan was already
secondary payor for an individual entitled on the basis of age or
disability when the individual becomes eligible on the basis of ESRD.
Initially, HCFA had interpreted OBRA 93 to require a private plan to become
primary payor under these circumstances. HCFA later corrected its interpretation
of the statute and issued guidance on April 24, 1995 that Medicare remains the
primary payor. On June 6, 1995, a federal court issued a preliminary injunction
precluding HCFA from retroactively implementing its corrected program
instruction for items and services furnished between August 10, 1993 (the
enactment of OBRA 93) and April 24, 1995, pending the courts decision on the
merits. HCFA has stated that it will modify the rules if required by the final
ruling of the court.
If the court determines that Medicare is the primary payor during the period
between August 10, 1993 and April 24, 1995, then this decision could have a
material adverse effect on the Company in that it would require the Company to
refund certain payments to private insurers for services during that time
period, and then re-bill the Medicare Program for such payments. This
retroactive application of HCFA's April 1995 program instruction could cause the
Company to incur a significant amount of cost in terms of work hours and office
expenses. If the court maintains its current position that these rules cannot be
retroactively applied, then the Company does not anticipate any impact on its
earnings from such finding. However, the Company cannot estimate with any
certainty, at the present time, the potential impact that any final ruling or
interpretation or the timing of same may have upon its earnings.
OTHER REGULATIONS. The Company's operations are also subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not classify
most of the waste produced during the provision of dialysis services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. Occupational Safety and Health Administration regulations require
employers of workers who are occupationally subject to blood or other
potentially infectious materials to provide those workers with certain
prescribed protections against bloodborne pathogens. The regulatory requirements
apply to all healthcare facilities, including dialysis facilities, and require
employers to make a determination as to which employees may be exposed to blood
or other potentially infectious materials and to have in effect a written
exposure control plan. In addition, employers are required to provide or employ
hepatitis B vaccinations, personal protective equipment, infection control
training, post-exposure evaluation and follow-up, waste disposal techniques and
procedures, and engineering and work practice controls. Employers are also
required to comply with certain record-keeping requirements. The Company
believes it is in material compliance with the foregoing laws and regulations.
Although STAT believes it complies in all material respects with current
applicable laws and regulations, the healthcare service industry will continue
to be subject to substantial regulation at the federal and state levels, the
scope and effect of which cannot be predicted by the Company. No assurance can
be given that the Company's activities will not be reviewed or challenged by
regulatory authorities.
REGULATORY COMPLIANCE AND POSSIBLE NEGATIVE EFFECTS OF PROSPECTIVE HEALTHCARE
REFORM. Various plans have been proposed and are being considered on federal,
state and local levels to reduce costs in healthcare
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spending. Although the Company believes it responds to the concerns addressed by
such plans, it is not possible to assess the likelihood of whether any of these
proposals will be enacted or to assess the impact any of these proposals may
have on reimbursement to healthcare providers. Lower rates of reimbursement may
reduce the amounts paid by any government payor and, accordingly, may have a
material adverse effect on the Company's businesses and the results of its
operations.
Healthcare reforms may expand the existing Anti-Kickback Law and the Stark Law
to apply to all healthcare payors, not just Medicare and Medicaid. It is unclear
how any reform legislation would affect healthcare provider networks or other
types of managed care arrangements. There can be no assurance that the Company
will be able to comply with any new laws.
The Company believes it is in material compliance with current applicable laws
and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. Such
an investigation or prosecution could result in any, or a combination, of the
penalties discussed above depending upon the agency involved in such
investigation and prosecution. None of the Company's business arrangements with
physicians, vendors, patients or others have been the subject of investigation
by any governmental authority. No assurance can be given that the Company's
activities will not be reviewed or challenged by regulatory authorities. The
Company monitors legislative developments and would seek to restructure a
business arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute.
The Company believes that healthcare regulations will continue to change and, as
a result, regularly monitors developments in healthcare law. The Company expects
to modify its agreements and operations from time to time as the business and
regulatory environment changes. While the Company believes it will be able to
structure all its agreements and operations in accordance with applicable law,
there can be no assurance that its arrangements will not be successfully
challenged.
CORPORATE LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of physician
professional and other liability. The Company currently maintains professional
liability insurance underwritten by an insurance company unaffiliated with the
Company for itself, its affiliated physician groups and its contracted
physicians, in amounts it deems to be appropriate, based upon historical claims
and the nature and risks of its business. The professional liability insurance
coverage is on a claims-made basis (the coverage includes claims reported during
the period that the insured was covered by the policy) and includes certain
self-insurance retention. There can be no assurance that a future claim for
professional liability will not exceed the scope or limits of the Company's
available insurance coverage or that such coverage will continue to be available
at acceptable costs or at all. Such insurance provides coverage, subject to
policy limits, in the event that the Company is held liable as a co-defendant in
a lawsuit against an independent contractor physician or hospital or other
client. The Company does not control the practice of medicine by physicians or
the compliance with certain other regulatory and other requirements directly
applicable to physicians or hospitals or other clients. The likelihood that the
Company could be held liable for the negligence of a physician would be
increased if such physician were determined to be an employee or other agent of
the Company.
In addition to any potential tort liability of the Company, the affiliated
physician groups' contracts with hospitals generally contain provisions under
which the Company agrees to indemnify the hospital for losses resulting from the
contracted physician's malpractice and the hospital agrees to indemnify the
Company for losses resulting from the negligence of the hospital or hospital
personnel. See "Risk Factors -- Corporate Exposure to Professional
Liabilities."
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COMPETITION
The markets for dialysis, HBO therapy, home healthcare and physician practice
management services are highly competitive. The Company competes not only with
other national and regional management companies and treatment facilities but
also with local physician groups and with hospitals themselves, many of which
are also trying to combine their own services with those of physicians into
integrated delivery networks. The Company is also, in effect, competing against
the traditional structure of practicing physician management and hospital
management operations. Competition in the industry is based on the scope,
quality, and cost of services provided. Certain of the Company's competitors are
significantly larger and have substantially greater financial and other
resources available to them than the Company.
LEGAL PROCEEDINGS
The Company and its affiliated physician groups are involved in various legal
proceedings incidental to their business, substantially all of which involve
claims related to the alleged medical malpractice of contracted physicians. In
the opinion of the Company's management, no individual item of litigation or
group of similar items of litigation, taking into account the insurance coverage
available to the Company, is likely to have a material adverse effect on the
Company's financial position.
EMPLOYEES AND INDEPENDENT CONTRACTOR PHYSICIANS
At September 30, 1996, the Company had 268 full-time employees, of whom 13 were
in general executive positions, 50 were in administration and 205 were
registered nurses or technicians. In addition, as of such date approximately 215
physicians were under contract with the Company's affiliated physician groups or
were engaged as medical directors of the Company's dialysis operations. None of
the Company's employees is represented by a collective bargaining agreement, and
the Company considers its employee relations to be satisfactory.
PROPERTIES
The Company's principal executive offices are located in approximately 10,000
square feet of leased space in Houston, Texas 77060 under an agreement
terminating in June 1998.
All of the Company's operations are conducted from leased facilities. The
Company leases four facilities from entities in which referring physicians hold
an interest. The leases for the Company's operating facilities generally cover
periods from three to ten years and typically contain renewal options of one to
five years at the fair rental value at the time of renewal or at rates subject
to consumer price index increases since the inception of the lease. The
Company's facilities range in size from approximately 900 to approximately 7,200
square feet. The Company considers its physical properties to be in good
operating condition and suitable for the purposes for which they are being used.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning each of the executive officers
and directors of the Company as of June 30, 1996, including the business
experience of each during the past five years:
NAME AGE POSITION WITH THE COMPANY
- ------------------------- --- ----------------------------------------------
Russell D. Schneider..... 41 Chairman of the Board and Chief Executive
Officer (Class II Director)
William H. Rice, M.D..... 38 Vice Chairman of the Board (Class I Director)
Victor M. Miranda, M.D... 38 President -- Emergency Physicians and Director
(Class II Director)
Ruben A. Perez........... 41 President -- Healthcare Management, Treasurer
and Director (Class III Director)
Ned E. Chapman........... 54 Chief Financial Officer and Secretary
Daniel A. Perez.......... 34 Senior Vice President
Ann N. James, Ph.D. (1).. 52 Director (Class I Director)
David C. Colby (1)....... 43 Director (Class III Director)
- ------------------------------
(1) Member of the Audit Committee and the Compensation Committee.
RUSSELL D. SCHNEIDER has been Chairman of the Board and Chief Executive Officer
of the Company since June 1996 and a director since July 1995. Mr. Schneider
co-founded AmHealth Corporation with Messrs. R and D. Perez in October 1992. Mr.
Schneider was a co-founder of Columbia/HCA Healthcare Corporation in 1988 and
served on its Board of Directors from 1988 to 1993 and as Senior Vice President
of Market Development from 1993 to 1994, overseeing Columbia's involvement in
physician ventures, mergers, acquisitions and business development. From 1981 to
1988, Mr. Schneider served in various executive positions within The Methodist
Healthcare Network.
WILLIAM H. RICE, M.D. has been Vice Chairman of the Company's Board of Directors
since June 1996.
Dr. Rice co-founded STAT Physicians in 1986 with Dr. Miranda and served as
Chairman of the Company from its inception in 1994 until the consummation of the
Exchange. He is a physician consultant to the Texas Department of Health, is
active at the regional and national level with the American College of Emergency
Physicians on legislative and clinical issues and is an Affiliate Professor of
Medicine at the University of Texas Medical School at Houston.
VICTOR M. MIRANDA, M.D. has been President -- Emergency Physicians of the
Company since June 1996. Dr. Miranda co-founded STAT Physicians in 1986 with Dr.
Rice and served as President of the Company from its inception in 1994 until the
consummation of the Exchange. Dr. Miranda is board certified in emergency
medicine, the medical director of two emergency medical departments at hospitals
within Houston, and an active member of the American College of Emergency
Physicians.
RUBEN A. PEREZ has been President -- Healthcare Management and Treasurer of the
Company since June 1996. Mr. Perez co-founded AmHealth Corporation with Messrs.
Schneider and D. Perez in October 1992 and served as President and Secretary of
AmHealth Corporation from its inception until the consummation of the Exchange.
Mr. Perez was also a co-founder and Senior Vice President of Columbia Hospital
Corporation in Forth Worth, Texas from 1988 to 1992 and controller of The
Methodist Healthcare Network from 1986 to 1988.
NED E. CHAPMAN joined STAT Physicians as Chief Financial Officer in 1992 and has
been Chief Financial Officer of the Company since its inception. From 1989 until
joining STAT Physicians, Mr. Chapman served as a financial consultant to a
number of private and public companies in California's Silicon Valley. Mr.
Chapman was formerly Chief Financial Officer of three companies, two of which
were public
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companies (Magnuson Computers and CAS, Inc.). Mr. Chapman is a Certified Public
Accountant and was with Price Waterhouse for 11 years, last serving as a senior
audit manager.
DANIEL A. PEREZ has been Senior Vice President of the Company since June 1996.
Mr. Perez was a co-founder of AmHealth Corporation and served as Assistant
Secretary of AmHealth Corporation and Chief Operating Officer of AmHealth's
Kidney Dialysis Centers from November 1992 until the Exchange. He was a former
area administrator for Bio-Medical Applications' South Texas operations, where
he gained extensive experience in the development and management of dialysis
centers, and served as Administrator of Bio-Medical Applications of the Rio
Grande Valley from 1988 to 1991.
ANN N. JAMES, PH.D. was appointed to the Board of Directors in June 1996 as a
designee of AmHealth following the consummation of the Exchange. Dr. James has
been a partner of and the Director of the Health Law Section of the law firm of
Jenkens & Gilchrist, L.L.P., Houston, Texas since 1992. Dr. James presently
serves on the Board of the Health Law and Policy Institute of the University of
Houston, the Advisory Board for the Healthcare Administration Program of the
University of Houston, the Board of the Greater Houston Hospital Council
Research and Education, and the Board of Directors of the Carondelet Health
System.
DAVID C. COLBY was appointed to the Board of Directors in June 1996 as a
designee of AmHealth following the consummation of the Exchange. Mr. Colby has
served as Executive Vice President, Chief Financial Officer and Treasurer of
American Medical Response, Inc. since April 1996. Mr. Colby served as the Chief
Financial Officer of Columbia/HCA Healthcare Corporation from 1988 to 1996, as
Chief Financial Officer of Methodist Hospital from 1983 to 1988 and as a
healthcare consultant for Touche Ross & Co. from 1978 to 1983.
BOARD OF DIRECTORS
The Charter and Bylaws provide that the Board shall be classified with respect
to terms of office into three classes. Each class of directors shall consist of
an equal, or as near to equal as possible, number of directors. The term of the
Class I Directors will expire at the 1997 annual meeting, the term of the Class
II Directors will expire at the 1998 annual meeting, and the term of the Class
III Directors will expire at the 1999 annual meeting. At each annual meeting,
the successor or successors to the class of directors whose terms shall expire
in that year shall be elected to hold office for a term of three years, so that
the term of office of one class of directors shall expire in each year.
Directors who are not employees are paid a fee of $1,000 for each meeting of the
Board of Directors that they attend in person and are reimbursed for reasonable
out-of-pocket expenses incurred in attending such meetings. In fiscal 1995, the
Company granted to Mr. Schneider options to purchase 10,000 shares of Common
Stock at an exercise price of $2.75 per share, which was the fair market value
of the shares on the date of grant. In addition, directors who are not employees
of the Company will also periodically receive automatic grants of non-statutory
stock options under the Company's 1996 Stock Incentive Plan. See "-- 1996 Stock
Incentive Plan."
The Company maintains directors and officers liability insurance and its Bylaws
provide for mandatory indemnification of directors and officers to the maximum
extent permitted by Delaware law. The Charter limits the liability of directors
of the Company to the Company or its stockholders to the fullest extent
permitted by Delaware law. The Company has entered into indemnification
agreements with each of its directors and executive officers that provide for
indemnification and expense advancement to the fullest extent permitted under
the Delaware General Corporation Law. See "Description of Capital Stock --
Certain Anti-Takeover, Limited Liability and Indemnification Provisions."
The Board has established an Audit Committee and Compensation Committee. The
current members of the Audit Committee are Mr. Colby (Chairman) and Dr. James.
The Audit Committees functions include recommending to the Board the engagement
of the Company's independent auditors, reviewing with such auditors the plans
for and the results and scope of their auditing engagement and certain other
matters,
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including the independence of such auditors. The current members of the
Compensation Committee are Dr. James (Chairperson) and Mr. Colby. The
Compensation Committee reviews compensation of directors, executive officers and
key employees and administers the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made during such year by Messrs.
Schneider and Chapman and Drs. Rice and Miranda, who constituted the Company's
Board of Directors during 1995. During 1995, Drs. Rice and Miranda and Mr.
Chapman served as the Company's Chairman of the Board, President and Chief
Financial Officer, respectively. None of the individuals who served on the Board
of Directors during 1995 served as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
In June 1996, upon consummation of the Exchange, Mr. Schneider received
2,811,922 shares of Common Stock in exchange for his interests in the AmHealth
Corporations and AmHealth Partnerships, was elected Chairman of the Board and
Chief Executive Officer of the Company, and entered into an employment agreement
with the Company. In October 1995, Drs. Rice and Miranda each borrowed $100,000
from the Company to pay federal income tax obligations arising from the income
of STAT Physicians attributable to them. In April 1995, the Company repaid a
$400,000 bank loan of STAT Physicians. Drs. Rice and Miranda control STAT
Physicians. See "Certain Transactions."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash
compensation, as well as certain other compensation paid or accrued, by the
Company and STAT Physicians, as identified, to the Company's Vice Chairman of
the Board (the chief executive officer during the years presented) and the other
executive officers of the Company who had total annual salary and bonus of more
than $100,000 (the "named executive officers") for the fiscal years ended
December 31, 1995, 1994 and 1993. In June 1996, Mr. Schneider was elected
Chairman and Chief Executive Officer and Mr. R. Perez was elected
President -- Healthcare Management, and such persons entered into employment
agreements pursuant to which they will each receive an annual salary of
$120,000. See "-- Employment Agreements," below.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) OPTIONS(#)
- ---------------------------------------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
William H. Rice, M.D.................... 1995 $ 274,999 $ 26,595 21,658
Vice Chairman of the Board 1994 153,467(2) 154,165 --
1993 195,845(3) 217,372
Victor M. Miranda, M.D.................. 1995 283,281 65,182 109,342
President -- Emergency Physicians 1994 153,467(2) 265,588 --
1993 196,851(3) 332,583
Ned E. Chapman.......................... 1995 127,265 -- 45,000
Chief Financial Officer 1994 79,846(2) -- --
1993 68,115 -- --
</TABLE>
- ------------------------------
(1) Represents shift pay for Drs. Miranda and Rice when performing services as
attending physicians.
(2) Includes compensation from STAT Physicians.
(3) Represents compensation from STAT Physicians.
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<PAGE>
OPTION/SAR GRANTS TABLE. The following table sets forth certain information
concerning stock options granted to the named executive officers during 1995. No
stock appreciation rights were granted during 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
- -------------------------------------------------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) EXPIRATION DATE 5% 10%
- ---------------------------------------- ----------- ------------- -------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Rice, M.D.................... 21,658 7% $ 3.17 10/16/00 $ 10,814 $ 31,625
Victor M. Miranda, M.D.................. 109,342 36 3.17 10/16/00 54,596 159,663
Ned E. Chapman.......................... 45,000 15 2.88 10/16/00 35,744 78,985
</TABLE>
- ------------------------------
(1) Each option will become exercisable in five equal annual installments over
the optionees continued service measured from the date of grant.
(2) The exercise price must be paid in cash.
(3) Potential realizable value is based on the assumption that the price per
share of the Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. There is no assurance that the assumed 5%
and 10% annual rates of appreciation (compounded annually) will actually be
realized over the term of the option. The assumed 5% and 10% annual rates
are set forth in accordance with the rules and regulations adopted by the
Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES. The following table sets forth certain information
concerning unexercised options held by the named executive officers at December
31, 1995. No options or stock appreciation rights were exercised during 1995,
and no options were exercisable and no stock appreciation rights were
outstanding at December 31, 1995.
NUMBER OF SECURITIES
UNDERLYING VALUES OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
- -------------------------- --------------------- ---------------------
William H. Rice, M.D...... 21,658 $ 36,927
Victor M. Miranda, M.D.... 109,342 186,428
Ned E. Chapman............ 45,000 89,775
- --------------------------
(1) The estimated fair value per share of Common Stock used to value
unexercised, in-the-money options is $4.88 per share.
EMPLOYMENT AGREEMENTS
For the calendar year 1996, the Company expects that its executive officers
earning the highest compensation will be Drs. Rice and Miranda and Messrs. R.
Perez, Schneider and Chapman. The employment agreements between these
individuals and the Company provide that they will receive annual salaries as
follows: Drs. Rice and Miranda, $200,000 each; Messrs. R. Perez and Schneider,
$120,000 each; and Mr. Chapman, $114,320. Additionally, each of these officers
is entitled to an incentive compensation award in the form of a bonus, the
amount of which is at the discretion of the Compensation Committee of the Board
of Directors. In addition, subject to the approval of the Board of Directors,
each officer is granted the right to participate in the 1996 Stock Incentive
Plan.
Each of these employment agreements provides for an initial term of employment
of three years ending in June 1999, provided that the Company may terminate any
of these agreements for cause at any time. In addition, under the terms of each
employment agreement, each officer covenants not to compete with, nor to
disclose confidential information of, the Company for a period of two years
after the termination of the employment agreement.
44
<PAGE>
1996 STOCK INCENTIVE PLAN
The 1996 Stock Incentive Plan (the "1996 Plan") serves as the successor equity
incentive program to the Company's 1994 Stock Option Plan (the "Predecessor
Plan"). 1,500,000 shares of Common Stock have initially been authorized for
issuance under the 1996 Plan. This initial share reserve is comprised of (i) the
shares which remained available for issuance under the Predecessor Plan,
including the shares subject to outstanding options thereunder plus (ii) an
additional increase of 1,200,000 shares. In addition, the share reserve will
automatically be increased on the first trading day of January each calendar
year, beginning in January 1997, by a number of shares equal to 1.5% of the
number of shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. However, in no event may any one
participant in the 1996 Plan receive option grants or direct stock issuances for
more than 300,000 shares in the aggregate.
Outstanding options under the Predecessor Plan were incorporated into the 1996
Plan upon the consummation of the Exchange, and no further option grants will be
made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1996 Plan to those options. However, except as
otherwise noted below, the outstanding options under the Predecessor Plan
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the 1996 Plan.
The 1996 Plan is divided into four separate components: (i) the Discretionary
Option Grant Program under which eligible individuals in the Company's employ or
service (including officers, non-employee Board members and consultants) may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price not less than 85% of their fair market
value on the grant date; (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrators discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price not less
than 85% of their fair market value at the time of issuance or as a bonus tied
to the performance of services; (iii) the Salary Investment Option Grant Program
under which executive officers and other highly compensated employees may elect
to apply a portion of their base salary to the acquisition of special
below-market stock option grants; and (iv) the Automatic Option Grant Program
under which option grants will automatically be made at periodic intervals to
eligible non-employee Board members to purchase shares of Common Stock at an
exercise price equal to 100% of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will be
administered by the Compensation Committee of the Board of Directors. The
Compensation Committee as Plan Administrator will have complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the status
of any granted option as either an incentive stock option or a non-statutory
stock option under the Federal tax laws, the vesting schedule to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The administration of the Salary
Investment Option Grant, Automatic Option Grant and Director Fee Option Grant
Programs will be self-executing in accordance with the express provisions of
each such program.
The exercise price for the shares of Common Stock subject to option grants made
under the 1996 Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provided financial assistance to one or more
optionees in the exercise of their outstanding options by allowing such
individuals to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price and any associated withholding taxes incurred in
connection with such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Stock Issuance Program will immediately
45
<PAGE>
vest, except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan Administrator
will have the authority under the Discretionary Option Grant and Stock Issuance
Programs to grant options and to structure repurchase rights so that the shares
subject to those options or repurchase rights will automatically vest in the
event the individuals service is terminated, whether involuntarily or through a
resignation for good reason, within 18 months following (i) a merger or asset
sale in which those options are assumed or those repurchase rights are assigned
or (ii) a hostile change in control of the Company effected by a successful
tender offer for more than 50% of the outstanding voting stock or by proxy
contest for the election of Board members. Options currently outstanding under
the Predecessor Plan will accelerate upon an acquisition of the Company by
merger or asset sale, unless those options are assumed by the acquiring entity,
but such options are not subject to acceleration upon the termination of the
optionees service following an acquisition in which those options are assumed or
a hostile change in control of the Company.
Stock appreciation rights are authorized for issuance under the Discretionary
Option Grant Program which provide the holders with the election to surrender
their outstanding options for an appreciation distribution from the Company
equal to the excess of the fair market value of the vested shares of Common
Stock subject to the surrendered option over the aggregate exercise price
payable for such shares. Such appreciation distribution may be made in cash or
in shares of Common Stock. There are currently no outstanding stock appreciation
rights under the Predecessor Plan.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer and
other highly compensated employee of the Company selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base salary
for that calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000. In return, the officer will automatically be granted, on the
first trading day in the calendar year for which the salary reduction is to be
in effect, a non-statutory option to purchase that number of shares of Common
Stock determined by dividing the salary reduction amount by two-thirds of the
fair market value per share of Common Stock on the grant date. The option will
be exercisable at a price per share equal to one-third of the fair market value
of the option shares on the grant date. As a result, the total spread on the
option shares at the time of grant will be equal to the salary reduction amount.
The option will vest in a series of 12 equal monthly installments over the
calendar year for which the salary reduction is in effect and will be subject to
full and immediate vesting upon certain changes in the ownership or control of
the Company.
Under the Automatic Option Grant Program, each individual who first joins the
Board after the consummation of the Exchange as a non-employee Board member will
receive an option grant for 20,000 shares of Common Stock at the time of his or
her commencement of Board service, provided such individual has not otherwise
been in the prior employ of the Company. In addition, at each annual
stockholders meeting, beginning with the 1997 annual meeting, each individual
who is to continue to serve as a non-employee Board member will receive an
option grant to purchase 20,000 shares of Common Stock, whether or not such
individual has been in the prior employ of the Company.
Each automatic grant will have an exercise price equal to the fair market value
per share of Common Stock on the grant date and will have a maximum term of ten
years, subject to earlier termination following the optionees cessation of Board
service. Each automatic option will be immediately exercisable; however, any
shares purchased upon exercise of the option will be subject to repurchase, at
the option exercise price paid per share, should the optionees service as a
non-employee Board member cease prior to vesting in the shares. The 20,000-share
grant will vest in four equal and successive annual installments over the
optionees period of Board service. Each additional 20,000-share grant will vest
upon the optionees completion of one year of Board service measured from the
grant date. However, each outstanding option will immediately
46
<PAGE>
vest upon (i) certain changes in the ownership or control of the Company or (ii)
the death or disability of the optionee while serving as a Board of Directors
member.
The Board of Directors may amend or modify the 1996 Plan at any time. The 1996
Plan will terminate on June 24, 2006, unless sooner terminated by the Board of
Directors.
401(K) SAVINGS PLAN
The Company has established a tax-qualified, deferred compensation plan (the
"401(k) Savings Plan") covering all of the Company's eligible full-time
employees. Under the plan, participants may elect to contribute, through salary
reductions, up to 15% of their annual compensation. The Company may provide
additional matching contributions to the plan in a percentage set by the Company
prior to the end of each plan year, which the Company currently expects will not
exceed 3% of pre-tax compensation. The 401(k) Savings Plan is designed to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so
that contributions by employees or by the Company to the plan, and income earned
on plan contributions, are not taxable to employees until withdrawn from the
401(k) Savings Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Investment decisions are made by the Plan
trustee or at the direction of the Plan participants in several investment
options.
47
<PAGE>
CERTAIN TRANSACTIONS
In June 1996, upon consummation of the Exchange, Messrs. R. Perez, Schneider and
D. Perez were issued 3,868,917, 2,809,922 and 1,509,231 shares of Common Stock,
respectively, in exchange for their interests in the AmHealth Corporations and
AmHealth Partnerships. The AmHealth shareholders and partners collectively were
issued 11,200,000 shares of Common Stock representing approximately 75% of the
Common Stock outstanding immediately after the Exchange. In connection with the
Exchange, Mr. Schneider was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company, Mr. R. Perez was elected
President -- Healthcare Management, Treasurer and a director of the Company, and
Mr. D. Perez was elected Senior Vice President of the Company. Messrs.
Schneider, R. Perez and D. Perez also entered into employment agreements with
the Company. See "Recent Developments -- Exchange with AmHealth Corporation and
Related Entities," "Management -- Employment Agreements" and "Principal and
Selling Stockholders."
Effective as of September 1, 1994, the Company entered into a Management
Agreement with STAT Physicians whereby the Company has agreed to manage the
business and affairs of STAT Physicians. Effective as of February 1, 1996, the
Company entered into a Management Agreement with STAT Physicians, P.A., an
affiliated physician group ("STAT P.A."), whereby the Company has agreed to
manage the business and affairs of STAT P.A. STAT Physicians and STAT P.A. are
controlled by Drs. Rice and Miranda. In addition, Drs. Rice and Miranda have
entered into an agreement with the Company restricting any transfer of their
interests in STAT P.A.
In April 1995, the Company obtained a $600,000 bank line of credit and borrowed
the entire amount available under such line. The proceeds of such line were
used, in part, to repay the $400,000 principal amount outstanding under a STAT
Physicians line of credit, which amount had been used to finance the operations
of the Company.
In October 1995, in order to meet federal income tax obligations arising from
the income of STAT Physicians attributable to them, Drs. Rice and Miranda each
borrowed $100,000 from the Company pursuant to loan agreements bearing interest
of 6% per annum and maturing in October 1996.
Four facilities leased by the Company for use in its kidney dialysis business
are owned in varying percentages by William Restrepo, M.D. and M.K. Razdan,
M.D., principal stockholders of the Company, and Mr. R Perez, a director,
executive officer and principal stockholder of the Company. Payments under such
leases, which commenced in 1994, totaled $87,000 and $147,000 in 1994 and 1995,
respectively, and are estimated to total approximately $238,000 per year in 1996
through 2005. The Company believes that the lease rates for such facilities are
comparable to those available from unrelated third-party lessors.
All future transactions, including loans between the Company and its officers,
directors and principal stockholders and their affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of Common Stock as of September 30, 1996 by (i)
each person who owns beneficially more than five percent of the Common Stock,
(ii) each of the Company's directors and named officers and (iii) all current
executive officers and directors as a group.
BENEFICIAL OWNER NUMBER PERCENTAGE(1)
- ------------------------------------- ----------- -------------
Ruben A. Perez(2).................... 3,868,917 25.8%
Russell D. Schneider(3).............. 2,824,922(4) 18.9
Daniel A. Perez(5)................... 1,509,231 10.1
William Restrepo, M.D.(6)............ 1,043,018 7.0
M.K. Razdan, M.D.(7)................. 1,026,038 6.9
William H. Rice, M.D.(3)............. 783,756(8) 5.2
Victor M. Miranda, M.D.(3)........... 805,677(9) 5.4
Ned E. Chapman(3).................... 90,136(10) *
David C. Colby....................... 20,000(11) *
Ann N. James, Ph.D................... 20,000(11) *
All officers and directors as a group
(Eight persons).................... 9,922,639(12) 65.9%
- ------------------------------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or become exercisable within 60 days are deemed
outstanding. However, such shares are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Unless
otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) The address for Mr. R. Perez is 8200 I.H. 10 West, Suite 209, San Antonio,
Texas 78230.
(3) The address for Mr. Schneider, Dr. Rice, Dr. Miranda and Mr. Chapman is
12450 Greenspoint Drive, Suite 1200 Houston, Texas 77060.
(4) Includes 10,000 shares purchasable upon the exercise of options.
(5) The address for Mr. D. Perez is 1300 North 10th, Suite 220, McAllen, Texas
78501.
(6) The address for Dr. Restrepo is 1801 South 5th Street, Suite 209, McAllen,
Texas 78503.
(7) The address for Dr. Razdan is 222 East Ridge Road, Suite 116, McAllen,
Texas 78503.
(8) Includes 5,414 shares purchasable upon the exercise of options and 778,342
shares owned of record by STAT Physicians. Drs. Rice and Miranda each own
50% of the outstanding equity interest in STAT Physicians and share the
power to vote and dispose of the shares owned by STAT Physicians. Excludes
778,342 shares attributable to Dr. Rice's equity interest in STAT
Physicians, of which Dr. Miranda disclaims beneficial ownership.
(9) Includes 27,335 shares purchasable upon the exercise of options and 778,342
shares owned of record by STAT Physicians. Drs. Rice and Miranda each own
50% of the outstanding equity interest in STAT Physicians and share the
power to vote and dispose of the shares owned by STAT Physicians. Excludes
778,342 shares attributable to Dr. Miranda's equity interest in STAT
Physicians, of which Dr. Rice disclaims beneficial ownership.
(10) Includes 11,250 shares purchasable upon the exercise of options.
(11) Represents shares purchasable upon the exercise of options. The shares
underlying such options are subject to repurchase by the Company.
(12) Includes 93,999 shares purchasable upon the exercise of options.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share (the "Preferred Stock"). The following
descriptions of the capital stock are qualified in all respects by to the
Charter and Bylaws, copies of which are available without charge to any person
to whom this Prospectus is delivered upon written or oral request to STAT
Healthcare, Inc., Attention: Corporate Secretary, 12450 Greenspoint Drive, Suite
1200, Houston, Texas 77060.
As of the date of this Prospectus, 14,975,412 shares of Common Stock and no
shares of Preferred Stock were issued and outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and do not have cumulative voting rights.
Subject to preferences that may be applicable to any Preferred Stock that may by
issued in the future, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available for that purpose. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets available for distribution
after payment of liabilities, subject to prior distribution rights of holders of
shares of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscriptive rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. The shares
of Common Stock outstanding are and the shares of Common Stock to be issued by
the Company in the offering will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the Company's stockholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
CLASS A WARRANTS
At September 30, 1996, the Company had outstanding 598,726 Class A Warrants.
Each Class A Warrant entitles its holder to purchase one share of Common Stock
at an exercise price of $4.50 per share until April 19, 1998. The Class A
Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement"), and are evidenced by warrant certificates in registered form.
The exercise price of the Class A Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of such
warrants are subject to adjustment in certain circumstances, including a stock
split of, stock dividend on or a subdivision, combination or capitalization of
the Common Stock. Additionally, an adjustment will be made upon the sale of all
or substantially all of the assets of the Company in order to enable holders of
Class A Warrants to purchase the kind and number of shares or other securities
or property (including cash) receivable in such event by a holder of the number
of shares of Common Stock that might otherwise have been purchased upon exercise
of the Class A Warrants.
The Class A Warrants do not confer upon the holder any voting or any other
rights of a stockholder of the Company. Upon notice to the holders of Class A
Warrants, the Company has the right to reduce the exercise price or extend the
expiration date of the Class A Warrants.
The Class A Warrants may be exercised upon surrender of the warrant certificate
evidencing those warrants on or prior to the expiration date (or earlier
redemption date) of such warrants at the offices of American
50
<PAGE>
Stock Transfer & Trust Company, the warrant agent, with the form of "Election
to Purchase" on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified check payable to the order of the warrant agent) for the number of
Class A Warrants being exercised.
No Class A Warrant will be exercisable unless at the time of exercise the
Company has filed with the Commission a current prospectus covering the issuance
of shares of Common Stock issuable upon exercise of such warrant and the
issuance of shares has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the warrant. The Company will use its best efforts to
maintain a current prospectus relating to the issuance of shares of Common Stock
upon the exercise of the Class A Warrants until the expiration of the warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to maintain a current prospectus, there is no assurance that it will
be able to do so.
No fractional shares will be issued upon exercise of the Class A Warrants.
However, if a holder of a warrant exercises all Class A Warrants then owned of
record, the Company will pay to that holder, in lieu of the issuance of a
fractional share which would be otherwise issuable, an amount in cash equal to
such fractional interest based on the market value of the Common Stock on the
last trading day prior to the exercise date.
The Class A Warrants are redeemable by the Company at a price of $0.05 per
warrant, and prior to their expiration, on 30 days' prior written notice to the
registered holders of the warrants, provided the closing high bid or sale price
per share of the Common Stock (if the Common Stock is then traded on Nasdaq or a
national securities exchange, respectively) for a period of 20 consecutive
trading days, ending on the third business day prior to the date of any
redemption notice, equals or exceeds at least $5.50 (subject to adjustment in
certain events). The Class A Warrants shall be exercisable until the close of
the business day preceding the date fixed for redemption. In addition, subject
to the rules of the National Association of Securities Dealers, Inc., the
Company has agreed to engage certain persons as its exclusive warrant
solicitation agents, in connection with which such persons would be entitled to
a 4% fee upon exercise of the Class A Warrants.
REPRESENTATIVES' WARRANTS
At September 30, 1996, the Company had outstanding 62,500 Representatives
Warrants, each of which entitles the holders thereof to purchase two shares of
Common Stock and one Class A Warrant for an aggregate price of $10.875, subject
to anti-dilution provisions, at any time through April 19, 2000.
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
Certain provisions of the Charter and Bylaws may have the effect of deterring or
preventing hostile takeovers including those that might result in a premium over
the then-current trading price or delaying or preventing changes in control or
management of the Company. The Board of Directors believes that these provisions
are in the best interests of stockholders because they will encourage a
potential acquiror to negotiate with the Board of Directors which then will be
able to consider the interest of all stockholders in a change of control
situation.
AUTHORIZED BUT UNISSUED CAPITAL STOCK. The authorization of undesignated
Preferred Stock permits the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to effect a change of control of the Company. There will also be a
substantial number of authorized but unissued shares of Common Stock that could
be issued for such purpose.
CLASSIFIED BOARD OF DIRECTORS. The Charter and Bylaws provide for a classified
Board of Directors pursuant to which the Company's directors are divided into
three classes as nearly as equal in size as practicable. Each class of directors
will be elected once every three years. Therefore, a stockholder that has
acquired enough stock to ensure control of the election process can only elect
approximately one-third of the directors in each year and must wait at least two
elections before electing a majority of directors.
LIMITATION ON ACTIONS BY WRITTEN CONSENT. The Bylaws require that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of
51
<PAGE>
stockholders and may not be effected by written consent. The Bylaws also permit
stockholders to call a special meeting of stockholders only if approved by the
holders of at least a majority of the outstanding Common Stock.
DELAWARE TAKEOVER STATUTE. The Company is subject to the provisions of Section
203 of the Delaware General Corporation Law. This statute generally prohibits,
under certain circumstances, a Delaware corporation whose stock is publicly
traded, from engaging in a business combination with an interested stockholder
for a period of three years after the date of the transaction in which the
person became an interested stockholder unless: (i) the corporation has elected
in its certificate of incorporation or bylaws not to be governed by Section 203
(the Company has not made such an election); (ii) prior to the time the
stockholder became an interested stockholder, the board of directors approved
either the business combination or the transaction which resulted in the person
becoming an interested stockholder; (iii) the stockholder owned at least 85% of
the outstanding voting stock of the corporation (excluding shares held by
directors who were also officers or held in certain employee stock plans) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder; or (iv) the business combination was approved by the
board of directors and by two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholders). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or any time within the prior three years owned) 15% or more of
the corporations outstanding voting stock. The term "business combination" is
defined generally to include mergers, consolidations, stock sales, asset based
transactions, and other transactions resulting in a financial benefit to the
interested stockholder.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Charter and Bylaws provide for
indemnification of each director and officer or former director or officer of
another corporation in which the Company owns shares of capital stock or is a
creditor. The Company has entered into indemnification agreements with each of
its directors and executive officers that provide for indemnification and
expense advancement to the fullest extent permitted under the Delaware General
Corporation Law. As of the date of this Prospectus, the Company is not aware of
any existing or pending litigation involving a former or current director or
officer that will require the indemnification of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the Class A Warrants
is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of Common
Stock, or the availability of Common Stock for future sale, will have on the
market price of the Common Stock prevailing from time to time. Future sales of
substantial amounts of Common Stock in the public market could adversely affect
the prevailing market prices and impair the Company's ability to raise capital
through the sale of equity securities. The following discussion is based upon
shares outstanding as of September 30, 1996.
If all of the Warrants are exercised, the Company will have outstanding
15,761,638 shares of Common Stock, assuming no exercise of outstanding options
after September 30, 1996. Of these shares, (i) 2,847,184 shares, including the
859,166 shares offered hereby, will be freely tradeable without restriction or
further registration under the Securities Act, unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 described
below, (ii) 3,065,346 shares of Common Stock will be freely tradeable without
restriction or further registration under the Securities Act following the
termination of the lock-up arrangements described below, (iii) 9,176,486 shares
of Common Stock will be held by "affiliates" and will become available for
sale pursuant to the volume and manner of sale provisions of Rule 144 following
the termination of the lock-up arrangements and (iv) 672,622 shares of Common
Stock are "restricted securities" and will become available for sale beginning
on June 24, 1998 pursuant to the volume and manner of sale provisions of Rule
144. An additional 50,000 shares of Common Stock are issuable upon the exercise
of currently exercisable options. Substantially all shares issued following the
exercise of such options will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company or subject to the lock-up arrangements.
In connection with the Exchange, the Company's officers, directors and certain
of its stockholders holding in the aggregate 12,921,454 shares of Common Stock
entered into lock-up agreements providing that such persons will not sell,
assign, pledge, hypothecate or otherwise dispose of, directly or indirectly,
such shares of Common Stock, or any shares acquired upon the exercise of any
options or warrants until June 24, 1997, without the prior written consent of
the Company.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two years
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "broker's transactions" or
to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the number of shares of Common
Stock then outstanding (approximately 157,000 shares if all of the Warrants are
exercised), or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
other than an affiliate from whom such shares were purchased), is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. The Securities
and Exchange Commission (the "Commission") has proposed to reduce the two- and
three-year holding periods of Rule 144 to one and two years, respectively.
However, no assurances can be given that such proposal will be adopted or that
such proposal will be adopted in the form proposed.
The Company has filed with the Commission a Registration Statement on Form S-8
covering an aggregate of 1,500,000 shares of Common Stock that have been
reserved for issuance under the 1996 Plan, thus permitting the resale of such
shares in the public market without restriction under the Securities Act, other
than shares purchased by "affiliates."
53
<PAGE>
PLAN OF DISTRIBUTION
The Company will issue and sell shares of Common Stock to the holders of the
Class A Warrants upon the exercise of the Class A Warrants in accordance with
their terms. The Company will also issue and sell Class A Warrants and shares of
Common Stock to the holders of the Representatives' Warrants upon the exercise
of the Representatives' Warrants in accordance with their terms. Holders of
Warrants who exercise their warrants while the Registration Statement of which
this Prospectus is a part is effective under the Securities Act may freely
resell the shares of Common Stock and Class A Warrants acquired upon such
exercise, except for holders who are "affiliates" of the Company within the
meaning of the Securities Act. Affiliates may resell such shares and warrants in
accordance with certain provisions of Rule 144.
Upon the exercise of the Class A Warrants and to the extent not inconsistent
with the guidelines of the National Association of Securities Dealers, Inc. and
the rules and regulations of the Commission, the Company has agreed to pay to
Network 1 Financial Securities, Inc. and Rothschild Global Investments, Inc.,
the underwriters of the Company's April 1995 initial public offering (the
"Underwriters"), a solicitation fee equal to 4% of the exercise price for each
Class A Warrant exercised. However, no compensation will be paid to the
Underwriters in connection with the exercise of Class A Warrants if (a) the
market price of the underlying shares of Common Stock is lower than the exercise
price, (b) the Class A Warrants are held in a discretionary account, (c) the
Class A Warrants are exercised in an unsolicited transaction or (d) the
disclosure of such compensation arrangement has not been made in documents
provided to the customers both as part of the initial public offering of the
Class A Warrants and at the time of exercise. In addition, unless granted an
exemption by the Commission from Rule 10b-6 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Underwriters will be prohibited
from engaging in any market making activities or solicited brokerage activities
with regard to the Company's securities until the later of the termination of
such solicitation activity or the termination by waiver or otherwise of any
right such persons may have to receive a fee for exercise of the Class A
Warrants following such solicitations.
The Common Stock and the Class A Warrants are quoted and trade on the Nasdaq
National Market under the symbols "STHC" and "STHCW," respectively.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Austin, Texas. A member of such firm
currently owns or has the right to acquire approximately 25,000 shares of Common
Stock.
EXPERTS
The consolidated financial statements and schedule of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1994 and 1995 and for the years then ended have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and in reliance upon the report of Long, Chilton,
Payte & Hardin, LLP, independent certified public accountants, with respect to
the combined financial statements of AmHealth Corporation and its related
healthcare entities as of December 31, 1994 and for the year then ended, and
upon the authority of said firms as experts in accounting and auditing.
The consolidated financial statements and schedule of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1993 and for the year then ended have been
included herein and in the Registration Statement in reliance upon the report of
Long, Chilton, Payte & Hardin, LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of South Texas Acute Trauma Physicians, P.A. as of
December 31, 1993 and August 31, 1994 and for the year ended December 31, 1993
and the eight months ended August 31, 1994 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat
54
<PAGE>
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports, proxy statements and other information
with the Commission. These materials can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commissions regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of these materials can also
be obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Such filings may also be obtained from the Commission through the
Internet at http://www.sec.gov.
The Company has filed a Registration Statement (Reg. No. 333-2486) (the
"Registration Statement") with the Commission under the Securities Act with
respect to the securities covered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----------
STAT HEALTHCARE, INC. AND SUBSIDIARIES
Independent Auditors' Report.... F-2
Independent Auditors' Report.... F-3
Independent Auditors' Report.... F-4
Consolidated Balance Sheets at
December 31, 1993, 1994 and
1995........................... F-5
Consolidated Statements of
Income for the years ended
December 31, 1993, 1994
and 1995...................... F-6
Consolidated Statements of
Changes in Stockholders' Equity
for the years ended December
31, 1993, 1994 and 1995........ F-7
Consolidated Statements of Cash
Flows for the years ended
December 31, 1993, 1994 and
1995........................... F-8
Notes to Consolidated Financial
Statements..................... F-9
STAT HEALTHCARE, INC. AND SUBSIDIARIES (UNAUDITED)
Consolidated Balance Sheet at
June 30, 1996 (unaudited)...... F-23
Consolidated Statements of
Income for the six months ended
June 30, 1995 and
1996 (unaudited).............. F-24
Consolidated Statement of
Changes in Stockholders' Equity
for the six months ended June
30, 1996 (unaudited)........... F-25
Consolidated Statement of Cash
Flows for the six months ended
June 30, 1996 (unaudited)...... F-26
Notes to Unaudited Consolidated
Financial Statements........... F-27
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
Independent Auditors' Report.... F-28
Balance Sheets at December 31,
1993 and August 31, 1994....... F-29
Statements of Income for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-30
Statements of Changes in
Shareholders' Equity for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-31
Statements of Cash Flows for the
year ended December 31, 1993
and the eight months ended
August 31, 1994................ F-32
Notes to Financial Statements... F-33
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of STAT Healthcare,
Inc. and subsidiaries (the Company) as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the 1994 financial statements of AmHealth Corporation and its
related health care entities, a wholly-owned subsidiary, which statements
reflect total assets constituting 57% and total net service revenues
constituting 52% of the related consolidated totals in 1994. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for AmHealth Corporation
and its related health care entities, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors for 1994 provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for 1994,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of STAT Healthcare, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
August 9, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors/Partners
AmHealth Corporation and its
Related Health Care Entities:
We have audited the combined balance sheets of AmHealth Corporation and its
related health care entities (collectively referred to as the Company) as of
December 31, 1994, and the related combined statements of income, changes in
shareholders' equity and partners' capital, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of AmHealth Corporation
and its related health care entities as of December 31, 1994, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
February 22, 1995
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
We have audited the accompanying consolidated balance sheet of STAT Healthcare,
Inc. and subsidiaries (the Company) as of December 31, 1993, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of STAT Healthcare,
Inc. and subsidiaries as of December 31, 1993, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
August 9, 1996
F-4
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents............ $ 114,000 $ 470,000 $ 2,538,000
Accounts receivable, net (notes 5 and
8)................................... 339,000 2,382,000 4,565,000
Notes receivable (note 6)............ 8,000 8,000 266,000
Inventories (note 8)................. 32,000 63,000 103,000
Prepaid and other current assets..... 71,000 143,000 709,000
------------ ------------ --------------
Total current assets....... 564,000 3,066,000 8,181,000
Property and equipment, net (notes 7
and 8)............................... 526,000 1,446,000 2,261,000
Other non-current assets............. 53,000 312,000 133,000
------------ ------------ --------------
Total assets............... $ 1,143,000 $ 4,824,000 $ 10,575,000
============ ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt
(note 8)............................. $ 122,000 $ 470,000 $ 88,000
Current portion of capital lease
obligations (note 9)................. 80,000 37,000 48,000
Accrued physicians' fees............. -- 724,000 706,000
Accounts payable..................... 116,000 352,000 925,000
Accrued liabilities.................. 49,000 268,000 513,000
Distributions payable................ -- -- 283,000
------------ ------------ --------------
Total current
liabilities................ 367,000 1,851,000 2,563,000
Long-term debt (note 8).............. 87,000 95,000 156,000
Long-term capital lease obligations
(note 9)............................. 243,000 1,099,000 1,484,000
------------ ------------ --------------
Total liabilities.......... 697,000 3,045,000 4,203,000
------------ ------------ --------------
Stockholders' equity (notes 8, 11 and
12):
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
Series A convertible, issued
and outstanding 74,000 shares
at December 31, 1994.......... -- 370,000 --
Common stock, $.01 par value.
Authorized 40,000,000 shares;
issued and outstanding
4,165,166, 6,183,552 and
14,823,332 shares,
respectively.................. 42,000 62,000 148,000
Capital in excess of par
value........................... 269,000 589,000 4,204,000
Retained earnings............... 135,000 758,000 2,020,000
------------ ------------ --------------
Total stockholders'
equity..................... 446,000 1,779,000 6,372,000
------------ ------------ --------------
Commitments and contingencies (notes
9, 13 and 15)
Total liabilities and
stockholders' equity....... $ 1,143,000 $ 4,824,000 $ 10,575,000
============ ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
------------------------------
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Net service revenues (note 4)........ $ 1,170,000 $ 7,645,000 $ 23,141,000
------------ ------------ --------------
Operating expenses:
Professional medical fees....... -- 2,601,000 9,241,000
Human resources................. 394,000 1,424,000 4,640,000
Supplies........................ 336,000 1,127,000 1,818,000
Billing and collection costs.... -- 322,000 1,461,000
Outside services and other...... 226,000 624,000 970,000
Liability insurance............. -- 167,000 706,000
Furniture and equipment......... 59,000 204,000 400,000
Occupancy....................... -- 17,000 139,000
------------ ------------ --------------
Total operating expenses... 1,015,000 6,486,000 19,375,000
------------ ------------ --------------
Operating income........... 155,000 1,159,000 3,766,000
Interest income...................... -- -- 75,000
Interest expense..................... (21,000) (143,000) (225,000)
Other income......................... 1,000 153,000 29,000
------------ ------------ --------------
Income before income
taxes................... 135,000 1,169,000 3,645,000
Income taxes (note 10)............... -- 65,000 347,000
------------ ------------ --------------
Net income................. 135,000 1,104,000 3,298,000
Proforma income taxes (note 2)....... 46,000 332,000 892,000
------------ ------------ --------------
Proforma net income........ $ 89,000 $ 772,000 $ 2,406,000
============ ============ ==============
Proforma net income per
common share
(note 2)................ $ 0.02 $ 0.11 $ 0.20
============ ============ ==============
Number of shares used in computing
proforma net income per common
share.............................. 5,257,954 7,079,131 11,897,371
============ ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN TOTAL
-------------------- --------------------- EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------- --------- --------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993.......... -- $ -- 339,604 $ 4,000 $ 18,000 $ -- $ 22,000
Capital contributions................ -- -- 3,825,562 38,000 251,000 -- 289,000
Net income........................... -- -- -- -- -- 135,000 135,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1993........ -- -- 4,165,166 42,000 269,000 135,000 446,000
Sale of common stock at par.......... -- -- 450,000 5,000 -- -- 5,000
Sale of Series A, Convertible
Preferred stock.................... 74,000 370,000 -- -- -- -- 370,000
Sale of common stock at $.10 per
share.............................. -- -- 100,000 1,000 9,000 -- 10,000
Sale of common stock at $1.00 per
share, net of issuance cost........ -- -- 250,000 2,000 233,000 -- 235,000
Capital contributions................ -- -- 1,218,386 12,000 78,000 -- 90,000
Distributions to shareholders........ -- -- -- -- -- (481,000) (481,000)
Net income........................... -- -- -- -- -- 1,104,000 1,104,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1994........ 74,000 370,000 6,183,552 62,000 589,000 758,000 1,779,000
Initial public offering of common
stock, net of issuance cost........ -- -- 1,250,000 12,000 3,243,000 -- 3,255,000
Conversion of 10% secured notes to
common stock....................... -- -- 93,332 1,000 17,000 -- 18,000
Conversion of Series A, Convertible
Preferred stock to common stock.... (74,000) (370,000) 1,480,000 15,000 355,000 -- --
Capital contributions................ -- -- 5,816,448 58,000 -- (31,000) 27,000
Distributions to shareholders........ -- -- -- -- -- (2,005,000) (2,005,000)
Net income........................... -- -- -- -- -- 3,298,000 3,298,000
------- --------- --------- -------- ----------- ---------- -------------
Balances at December 31, 1995........ -- $ -- 14,823,332 $148,000 $4,204,000 $2,020,000 $ 6,372,000
======= ========= ========= ======== =========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
------------------------------
<TABLE>
<CAPTION>
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 135,000 $ 1,104,000 $ 3,298,000
------------ -------------- --------------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.... 59,000 196,000 360,000
Changes in assets and
liabilities:
(Increase) in net accounts
receivable................. (337,000) (2,043,000) (2,183,000)
(Increase) in inventories..... (32,000) (31,000) (40,000)
(Increase) in prepaid and
other current assets....... (71,000) (72,000) (566,000)
(Increase) in organization and
start-up costs............. (59,000) (43,000) (68,000)
(Increase) in other
non-current assets......... -- -- (9,000)
Increase (decrease) in accrued
physicians' fees........... -- 724,000 (18,000)
Increase in accounts
payable.................... 116,000 236,000 573,000
Increase in accrued
liabilities................ 49,000 219,000 245,000
Increase in distributions
payable.................... -- -- 283,000
------------ -------------- --------------
Total adjustments............. (275,000) (814,000) (1,423,000)
------------ -------------- --------------
Net cash provided by (used
in) operating
activities............... (140,000) 290,000 1,875,000
------------ -------------- --------------
Cash flows from investing activities:
Increase in notes receivable.......... (8,000) -- (258,000)
Purchase of property and equipment.... (219,000) (186,000) (548,000)
------------ -------------- --------------
Net cash used in investing
activities............... (227,000) (186,000) (806,000)
------------ -------------- --------------
Cash flows from financing activities:
Capital contributions................. 289,000 90,000 27,000
Proceeds from sale of common stock.... -- 250,000 3,255,000
Proceeds from sale of preferred
stock.............................. -- 370,000 --
Proceeds from issuance of convertible
secured notes...................... -- 350,000 --
Distributions to shareholders......... -- (481,000) (2,005,000)
Issuance of long-term debt............ 220,000 360,000 278,000
Repayment of long-term debt........... (11,000) (354,000) (249,000)
Repayment of convertible secured
notes.............................. -- -- (332,000)
Repayments of capital lease
obligations........................ (34,000) (99,000) (209,000)
Decrease (increase) in deferred
offering costs..................... -- (234,000) 234,000
------------ -------------- --------------
Net cash provided by
financing activities..... 464,000 252,000 999,000
------------ -------------- --------------
Net increase in cash and cash
equivalents............................. 97,000 356,000 2,068,000
Cash and cash equivalents at beginning
of year................................. 17,000 114,000 470,000
------------ -------------- --------------
Cash and cash equivalents at end of
year.................................... $ 114,000 $ 470,000 $ 2,538,000
============ ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(1) BUSINESS OF THE COMPANY AND ORGANIZATION
BUSINESS OF THE COMPANY
STAT Healthcare, Inc. (STAT) was incorporated in the state of Delaware on July
29, 1994. STAT provides emergency medical management services. On June 24, 1996,
STAT, through a successor entity formed for the purpose of effecting a business
combination, acquired all the common stock and partnership interests of AmHealth
Corporation and its related health care entities (AmHealth) (see note 3).
AmHealth provides disease management services focused primarily on ailments
associated with diabetes. STAT and AmHealth merged into the successor entity
which became the parent and registrant and which then changed its name to STAT
Healthcare, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
The merger of STAT and AmHealth has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements of STAT
Healthcare, Inc. and subsidiaries (the Company) have been restated to include
the accounts and results of operations of both STAT and AmHealth for all periods
presented.
Following the merger, the Company is an integrated disease management and
medical services company which provides a continuum of disease management
services primarily to patients with end-stage renal disease and also provides
physician practice management services to hospital-based emergency departments.
OPERATIONS AND ORGANIZATION OF STAT
Upon incorporation in July 1994, STAT negotiated a Management Agreement with
South Texas Acute Trauma Physicians, P.A. (STAT Physicians). The Management
Agreement became effective September 1, 1994 and is perpetual. The Management
Agreement has no termination or cancellation provisions. In addition, the
Company has the ability to control the designation of physician owner(s) of STAT
Physicians. Prior to the merger with AmHealth, the Company's income was derived
exclusively from revenues associated with the Management Agreement, less direct
expenses paid by the Company on behalf of STAT Physicians, as provided in the
Management Agreement and less the operating expenses of the Company.
Additionally, on September 1, 1994, the Company assumed the employment of all
personnel previously employed at STAT Physicians and the operating costs
associated therewith from that date forward.
Prior to the merger with AmHealth, the Company operated in a single business
segment, emergency medical management services. The Company's principal business
related to management and administrative services provided to those engaged in
physician staffing of hospital emergency departments. At December 31, 1994 and
1995, the Company managed contracts for physician services with 12 and 11
hospitals, respectively, primarily located in the Houston greater metropolitan
area. Under these contracts, 24-hour physician coverage of the emergency
departments is provided.
Physicians providing services are independent contractors to STAT Physicians and
are paid monthly on a basis of fixed hourly rates. As independent contractors,
these physicians are responsible for their own income and Social Security taxes
as well as workers compensation insurance.
The contracts between STAT Physicians and hospitals are generally written for an
initial term of two years and automatically renew for extended periods after the
initial term. STAT Physicians' contractual arrangements with hospitals are
principally fee-for-service contracts under which the Company bills and collects
the professional component of medical services on behalf of STAT Physicians. At
December 31, 1994, 9 of 12 contracts were fee-for-service contracts, while at
December 31, 1995, all contracts were fee-for-service
F-9
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(1) BUSINESS OF THE COMPANY AND ORGANIZATION: (CONTINUED)
contracts. Services performed under contracts not subject to fee-for-service
arrangements at December 31, 1994 were compensated by the hospitals on a fixed
fee basis.
OPERATIONS AND ORGANIZATION OF AMHEALTH
AmHealth operates in two business segments, kidney dialysis services and
healthcare management services. It operates outpatient kidney dialysis
facilities, provides management services for hospital-based hyperbaric oxygen
therapy facilities, and provides management and personnel services to outpatient
home health providers in the Rio Grande Valley of south Texas.
The AmHealth entities, their pre-merger structure and their dates of inception
are as follows:
ENTITY STRUCTURE DATE OF INCEPTION
- ------------------------------------- --------------------- -----------------
Management operations:
AmHealth Corporation............ S Corporation Oct 1992
Kidney dialysis center operations:
AmHealth Enterprises of the
Valley, Inc................... S Corporation Oct 1992
AmHealth Kidney Center of the
Valley, Ltd................... Partnership Apr 1993
Starr Dialysis Center, Ltd...... Partnership Nov 1993
Weslaco Kidney Center, Ltd...... Partnership Jun 1994
Mission Kidney Center, Ltd...... Partnership Aug 1995
Brownsville Kidney Center,
Ltd........................... Partnership Apr 1996
Healthcare management operations:
Southwestern Infusion
Healthcare, Ltd............... Partnership Jun 1994
AmHealth Ambulatory Services,
Inc........................... C Corporation Apr 1995
AmHealth Ambulatory Healthcare,
Ltd........................... Partnership Apr 1995
Brownsville Hyperbaric
Healthcare, Ltd............... Partnership May 1995
AmHealth Medical Management,
Ltd........................... Partnership Jun 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of STAT Healthcare,
Inc., AmHealth Corporation and its related health care entities (all
wholly-owned), and the results of operations of STAT Physicians since September
1, 1994, the effective date of the Company's Management Agreement with STAT
Physicians.
Because of the existence of a parent-subsidiary relationship by means other than
record ownership of STAT Physicians' voting stock and because of the unilateral
control, notwithstanding the lack of technical majority ownership, which the
Company has over the assets and operation of STAT Physicians, consolidation of
its results of operations is necessary to present fairly the results of
operations of the Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial
F-10
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
statements and accompanying notes. Management believes that the estimates
utilized in preparing its consolidated financial statements are reasonable and
prudent. Actual results could differ from these estimates.
CASH EQUIVALENTS
Investments in highly liquid, short-term instruments purchased with original
maturities of three months or less are deemed to be cash equivalents.
SERVICE REVENUES AND ACCOUNTS RECEIVABLE
Patient service revenues are recorded at established billing rates, net of an
allowance for contractual adjustments and a provision for uncollectible
accounts. Management services revenue for hospital and home health agency
accounts are recorded net of an allowance for doubtful accounts.
Patient accounts receivable are reduced to an estimated realizable value taking
into consideration contractual adjustments mandated by payors (Medicare,
Medicaid and private insurers) and expected write-offs of uncollectible
accounts. These estimates are based upon management judgements and historical
experience.
INVENTORIES
Inventories, consisting primarily of dialysis and pharmacy supplies, are stated
at the lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line depreciation method over the estimated useful lives of the assets
by class: minor equipment, 3 years; major equipment, 5 years; improvements, 5
years.
Equipment under capital lease is stated at the lesser of the present value of
the minimum lease payments or the fair value of the leased property at the
inception of the lease. Equipment under capital lease is amortized using the
straight-line method over the term of the leases which is 4 to 7 years.
Buildings and land under capital lease are stated at the fair value of the
properties and are amortized using the straight-line method over the term of the
leases which is 10 years.
ORGANIZATION AND START-UP COSTS
Organization and start-up costs have been capitalized and are being amortized
using the straight-line method over five years.
DEFERRED OFFERING COSTS
Deferred offering costs totaling $234,000 at December 31, 1994 were included in
other non-current assets. Such assets were combined with additional offering
costs incurred during 1995 and were recorded as a reduction of the proceeds from
the initial public offering of common stock during 1995.
DEFERRED ACQUISITION COSTS
Costs incurred to effect an expected pooling of interests business combination
are deferred and charged to expense in the period that the business combination
is consummated. If a plan of combination is abandoned,
F-11
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
costs that have been deferred are expensed. At December 31, 1995, deferred
acquisition costs of $134,000 were included in prepaid and other current assets.
These costs were combined with additional acquisition costs incurred in 1996 and
were expensed in the second quarter of 1996 when the AmHealth merger was
consummated.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to consummation of the merger, each of the AmHealth entities (except
AmHealth Ambulatory Services, Inc.) was a partnership or had elected to be
treated as an S Corporation. Accordingly, each entity's income or loss was
allocated to that entity's shareholders or partners for inclusion in their
personal federal income tax returns. No federal income taxes were assessed to
any of the entities (except AmHealth Ambulatory Services, Inc.), and
accordingly, no provision for federal income taxes for these entities has been
reflected in the accompanying consolidated statements of income prior to
consummation of the merger. AmHealth Ambulatory Services, Inc. began operations
in April 1995. Taxable income of this corporation from its date of inception
through December 31, 1995 was not material.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the sum of STAT and AmHealth
common and common equivalent shares calculated as follows:
o STAT. From inception through the date of STAT's initial public
offering, the number of common and common equivalent shares is computed
as if all shares were outstanding for the entire period, less the
number of treasury shares assumed to have been purchased (at the
initial offering price of STAT's common stock) from the proceeds of
actual sales of stock. Following the initial public offering, the
number of common and common equivalent shares is computed based on the
weighted average number of common shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to
purchase common stock.
o AmHealth. The number of common and common equivalent shares is computed
based on the number of shares of the Company's common stock issued to
the shareholders or partners of each AmHealth entity upon consummation
of the merger, as if such shares were outstanding since the date of
inception for each entity.
PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE
Pro forma income taxes are calculated to reflect the effect of income taxes not
otherwise payable by the AmHealth entities which were partnerships or S
Corporations prior to consummation of the merger. The pro forma income taxes are
based on an effective rate of 34%. Pro forma net income per share is computed
based on the pro forma net income amount.
F-12
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Methods and assumptions used to estimate the fair value of each class of
financial instruments are as follows:
o Cash equivalents, trade accounts receivable, notes receivable and
payables -- The carrying amounts approximate fair value because of the
short maturity of these instruments.
o Long-term debt -- The carrying amount approximates fair value because
the notes generally have an adjustable interest rate based on the prime
rate.
(3) MERGER
On June 24, 1996, the Company acquired all the common stock and partnership
interests of AmHealth Corporation and its related health care entities
(AmHealth) for 11,200,000 shares of the Company's common stock. AmHealth
operates outpatient kidney dialysis facilities, provides management services for
hospital-based hyperbaric oxygen therapy facilities, and provides management and
personnel services to outpatient home health providers in the Rio Grande Valley
of south Texas. The transaction has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements for all periods
presented have been restated to include the accounts of AmHealth.
Separate and combined results of STAT and AmHealth during the years ended
December 31, 1993, 1994 and 1995 (periods preceding the merger) were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Net service revenues:
STAT............................ $ -- $ 3,672,000 $ 14,124,000
AmHealth........................ 1,170,000 3,973,000 9,017,000
------------ ------------ --------------
Combined................... $ 1,170,000 $ 7,645,000 $ 23,141,000
============ ============ ==============
Net income:
STAT............................ $ -- $ 128,000 $ 674,000
AmHealth........................ 135,000 976,000 2,624,000
------------ ------------ --------------
Combined................... 135,000 1,104,000 3,298,000
Proforma income taxes........... (46,000) (332,000) (892,000)
------------ ------------ --------------
Proforma net income........ $ 89,000 $ 772,000 $ 2,406,000
============ ============ ==============
</TABLE>
(4) NET SERVICES REVENUES
Under the contracts between STAT Physicians and the hospitals and under the
Company's Management Agreement with STAT Physicians, the Company has the
ability, subject to hospital concurrence, to establish the rates to be billed to
patients for services provided. Gross service revenues represent the billed
value of physician services provided at hospital locations, and patient service
and management services revenue recorded at established billing rates. Billings
discounts represent the difference between gross service revenues and the amount
which is ultimately expected to be received. These discounts relate principally
to contractual adjustments mandated by payors such as Medicare and Medicaid and
also to contracted
F-13
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(4) NET SERVICES REVENUES: (CONTINUED)
arrangements with private insurers. Discounts also include provisions for
indigent patients without the means of paying for services provided.
Gross service revenues and billings discounts for the years ended December 31,
1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Gross service revenues............... $ 1,418,000 $ 12,180,000 $ 40,143,000
Billings discounts................... (248,000) (4,535,000) (17,002,000)
------------ -------------- --------------
Net service revenues............ $ 1,170,000 $ 7,645,000 $ 23,141,000
============ ============== ==============
</TABLE>
Service revenues have been primarily generated in south Texas and the Houston
greater metropolitan area. Although subject to individual contracts, net service
revenues derived from hospitals which, at December 31, 1995, were owned by
Columbia/HCA Healthcare Corporation accounted for 46% and 41% of 1994 and 1995
net service revenues, respectively.
(5) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995
----------- ------------ ------------
Gross patient accounts receivable.... $ 436,000 $ 4,617,000 $ 8,892,000
Allowance for contractual
adjustments........................ (81,000) (1,943,000) (2,938,000)
----------- ------------ ------------
Estimated accounts receivable... 355,000 2,674,000 5,954,000
Allowance for doubtful accounts...... (17,000) (539,000) (1,882,000)
----------- ------------ ------------
Net patient accounts
receivable.................... 338,000 2,135,000 4,072,000
Other accounts receivable............ 1,000 188,000 371,000
Due from STAT Physicians............. -- 59,000 122,000
----------- ------------ ------------
Accounts receivable, net........ $ 339,000 $ 2,382,000 $ 4,565,000
=========== ============ ============
(6) NOTES RECEIVABLE
Notes receivable at December 1993, 1994 and 1995 are as follows:
1993 1994 1995
--------- --------- ----------
Non interest-bearing note receivable
from Mission Medical Properties.... $ -- $ -- $ 50,000
Note receivable from
officer/shareholders, interest at
6%, due October 31, 1996........... -- -- 200,000
Other................................ 8,000 8,000 16,000
--------- --------- ----------
Notes receivable................ $ 8,000 $ 8,000 $ 266,000
========= ========= ==========
Mission Medical Properties leases buildings and land under capital leases to the
Company and is owned by certain stockholders of the Company.
F-14
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(7) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995
---------- ------------ ------------
Land and buildings................... $ -- $ 619,000 $ 969,000
Equipment and furnishings............ 515,000 915,000 1,705,000
Improvements......................... 63,000 142,000 155,000
---------- ------------ ------------
578,000 1,676,000 2,829,000
Less accumulated depreciation
and amortization................ (52,000) (230,000) (568,000)
---------- ------------ ------------
Property and equipment,
net........................ $ 526,000 $ 1,446,000 $ 2,261,000
========== ============ ============
Depreciation and amortization of property and equipment charged to operations
was $52,000, $178,000 and $338,000 during the years ended December 31, 1993,
1994 and 1995, respectively.
(8) LONG-TERM DEBT
Long-term debt at December 31, 1993, 1994 and 1995 is as follows:
1993 1994 1995
------------ ------------ ----------
Convertible secured notes; interest
at 10%............................. $ -- $ 350,000 $ --
Revolving credit payable to bank, due
in quarterly installments of $9,375
plus interest through March 1999;
interest at prime plus .5%......... -- -- 122,000
Revolving credit payable to bank;
interest at prime plus 1%.. 79,000 75,000 --
Note payable to TransAmerican
Insurance Finance, due January 1,
1996; interest at 11.64%........... -- -- 4,000
Note payable to bank, due April 2,
1996; interest at prime plus 1%.... 54,000 27,000 10,000
Noninterest-bearing note payable to
Palmco, Inc., for construction
allowance on leased building, due
April 1, 1996...................... 26,000 15,000 4,000
Note payable to bank, due October 30,
1997; interest at prime plus 1%.... 50,000 38,000 6,000
Note payable to bank, due June 15,
1998; interest at prime plus 1%.... -- 60,000 48,000
Note payable to bank, due November 6,
1999; interest at prime plus 1%.... -- -- 50,000
------------ ------------ ----------
Total debt...................... 209,000 565,000 244,000
Less current portion............ (122,000) (470,000) (88,000)
------------ ------------ ----------
Long-term debt.................. $ 87,000 $ 95,000 $ 156,000
============ ============ ==========
The convertible secured notes were issued in October and November 1994 in
connection with a bridge financing. A total of $332,000 was repaid and the
balance of $18,000 was converted to common stock in connection with STAT's
initial public offering during 1995. The conversion of convertible secured notes
to common stock is a non cash investing and financing transaction and is
excluded from the 1995 consolidated statement of cash flows.
F-15
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(8) LONG-TERM DEBT: (CONTINUED)
The revolving credit payables to bank and notes payable to bank are secured by
the Company's accounts receivable, inventories and equipment. Long-term debt
totaling $240,000 at December 31, 1995 was guaranteed by a stockholder of the
Company.
Future payments of long-term debt at December 31, 1995 are as follows:
1996.................................... $ 88,000
1997.................................... 66,000
1998.................................... 68,000
1999.................................... 22,000
----------
$ 244,000
==========
Cash paid for interest was $21,000, $126,000 and $214,000 during the years ended
December 31, 1993, 1994 and 1995, respectively.
(9) LEASE OBLIGATIONS
Future minimum lease payments under capital leases, together with the present
value of the net minimum lease payments, at December 31, 1995 are as follows:
1996.................................... $ 476,000
1997.................................... 426,000
1998.................................... 341,000
1999.................................... 261,000
2000.................................... 203,000
Later years............................. 781,000
------------
Total minimum lease payments............ 2,488,000
Less amount representing interest....... (956,000)
------------
Present value of net minimum lease
payments.............................. 1,532,000
Less current portion............... (48,000)
------------
Long-term capital lease
obligations....................... $ 1,484,000
============
At December 31, 1995, the Company's capital lease obligations include amounts
payable to entities owned or controlled by stockholders of the Company. Total
payments to these entities under the capital leases were $87,000 and $147,000
for the years ended December 31, 1994 and 1995, respectively.
On September 10, 1995, the Company entered into an agreement to lease a facility
located in Brownsville, Texas, to be constructed and owned by an entity owned by
stockholders of the Company. Lease payments begin 45 days after completion and
are $7,600 per month for a term of 120 months. Based on an estimated fair market
value of $490,000 and the terms of the lease, the lease will be a capital lease.
F-16
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(9) LEASE OBLIGATIONS: (CONTINUED)
Future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year at December 31,
1995 are as follows:
1996.................................... $ 265,000
1997.................................... 268,000
1998.................................... 121,000
1999.................................... 16,000
----------
Total minimum lease payments............ $ 670,000
==========
Rental expense under operating leases was $16,000, $31,000 and $60,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Obligations under capital lease incurred for property and equipment were
$358,000, $912,000 and $605,000 during the years ended December 31, 1993, 1994
and 1995, respectively. These non cash investing and financing transactions have
been excluded from the consolidated statements of cash flows.
(10) INCOME TAXES
Income taxes for the years ended December 31, 1993, 1994 and 1995 are as
follows:
1993 1994 1995
--------- --------- ----------
Federal.............................. $ -- $ 58,000 $ 330,000
State................................ -- 7,000 17,000
--------- --------- ----------
Total................................ $ -- $ 65,000 $ 347,000
========= ========= ==========
The actual income tax expense for the years ended December 31, 1993, 1994 and
1995 differs from the expected federal income tax computed by applying the U.S.
corporate rate of 34% to income before income taxes as follows:
1993 1994 1995
---------- ------------ ------------
Computed "expected" tax expense.... $ 46,000 $ 398,000 $ 1,239,000
Taxes on income earned and reported
by shareholders of S corporations
and partners of partnerships....... (46,000) (332,000) (892,000)
Increase in tax resulting from
nondeductible expenses............. -- 1,000 2,000
State tax provision, net of federal
benefit............................ -- 4,000 11,000
Other................................ -- (6,000) (13,000)
---------- ------------ ------------
Actual income tax
expense................. $ -- $ 65,000 $ 347,000
========== ============ ============
For the years ended December 31, 1993, 1994 and 1995, there were no significant
temporary differences which created deferred tax assets or liabilities. Income
taxes payable of $65,000 are included in accrued liabilities at December 31,
1994. Refundable income taxes of $31,000 are included in other current assets at
December 31, 1995. No income taxes were paid during the years ended December 31,
1993 and 1994. Income taxes of $440,000 were paid during the year ended December
31, 1995.
F-17
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(11) CAPITAL STOCK
Authorized capital stock of the Company consists of 5,000,000 shares of $.01 par
value preferred stock and 40,000,000 shares of $.01 par value common stock. In
September 1994, STAT sold 74,000 shares of Series A convertible preferred stock
(Preferred Stock) to STAT Physicians for $370,000. The Preferred Stock was
converted into common stock at a rate of 20 shares of common stock for each
share of Preferred Stock (1,480,000 common shares) upon the completion of STAT's
initial public offering of common stock in 1995. The conversion of Preferred
Stock into common stock is a non cash investing and financing transaction and is
excluded from the 1995 consolidated statement of cash flows.
At December 31, 1995, shares of common stock are reserved for issuance in
connection with the future exercise of Class A warrants to purchase common stock
at the price of $4.50 per share (734,166 shares) and underwriter warrants for
125,000 shares of common stock at $5.44 per share. These warrants were issued in
connection with STAT's initial public offering of common stock and the related
conversion of 10% convertible secured notes. Additionally, at December 31, 1995,
300,000 shares of common stock are reserved for issuance in connection with the
Company's stock option plan.
(12) STOCK OPTION PLAN
The Company has a stock option plan, providing for the granting of incentive
stock options or nonqualified stock options, for the benefit of its employees
and directors. Under this plan, options may be granted to purchase an aggregate
of 300,000 shares of common stock at no less than 100% (90% in the event of a
nonqualified stock option) of the fair market value of the common stock at the
time of the grant. At December 31, 1995, 10,000 unoptioned shares were available
for granting. All options which have been granted expire five years from the
date of grant. Information relating to stock options is as follows:
NUMBER OF
OPTIONS OPTION PRICE PER SHARE
--------- ----------------------
Outstanding at December 31, 1994..... -- --
Granted.............................. 290,000 $ 2.88--3.17
---------
Outstanding at December 31, 1995..... 290,000 $ 2.88--3.17
=========
Shares exercisable at December 31,
1995............................... 2,500 $ 3.00
========= ======================
(13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has certain pending and threatened litigation and claims incurred in
the ordinary course of business; however, management believes that the probable
resolution of such contingencies will not materially affect the liquidity, the
financial position, or the results of the Company's operations.
The Company procures professional liability insurance on behalf of STAT
Physicians which provides coverage on a claims-made basis during the policy
period. The coverage is purchased on a "slot" basis and extends to the
Company, to STAT Physicians and to contract physicians who perform services.
Individual policies are not provided to physicians; however, they must be
prequalified for coverage as a routine credentialing process. If a claims-made
policy is not renewed or replaced by a new policy which provides coverage
retroactively, it becomes necessary to purchase an extended reporting period
endorsement. Management intends to renew the existing claims-made policy and in
the past has either renewed or successfully purchased retroactive coverage.
F-18
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(13) COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
Although the Company does not directly contract with hospitals or physicians for
the provision or procurement of medical services, its contractual relationship
with STAT Physicians exposes it to potential claims from litigants. Accordingly,
the Company is named as an additional insured under the professional liability
coverage of STAT Physicians.
Effective October 1, 1995, the Company established a 401(k) plan (the Plan) for
its employees. The Plan allows participants with at least one year of prior
service to make elective deferrals of up to 15% of their compensation. The Plan
also allows discretionary matching employer contributions as well as additional
discretionary contributions which shall be allocated to each eligible employee
in proportion to his or her compensation as a percentage of the compensation of
all eligible employees. Employer contributions vest at the rate of 20% per year
of service. No discretionary contributions were made to the Plan by the Company
during the year ended December 31, 1995.
F-19
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(14) BUSINESS SEGMENTS
The Company operates in three business segments; emergency services, kidney
dialysis services and health care management services. Information by business
segment as of and for the years ended December 31, 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Net service revenues:
Emergency services.............. $ -- $ 3,672,000 $ 14,124,000
Kidney dialysis................. 1,170,000 3,766,000 6,262,000
Healthcare management........... -- 207,000 2,755,000
------------ ------------ --------------
Total...................... $ 1,170,000 $ 7,645,000 $ 23,141,000
============ ============ ==============
Operating income:
Emergency services.............. $ -- $ 202,000 $ 977,000
Kidney dialysis................. 210,000 998,000 1,715,000
Healthcare management........... -- 123,000 1,120,000
General corporate............... (55,000) (164,000) (46,000)
------------ ------------ --------------
Total...................... $ 155,000 $ 1,159,000 $ 3,766,000
============ ============ ==============
Identifiable assets:
Emergency services.............. $ -- $ 2,094,000 $ 5,860,000
Kidney dialysis................. 1,117,000 2,557,000 3,642,000
Healthcare management........... -- 103,000 970,000
General corporate............... 26,000 70,000 103,000
------------ ------------ --------------
Total...................... $ 1,143,000 $ 4,824,000 $ 10,575,000
============ ============ ==============
Depreciation and amortization:
Emergency services.............. $ -- $ -- $ 16,000
Kidney dialysis................. 57,000 192,000 301,000
Healthcare management........... -- 2,000 40,000
General corporate............... 2,000 2,000 3,000
------------ ------------ --------------
Total...................... $ 59,000 $ 196,000 $ 360,000
============ ============ ==============
Capital expenditures:
Emergency services.............. $ -- $ -- $ 112,000
Kidney dialysis................. 572,000 1,094,000 742,000
Healthcare management........... -- 4,000 282,000
General corporate............... 5,000 -- 17,000
------------ ------------ --------------
Total...................... $ 577,000 $ 1,098,000 $ 1,153,000
============ ============ ==============
</TABLE>
F-20
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(15) SUBSEQUENT EVENTS
In January 1996 the Company reached an agreement with the Greater Houston
Division of Columbia/HCA Healthcare Corporation (Columbia) to provide emergency
medicine services to all but one of Columbia's emergency departments in the
Greater Houston Division. This agreement will result in the addition of nine
hospitals to the Company's service base between February 1 and July 1, 1996
resulting in a total of 18 hospitals served (16 of which are owned by Columbia).
The contract for services relating to this agreement was finalized in April
1996. The Houston Division hospitals (15) are covered by this contract which has
an initial term of two years and which renews automatically. This contract will
account for a significant portion of the Company's net service revenues and
operating expenses.
On January 31, 1996, and in conjunction with the Columbia agreement noted above,
the Company acquired the rights to a one-hospital contract for the provision of
emergency department medical services. Consideration paid for the contract and
certain non-competition covenants consisted of $960,000 in cash and 52,174
shares of the Company's common stock. Up to an additional $100,000 may be paid
in each of the three twelve-month periods following the acquisition of the
contract based on profits realized at that hospital.
On February 1, 1996, the Company acquired intangible assets of Amedica, Ltd.
(Amedica) in a transaction that will be accounted for by the purchase method of
accounting. Amedica provides healthcare services relating to the management of
independent physician associations. Consideration paid consisted of $200,000 in
cash and 15,730 shares of the Company's common stock.
Unaudited financial information of Amedica as of December 31, 1995 and for the
year then ended is as follows:
Balance sheet information:
Current assets.................. $ 128,000
Total assets.................... 135,000
Current liabilities............. 25,000
Total liabilities............... 150,000
Partners' capital............... (15,000)
===========
Operations information:
Revenue......................... $ 439,000
Expenses........................ 518,000
Net loss........................ (79,000)
===========
Unaudited proforma results of operations for the year ended December 31, 1995,
giving effect to the Amedica acquisition as though it had occurred on January 1,
1995, are as follows:
Net service revenues................. $ 23,580,000
Net income........................... 3,222,000
==============
Net income per common share.......... $ 0.20
==============
STAT was advised in May 1996 that the common stock (67,904 shares, with an
ascribed value of $310,000) issued in connection with the acquisitions described
in this note, may have been issued in violation of Section 5 of the Securities
Act. Such a violation would entitle the recipients to recission rights. In July
1996, the Company offered the right of recission, which right included the
payment of the ascribed value plus accrued interest from the acquisition dates,
to the recipients. The recipients declined such offer and asserted
F-21
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993, 1994 AND 1995
------------------------------
(15) SUBSEQUENT EVENTS: (CONTINUED)
their right to exchange their STAT common stock for common stock of the Company
pursuant to the merger and exchange agreement between STAT and AmHealth.
Accordingly, the $310,000 will be reported as permanent equity.
In June 1996, stockholders of STAT and stockholders and partners of AmHealth
approved the New STAT Healthcare, Inc. 1996 Stock Incentive Plan under which
1,500,000 shares of common stock of the Company became reserved for future
issuance to officers, employees, consultants and non-employee directors of the
Company. The 290,000 options outstanding at December 31, 1995 (see note 12) are
considered to be options outstanding under this 1996 plan.
On July 22, 1996, the Company signed a commitment letter for a $6,500,000 bank
credit facility comprised of a $3,000,000 revolving line of credit and a
$3,500,000 three year, non-revolving line of credit. The formal agreement is
expected to be finalized during August 1996 and pursuant to the commitment
agreement will provide for interest at prime. Borrowings under the lines will be
collateralized by security interests in the Company's accounts receivable and in
capital assets.
F-22
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
------------------------------
JUNE 30,
1996
--------------
ASSETS
Cash and cash equivalents............ $ 1,324,000
Accounts receivable, net............. 7,109,000
Notes receivable..................... 200,000
Inventories.......................... 78,000
Prepaid and other current assets..... 295,000
--------------
Total current assets....... 9,006,000
Property and equipment, net.......... 3,149,000
Intangible assets, net............... 1,408,000
Other non-current assets............. 196,000
--------------
Total assets............... $ 13,759,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.... $ 1,486,000
Current portion of capital lease
obligations........................ 72,000
Accrued physicians' fees............. 1,095,000
Accounts payable..................... 1,194,000
Accrued liabilities.................. 505,000
Distributions payable................ 465,000
--------------
Total current
liabilities............... 4,817,000
Long-term debt....................... 289,000
Long-term capital lease
obligations........................ 1,993,000
--------------
Total liabilities.......... 7,099,000
--------------
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
no shares outstanding.. --
Common stock, $.01 par value.
Authorized 40,000,000 shares;
issued and outstanding,
14,902,472 shares.............. 149,000
Capital in excess of par
value.......................... 4,563,000
Retained earnings............... 1,948,000
--------------
Total stockholders'
equity.................... 6,660,000
--------------
Commitments and contingencies
Total liabilities and
stockholders' equity...... $ 13,759,000
==============
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
Net service revenues................. $ 10,375,000 $ 16,663,000
------------- -------------
Operating expenses:
Professional medical fees....... 4,548,000 6,695,000
Human resources................. 1,625,000 3,516,000
Supplies........................ 822,000 1,136,000
Billing and collection costs.... 697,000 996,000
Liability insurance............. 324,000 499,000
Other costs..................... 575,000 938,000
------------- -------------
Total operating expenses... 8,591,000 13,780,000
------------- -------------
Operating income........... 1,784,000 2,883,000
Interest income...................... 31,000 17,000
Interest expense..................... (60,000) (150,000)
Reorganization costs................. -- (1,269,000)
------------- -------------
Income before income
taxes................... 1,755,000 1,481,000
Income taxes......................... 181,000 (44,000)
------------- -------------
Net income................. 1,574,000 1,525,000
Proforma income taxes................ 416,000 577,000
------------- -------------
Proforma net income............. $ 1,158,000 $ 948,000
============= =============
Proforma net income per common
share......................... $ 0.13 $ 0.06
============= =============
Number of shares used in computing
proforma net income per common
share.............................. 9,077,613 15,320,433
============= =============
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
------------------------------
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
------------------------ EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995........ 14,823,332 $ 148,000 $ 4,204,000 $ 2,020,000 $ 6,372,000
Common stock issued for:
Acquisitions.................... 67,904 1,000 309,000 -- 310,000
Compensation.................... 11,236 50,000 -- 50,000
Distributions to shareholders........ -- -- -- (1,597,000) (1,597,000)
Net income........................... -- -- -- 1,525,000 1,525,000
------------ ---------- ------------ ------------- -------------
Balances at June 30, 1996............ 14,902,472 $ 149,000 $ 4,563,000 $ 1,948,000 $ 6,660,000
============ ========== ============ ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
------------------------------
SIX MONTHS
ENDED
JUNE 30, 1996
--------------
Cash flows from operating activities:
Net income......................... $ 1,525,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and
amortization................... 238,000
Increase in deferred tax
liability...................... 50,000
Changes in assets and
liabilities:
Increase in net accounts
receivable................ (2,544,000)
Decrease in inventories.... 25,000
Decrease in prepaid and
other current assets...... 464,000
Increase in other
non-current assets........ (68,000)
Increase in accrued
physicians' fees.......... 389,000
Increase in accounts
payable................... 269,000
Decrease in accrued
liabilities............... (58,000)
--------------
Total adjustments.......... (1,235,000)
--------------
Net cash provided by
operating activities.... 290,000
--------------
Cash flows from investing activities:
Repayment of notes receivable...... 66,000
Purchase of HEMA assets............ (960,000)
Purchase of Amedica assets......... (200,000)
Purchase of property and
equipment.......................... (243,000)
--------------
Net cash used in
investing activities.... (1,337,000)
--------------
Cash flows from financing activities:
Distributions to stockholders...... (1,415,000)
Net borrowings under line of credit
agreement.......................... 1,250,000
Issuance of long-term debt......... 285,000
Repayment of long-term debt........ (203,000)
Repayments of capital lease
obligations........................ (84,000)
--------------
Net cash provided by
financing activities.... (167,000)
--------------
Net decrease in cash and cash
equivalents.......................... (1,214,000)
Cash and cash equivalents at
beginning of period.................. 2,538,000
--------------
Cash and cash equivalents at end of
period............................... $ 1,324,000
==============
See accompanying notes to unaudited consolidated financial statements.
F-26
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
------------------------------
(1) FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements of STAT Healthcare, Inc. and
subsidiaries (the Company) present financial information as of June 30, 1996,
and for the six month periods ended June 30, 1995 and 1996. Because these
financial statements are unaudited and do not include all disclosures required
by generally accepted accounting principles, they should be read in conjunction
with the Company's audited consolidated financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information for the periods
reported have been made. Results of operations for the six month period ended
June 30, 1996 are not necessarily indicative of the results that may be achieved
for the year ending December 31, 1996.
(2) NET INCOME PER COMMON SHARE
Net income per common share is computed based on the number of common and common
equivalent shares of the Company. Equivalent shares are attributable to
outstanding warrants and options to purchase common shares.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
South Texas Acute Trauma
Physicians, P.A.:
We have audited the accompanying balance sheets of South Texas Acute Trauma
Physicians, P.A. (the Company) as of August 31, 1994 and December 31, 1993, and
the related statements of income, changes in shareholders' equity and cash flows
for the eight months ended August 31, 1994 and the year ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Texas Acute Trauma
Physicians, P.A. as of August 31, 1994 and December 31, 1993, and the results of
its operations and its cash flows for the eight months ended August 31, 1994 and
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 10, 1995, except as to
the last paragraph of note 6,
which is as of April 11, 1995
F-28
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
BALANCE SHEETS
------------------------------
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
ASSETS
Cash and cash equivalents............ $ 10,000 $ 63,000
Accounts receivable (notes 5 and 6):
Patient accounts, net........... 840,000 1,312,000
Hospital accounts............... 439,000 316,000
------------ ------------
Net accounts receivable.... 1,279,000 1,628,000
Prepaid assets....................... 55,000 186,000
------------ ------------
Total current assets....... 1,344,000 1,877,000
Other assets......................... 8,000 15,000
------------ ------------
Total assets............... $1,352,000 $ 1,892,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term
debt (note 6)........................ $ 176,000 $ 210,000
Notes payable to hospitals (note
7)................................... 70,000 203,000
Accrued physicians' fees............. 605,000 681,000
Accrued liabilities.................. 37,000 71,000
Accounts payable..................... 62,000 126,000
Bank overdraft....................... 22,000 --
------------ ------------
Total current
liabilities.................. 972,000 1,291,000
Long-term debt, excluding current
liabilities (note 6)............... 3,000 --
------------ ------------
Total liabilities.......... 975,000 1,291,000
------------ ------------
Shareholders' equity:
Common Stock, $1 par value.
Authorized 100,000 shares;
issued and outstanding 1,000
shares......................... 1,000 1,000
Retained earnings............... 376,000 600,000
------------ ------------
Total shareholders'
equity....................... 377,000 601,000
Commitments and contingencies (notes
3, 8 and 9)
------------ ------------
Total liabilities and
shareholders' equity......... $1,352,000 $ 1,892,000
============ ============
See accompanying notes to financial statements.
F-29
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF INCOME
------------------------------
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
Net service revenue (note 4)......... $8,873,000 $ 6,876,000
Direct expenses:
Physicians' fees................ 6,823,000 5,113,000
Liability insurance............. 368,000 314,000
Billing and collection.......... 304,000 473,000
------------ ------------
Total direct expenses...... 7,495,000 5,900,000
------------ ------------
Gross profit............... 1,378,000 976,000
------------ ------------
Operating expenses:
Human resources................. 713,000 525,000
Occupancy....................... 38,000 27,000
Furniture and equipment......... 30,000 19,000
Supplies........................ 39,000 16,000
Outside services and other...... 62,000 68,000
------------ ------------
Total operating expenses... 882,000 655,000
------------ ------------
Operating income........... 496,000 321,000
Interest expense..................... 14,000 15,000
------------ ------------
Net income................. 482,000 306,000
Proforma income taxes (note 3)....... 164,000 104,000
------------ ------------
Proforma net income........ $ 318,000 $ 202,000
============ ============
See accompanying notes to financial statements.
F-30
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------------------------
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ --------- --------------
Balances at December 31, 1992........ $1,000 $ 58,000 $ 59,000
Net income........................... -- 482,000 482,000
Shareholder distributions............ -- (164,000) (164,000)
------ --------- --------------
Balances at December 31, 1993........ 1,000 376,000 377,000
Net income........................... -- 306,000 306,000
Shareholder distributions............ -- (82,000) (82,000)
------ --------- --------------
Balances at August 31, 1994.......... $1,000 $ 600,000 $ 601,000
====== ========= ==============
See accompanying notes to financial statements.
F-31
<PAGE>
SOUTH TEXAS ACUTE TRAUMA
PHYSICIANS, P.A.
STATEMENTS OF CASH FLOWS
------------------------------
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1993 1994
------------ ------------
Cash flows from operating activities:
Net income......................... 482,000 306,000
Adjustments to reconcile net income
to net cash used in
operating activities:
Changes in assets and
liabilities:
Increase in net accounts
receivable............. (669,000) (349,000)
Increase in prepaids and
other assets........... (42,000) (138,000)
Increase in accrued
physicians' fees....... 79,000 76,000
Increase in accrued
liabilities............ 34,000 34,000
Increase in accounts
payable................ 62,000 64,000
------------ ------------
Total adjustments....... (536,000) (313,000)
------------ ------------
Net cash used in
operating
activities........... (54,000) (7,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................ 150,000 51,000
Proceeds from issuance of hospital
notes........................... 70,000 200,000
Principal payments on long-term
debt............................ (37,000) (20,000)
Principal payments on hospital
notes........................... -- (67,000)
Shareholder distributions.......... (164,000) (82,000)
Increase (decrease) in bank
overdraft....................... 22,000 (22,000)
------------ ------------
Net cash provided by
financing
activities........... 41,000 60,000
------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (13,000) 53,000
Cash and cash equivalents at
beginning of period................ 23,000 10,000
------------ ------------
Cash and cash equivalents at end of
period............................. $ 10,000 $ 63,000
============ ============
Supplemental disclosure of cash flow
information -- cash payments
during the period for interest..... $ 8,000 $ 9,000
============ ============
See accompanying notes to financial statements.
F-32
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND AUGUST 31, 1994
------------------------------
(1) THE COMPANY
South Texas Acute Trauma Physicians, P.A., dba STAT Physicians (the Company) was
incorporated as a professional association in the state of Texas on November 22,
1985. The Company's principal business is the physician staffing of hospital
emergency departments. At December 31, 1993 and August 31, 1994, the Company had
contracts for physician services with eleven hospitals located in south Texas.
Under these contracts the Company provides 24-hour physician coverage of the
emergency departments, and one of the Company's physicians acts as the
designated Director of Emergency Medicine for each hospital. At December 31,
1993, the Company also provided weekend physician coverage under another
contract. The Company terminated this weekend contract effective June 30, 1994
for economic reasons.
Physicians providing services on behalf of the Company are independent
contractors and are paid monthly on the basis of either a fixed hourly rate or
on the basis of a minimum hourly rate which is adjustable upward based on
monthly volume. As independent contractors, these physicians are responsible for
their own income and Social Security taxes as well as workers compensation
insurance.
Hospital contracts are generally written for an initial term of two years and
automatically renew each year after the initial term. These contracts have
cancellation clauses which provide for 90-day cancellation by either party
without significant penalty. Certain terms and conditions are routinely
modified. The Company's management believes that relations with all hospitals
are good and does not anticipate the cancellation of any contracts.
Contractual agreements with hospitals are primarily (a) contracts where the
Company bills and collects the professional component for the charges for
medical services, and (b) contracts where the Company receives fees from the
hospital based on a fixed fee, hourly rate or percentage of gross billings.
Effective September 1, 1994, the Company entered into a management agreement
with STAT Healthcare, Inc. (STAT Healthcare). Under this agreement, the Company
assigned all revenues and related accounts receivable from September 1, 1994
forward to STAT Healthcare. In consideration thereof, STAT Healthcare assumed
responsibility for collection of receivables and agreed to pay for all direct
and operating costs associated with the hospital contracts from September 1,
1994 forward.
Additionally, on September 1, 1994 STAT Healthcare employed all administrative
personnel previously employed by the Company and assumed responsibility for all
administrative matters relating to these contracts, pursuant to a management
agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash invested in short-term investments purchased with original maturities of
three months or less is deemed to be cash equivalents for financial statement
purposes. At December 31, 1993 and August 31, 1994, cash equivalents of $3,000
and $3,000, respectively, consisted of money market funds.
SERVICE REVENUES AND ACCOUNTS RECEIVABLE
Service revenues under contracts where fees are received from hospitals are
recorded at established billing rates, net of amounts to be retained by the
hospital. Service revenues under contracts where the Company bills and collects
for services provided are recorded at established billing rates, net of
contractual adjustments and the provision for uncollectible accounts.
F-33
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Patient accounts receivable are reduced to an estimated realizable value taking
into consideration contractual adjustments mandated by payors (Medicare,
Medicaid and private insurers) and expected write-offs of uncollectible
accounts. These estimates are based upon historical experience at individual
hospitals.
(3) INCOME TAXES
For federal income tax purposes, the Company has elected to be treated as an "S
corporation." Accordingly, the Company's income is allocated to the Company's
shareholders, included in their personal income tax returns and taxed at their
respective individual rates. No federal income taxes will be assessed the
corporation. The proforma income taxes reflected in the accompanying statements
of income are based on an effective corporate rate of 34%.
The federal income tax return of the Company for the tax year ended January 31,
1992, is currently under examination by the Internal Revenue Service. Management
believes that the examination is routine in nature and does not anticipate any
significant adjustments from the examination.
(4) NET SERVICE REVENUES
Gross service revenues represent the billed value of physician services provided
at hospital locations. Under the contracts between the Company and the
hospitals, the Company has the ability, subject to hospital concurrence, to
establish the rates to be billed to patients for services provided.
Billings discounts represent the difference between gross service revenues and
the amount which the Company ultimately expects to receive. Net service revenues
consist of contractual payments from hospitals and estimated collectible fees
from patients and third-party payors where the Company is responsible for
billing and collection functions. Net service revenues for the year ended
December 31, 1993 and for the eight months ended August 31, 1994 are as follows:
1993 1994
------------ ------------
Net service revenues:
From hospitals..................... $ 6,250,000 $ 2,695,000
From patients...................... 2,623,000 4,181,000
------------ ------------
$ 8,873,000 $ 6,876,000
============ ============
Hospital account payments are usually received by the 15th day of the month
following service. Some hospitals make partial payments during the service
month. Patient accounts are collected over normal collection cycles from a
variety of payors including Medicare, Medicaid, private insurers and patients.
Gross and net service revenues for the year ended December 31, 1993 and for the
eight months ended August 31, 1994 are as follows:
1993 1994
-------------- --------------
Gross service revenues.................. $ 14,900,000 $ 14,369,000
Billings discounts...................... (6,027,000) (7,493,000)
-------------- --------------
Net service revenues.................... $ 8,873,000 $ 6,876,000
============== ==============
For the eight months ended August 31, 1994, four hospitals accounted for between
10% and 14% each of net service revenues.
F-34
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
------------------------------
(5) NET PATIENT ACCOUNTS RECEIVABLE
Net patient accounts receivable at December 31, 1993 and at August 31, 1994 are
as follows:
1993 1994
-------------- ------------
Gross patient accounts receivable.... $ 1,867,000 $ 3,486,000
Allowance for contractual
adjustments........................ (615,000) (1,427,000)
-------------- ------------
Estimated accounts receivable........ 1,252,000 2,059,000
Allowance for doubtful accounts...... (412,000) (747,000)
-------------- ------------
Net patient accounts receivable...... $ 840,000 $ 1,312,000
============== ============
(6) LONG-TERM DEBT
Long-term debt at December 31, 1993 and at August 31, 1994 is as follows:
1993 1994
------------ ------------
13% note payable, due in monthly
installments of $1,878
including interest through April 1994. Paid in full in April
1994.. $ 8,000 $ --
10% note payable, due in monthly
installments of $1,616 including
interest through February 1995.
Paid in full in February 1995...... 21,000 10,000
Revolving credit note (up to
$200,000), interest due quarterly
at the bank's prime rate (7.75% at
August 31, 1994) plus 2%, principal
due August 1995.................... 150,000 200,000
------------ ------------
Total debt........................... 179,000 210,000
Less current installments............ (176,000) (210,000)
------------ ------------
Long-term debt............. $ 3,000 $ --
============ ============
The notes payable are secured by the Company's accounts receivable. The
revolving credit note is secured by the Company's accounts receivable and the
corporate guarantee and accounts receivable of STAT Healthcare. Subsequent to
August 31, 1994, the bank increased the revolving line of credit to $400,000. On
April 11, 1995, the line of credit was repaid by STAT Healthcare and was
canceled.
(7) NOTES PAYABLE TO HOSPITALS
Notes payable to hospitals at December 31, 1993 and at August 31, 1994 are as
follows:
1993 1994
---------- ----------
8% unsecured note, due in 16 monthly
installments of $4,690, including
interest, commencing in January
1995............................... $ 70,000 $ 70,000
Noninterest-bearing unsecured note,
due in monthly installments of
$33,333 through December 1994. Paid
in full in December 1994........... -- 133,000
---------- ----------
$ 70,000 $ 203,000
========== ==========
Notes payable to hospitals arose as unsecured advances designed to provide cash
flow assistance during the inception of fee-for-service activities.
F-35
<PAGE>
SOUTH TEXAS ACUTE TRAUMA PHYSICIANS, P.A.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1993 AND AUGUST 31, 1994
------------------------------
(8) LEASES
The Company leases its office space under a month-to-month lease. The Company
also leases certain equipment and vehicles under operating leases. Future
minimum lease payments under noncancelable operating leases at August 31, 1994
are as follows:
1994................................. $ 8,000
1995................................. 6,000
1996................................. 4,000
1997................................. 4,000
---------
$ 22,000
=========
Rental expense for the year ended December 31, 1993 and for the eight months
ended August 31, 1994 was $27,000 and $17,000 respectively.
(9) CONTINGENCIES
The Company procures professional liability insurance which provides coverage on
a claims-made basis during the policy period. The coverage is purchased on a
"slot" basis and extends to the Company and to contract physicians who perform
services. Individual policies are not provided to physicians; however, they must
be prequalified for coverage as a routine credentialing process. If a
claims-made policy is not renewed or replaced by a new policy which provides
coverage retroactively, it becomes necessary to purchase an extended reporting
period endorsement. Management intends to renew its existing claims-made policy
and in the past has either renewed or successfully purchased retroactive
coverage.
The Company has certain pending and threatened litigation and claims incurred in
the ordinary course of business; however, management believes that the probable
resolution of such contingencies will not materially affect the liquidity, the
financial position, or the results of the Company's operations.
F-36
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary...................... 2
Risk Factors............................ 5
The Company............................. 12
Recent Developments..................... 12
Use of Proceeds......................... 14
Dividend Policy......................... 14
Market Prices........................... 14
Capitalization.......................... 15
Selected Consolidated Financial Data.... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 17
Business................................ 24
Management.............................. 41
Certain Transactions.................... 48
Principal Stockholders.................. 49
Description of Capital Stock............ 50
Shares Eligible for Future Sale......... 53
Plan of Distribution.................... 54
Legal Matters........................... 54
Experts................................. 54
Additional Information.................. 55
Index to Consolidated Financial
Statements............................ F-1
859,166 SHARES
OF COMMON STOCK
62,500 CLASS A WARRANTS
[STAT HEALTHCARE LOGO]
PROSPECTUS
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of Common Stock in the offering. All amounts are estimates except the Commission
registration fee and the NASD filing fee.
Commission registration fee.......... $ 10,186
Printing expenses.................... 10,000
Legal fees and expenses.............. 10,000
Accounting fees and expenses......... 10,000
Blue sky fees and expenses........... 1,000
Transfer agent fees.................. 1,000
Miscellaneous........................ 814
---------
Total...................... $ 43,000
=========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by right of the corporation to procure a judgment in
its favor by reason of the fact that such person acted in any of the capacities
set forth above, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect to any claim issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
such action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that the indemnification provided for
by Section 145 shall not be deemed exclusive of any other rights which the
indemnified party may be entitled; that indemnification provided by Section 145
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a
II-1
<PAGE>
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Section 102(b)(7) of the General Corporation Law or the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of the
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article IX of the Company's Charter provides that "a director of the
corporation shall, to the full extent not prohibited by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, not be liable
to the corporation or its stockholders for monetary damages for breach of his or
her fiduciary duty as a director."
Article X of the Company's Charter further provides that "a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so amended."
Article XI of the Company's Bylaws provides that "the corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law; PROVIDED, HOWEVER, that the
corporation may limit the extent of such indemnification by individual contracts
with its directors and executive officers; and, PROVIDED, FURTHER, that the
corporation shall not be required to indemnify any director or executive officer
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding by such person against the corporation or its directors,
officers, employees or other agents unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation or (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law."
The Company has entered into indemnification agreements with each of its
directors and executive officers that provide for indemnification and expense
advancement to the fullest extent permitted under the Delaware General
Corporation Law.
The registrant maintains $1.0 million of officers' and directors' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 24, 1996, the registrant issued 672,622 shares of Common Stock to four
former shareholders of AmHealth Corporation in connection with the Exchange.
These issuances were deemed exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act. In addition, the recipients of
securities in such transaction represented their intentions to acquire the
securities for investment only and not with a view to, or for sale in connection
with, any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transaction.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following exhibits are filed as part of this Registration Statement unless
otherwise indicated:
<TABLE>
<S> <C>
2.1# -- Amended and Restated Agreement and Plan of Reorganization, dated as of March 15, 1996 (the
"Reorganization Agreement"), among the registrant, STAT Healthcare, Inc., STAT
Acquisition Corp. and the AmHealth Corporations and AmHealth Partnerships named therein
(included as Appendix 1 to the registrants Joint Proxy Statement/Prospectus (the "Joint
Proxy Statement/Prospectus") dated May 22, 1996 and filed with the Commission pursuant to
Rule 424(b) on May 23, 1996)
2.1.1# -- First Amendment to the Reorganization Agreement, dated June 13, 1996 (filed as Exhibit
2.1.1 to the registrant's Registration Statement on Form S-1 (Reg. No. 333-11025) (the
"Form S-1"))
2.1.2 -- Second Amendment to the Reorganization Agreement, dated June 24, 1996
2.2 -- Agreement and Plan of Merger, dated as of October 7, 1996, by and among American Medical
Response, Inc., SHI Acquisition Corp. and the registrant
3.1# -- Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Form S-1)
3.2* -- Bylaws
4.1* -- Form of Common Stock Certificate
4.2# -- Warrant Agreement, dated June 24, 1996, among the registrant, American Stock Transfer &
Trust Company, as warrant agent, and Network 1 Financial Securities, Inc. (filed as
Exhibit 4.2 to the Form S-1)
4.3# -- Form of Class A Warrant Certificate (included as Exhibit A to the Warrant Agreement filed
as Exhibit 4.2)
4.4# -- Form of Representatives' Warrant (filed as Exhibit 4.4 to the Form S-1)
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP
10.1# -- Form of Form of Employment Agreement between the registrant and William H. Rice, M.D.
(filed as Exhibit 10.1 to the Form S-1)
10.2# -- Form of Employment Agreement between the registrant and Victor M. Miranda, M.D. (filed as
Exhibit 10.2 to the Form S-1)
10.3# -- Form of Employment Agreement between the registrant and Ned E. Chapman (filed as Exhibit
10.3 to the Form S-1)
10.4# -- Form of Employment Agreement between the registrant and Ruben A. Perez (filed as Exhibit
10.4 to the Form S-1)
10.5# -- Form of Employment Agreement between the registrant and Russell D. Schneider (filed as
Exhibit 10.5 to the Form S-1)
10.6# -- Management Agreement, dated as of September 1, 1994, by and between Old STAT, Inc., a
wholly owned subsidiary of the registrant previously named STAT Healthcare, Inc. ("Old
STAT"), and South Texas Acute Trauma Physicians, P.A. (filed as Exhibit 10.4 to Old
STAT's Registration Statement on Form SB-2 (Reg. No. 33-87860) (the "Form SB-2"))
10.6.1# -- Amendment to Management Agreement (filed as Exhibit 10.4 to the Form SB-2)
10.7# -- 1996 Stock Incentive Plan (filed as Exhibit 99.1 to the registrant's Registration
Statement on Form S-8 (Reg. No. 333-13297))
10.8.1# -- Office lease by and between Old STAT and HCH Gulf Coast Hospital, dated June 5, 1989
(filed as Exhibit 10.8.1 to the Form SB-2)
10.8.2# -- Sublease Agreement by and between Old STAT and CB Commercial Real Estate Group, Inc.
(filed as Exhibit 10.8.3 to the Form SB-2)
10.9# -- Hospital Contract by and between Old STAT and San Jacinto Methodist Hospital (filed as
Exhibit 10.9 to the Form SB-2)
10.10# -- Hospital Contract by and between Old STAT and Katy Medical Center (filed as Exhibit 10.10
to the Form SB-2)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.11# -- Hospital Contract by and between Old STAT and Fort Bend Hospital (filed as Exhibit 10.11
to the Form SB-2)
10.12# -- Hospital Contract by and between Old STAT and Parkway Hospital (filed as Exhibit 10.12 to
the Form SB-2)
10.13* -- Form of Succession Agreement by and between Old STAT and the stockholders of STAT
Physicians, P.A.
10.14* -- Form of Lock-Up Agreement between the registrant and each of its officers and directors
and certain former AmHealth partners and shareholders (included as Exhibit A to the
Reorganization Agreement included as Appendix 1 to the Joint Proxy Statement/Prospectus)
10.15* -- Facility Lease dated as of February 1, 1994 by and between Weslaco Medical Properties
Joint Venture and Weslaco Kidney Center, Ltd.
10.16* -- Facility Lease dated as of September 10, 1995 by and between Mission Medical Properties
Joint Venture and Brownsville Kidney Center, Ltd.
10.17* -- Facility Lease dated as of April 22, 1993 by and between Enterprise Real Estate and Starr
Dialysis Center, Ltd.
10.18* -- Facility Lease dated as of January 9, 1995 by and between Mission Medical Properties Joint
Venture and Mission Kidney Center, Ltd.
10.19# -- Asset Purchase Agreement made as of January 31, 1996, by and among Old STAT, Houston
Emergency Medicine Associates, William Blackstone, M.D., Diana Fite, M.D., and Tue Nguyen,
M.D. (filed as Exhibit 2.1 to Old STAT's Current Report on Form 8-K dated January 31,
1996)
10.20* -- Professional Services Agreement by and between the Greater Houston Division of Columbia
HCA Healthcare Corporation and STAT Physicians, P.A., dated February 1, 1996
10.21* -- Form of Affiliate and Shareholder Agreement between the registrant and the former
affiliates of AmHealth (included as Exhibit B to the Reorganization Agreement included as
Appendix 1 to the Joint Proxy Statement/Prospectus)
10.22* -- Credit Agreement dated as of August 29, 1996 among the registrant and Southwest Bank of
Texas, N.A. ("SWBT"), and The Boatmen's National Bank of St. Louis
10.23* -- Pledge and Security Agreement between the registrant and SWBT made as of August 29, 1996
10.24* -- Subrogation and Contribution Agreement, among the registrant, its subsidiaries, STAT
Physicians, P.A. and South Texas Acute Trama Physicians, P.A.
10.25* -- Amended and Restated Management Services Agreement, dated as of February 1, 1996, between
Old STAT and STAT Physicians, P.A.
10.26# -- Form of Indemnification Agreement between the registrant and each of its directors and
executive officers (filed as Exhibit 10.25 to the Form S-1)
21.1# -- List of Subsidiaries (filed as Exhibit 21.1 to the Form S-1)
23.1* -- Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit 5.1)
23.2 -- Consent of KPMG Peat Marwick LLP, independent auditors of the registrant (included on page
S-1 hereof)
23.3 -- Consent of KPMG Peat Marwick LLP, independent auditors of South Texas Acute Trauma
Physicians, P.A.
23.4 -- Consent of Long, Chilton, Payte & Hardin, LLP, independent auditors of the registrant
(included on page S-2 hereof)
24.1* -- Power-of-attorney pursuant to which amendments to this Registration Statement may be filed
99.1 -- Press Release of American Medical Response, Inc. dated October 8, 1996.
- ------------------------------
</TABLE>
* Previously filed.
# Incorporated herein by reference to the indicated filing.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in Part II of this
Registration Statement:
PAGE
SCHEDULE NO.
- ------------------------------------- ----
Independent Auditors' Report......... S-1
Independent Auditors' Report......... S-2
Schedule II - "Valuation and
Qualifying Accounts".............. S-3
All other financial statement schedules have been omitted because the
information required to be set forth therein is not required, is not applicable
or is shown in the Company's Consolidated Financial Statements or Notes thereto.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant will:
(1) File during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a twenty (20%) change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial BONA FIDE offering; and
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the Delaware General Corporation Law, the Charter or the Bylaws of
the registrant, the Underwriting Agreement, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on this 17th day of October, 1996.
STAT HEALTHCARE, INC.
By: /s/ RUSSELL D. SCHNEIDER
RUSSELL D. SCHNEIDER
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/RUSSELL D. SCHNEIDER Chairman of the Board and Chief October 17, 1996
RUSSELL D. SCHNEIDER Executive Officer (Principal
executive officer)
WILLIAM H. RICE, M.D.* Vice Chairman of the Board October 17, 1996
WILLIAM H. RICE, M.D.
VICTOR M. MIRANDA, M.D.* President -- Emergency Physicians and October 17, 1996
VICTOR M. MIRANDA, M.D. Director
/s/RUBEN A. PEREZ President -- Healthcare Management, October 17, 1996
RUBEN A. PEREZ Treasurer and Director
/s/NED E. CHAPMAN Chief Financial Officer and Secretary October 17, 1996
NED E. CHAPMAN (Principal financial and accounting
officer)
Director
ANN N. JAMES, PH.D.
Director
DAVID C. COLBY
*By: /s/NED E. CHAPMAN
NED E. CHAPMAN
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
The audits referred to in our report dated August 9, 1996, included the related
financial statement schedule as of December 31, 1995 and 1994, and for the years
then ended, included in the Registration Statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1995 and 1994 and for the years then ended. We also consent to the
references to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
October 17, 1996
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
STAT Healthcare, Inc.:
The audit referred to in our report dated August 9, 1996, included the related
financial statement schedule as of December 31, 1993, and for the year then
ended, included in the Registration Statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein on the consolidated
financial statements of STAT Healthcare, Inc. and subsidiaries as of December
31, 1993 and for the year then ended. We also consent to the references to our
firm under the heading "Experts" in the Prospectus.
LONG, CHILTON, PAYTE & HARDIN, LLP
Certified Public Accountants
McAllen, Texas
October 17, 1996
S-2
<PAGE>
STAT HEALTHCARE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS- AT END
DESCRIPTION OF YEAR EXPENSES WRITE OFFS OF YEAR
- ------------------------------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
1993:
Allowance for contractual adjustments
and doubtful accounts.............. $ -- $ 248,000 $ 150,000 $ 98,000
=========== ============== ============== ============
1994:
Allowance for contractual adjustments
and doubtful accounts.............. $ 98,000 $ 4,535,000 $ 2,151,000 $ 2,482,000
=========== ============== ============== ============
1995:
Allowance for contractual adjustments
and doubtful accounts.............. $ 2,482,000 $ 17,002,000 $ 14,664,000 $ 4,820,000
=========== ============== ============== ============
</TABLE>
S-3
EXHIBIT 2.1.2
SECOND AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS SECOND AMENDMENT (the "Amendment") is made and entered into as of the
24th day of June, 1996, by and among New STAT Healthcare, Inc. ("NEW STAT"),
STAT Healthcare, Inc. ("OLD STAT"), STAT Acquisition Corp. ("STAT ACQUISITION"),
and AmHealth Corporation, AmHealth Enterprises of the Valley, Inc. and AmHealth
Ambulatory Services, Inc. (collectively, the "AMHEALTH CORPORATIONS") and
AmHealth Kidney Centers of the Valley, Ltd., Weslaco Kidney Center, Ltd., Starr
Dialysis Center, Ltd., Mission Kidney Center, Ltd., Brownsville Kidney Center,
Ltd., AmHealth Ambulatory Healthcare, Ltd., Southwestern Infusion Healthcare,
Ltd., Brownsville Hyperbaric Healthcare, Ltd., and AmHealth Medical Management,
Ltd. (collectively, the "AMHEALTH PARTNERSHIPS").
W I T N E S S E T H:
WHEREAS, New STAT, Old STAT, STAT Acquisition and the AmHealth Entities
are parties to that certain Amended and Restated Agreement and Plan of
Reorganization (the "Agreement") dated as of March 15, 1996, as amended by the
First Amendment thereto dated June 13, 1996, respecting, among other things, the
merger of STAT Acquisition with and into Old STAT and the merger of the AmHealth
Corporations with and into New STAT; and
WHEREAS, the parties thereto desire to further revise, supplement and
amend the Agreement as provided below.
NOW, THEREFORE, the parties hereto, in consideration of certain value
received by the respective parties hereto and the mutual promises and agreements
hereinafter set forth, agree as follows:
1. DEFINITIONS. Each capitalized term that is used in this Amendment but
not otherwise defined herein shall have the meaning assigned thereto in the
Agreement.
2. AMENDMENTS TO THE AGREEMENT. The Agreement is hereby amended as
follows:
(A) Section 2.1 (a) shall be amended to read as follows:
"Each of the AmHealth Corporations shall be merged with and
into New STAT. At the Closing, the separate existence of each
of the AmHealth Corporations shall cease and New STAT shall
continue as the surviving corporation of the AmHealth Merger.
The Certificate of Incorporation and
1
<PAGE>
Bylaws of New STAT as in effect immediately prior to the
Closing shall be the Certificate of Incorporation and Bylaws
of the surviving corporation, until thereafter amended in
accordance with the DGCL, such Certificate of Incorporation
and/or Bylaws."
(B) Section 2.1(c) shall be amended to read as follows:
"STAT Acquisition shall be merged with and into Old STAT. At
the Closing, the separate corporate existence of STAT
Acquisition shall cease and Old STAT shall continue as the
surviving corporation of the Old STAT Merger. The Certificate
of Incorporation and Bylaws of Old STAT as in effect
immediately prior to the Closing shall be the Certificate of
Incorporation and Bylaws of the surviving corporation, until
thereafter amended in accordance with the DGCL, such
Certificate of Incorporation and/or Bylaws."
(C) Section 2.3 shall be amended to include the following language
as subsection (f):
"Conversion of Shares of STAT Acquisition. Each share of
common stock, par value $.01, of STAT Acquisition issued and
outstanding immediately prior to the Closing shall be
converted into one share of validly issued, fully paid and
nonassessable share of the surviving corporation in the Old
STAT Merger."
3. COUNTERPARTS. This Amendment to the Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
4. CONTINUATION OF THE AGREEMENT.Except as amended by this Amendment, all
terms and conditions of the Agreement remain in full force and effect.
2
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IN WITNESS WHEREOF, the AmHealth Corporations, the AmHealth Partnerships,
New STAT, Old STAT and STAT Acquisition have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
NEW STAT HEALTHCARE, INC. STAT HEALTHCARE, INC.
By /s/ NED E. CHAPMAN By /s/ NED E. CHAPMAN
Ned E. Chapman Ned E. Chapman
Chief Financial Officer Chief Financial Officer
STAT ACQUISITION CORP. AMHEALTH CORPORATION
By /s/ NED E. CHAPMAN By /s/ RUBEN A. PEREZ
Ned E. Chapman Ruben A. Perez
Chief Financial Officer President
AMHEALTH ENTERPRISES OF THE AMHEALTH AMBULATORY
VALLEY, INC. SERVICES, INC.
By /s/ RUBEN A. PEREZ By /s/ RUBEN A. PEREZ
Ruben A. Perez Ruben A. Perez
President President
AMHEALTH KIDNEY CENTERS WESLACO KIDNEY CENTER, LTD.
OF THE VALLEY, LTD.
By: AmHealth Enterprises of By: AmHealth Enterprises of
the Valley, Inc., the Valley, Inc.,
Its General Partner Its General Partner
By /s/ RUBEN A. PEREZ By /s/ RUBEN A. PEREZ
Ruben A. Perez Ruben A. Perez
President President
3
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STARR DIALYSIS CENTER, LTD. MISSION KIDNEY CENTER, LTD.
By: AmHealth Enterprises of By: AmHealth Enterprises of
the Valley, Inc., the Valley, Inc.,
Its General Partner Its General Partner
By /s/ RUBEN A. PEREZ By /s/ RUBEN A. PEREZ
Ruben A. Perez Ruben A. Perez
President President
BROWNSVILLE KIDNEY CENTER, LTD. AMHEALTH AMBULATORY HEALTHCARE, LTD.
By: AmHealth Enterprises of By: AmHealth Ambulatory
the Valley, Inc., Services, Inc.,
Its General Partner Its General Partner
By /s/ RUBEN A. PEREZ By /s/ RUBEN A. PEREZ
Ruben A. Perez Ruben A. Perez
President President
SOUTHWESTERN INFUSION HEALTHCARE, LTD. BROWNSVILLE HYPERBARIC
HEALTHCARE, LTD.
By: AmHealth Ambulatory By: AmHealth Ambulatory
Services, Inc., Services, Inc.,
Its General Partner Its General Partner
By /s/ RUBEN A. PEREZ By /s/ RUBEN A. PEREZ
Ruben A. Perez Ruben A. Perez
President President
AMHEALTH MEDICAL MANAGEMENT, LTD.
By: AmHealth Ambulatory
Services, Inc.,
Its General Partner
By /s/ RUBEN A. PEREZ
Ruben A. Perez
President
4
EXHIBIT 2.2
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN MEDICAL RESPONSE, INC.
SHI ACQUISITION CORP.
and
STAT HEALTHCARE, INC.
Dated as of October 7, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE MERGER....................................................... 2
SECTION 1.1 THE MERGER......................................... 2
SECTION 1.2 EFFECTIVE TIME..................................... 2
SECTION 1.3 EFFECT OF THE MERGER............................... 2
SECTION 1.4 CERTIFICATE OF INCORPORATION, BY-LAWS.............. 2
SECTION 1.5 DIRECTORS AND OFFICERS............................. 3
SECTION 1.6 EFFECT ON CAPITAL STOCK............................ 3
SECTION 1.7 EXCHANGE OF CERTIFICATES........................... 5
SECTION 1.8 STOCK TRANSFER BOOKS............................... 7
SECTION 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY
COMMON STOCK..................................... 7
SECTION 1.10 LOST, STOLEN OR DESTROYED CERTIFICATES............. 7
SECTION 1.11 TAX AND ACCOUNTING CONSEQUENCES.................... 7
SECTION 1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION......... 7
SECTION 1.13 MATERIAL ADVERSE EFFECT............................ 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 8
SECTION 2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES....... 8
SECTION 2.2 CERTIFICATE OF INCORPORATION AND BY-LAWS........... 9
SECTION 2.3 CAPITALIZATION..................................... 9
SECTION 2.4 AUTHORITY RELATIVE TO THIS AGREEMENT............... 10
SECTION 2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS......... 10
SECTION 2.6 COMPLIANCE, PERMITS................................ 12
SECTION 2.7 SEC FILINGS; FINANCIAL STATEMENTS.................. 12
SECTION 2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS............... 13
SECTION 2.9 NO UNDISCLOSED LIABILITIES......................... 13
SECTION 2.10 ABSENCE OF LITIGATION.............................. 13
SECTION 2.11 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS...... 13
SECTION 2.12 LABOR MATTERS...................................... 15
SECTION 2.13 REGISTRATION STATEMENT, PROXY
STATEMENT/PROSPECTUS............................. 15
SECTION 2.14 RESTRICTIONS ON BUSINESS ACTIVITIES................ 16
SECTION 2.15 TITLE TO PROPERTY.................................. 16
SECTION 2.16 TAXES.............................................. 17
SECTION 2.17 ENVIRONMENTAL MATTERS.............................. 18
SECTION 2.18 INTELLECTUAL PROPERTY.............................. 18
SECTION 2.19 INTERESTED PARTY TRANSACTIONS...................... 18
SECTION 2.20 INSURANCE.......................................... 19
SECTION 2.21 ACCOUNTS RECEIVABLE................................ 19
SECTION 2.22 POOLING MATTERS.................................... 19
SECTION 2.23 OPINION OF FINANCIAL ADVISOR....................... 19
SECTION 2.24 BROKERS............................................ 19
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SECTION 2.25 SECTION 203 OF THE DGCL NOT APPLICABLE............. 20
SECTION 2.26 CHANGE IN CONTROL PAYMENTS......................... 20
SECTION 2.27 EXPENSES........................................... 20
SECTION 2.28 HEALTHCARE REGULATORY COMPLIANCE................... 20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB..................................................... 21
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES....... 21
SECTION 3.2 CHARTER AND BY-LAWS................................ 21
SECTION 3.3 CAPITALIZATION..................................... 22
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT............... 22
SECTION 3.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS......... 23
SECTION 3.6 COMPLIANCE; PERMITS................................ 24
SECTION 3.7 SEC FILINGS; FINANCIAL STATEMENTS.................. 24
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS............... 25
SECTION 3.9 REGISTRATION STATEMENT; PROXY
STATEMENT/PROSPECTUS............................. 25
SECTION 3.10 POOLING MATTERS.................................... 26
SECTION 3.11 NO UNDISCLOSED LIABILITIES......................... 26
SECTION 3.12 ABSENCE OF LITIGATION.............................. 26
SECTION 3.13 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES....... 26
ARTICLE IV - CONDUCT OF BUSINESS PENDING THE MERGER.......................... 27
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY
PENDING THE MERGER............................... 27
SECTION 4.2 NO SOLICITATION.................................... 29
SECTION 4.3 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER... 30
ARTICLE V - ADDITIONAL AGREEMENTS............................................ 31
SECTION 5.1 HSR ACT............................................ 31
SECTION 5.2 PROXY STATEMENT PROSPECTUS; REGISTRATION
STATEMENT........................................ 31
SECTION 5.3 STOCKHOLDERS MEETING............................... 31
SECTION 5.4 ACCESS TO INFORMATION; CONFIDENTIALITY............. 32
SECTION 5.5 CONSENTS; APPROVALS................................ 32
SECTION 5.6 AGREEMENTS WITH RESPECT TO AFFILIATES. ........... 32
SECTION 5.7 INDEMNIFICATION AND INSURANCE...................... 33
SECTION 5.8 NOTIFICATION OF CERTAIN MATTERS.................... 34
SECTION 5.9 FURTHER ACTION/TAX TREATMENT....................... 34
SECTION 5.10 PUBLIC ANNOUNCEMENTS. ............................. 35
SECTION 5.11 CONVEYANCE TAXES................................... 35
SECTION 5.12 ACCOUNTANTS' LETTERS............................... 35
SECTION 5.13 POOLING ACCOUNTING TREATMENT....................... 35
SECTION 5.14 NASDAQ LISTING..................................... 35
SECTION 5.15 LISTING OF PARENT SHARES........................... 35
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ARTICLE VI - CONDITIONS TO THE MERGER........................................ 36
SECTION 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO
EFFECT THE MERGER................................ 36
SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF
PARENT AND MERGER SUB............................ 37
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATION
OF THE COMPANY................................... 38
ARTICLE VII - TERMINATION.................................................... 39
SECTION 7.1 TERMINATION........................................ 39
SECTION 7.2 EFFECT OF TERMINATION.............................. 41
SECTION 7.3 FEES AND EXPENSES.................................. 41
ARTICLE VIII - GENERAL PROVISIONS............................................ 42
SECTION 8.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; KNOWLEDGE, ETC. ................. 42
SECTION 8.2 NOTICES............................................ 42
SECTION 8.3 CERTAIN DEFINITIONS................................ 43
SECTION 8.4 AMENDMENT.......................................... 44
SECTION 8.5 WAIVER............................................. 44
SECTION 8.6 HEADINGS........................................... 45
SECTION 8.7 SEVERABILITY....................................... 45
SECTION 8.8 ENTIRE AGREEMENT................................... 45
SECTION 8.9 ASSIGNMENT; GUARANTEE OF MERGER SUB................ 45
SECTION 8.10 PARTIES IN INTEREST................................ 45
SECTION 8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE....................................... 45
SECTION 8.12 GOVERNING LAW...................................... 46
SECTION 8.13 COUNTERPARTS....................................... 46
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 7, 1996 (this
"Agreement"), among American Medical Response, Inc., a Delaware corporation
("Parent"), SHI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and STAT Healthcare, Inc., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"), and upon the
terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests under both generally accepted accounting
principles and regulations of the Securities and Exchange Commission (the
"SEC");
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $.01 par value (the "Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7(b)), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER.
(a) EFFECTIVE TIME. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement and the DGCL,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
(b) CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger will take place as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Ropes &
Gray, One International Place, Boston, Massachusetts, unless another date, time
or place is agreed to in writing by the parties hereto.
SECTION 1.2 EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the DGCL (the "Certificate of Merger"), together with
any required related certificates, with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL (the time of such filing being the "Effective
Time").
SECTION 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 CERTIFICATE OF INCORPORATION, BY-LAWS.
(a) CERTIFICATE OF INCORPORATION. Unless otherwise determined by Parent
prior to the Effective Time, but in all cases subject to Section 5.7(a), at the
Effective Time the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the DGCL and such Certificate of Incorporation.
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(b) BY-LAWS. Unless otherwise determined by Parent prior to the Effective
Time, but in all cases subject to Section 5.7(a), the By-Laws of the Company, as
in effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws;
PROVIDED, HOWEVER, that the Company shall take such actions as may be necessary
to ensure that, at the Effective Time, the authorized number of directors of the
Surviving Corporation shall consist of the same number of directors as the
number of directors of Merger Sub at the Effective Time.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the persons listed
on SCHEDULE 1.5 shall serve as the initial officers of the Surviving Corporation
in the capacity or capacities specified on SCHEDULE 1.5, in each case until
their respective successors are duly elected or appointed and qualified.
SECTION 1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.6(b)) shall be converted, subject to Section 1.6(f), into
the right to receive 0.25 of a share (the "Exchange Ratio") of validly issued,
fully paid and nonassessable shares ("Parent Shares") of the Common Stock, $.01
par value, of Parent ("Parent Common Stock").
(b) CANCELLATION. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) STOCK OPTIONS AND WARRANTS.
(i) At the Effective Time, (A) each outstanding option to purchase
Company Common Stock granted under the Company's 1996 Stock Incentive
Plan, (the "Company Stock Option Plan") and (B) each outstanding option to
purchase Company Common Stock described in Section 1.6(c) of the Company
Disclosure Schedule (collectively with the options described in clause (A)
("Stock Options")), whether vested or unvested, shall be deemed assumed by
Parent and deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Stock Option prior to the
Effective Time, the number (rounded to the nearest whole number) of Parent
Shares as the holder of such Stock Option would have been entitled to
receive pursuant to the Merger had
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such holder exercised such option in full immediately prior to the
Effective Time (not taking into account whether or not such option was in
fact exercisable), at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to
such Stock Option divided by (y) the number of Parent Shares deemed
purchasable pursuant to such Stock Option. It is intended that the
foregoing provisions shall be undertaken in a manner that will not
constitute a "modification" as defined in Section 425 of the Code, as to
any Stock Option which is an "incentive stock option."
(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate
notice setting forth such holder's rights pursuant thereto, and such Stock
Option shall continue in effect on the same terms and conditions
(including antidilution provisions).
(iii) Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of Parent Shares for delivery pursuant to
the terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act
of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall either (in consultation with the Company
and its advisors) (A) file a Registration Statement on Form S-8 (or any
successor form), effective as of the Effective Time, with respect to the
shares of Parent Common Stock issuable upon exercise of the Stock Options,
or (B) file any necessary amendments to the Company's previously-filed
Registration Statement(s) on Form S-8 in order that the Parent will be
deemed a "successor registrant" thereunder, and, in either event the
Parent shall use all reasonable efforts to maintain the effectiveness of
such registration statement(s) (and maintain the current status of the
prospectus or prospectuses relating thereto) for so long as such options
shall remain outstanding.
(v) At the Effective Time, each of the 599,726 Class A redeemable
common stock purchase warrant expiring April 19, 1998 (the "Class A
Warrants") to purchase one share of Company Common Stock at a purchase
price of $4.50 and each of the 62,500 warrants expiring April 19, 2000
(the "Other Warrants") to purchase two shares of Company Common Stock and
one Class A Warrant at a purchase price of $10.875 (the Class A Warrants
and the Other Warrants are hereinafter known collectively as, the
"Warrants"), shall be deemed to constitute a warrant to acquire, on the
same terms and conditions as were applicable under such Warrant prior to
the Effective Time (including anti-dilution provisions), the number
(rounded to the nearest whole number) of Parent Shares as the holder of
such Warrant would have been entitled to receive pursuant to the Merger
had such holder exercised such Warrant in full immediately prior to the
Effective Time, at a price per share equal to (x) the aggregate exercise
price for Company Common
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<PAGE>
Stock otherwise purchasable pursuant to such Warrant divided by (y) the
number of Parent Shares deemed purchasable pursuant to such Warrant.
(d) CAPITAL STOCK OF MERGER SUB. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and prior to the
Effective Time.
(f) NO FRACTIONAL SHARES. No certificates or scrip representing less than
one Parent Share shall be issued upon the surrender for exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
to a fraction of a Parent Share upon surrender of Certificates for exchange
shall be paid upon such surrender (without interest) cash equal to the product
of (i) such fraction, multiplied by (ii) the average closing price per share of
Parent Common Stock as reported in the Wall Street Journal for the twenty
trading days on the New York Stock Exchange ending on the fifth day prior to the
date on which the Effective Time occurs.
SECTION 1.7 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall supply, or shall cause to be supplied, to
or for the account of The First National Bank of Boston, or such other bank or
trust company as shall be designated by Parent (the "Exchange Agent"), in trust
for the benefit of the holders of Company Common Stock, for exchange in
accordance with this Section 1.7, through the Exchange Agent, certificates
evidencing the Parent Shares issuable pursuant to Section 1.6 in exchange for
outstanding Shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Parent Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) certificates evidencing that number
of whole Parent Shares which such
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<PAGE>
holder has the right to receive in accordance with the Exchange Ratio in respect
of the Shares formerly evidenced by such Certificate, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.7(c), and
(C) cash in respect of fractional shares as provided in Section 1.6(f) (the
Parent Shares and the cash described in clauses (B) and (C) being, collectively,
the "Merger Consideration"), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of Shares which is not
registered in the transfer records of the Company as of the Effective Time,
Parent Shares, dividends and distributions may be issued and paid in accordance
with this Article I to a transferee if the Certificate evidencing such Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer pursuant to this Section 1.7(b) and by
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends
and subject to Section 1.6(f), to evidence only the right to receive the number
of full Parent Shares into which such shares of Company Common Stock shall have
been so converted.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED PARENT SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole Parent Shares.
(d) TRANSFERS OF OWNERSHIP. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered, or
have established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) WITHHOLDING RIGHTS. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any
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<PAGE>
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
Shares in respect of which such deduction and withholding was made by Parent or
the Exchange Agent.
SECTION 1.8 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
SECTION 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Shares as
may be required pursuant to Section 1.6; PROVIDED, HOWEVER, that Parent may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
SECTION 1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment as
a pooling of interests. The parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
SECTION 1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations to take, and will take,
all such lawful and necessary action.
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SECTION 1.13 MATERIAL ADVERSE EFFECT. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as the
case may be, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (a) is or would
be materially adverse to the business, assets (including intangible assets),
prospects, financial condition or results of operations of the Company and its
subsidiaries or Parent and its subsidiaries, as the case may be, in each case
taken as a whole or (b) is or would materially delay or prevent the consummation
of the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II and discloses the exception to the representation or warranty with reasonable
particularity (the "Company Disclosure Schedule"):
SECTION 2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and Approvals would not have a Material Adverse
Effect. Each of the Company and each of its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not have a Material Adverse Effect. A
true and complete list of all of the Company's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary, the authorized capitalization
of each subsidiary, and the percentage of each subsidiary's outstanding capital
stock owned by the Company or another subsidiary, is set forth in Section 2.1 of
the Company Disclosure Schedule. Except as set forth in Section 2.1 of the
Company Disclosure Schedule, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity, with respect
to which interest the Company or any of its subsidiaries has invested or is
required to invest $50,000 or more, excluding securities in any publicly traded
company held for
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investment by the Company and comprising less than five percent of the
outstanding stock of such company.
SECTION 2.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate of
Incorporation and By-Laws as most recently restated and subsequently amended to
date, and has furnished or made available to Parent the Certificate of
Incorporation and By-Laws (or equivalent organizational documents) of each of
its subsidiaries (the "Subsidiary Documents"). Such Certificate of
Incorporation, By-Laws and Subsidiary Documents are in full force and effect.
Neither the Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or By-Laws or Subsidiary
Documents, except for immaterial violations of the Subsidiary Documents which
may exist.
SECTION 2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of (1) 40,000,000 shares of Company Common Stock and (ii) 5,000,000
shares of preferred stock, $.01 par value per share, none of which is issued and
outstanding and none of which is held in treasury. As of September 30, 1996, (i)
14,975,412 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable, and no shares were held
in treasury, (ii) no shares of Company Common Stock were held by subsidiaries of
the Company, (iii) 344,500 shares of Company Common Stock were reserved for
future issuance pursuant to outstanding stock options granted under the Company
Stock Option Plan, (iv) 10,000 shares of Company Common Stock were reserved for
future issuance pursuant to the options described in Section 1.6(c) of the
Company Disclosure Schedule, (v) 598,726 shares of Company Common Stock were
reserved for future issuance upon exercise of the Class A Warrants and (vi)
187,500 shares of Company Common Stock were reserved for future issuance upon
exercise of the Other Warrants (including the Class A Warrants underlying the
Other Warrants). No material change in such capitalization has occurred between
September 30, 1996 and the date hereof. Except as set forth in Section 2.3 or
Section 2.11 of the Company Disclosure Schedule, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, the Company
or any of its subsidiaries. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as disclosed in Section 2.3
of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a loan,
capital contribution, guaranty or otherwise) in any such subsidiary or any other
entity. Except as set forth in Sections 2.1 and 2.3 of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
subsidiary of the Company free and clear of all security
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interests, liens, claims, pledges, agreements, limitations in voting rights,
charges or other encumbrances of any nature whatsoever (collectively, "Liens").
SECTION 2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject to the required approval of its stockholders, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated (other than the adoption of
this Agreement by the holders of at least a majority of the outstanding shares
of Company Common Stock entitled to vote in accordance with the DGCL and the
Company's Certificate of Incorporation and By-Laws). The Board of Directors of
the Company has determined that it is advisable and in the best interest of the
Company's stockholders for the Company to enter into a business combination with
Parent upon the terms and subject to the conditions of this Agreement, and has
recommended that the Company's stockholders approve and adopt this Agreement and
the Merger. This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by
Parent and Merger Sub, as applicable, constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
SECTION 2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of
(i) all loan agreements, indentures, mortgages, notes, pledges, conditional sale
or title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company or any of its subsidiaries is a party or by
which any of them is bound each in an amount equal to or exceeding $50,000, but
excluding any such agreement between the Company and its wholly owned
subsidiaries or between two or more wholly owned subsidiaries of the Company;
and (ii) all contracts, agreements, commitments or other understandings or
arrangements to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets are bound or
affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company or any of its
subsidiaries of less than $50,000 in any single instance but not more than
$250,000 in the aggregate; and (iii) all agreements which, as of the date
hereof, are required to be filed as "material contracts" with the SEC pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, and the
SEC's rules and regulations thereunder (the "Exchange Act").
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) neither the Company nor any of its subsidiaries has breached, is
in default under, or has received written
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notice of any breach of or default under, any of the agreements, contracts or
other instruments referred to in clauses (i), (ii) or (iii) of Section 2.5(a),
(ii) to the best knowledge of the Company, no other party to any of the
agreements, contracts or other instruments referred to in clauses (i), (ii) or
(iii) of Section 2.5 (a) has breached or is in default of any of its obligations
thereunder, and (iii) each of the agreements, contracts and other instruments
referred to in clauses (i), (ii) or (iii) of Section 2.5(a) is in full force and
effect, except in any such case for breaches, defaults or failures to be in full
force and effect that would not have a Material Adverse Effect.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and, assuming that the conditions described in Sections 6.1(a), (b) and (c) are
satisfied, the performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby will not, (i) conflict with or violate
the Certificate of Incorporation or By-Laws of the Company, (ii) conflict with
or violate any federal, foreign, state or provincial law, rule, regulation,
order, judgment or decree (collectively, "Laws") applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default) under
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected, except in any such case for any such conflicts,
violations, breaches, defaults or other occurrences that would not have a
Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws ("Blue Sky Laws"), the pre-merger notification requirements of the
HartScott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
and the filing and recordation of appropriate merger or other documents as
required by the DGCL, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or materially delay the Company from performing its
obligations under this Agreement, or would not otherwise have a Material Adverse
Effect.
SECTION 2.6 COMPLIANCE, PERMITS.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any Law applicable to the Company or any of
its subsidiaries or by which its or any of their
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respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not have a Material Adverse Effect.
(b) The Company and its subsidiaries are in compliance with the terms of
all Approvals from governmental authorities, except where the failure to so
comply would not have a Material Adverse Effect.
SECTION 2.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed and has made available to Parent all forms,
reports and documents required to be filed by the Company with the SEC since
September 1, 1994 (collectively, the "Company SEC Reports"). Except as disclosed
in Section 2.7 of the Company Disclosure Schedule, the Company SEC Reports (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Company's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and changes in stockholders' equity for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount and the addition of footnotes.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.8 of the Company Disclosure Schedule or the Company SEC Reports filed
with the SEC prior to the date hereof, since January 1, 1996, the Company has
conducted its business in the ordinary course and there has not occurred: (a)
any Material Adverse Effect; (b) any amendments or changes in the Certificate of
Incorporation or By-laws of the Company; (c) any damage to, destruction or loss
of any asset of the Company or any of its subsidiaries (whether or not covered
by insurance) that would have a Material Adverse Effect; (d) any material change
by the Company in its accounting methods, principles or practices; (e) any
material revaluation by the Company of any of its assets, including, without
limitation, writing down the value of inventory
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or writing off notes or accounts receivable other than in the ordinary course of
business; (f) any other action or event that would have required the consent of
Parent pursuant to Section 4.1 had such action or event occurred after the date
of this Agreement; or (g) any sale of a material amount of assets of the Company
or any of its subsidiaries, except in the ordinary course of business.
SECTION 2.9 NO UNDISCLOSED LIABILITIES. Except as is disclosed in Section
2.9 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the Company's
audited balance sheet (including any related notes thereto) for the fiscal year
ended December 31, 1995 (the "1995 Company Balance Sheet") included in the
Company's S-1 Registration Statement dated August 29, 1996, (b) incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected on the 1995 Company Balance Sheet, (c) incurred since
December 31, 1995 in the ordinary course of business consistent with past
practice, (d) incurred in connection with this Agreement, or (e) which would not
have a Material Adverse Effect.
SECTION 2.10 ABSENCE OF LITIGATION. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would have a Material Adverse Effect.
SECTION 2.11 EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all material employee welfare plans
(as defined in Section 3(1) of ERISA), and all other material bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, and any material current or former employment,
executive compensation, consulting or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of or consultant to
the Company, any trade or business (whether or not incorporated) which is a
member of a controlled group including the Company or which is under common
control with the Company (an "ERISA Affiliate") within the meaning of Section
414 of the Code, or any subsidiary of the Company, as well as each plan with
respect to which the Company or an ERISA Affiliate could incur liability under
Section 4069 (if such plan has been or were terminated) or Section 4212(c) of
ERISA (all such plans, practices and programs are referred to as the "Company
Employee Plans"). There have been made available to Parent copies of (i) each
such written Company Employee Plan (other than those referred to in Section
4(b)(4) of ERISA), (ii) the most recent annual report on Form 5500 series, with
accompanying schedules and attachments, filed with respect to each Company
Employee Plan required to make such a filing,
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and (iii) the most recent actuarial valuation for each Company Employee Plan
subject to Title IV of ERISA. For purposes of this Section 2.11 (a), the term
"material," used with respect to any Company Employee Plan, shall mean that the
Company or an ERISA Affiliate has incurred or may incur obligations in an annual
amount exceeding $50,000 with respect to such Company Employee Plan.
(b) (i) Except in each case as set forth in Section 2.11(b) of the Company
Disclosure Schedule, none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, and none of the
Company Employee Plans is a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA; (ii) there has been no "prohibited transaction," as such
term is defined in Section 406 of ERISA and Section 4975 of the Code, with
respect to any Company Employee Plan, which could result in any material
liability of the Company or any of its subsidiaries; (iii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code), currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Pension Benefit
Guaranty Corporation (the "PBGC"), Internal Revenue Service (the "IRS") or
Secretary of the Treasury), and the Company and each of its subsidiaries have
performed all material obligations required to be performed by them under, are
not in any material respect in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the Company
Employee Plans; (iv) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination letter from the
IRS, and nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Company Employee
Plan pursuant to Section 412 of the Code, or the terms of the Company Employee
Plan or any collective bargaining agreement, have been made on or before their
due dates; (vi) with respect to each Company Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the 30 day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) neither the Company nor any ERISA Affiliate has
incurred, nor reasonably expects to incur, any liability under Title IV of ERISA
(other than liability for premium payments to the PBGC arising in the ordinary
course).
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds (i) any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), and the expiration date of such option; (ii) any other right,
directly or indirectly, to acquire Company Common Stock (other than the
Warrants), together with the number of shares of Company Common Stock subject to
such right. Section 2.11(c) of the Company
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Disclosure Schedule also sets forth the total number of such ISOs, such
nonqualified options and such other rights.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the Company
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $25,000; (iii) all employees of, or
consultants to, the Company or any of its subsidiaries who have executed a
non-competition agreement with the Company or any of its subsidiaries; (iv) all
severance agreements, programs and policies of the Company or any of its
subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $25,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company or any of its subsidiaries with or relating to its
employees which contain change in control provisions.
SECTION 2.12 LABOR MATTERS. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no claims or proceedings pending or,
to the knowledge of the Company or any of its subsidiaries, threatened, between
the Company or any of its subsidiaries and any of their respective employees,
asserting that the Company has committed an unfair labor practice which claims
or proceedings have or would have a Material Adverse Effect; (ii) neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or its subsidiaries, nor does the Company or any of its subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees; and (iii) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries.
SECTION 2.13 REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company for inclusion in the Registration Statement
(as defined in Section 3.9) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The information supplied by the Company
for inclusion in the proxy statement/prospectus (such proxy statement/prospectus
as amended or supplemented is referred to herein as the "Proxy
Statement/Prospectus") to be sent to the stockholders of the Company in
connection with the meeting of the stockholders of the Company to consider the
Merger (the "Stockholders Meeting"), will not, on the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances in
which they were made, not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier
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communication with respect to the solicitation of proxies for the Stockholders
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent and Merger Sub. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
SECTION 2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement or as set forth in Section 2.14 of the Company Disclosure Schedule, to
the best of the Company's knowledge, there is no agreement, judgement,
injunction, order or decree binding upon the Company or any of its subsidiaries
which has or would have the effect of prohibiting or impairing any business
practice of the Company or any of its subsidiaries, acquisition of property by
the Company or any of its subsidiaries or the conduct of business by the Company
or any of its subsidiaries as currently conducted or as proposed to be conducted
by the Company, except for any prohibition or impairment as would not have a
Material Adverse Effect.
SECTION 2.15 TITLE TO PROPERTY. Except as set forth in Section 2.15 of the
Company Disclosure Schedule, the Company and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances, except liens for taxes not yet due and
payable and such liens or other imperfections of title, which would not have a
Material Adverse Effect; and, to the knowledge of the Company, all leases
pursuant to which the Company or any of its subsidiaries lease from others
material amounts of real or personal property, are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of the Company, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect.
SECTION 2.16 TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, AD VALOREM, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign,
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state or provincial taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries have filed all Tax Returns
required to be filed by them, (ii) the Company and its subsidiaries have paid
and discharged all Taxes due in connection with or with respect to the periods
or transactions covered by such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by appropriate proceedings
(to the extent that any such proceedings are required) and with respect to which
the Company is maintaining adequate reserves, and (iii) there are no other Taxes
that would be due if asserted by a taxing authority, except with respect to
which the Company is maintaining reserves to the extent currently required
unless the failure to do so would not have a Material Adverse Effect. Except as
does not involve or would not result in liability to the Company or any of its
subsidiaries that would have a Material Adverse Effect: (i) there are no tax
liens on any assets of the Company or any subsidiary thereof; and (ii) neither
the Company nor any of its subsidiaries has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. The accruals and reserves for Taxes (including deferred taxes)
reflected in the 1995 Company Balance Sheet are in all material respects
adequate to cover all Taxes required to be accrued through the date thereof
(including interest and penalties, if any, thereon and Taxes being contested) in
accordance with generally accepted accounting principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. To the best knowledge of the Company, neither the Company nor any
of its subsidiaries owns any property of a character, the indirect transfer of
which, pursuant to this Agreement, would give rise to any material documentary,
stamp or other transfer tax.
SECTION 2.17 ENVIRONMENTAL MATTERS. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and would not have a Material Adverse Effect, the Company and each
of its subsidiaries: (i) have obtained all Approvals which are required to be
obtained under all applicable federal, state, foreign or local laws or any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder relating to pollution or protection
of the environment, including laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants or
hazardous or toxic materials or wastes by the Company or its subsidiaries or
their respective agents ("Environmental Laws"); (ii) are in compliance with all
terms and conditions of such required Approvals, and also are in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in applicable
Environmental Laws; (iii) as of the date hereof, are not aware of nor have
received
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notice of any past or present violations of Environmental Laws or any event,
condition, circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued compliance with or
which would give rise to any common law or statutory liability, or otherwise
form the basis of any claim, action, suit or proceeding, against the Company or
any of its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
SECTION 2.18 INTELLECTUAL PROPERTY.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, technology,
know-how, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material that are material to the business of the Company and its subsidiaries
as currently conducted or as proposed to be conducted by the Company or its
subsidiaries (the "Company Intellectual Property Rights").
(b) Section 2.18(b) of the Company Disclosure Schedule sets forth a
complete list of all patents, trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting.
SECTION 2.19 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
2.19 of the Company Disclosure Schedule or in the Company SEC Reports filed with
the SEC prior to the date hereof, no event has occurred that would be required
to be reported as a Certain Relationship or Related Transaction, pursuant to
Item 404 of Regulation S-K promulgated by the SEC.
SECTION 2.20 INSURANCE. Section 2.20 of the Company Disclosure Schedule
sets forth a complete list of all material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company or any of its
subsidiaries. All such policies are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of the
Company and its subsidiaries and their respective properties and assets and are
in character and amount at least equivalent to that carried by persons engaged
in similar businesses and subject to the same or similar perils or hazards,
except as would not have a Material Adverse Effect.
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SECTION 2.21 ACCOUNTS RECEIVABLE. The accounts receivable of the Company
and its subsidiaries as reflected in the most recent financial statements
contained in the Company SEC Reports, to the extent uncollected on the date
hereof and the accounts receivable reflected on the books of the Company and its
subsidiaries are valid and existing and represent monies due, and the Company
has made reserves reasonably considered adequate for receivables not collectible
in the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof, except for such refunds, adjustments,
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions as would not have a Material Adverse Effect.
SECTION 2.22 POOLING MATTERS. Neither the Company nor any of its
affiliates has, to the best of the Company's knowledge and based upon
consultation with its independent accountants, taken or agreed to take any
action that could affect the ability of Parent to account for the business
combination to be effected by the Merger as a pooling of interests. The failure
of this representation to be true and correct, shall, if the Merger is not able
to be accounted for as a pooling of interests, constitute a breach of this
Agreement by the Company for the purposes of Section 7.1(f).
SECTION 2.23 OPINION OF FINANCIAL ADVISOR. The Company has been advised by
its financial advisor, Pacific Growth Equities, Inc., that in its opinion, as of
the date hereof, the Exchange Ratio set forth herein is fair to the holders of
Shares from a financial point of view.
SECTION 2.24 BROKERS. No broker, finder or investment banker (other than
Pacific Growth Equities, Inc., the fees and expenses of whom will be paid by the
Company) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or its subsidiaries. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and Pacific Growth Equities, Inc. pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
SECTION 2.25 SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of
Directors of the Company has taken all actions so that the restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or performance
of this Agreement or the respective Stockholders Agreements dated as of the date
hereof between Parent and certain stockholders of the Company (collectively, the
"Stockholders Agreements") or the consummation of the Merger or the other
transactions contemplated by this Agreement or by the Stockholders Agreements.
SECTION 2.26 CHANGE IN CONTROL PAYMENTS. Except as set forth in Section
2.11(d) or Section 2.26 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries have any plans, programs or agreements to which they
are parties, or to which they
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are subject, pursuant to which payments may be required or acceleration of
benefits may be required upon a change of control of the Company.
SECTION 2.27 EXPENSES. The Company has provided to Parent a good faith
estimate and description of the expenses of the Company and its subsidiaries
which the Company expects to incur, or has incurred, in connection with the
transactions contemplated by this Agreement.
SECTION 2.28 HEALTHCARE REGULATORY COMPLIANCE. (a) The relationships among
the Company, its subsidiaries and third parties are in compliance with all
applicable Laws and the rules of ethical conduct of applicable medical societies
and accrediting bodies, except where the failure to be in compliance would not
have a Material Adverse Effect.
(b) To the best knowledge of the Company, the Company and its subsidiaries
have not engaged knowingly and willfully in any activities which are prohibited
under federal Medicare and Medicaid statutes, including, without limitation, 42
U.S.C. 1395 nn et seq., 42 U.S.C. ss. 1320a-7b et seq. and related state or
local statutes or regulations or which otherwise constitutes fraud or false
claims, including, without limitation, the following: (i) knowingly and
willfully making or causing to be made a false statement or representation of a
material fact in any application for any benefit or payment; (ii) knowingly and
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment; (iii)
failing to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its behalf or on behalf
of another, with intent to secure such benefit or payment fraudulently; and (iv)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such remuneration (A) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid or (B) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing or ordering any good,
facility, service or item for which payment may be made in whole or in part by
Medicare or Medicaid.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III and discloses the exception to the representation
or warranty with reasonable particularity (the "Parent Disclosure Schedule"):
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws
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of the jurisdiction of its incorporation and has the requisite corporate power
and authority and is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not have a Material Adverse Effect. Each of Parent and each of
its subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list as of the date hereof of all
of Parent's subsidiaries, together with the jurisdiction of incorporation of
each subsidiary and the percentage of each subsidiary's outstanding capital
stock owned by Parent or another subsidiary, is set forth in Section 3.1 of the
Parent Disclosure Schedule. Except as set forth in Section 3.1 of the Parent
Disclosure Schedule as of the date hereof, Parent does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity,
with respect to which Parent has invested or is required to invest $250,000 or
more, excluding securities in any publicly traded Company held for investment by
Parent and comprising less than five percent of the outstanding capital stock of
such company.
SECTION 3.2 CHARTER AND BY-LAWS. Parent has heretofore furnished to the
Company a complete and correct copy of the Certificates of Incorporation and
By-Laws, as amended to date, of each of Parent and Merger Sub. Such Certificate
of Incorporation and By-Laws are in full force and effect. Neither Parent nor
Merger Sub is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 3.3 CAPITALIZATION. As of September 30, 1996, the authorized
capital stock of Parent consisted of (i) 75,000,000 shares of Parent Common
Stock, of which 21,029,705 shares were issued and outstanding, all of which are
validly issued, fully paid and non-assessable, no shares were held in treasury,
2,579,709 shares were reserved for future issuance under Parent's stock plans
and arrangements and 3,311,258 were reserved for issuance upon exercise of
Parent's 5 1/4% Convertible Subordinated Notes due February 1, 2001 and (ii)
500,000 shares of preferred stock, $.01 par value per share, none of which was
issued and outstanding and none of which was held in treasury. No material
change in such capitalization has occurred between September 30, 1996 and the
date hereof. Except as set forth in Section 3.3 of the Parent Disclosure
Schedule, as of the date hereof there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Parent or any of its subsidiaries or obligating
Parent or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, Parent or any of its subsidiaries. Except as
set forth in Section 3.3 of the Parent Disclosure Schedule as of the date
hereof, there are no obligations, contingent or otherwise, of Parent or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of Parent
Common Stock or the capital stock of any subsidiary or to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any
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such subsidiary other than guarantees of bank obligations of subsidiaries
entered into in the ordinary course of business. Except as set forth in Section
3.1 or 3.3 of the Parent Disclosure Schedule, all of the outstanding shares of
capital stock of each of Parent's subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and all such shares are owned by Parent or
another subsidiary of Parent free and clear of all security interests, liens,
claims, pledges, agreements, limitations in Parent's voting rights, charges or
other encumbrances of any nature whatsoever.
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. The Board of Directors of Parent has determined that it is
advisable and in the best interest of Parent's stockholders for Parent to enter
into a business combination with the Company upon the terms and subject to the
conditions of this Agreement. This Agreement has been duly and validly executed
and delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Merger Sub enforceable against each of them in
accordance with its terms.
SECTION 3.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) Section 3.5(a) of the Parent Disclosure Schedule includes a list as of
the date hereof (or such other date specified in Section 3.5(a) of the Parent
Disclosure Schedule) of: (i) all loan agreements, indentures, mortgages, notes,
pledges, conditional sale or title retention agreements, security agreements,
equipment obligations, guaranties, standby letters of credit, equipment leases
or lease purchase agreements to which Parent or any of its subsidiaries is a
party or by which any of them is bound, each in an amount equal to or exceeding
$500,000, but excluding any such agreement between Parent and its wholly-owned
subsidiaries or between two or more wholly-owned subsidiaries of Parent; (ii)
all contracts, agreements, commitments or other understandings or arrangements
to which Parent or any of its subsidiaries is a party or by which any of them or
any of their respective property or assets are bound or affected, but excluding
contracts, agreements, commitments or other understandings or arrangements
entered into in the ordinary course of business and involving, in each case,
payments or receipts by Parent or any of its subsidiaries of less than
$1,000,000 in any single instance but not more than $2,000,000 in the aggregate;
and (iii) all agreements which, as of the date hereof, are required to be filed
with the SEC pursuant to the requirements of the Exchange Act as "material
contracts."
(b) Except as disclosed in Section 3.5(b) of the Parent Disclosure
Schedule, (i) neither the Parent nor any of its subsidiaries has breached, is in
default under, or has received written
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notice of any breach of or default under, any of the agreements, contracts or
other instruments referred to in clauses (i), (ii) or (iii) of Section 3.5(a),
(ii) to the best knowledge of Parent, no other party to any of the agreements,
contracts or other instrument referred to in clauses (i), (ii) or (iii) of
Section 3.5(a) has breached or is in default of any of its obligations
thereunder, and (iii) each of the agreements, contracts and other instruments
referred to in clauses (i), (ii) or (iii) of Section 3.5(a) is in full force and
effect, except in any such case for breaches, defaults or failures to be in full
force and effect that would not have a Material Adverse Effect.
(c) Except as set forth in Section 3.5(c) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and assuming that the conditions described in Sections 6.1(b) and (c)
are satisfied, the performance of this Agreement by Parent and Merger Sub will
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of
Parent or Merger Sub, (ii) conflict with or violate any Law applicable to Parent
or any of its subsidiaries or by which its or their respective properties are
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or impair Parent's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except in any such case for any such conflicts, violations, breaches,
defaults or other occurrences that would not have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, the
Blue Sky Laws, the pre-merger notification requirements of the HSR Act, and the
filing and recordation of appropriate merger or other documents as required by
the DGCL, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or materially delay Parent or Merger Sub from performing their
respective obligations under this Agreement or would not otherwise have a
Material Adverse Effect.
SECTION 3.6 COMPLIANCE; PERMITS.
(a) Except as disclosed in Section 3.6(a) of the Parent Disclosure
Schedule, neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation
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to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would not
have a Material Adverse Effect.
(b) Parent and its subsidiaries are in compliance with the terms of all
Approvals from governmental authorities, except where the failure to so comply
would not have a Material Adverse Effect.
SECTION 3.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed and has made available to the Company all forms,
reports and documents required to be filed by Parent with the SEC since January
1, 1994 (collectively, the "Parent SEC Reports"). The Parent SEC Reports (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and changes in stockholders' equity for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount and the addition of footnotes.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.8 of the Parent Disclosure Schedule or in the Parent SEC Reports filed
with the SEC prior to the date hereof, since January 1, 1996, Parent has
conducted its business in the ordinary course and there has not occurred: (i)
any Material Adverse Effect; (ii) any amendments or changes in the Certificate
of Incorporation or By-Laws of Parent; (iii) any damage to, destruction or loss
of any assets of the Parent or any of its subsidiaries (whether or not covered
by insurance) that would have a Material Adverse Effect; (iv) any material
change by Parent in its accounting methods, principles or practices; (v) any
material revaluation by Parent of any of its assets, including without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any other action
or event that would have required the consent of the Company pursuant to Section
4.3 had such action or event
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occurred after the date of this Agreement; or (vii) any sale of a material
amount of assets of Parent or any of its subsidiaries except in the ordinary
course of business.
SECTION 3.9 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "Registration Statement") pursuant to which the
Parent Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein not false or misleading. The
information supplied by Parent for inclusion in the Proxy Statement/Prospectus
will not, on the date the Proxy Statement/Prospectus is first mailed to
stockholders, at the time of the Stockholders Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or will omit to state any material fact necessary in order to
make the statements therein not false or misleading; or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event relating to Parent, Merger Sub or any of their respective affiliates,
officers or directors should be discovered by Parent or Merger Sub which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement/Prospectus, Parent or Merger Sub will promptly inform the
Company. Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents. The Registration
Statement and Proxy Statement/Prospectus shall comply in all material respects
as to form and substance with the requirements of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in, or furnished in
connection with the preparation of, the Registration Statement.
SECTION 3.10 POOLING MATTERS. Neither Parent nor any of its affiliates
has, to Parent's knowledge and based upon consultation with its independent
accountants, taken or agreed to take any action that could affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests. The failure of this representation to be true and correct,
shall, if the Merger is not able to be accounted for as a pooling of interests,
constitute a breach of the Agreement by Parent for the purposes of Section
7.1(f).
SECTION 3.11 NO UNDISCLOSED LIABILITIES. Except as is disclosed in Section
3.11 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the Parent's
audited balance sheet (including any related notes thereto) for the fiscal year
ended December 31, 1995 (the "1995 Parent Balance Sheet") included in Parent's
Annual Report on Form 10-K for the year ended December 31, 1995, (b) incurred in
the ordinary course of business
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and not required under generally accepted accounting principles to be reflected
on the 1995 Parent Balance Sheet, (c) incurred since December 31, 1995 in the
ordinary course of business consistent with past practice, (d) incurred in
connection with this Agreement, or (e) which would not have a Material Adverse
Effect.
SECTION 3.12 ABSENCE OF LITIGATION. Except as set forth in Section 3.12 of
the Parent Disclosure Schedule, there are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of the Parent, threatened against
Parent or any of its subsidiaries, or any properties or rights of the Parent or
any of its subsidiaries, before any federal, foreign, state or provincial court,
arbitrator or administrative, governmental or regulatory authority or body that
would have a Material Adverse Effect.
SECTION 3.13 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing, the
Company shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only in, and the Company and its subsidiaries shall
not take any action except in, the ordinary course of business and in a manner
consistent with prudent industry practice; and the Company shall use all
reasonable commercial efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the period from
the date of this Agreement and continuing until the earlier of the termination
of
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this Agreement or the Effective Time, directly or indirectly do, or propose to
do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws
of the Company or any of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company, any of its subsidiaries or affiliates (except for the issuance of
shares of Company Common Stock issuable (i) pursuant to Stock Options which were
granted under the Company Stock Option Plan and are outstanding on the date
hereof, (ii) pursuant to options described in Section 1.6(c) of the Company
Disclosure Schedule outstanding on the date hereof and (iii) pursuant to the
Warrants).
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, and (iii) sales of immaterial assets not in excess
of $50,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) amend the terms or change the period of exercisability
of, accelerate the vesting of, purchase, repurchase, redeem or otherwise
acquire, or permit any subsidiary to purchase, repurchase, redeem or otherwise
acquire, any of its securities or any securities of its subsidiaries, including,
without limitation, shares of Company Common Stock or any option, warrant or
right, directly or indirectly, to acquire shares of Company Common Stock, or
propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof, except that the Company may (1) acquire complementary businesses or
finance the acquisition by its affiliated physician groups of hospital medical
service contracts in an amount not to exceed $1,000,000 in any single case and
$2,750,000 in the aggregate, (2) with the prior written consent of Parent (which
consent will not be unreasonably withheld or delayed) acquire the businesses
described on Section 4.1(e) of the Company Disclosure Schedule and (3) finance
the acquisition by its affiliated physician groups of the hospital medical
service contracts described in Section 4.1(e) of the Company Disclosure Schedule
not to exceed in the aggregate the amount previously specified in writing by the
Company to Parent; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except in the ordinary
course of business
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consistent with past practice, make any loans or advances; (iii) enter into or
amend any material contract or agreement, except that the Company may amend its
existing $6,500,000 bank credit agreement to increase the amount of credit
available thereunder to up to $25,000,000; (iv) authorize any capital
expenditures or purchase of fixed assets which are, in the aggregate, in excess
of $100,000 for the Company and its subsidiaries taken as a whole (except for
purchases and leases of equipment not to exceed $1,000,000 in aggregate payments
required for the development of new hyperbaric oxygen therapy and dialysis
treatment facilities); or (v) enter into or amend any contract, agreement,
commitment or arrangement to effect any of the matters prohibited by this
Section 4.1(e);
(f) increase the compensation payable or to become payable to its officers
or employees (except for increases in compensation of employees without
employment agreements in amounts consistent with past practices), or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company or any of
its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements contained in the Company SEC Reports filed prior to the
date of this Agreement or incurred in the ordinary course of business and
consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
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SECTION 4.2 NO SOLICITATION.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or knowingly encourage the initiation of any
inquiries or proposals regarding any merger, sale of substantial assets, sale of
shares of capital stock (including without limitation by way of a tender offer)
or similar transactions involving the Company or any subsidiaries of the Company
other than the Merger (any of the foregoing inquiries or proposals being
referred to herein as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any nonpublic information to any person
relating to, any Acquisition Proposal or (iii) agree to, approve or recommend
any Acquisition Proposal. Nothing contained in this Section 4.2(a) shall prevent
the Board of Directors of the Company from considering, negotiating, approving
and recommending to the stockholders of the Company a bona fide Acquisition
Proposal not solicited in violation of this Agreement, provided the Board of
Directors of the Company determines in good faith (upon advice of independent
counsel) that it is required to do so in order to discharge properly its
fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any subsidiary by any
person or entity that informs the Board of Directors of the Company or such
subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, and shall indicate
whether the Company is providing or intends to provide the person making the
Acquisition Proposal with access to information concerning the Company as
provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of Directors
determines in good faith and upon the advice of independent counsel that it is
required to cause the Company to act as provided in this Section 4.2(c) in order
to discharge properly the directors' fiduciary duties, then, provided the person
making the Acquisition Proposal has executed a confidentiality agreement
substantially similar to the one then in effect between the Company and Parent,
the Company may provide such person with access to information regarding the
Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
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(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.2.
SECTION 4.3 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted, only
in the ordinary course of business and in a manner consistent with past
practices, other than actions taken by Parent or its subsidiaries in
contemplation of the Merger, and shall not directly or indirectly do, or propose
to do, any of the following without the prior written consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or
By-Laws;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of Parent may
declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause Parent
not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 HSR ACT. As promptly as practicable after the date of the
execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act in connection with the Merger and the
transactions contemplated hereby and to respond as promptly as practicable to
any inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters.
SECTION 5.2 PROXY STATEMENT PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement/Prospectus and the Registration Statement
of the Parent with respect to the Parent Common Stock to be issued in connection
with the Merger. As promptly as practicable after comments are received from the
SEC thereon and after the furnishing by the Company and Parent of all
information
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required to be contained therein, the Company and Parent shall file with the SEC
a combined proxy and Registration Statement on Form S-4 (or on such other form
as shall be appropriate) (the "S-4 Registration Statement") relating to the
adoption of this Agreement and approval of the transactions contemplated hereby
by the stockholders of the Company, and shall use all reasonable efforts to
cause the Registration Statement to become effective, and to mail the Proxy
Statement/Prospectus to the stockholders of the Company as soon thereafter as
practicable. The Proxy Statement/Prospectus shall include the recommendation of
the Board of Directors of the Company in favor of the Merger, subject to the
last sentence of Section 5.3.
SECTION 5.3 STOCKHOLDERS MEETING. The Company shall call and hold a
Stockholders Meeting as promptly as practicable and in accordance with
applicable laws for the purpose of voting upon the approval of the Merger, and
the Company shall use its reasonable best efforts to hold the Stockholders
Meeting as soon as practicable after the date on which the Registration
Statement becomes effective. Unless otherwise required under the applicable
fiduciary duties of the directors of the Company, as determined by such
directors in good faith after consultation with and based upon the advice of
independent counsel, the Company shall use all reasonable efforts to solicit
from its stockholders proxies in favor of adoption of this Agreement and
approval of the transactions contemplated hereby and shall take all other action
necessary or advisable to secure the vote or consent of stockholders to obtain
such approvals.
SECTION 5.4 ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to be
released), the Company and Parent shall each (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, the Company and Parent each shall (and shall cause each
of their subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as such other party may
reasonably request, and each shall make available to the other the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of the other's business, properties and personnel as either Parent or
the Company may reasonably request. Each party shall keep such information
confidential in accordance with the terms of the confidentiality letter dated
September 13, 1996 as amended as of October 1, 1996 (the "Confidentiality
Letter"), between Parent and the Company.
SECTION 5.5 CONSENTS; APPROVALS. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby,
in each case as promptly as practicable. The Company and Parent shall furnish
promptly all information
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required to be included in the Proxy Statement/Prospectus and the Registration
Statement, or for any application or other filing to be made pursuant to the
rules and regulations of any United States or foreign governmental body in
connection with the transactions contemplated by this Agreement.
SECTION 5.6 AGREEMENTS WITH RESPECT TO AFFILIATES. Each of Parent and the
Company shall deliver to the other, prior to the date the Registration Statement
becomes effective under the Securities Act, a letter (the "Affiliate Letters")
identifying all persons who are "affiliates" of the Parent or the Company,
respectively, for purposes of Rule 145 under the Securities Act ("Rule 145").
Each of Parent and the Company shall use its reasonable best efforts to cause
each person who is identified as an "affiliate" in its Affiliate Letter to
deliver, prior to the Effective Time, a written agreement (an "Affiliate
Agreement") in connection with restrictions on affiliates under Rule 145 and
pooling of interests accounting treatment, in substantially the form of Exhibit
5.6.
SECTION 5.7 INDEMNIFICATION AND INSURANCE.
(a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the Certificate of Incorporation and By-Laws of the Company,
respectively, which provisions shall not be amended, repealed or otherwise
modified for a period of five years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of the
Company, unless such modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable
law or under the Company's Certificate of Incorporation or By-Laws and
regardless of whether the Merger becomes effective, indemnify and hold harmless,
and, after the Effective Time, Parent and the Surviving Corporation shall, to
the fullest extent permitted under applicable law or under the Surviving
Corporation's Certificate of Incorporation or By-Laws, indemnify and hold
harmless, each present and former director, officer or employee of the Company
or any of its subsidiaries (collectively, the "Indemnified Parties") against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to any
acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Certificate of Incorporation or By-Laws or
any applicable contract or agreement as in effect on the date hereof, in each
case for a period of five years after the date hereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, Parent or the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received, and (iii) Parent and the Surviving
Corporation will cooperate in
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the defense of any such matter; PROVIDED, HOWEVER, that neither Parent nor the
Surviving Corporation shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld); and
PROVIDED, FURTHER, that, in the event that any claim or claims for
indemnification are asserted or made within such five-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(c) Parent and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of three years after the Effective Time, Parent shall
cause the Surviving Corporation to maintain in effect, if available, directors'
and officers' liability insurance covering those persons who are currently
covered by the Company's directors' and officers' liability insurance policy (a
copy of which has been made available to Parent) on terms comparable to those
now applicable to directors and officers of the Company; PROVIDED, HOWEVER, that
in no event shall Parent or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by the Company for such
coverage; and PROVIDED FURTHER, that if the annual premium would exceed such
amount, Parent shall cause the Surviving Corporation to obtain a policy with the
maximum coverage available at a cost not exceeding such amount.
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding, jointly and severally, on all
successors and assigns of Parent and the Surviving Corporation and shall be
enforceable by the Indemnified Parties.
SECTION 5.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to become materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and PROVIDED FURTHER that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.2(a) or 6.3(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.9 FURTHER ACTION/TAX TREATMENT. Upon the terms and subject to
the conditions hereof each of the parties hereto shall use all reasonable
efforts to take, or cause to be
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taken, all actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, to obtain in a timely manner
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and otherwise to satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. The foregoing
covenant shall not include any obligation by Parent to agree to divest, abandon,
license or take similar action with respect to any assets (tangible or
intangible) of Parent or the Company. Each of Parent, Merger Sub and the Company
shall use its best efforts to cause the Merger to qualify, and will not (both
before and after consummation of the Merger) take any actions which to its
knowledge could reasonably be expected to prevent the Merger from qualifying, as
a reorganization under the provisions of Section 368 of the Code.
SECTION 5.10 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; PROVIDED, HOWEVER, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules and
regulations of the New York Stock Exchange ("NYSE") or Nasdaq National Market
System ("Nasdaq"), if it has used all reasonable efforts to consult with the
other party prior thereto.
SECTION 5.11 CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed at or before the Effective Time.
SECTION 5.12 ACCOUNTANTS' LETTERS. Upon reasonable notice from the other,
the Company and Parent shall use their respective best efforts to cause KPMG
Peat Marwick LLP to deliver to Parent and the Company a letter, dated within 2
business days of the Effective Date of the S-4 Registration Statement covering
such matters as are requested by Parent or the Company, as the case may be, and
as are customarily addressed in accountant's "comfort" letters.
SECTION 5.13 POOLING ACCOUNTING TREATMENT. Each of Parent and the Company
agrees not to take any action that to its knowledge could reasonably be expected
to adversely affect the ability of Parent to treat the Merger as a pooling of
interests, and each of Parent and the Company agrees to take such action as may
be reasonably required to negate the impact of any past actions which to its
knowledge could reasonably be expected to adversely impact the ability of Parent
to treat the Merger as a pooling of interests. The taking by Parent or the
Company of any action prohibited by the previous sentence, or the failure of
Parent or the Company to take any action required by the previous sentence,
shall, if the Merger is not able to be accounted for as a pooling
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of interests, constitute a breach of this Agreement by Parent or the Company, as
the case may be, for the purposes of Section 7.1(f).
SECTION 5.14 NASDAQ LISTING. The Company shall use its best efforts to
continue the quotation of the Company Common Stock on the Nasdaq National Market
during the term of this Agreement.
SECTION 5.15 LISTING OF PARENT SHARES. Parent shall use its best efforts
to cause the Parent Shares to be issued in the Merger to be approved for
listing, upon official notice of issuance, on the NYSE.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and no
similar proceeding in respect of the Joint Proxy Statement/Prospectus shall have
been initiated by the SEC;
(b) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company;
(c) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal; and
(e) GOVERNMENTAL ACTIONS. There shall not have been instituted, pending or
overtly threatened any action or proceeding having a reasonable possibility of
success by any governmental authority or administrative agency before any
governmental authority,
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administrative agency or court of competent jurisdiction, nor shall there be in
effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit Parent from exercising all material rights and
privileges pertaining to its ownership of the Surviving Corporation or the
ownership or operation by Parent or any of its subsidiaries of all or a material
portion of the business or assets of Parent or any of its subsidiaries, or
seeking to compel Parent or any of its subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of Parent or any
of its subsidiaries (including the Surviving Corporation and its subsidiaries),
as a result of the Merger or the transactions contemplated by this Agreement.
SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective Time as if made at and as of such time,
except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date, subject to clause
(iii)), and (iii) where the failure to be true and correct would not have a
Material Adverse Effect, with the same force and effect as if made at and as of
the Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by the President and the Chief Financial Officer of the
Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the President and the Chief Financial Officer of the Company;
(c) CONSENTS OBTAINED. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by the Company for the due authorization, execution and
delivery of this Agreement and the consummation by it of the transactions
contemplated hereby shall have been obtained and made by the Company, except
where the failure to receive such consents, etc. would not (i) have a Material
Adverse Effect on the Company or Parent, or (ii) materially delay or prevent the
consummation of the Merger;
(d) OPINION OF COUNSEL. Parent shall have received a written opinion from
Ropes & Gray, in form and substance reasonably satisfactory to Parent, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code;
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(e) OPINION OF ACCOUNTANT. Parent shall have received an opinion (the fees
and expenses of which shall be borne by Parent) of KPMG Peat Marwick LLP,
independent certified public accountants, to the effect that the Merger
qualifies for pooling of interests accounting treatment if consummated in
accordance with this Agreement;
(f) AFFILIATE AGREEMENTS. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force and
effect.
(g) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall be in full
force and effective at and as of the Effective Time; and
(h) EMPLOYMENT AGREEMENTS. Each of Russell D. Schneider, Ruben A. Perez,
Daniel A. Perez and David Perez shall have executed and delivered to the Company
and Parent an Employment Agreement in the form of Exhibit A providing for such
salaries and severance benefits and specifying the number of Parent Shares that
will be owned by each such person, as are specified for such person in Schedule
6.2(h), and each of William H. Rice and Victor R. Miranda shall have executed
and delivered to the Company and Parent an Employment Agreement in the form of
Exhibit B providing for such salaries and severance benefits and specify the
number of Parent Shares that will be subject to options held by such person as
are specified for such person in Schedule 6.2(h), and all such Employment
Agreements shall be in full force and effect.
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct in
all respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties which
address matters only as of a particular date (which shall have been true and
correct as of such date, subject to clause (iii)), and (iii) where the failure
to be true and correct would not have a Material Adverse Effect, with the same
force and effect as if made on and as of the Effective Time, and the Company
shall have received a certificate to such effect signed by the President and the
Chief Financial Officer of Parent;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the President and the Chief Financial Officer of Parent;
(c) CONSENTS OBTAINED. All consents, waivers, approvals, permits,
licenses, authorizations or orders required to be obtained, and all filings
required to be made, by Parent
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and Merger Sub for the authorization, execution and delivery of this Agreement
and the consummation by them of the transactions contemplated hereby shall have
been obtained and made by Parent and Merger Sub, except where the failure to
receive such consents, etc. would not have a Material Adverse Effect on the
Company or Parent;
(d) TAX OPINIONS. The Company shall have received a written opinion of
KPMG Peat Marwick LLP, in form and substance reasonably satisfactory to the
Company, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code;
(e) OPINION OF ACCOUNTANT. The Company shall have received a copy of the
opinions referred to in Section 6.2(e) above;
(f) NYSE. The Parent Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for listing on the NYSE;
(g) AFFILIATE AGREEMENTS. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of Parent, an Affiliate
Agreement, and such Affiliate Agreement shall be in full force and effect; and
(h) PARENT BOARD SEAT. Parent shall have taken all actions necessary to
nominate and elect Russell D. Schneider as a member of its Board of Directors.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by March 31, 1997 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party who has not
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complied with any obligation under this Agreement and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action); or
(d) by Parent, if the requisite vote of the stockholders of the Company
shall not have been obtained by March 31, 1997; or
(e) by Parent or the Company, if: (i) the Board of Directors of the
Company shall withdraw, modify or change its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent or shall have resolved to
do so in accordance with Section 5.3 hereof; (ii) after the receipt by the
Company of an Acquisition Proposal, Parent requests in writing that the Board of
Directors of the Company reconfirm its recommendation of this Agreement and the
Merger and the Board of Directors of the Company fails to do so within 10
business days; (iii) the Board of Directors of the Company shall have
recommended to the stockholders of the Company an Alternative Transaction (as
defined below); or (iv) a tender offer or exchange offer for 25% or more of the
outstanding shares of Company Common Stock is commenced (other than by Parent or
an affiliate of Parent) and the Board of Directors of the Company recommends
that the stockholders of the Company tender their shares in such tender or
exchange offer; PROVIDED, THAT, the Company shall not be entitled to exercise
any termination rights under this Section 7.1(e) unless (x) any action of the
Board of Directors of the Company referred to in either such clause is required
to be taken by the Board of Directors in order to properly discharge its
fiduciary duties and (y) the Company has complied with its obligations in
Section 4.2; or
(f) by Parent or the Company, (i) if any representation or warranty of the
Company or Parent, respectively, set forth in this Agreement shall be untrue
when made, or (ii) upon a breach of any covenant or agreement on the part of the
Company or Parent, respectively, set forth in this Agreement and, in the case of
any such breach that is curable, if such breach shall not have been cured within
10 days after the nonbreaching party gives the breaching written notice of such
breach, in each case such that the conditions set forth in Section 6.2(a) or
6.2(b), or Section 6.3(a) or 6.3(b), as the case may be, would not be satisfied
(either (i) or (ii) above being a "Terminating Breach"), PROVIDED, THAT, if such
Terminating Breach is curable prior to March 31, 1997 by the Company or Parent,
as the case may be, through the exercise of its reasonable best efforts and for
so long as the Company or Parent, as the case may be, continues to exercise such
reasonable best efforts, neither Parent nor the Company, respectively, may
terminate this Agreement under this Section 7.1(f); or
(g) by Parent, if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 6.2(a) would not be
satisfied, or by the Company, if any representation or warranty of Parent shall
have become untrue such that the condition set forth in Section 6.3(a) would not
be satisfied, in either case other than by reason of a Terminating Breach.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party")
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acquires or would acquire more than 25% of the outstanding Shares, whether from
the Company or pursuant to a tender offer or exchange offer or otherwise, (ii) a
merger or other business combination involving the Company pursuant to which any
Third Party acquires more than 25% of the outstanding equity securities of the
Company or the entity surviving such merger or business combination, or (iii)
any other transaction pursuant to which any Third Party acquires or would
acquire control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company, and the entity surviving any merger
or business combination including any of them) of the Company or any of its
subsidiaries having a fair market value (as determined by the Board of Directors
of the Company in good faith) equal to more than 25% of the fair market value of
all the assets of the Company and its subsidiaries, taken as a whole,
immediately prior to such transaction.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof.
SECTION 7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated.
(b) The Company shall pay Parent a fee of $4,500,000 (the "Company Fee"),
plus actual, documented and reasonable out-of-pocket expenses of Parent (not to
exceed $500,000 in the aggregate) relating to the transactions contemplated by
this Agreement (including, but not limited to, fees and expenses of Parent's
counsel, accountants and financial advisers), upon the first to occur of the
following events:
(i) the termination of this Agreement by Parent pursuant to Section
7.1(d) if a proposal for an Alternative Transaction shall have been made
prior to the Stockholders Meeting; or
(ii) the termination of this Agreement by Parent or the Company
pursuant to Section 7.1(e); or
(iii) the termination of this Agreement by Parent pursuant to
Section 7.1(f) on account of a Terminating Breach by the Company.
(c) Parent shall pay the Company a fee of $4,500,000 (the "Parent Fee"),
plus actual, documented and reasonable out-of-pocket expenses of the Company
(not to exceed $500,000 in the aggregate) relating to the transactions
contemplated by this Agreement (including, but not
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limited to, fees and expenses of the Company's counsel, accountants and
financial advisers) if the Company terminates this Agreement pursuant to Section
7.1(f) on account of a Terminating Breach by Parent.
(d) The Company Fee and related expenses payable pursuant to Section
7.3(b) and the Parent Fee and related expenses payable pursuant to Section
7.3(c), as the case may be, shall be paid within one business day after the
first to occur of any of the events described in Sections 7.3(b)(i), (ii) or
(iii) or 7.3(c); PROVIDED, THAT, in no event shall the Company or Parent be
required to pay such Fee and expenses to the other if, immediately prior to the
termination of this Agreement, the party that was otherwise entitled to such Fee
was in material breach of its obligations under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS;
KNOWLEDGE, ETC.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I and Section 5.7 shall survive the Effective Time indefinitely
and those set forth in Section 7.3 shall survive such termination indefinitely.
The Confidentiality Letter shall survive termination of this Agreement as
provided therein.
(b) Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed only with respect to such section.
SECTION 8.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
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(a) If to Parent or Merger Sub:
American Medical Response, Inc.
2821 S. Parker Road, 10th Floor
Aurora, Colorado 80014
Telecopier No.: (303) 614-8549
Telephone No.: (303) 614-8500
Attention: General Counsel
With a copy to:
Ann L. Milner, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
(b) If to the Company:
12450 Greenspoint Drive, Suite 1200
Houston, Texas 77060
Attention: President
Telecopier No.: (713) 876-2999
Telephone No.: (713) 872-6900
Attention: Chairman
With a copy to:
Carmelo M. Gordian, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, TX 78701
Telecopier No.: (512) 477-5813
Telephone No.: (512) 477-5495
SECTION 8.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
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(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the first mentioned person (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 10% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "business day" means any day other than a day on which banks in the
State of Colorado and the State of Texas are required or authorized to be
closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles.
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.4 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the
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Effective Time; PROVIDED, HOWEVER, that, after approval of the Merger by the
stockholders of the Company, no amendment may be made which by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.5 WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.6 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 8.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 8.9 ASSIGNMENT; GUARANTEE OF MERGER SUB OBLIGATIONS. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Merger Sub may assign all or any of their rights hereunder to any
affiliate thereof provided that no such assignment shall relieve the assigning
party of its obligations hereunder. Parent guarantees the full and punctual
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
SECTION 8.10 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.6 (which is intended to be for the benefit of the Indemnified Parties
and may be enforced by such Indemnified Parties).
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SECTION 8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available; PROVIDED, HOWEVER, that if this Agreement shall be
terminated in accordance with Sections 7.1(d), (e) or (f) by Parent, then the
Company Fee and related expenses provided for in Section 7.3 shall be deemed
liquidated damages to Parent for the loss of its bargain hereunder, and shall be
Parent's sole and exclusive remedy in the event of termination of this Agreement
by the Parent pursuant to Sections 7.1(d), (e) or (f); and PROVIDED FURTHER,
that if this Agreement is terminated in accordance with Section 7.1(f) by the
Company, then the Parent Fee and related expenses provided for in Section 7.3
shall be deemed liquidated damages to the Company for the loss of its bargain
hereunder, and shall be the Company's sole and exclusive remedy in the event of
termination of this Agreement by the Company pursuant to Section 7.1(f).
SECTION 8.12 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
SECTION 8.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AMERICAN MEDICAL RESPONSE, INC.
By: /s/ PAUL T. SHIRLEY
Name: Paul T. Shirley
Title: President
SHI ACQUISITION CORP.
By: /s/ PAUL T. SHIRLEY
Name: Paul T. Shirley
Title: President
STAT HEALTHCARE, INC.
By: /s/ RUSSELL D. SCHNEIDER
Name: Russell D. Schneider
Title: Chief Executive Officer
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EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
South Texas Acute Trauma Physicians, P.A.:
We consent to the use of our report included herein on the financial statements
of South Texas Acute Trauma Physicians, P.A. as of August 31, 1994 and December
31, 1993, and for the eight months ended August 31, 1994 and the year ended
December 31, 1993. We also consent to the references to our firm under the
heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
October 17, 1996
EXHIBIT 99.1
AMERICAN MEDICAL RESPONSE, INC.
2821 South Parker Road
10th Floor
Aurora, CO 80014
AMERICAN MEDICAL RESPONSE SIGNS MERGER AGREEMENT WITH STAT HEALTHCARE, INC.
PROPOSED MERGER EXPANDS SCOPE OF SERVICES TO INCLUDE EMERGENCY PHYSICIAN
SERVICES AND DISEASE MANAGEMENT
AURORA, Colo., Oct 8 /PRNewswire/ -- American Medical Response, Inc.
(NYSE: EMT) and STAT Healthcare, Inc. (Nasdaq: STHC) announced today that they
have entered into a definitive merger agreement. Consummation of the merger is
subject to the approval of the stockholders of STAT and other customary
conditions. STAT stockholders representing approximately 60% of outstanding
shares have agreed to vote in favor of the merger, which is expected to close by
year end.
STAT, which is based in Houston, Texas, provides emergency physician and
disease management services. STAT provides contract management services to
affiliated physician groups that currently staff the emergency departments of 24
hospitals, primarily in southeast Texas. STAT contracts with over 200 physicians
and provides emergency services to more than 300,000 patients annually. STAT's
disease management program includes kidney dialysis, hyperbaric oxygen therapy
and home health services, primarily for diabetic patients. Combined, STAT's
services are expected to generate approximately $35 million in revenue in 1996,
an increase of 51% over 1995.
In the merger, each share of STAT common stock will be converted into 0.25
shares of common stock of American Medical Response. Based upon the agreed-upon
exchange ratio, American Medical Response will issue approximately 4 million
shares, for a transaction value of about $145 million. Outstanding warrants and
options to acquire STAT common stock will become exercisable for shares of
American Medical Response common stock in accordance with the exchange ratio for
the merger. The proposed merger is intended to be a tax-free reorganization
accounted for as a pooling-of-interests.
"The acquisition of STAT adds a range of complimentary health care
services to our core business as the nation's leading ambulance service
provider," said Paul T. Shirley, Chief Executive Officer of American Medical
Response. "This is consistent with our strategy, which began with our
development of American Medical Pathways, of transforming from an emergency and
non-emergency transportation company to a health care company providing a
broader spectrum of services. STAT's experienced management team will help us
create a broader continuum of emergency and urgent care services and enter the
disease management business. The proposed merger will allow us to grow in a
significantly larger segment of the health care market.
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The estimated markets for STAT's services are over $35 billion annually.
Russell D. Schneider, Chief Executive Officer of STAT Healthcare, Inc.,
said "We share American Medical Response's vision of creating regional networks
of high quality, cost effective emergency and urgent care services. In addition,
our fast growing disease management services will complement the growth of
American Medical Response's ambulance business. We believe that becoming part of
a larger company that has a track record of successful acquisitions and access
to capital will support the continuation of STAT's historical growth rate."
Goldman, Sachs & Co. provided an opinion to the Board of Directors of
American Medical Response as to the fairness of the exchange ratio of the merger
to the company. Pacific Growth Equities provided investment banking counsel and
a fairness opinion to STAT Healthcare.
American Medical Response is the nation's leading provider of emergency
and non-emergency ambulance services, with operations in 28 states and over
11,000 employees. Its growth strategy is to continue to acquire ambulance
providers and complimentary health care providers; improve the quality and
efficiency of existing operations; and develop new services that capitalize on
its call management and medical transport expertise.
NOTE: THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS. ACTUAL
RESULTS MAY VARY. FOR MORE INFORMATION REGARDING THE ASSUMPTIONS UPON WHICH
THESE STATEMENTS ARE MADE, AND IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY, REFER TO EXHIBIT 99 FILED WITH AMERICAN MEDICAL RESPONSE'S
1995 10-K AND TO THE RISK FACTORS IN STAT'S REGISTRATION STATEMENT ON FORM S-1.
SOURCE: American Medical Response, Inc.
-0- 10/8/96
/CONTACT: Anna Marie Dunlap, V.P., Investor Relations of American Medical
Response, 303- 614-8570; or Max Ramras, Jim Estrada, or Joe Diaz of RCG Capital
Markets Group, Inc., 602- 998-7555, for STAT Healthcare / (EMT STHC)
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